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BlackRock CEO Larry Fink has spent years searching for the right private market partner to make his $10 trillion asset management company as strong a player in alternative investments as it is in traditional asset management. It’s here.
His invitations to private equity, private credit, and hedge funds rarely went beyond the first meal. Cultures and business models often clashed. When the Alternative Titans were intrigued by the idea of a partnership, they proved reluctant to give BlackRock the majority control they desired.
Global Infrastructure Partners was different. When Fink and GIP founder Adebayo Ogunlesi met for dinner in October at Fasano, an Italian restaurant just steps from New York’s Rockefeller Center, the menu featured a combination that could shake up the investment management industry. included a plan.
In less than 20 years, Mr. Ogunlesi has built GIP into one of the preeminent companies in the lucrative private investment industry. With just 400 employees, his infrastructure investment organization has grown to hold $106 billion in assets, including stakes in Sydney and London airports, ports, green energy and large pipelines.
Mr. Fink’s challenge was to convince Mr. Ogunlesi, who is reluctant to publicize, that his team would grow in a giant company with 20,000 employees whose every move is under scrutiny, but he did not complain about the dinner party. It was a huge success. Shortly afterward, Mr. Fink called Martin Small, BlackRock’s chief financial officer, from his cell phone.
“It felt like Breakfast with Stan O’Neal and the menu,” he said of his meeting with then-Merrill Lynch CEO and planning for BlackRock’s 2006 acquisition of Merrill’s investment management business. He mentioned the props used. It is the first large-scale transaction valued at over $9 billion.
Mr. Ogunlesi, for his part, told GIP President Raj Rao that he wanted to close the deal.
Mr. Fink and Mr. Ogunlesi, who met in the 1980s when they both worked at First Boston before it was acquired by Credit Suisse, said that in the coming years, infrastructure investment will become what Mr. Small calls “the private market.” They shared a vision of becoming “the fastest growing part of the world.”
They are also an industry that was started decades ago by a small team of mercenary traders.Private capital is at a stage of consolidation where scale, resources, and the ability to win access to the world’s largest corporations are paramount. I believed that I was on my way.
Fink told analysts on Friday that the combination would help meet growing demand for infrastructure from sovereign wealth funds and wealthy individuals. “BlackRock and GIP will be able to connect our clients to bigger and better opportunities while accelerating growth, diversifying our revenue and delivering returns for our shareholders,” he said. “I couldn’t be more excited.”
Deal negotiations began shortly after the October dinner, with BlackRock giving its target the code name “Apple” and GIP naming the larger company “Banana.”
They moved at breakneck speed, and by Thanksgiving in late November, the two leaders had reached a handshake agreement in which BlackRock would acquire all of GIP’s stock for $12.55 billion in cash and stock. In December, BlackRock’s top managers invited GIP executives to BlackRock’s Hudson Yards headquarters. The “camaraderie” made the evening gathering feel like a Thanksgiving dinner, Small said.
These companies are no strangers. BlackRock has invested in several GIP funds, and the two companies have competed for deals. As Mr. Fink built BlackRock into a traditional asset management powerhouse, Mr. Ogunlesi was promoted to head of investment banking at Credit Suisse, then at the now-defunct firm that also will join BlackRock. Together with a group of other banking alumni, he founded GIP in 2006.
The GIP acquisition immediately doubles BlackRock’s management fees from the private markets, underscoring that Fink has found the headline-grabbing deal he was looking for.
“Transformative M&A has arrived,” Jefferies analyst Dan Fannon wrote in a note. Rao told the Financial Times that the partnership will allow GIP to “put infrastructure at the top of the agenda for a broader range of global investors, while also providing a quantum leap forward in terms of a wide range of products and solutions for today’s investors.” We will be able to provide it.” ”.
Still, as a publicly traded asset manager, BlackRock had to balance the need to retain and motivate GIP’s top talent with the interests of its shareholders.
The compromise was that BlackRock would receive 100 percent of the GIP fund’s management fees and 40 percent of performance fees from all future funds. The GIP employee will retain his 100% interest in existing funds and funds being raised.
BlackRock also paid most of the $12.5 billion stock purchase price, giving GIP’s six founders 7 million shares now and another 5 million over the next five years. Six companies plan to share some of it with their employees as part of their retention packages. Collectively, the GIP team will become BlackRock’s second-largest shareholder, tying them to the new owners’ continued success.
The deal’s impact will ripple across the private capital sector, forcing other prominent independents to consider whether they need a partner or the additional financial power of a public listing.
Private equity groups such as CVC Capital Partners and General Atlantic are preparing plans to go public in what dealmakers predict will be a second wave of listings, following crisis-era listings such as Blackstone, Apollo, KKR and Carlyle. ing.
Private equity groups are slowing down in areas such as debt and infrastructure investments, which are likely to benefit from rising interest rates, as they bring in public shareholders or merge with larger organizations, and where rising funding costs are likely to benefit. We would like to expand in areas such as acquiring companies that currently exist.
Asset managers such as Franklin Templeton and T. Rowe Price are also hiring private market experts to compete with the growth of ultra-low-fee index funds.
Rapidly rising interest rates have made many investors cautious, preventing commitments to new funds and slowing the rollout of existing funds, leading independents to consider finding larger partners. A reason has arisen.
Wealth managers looking to capitalize on the anticipated flow of capital from the wealthy into private markets will not only be pouring money into technology to address the impact of advances in artificial intelligence, but also investing heavily in new products and distribution networks. You will need to do this.
The big question for BlackRock is whether the deal will finally unlock a sector in which it has long struggled to gain influence.
“Our acquisition philosophy has always been growth-oriented,” Fink told analysts. As for GIP, “I truly believe something like this will happen again,” he said.
BlackRock shareholders and the industry as a whole stand to gain billions of dollars whether he’s right or not.
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