(Bloomberg) - BlackRock Inc. Chief Executive Officer Larry Fink pledged to open up private markets to millions of everyday investors, not just the wealthy few, contending individuals should share more of the gains from economic growth.
“Today, many countries have twin, inverted economies: one where wealth builds on wealth; another where hardship builds on hardship,” Fink said Monday in his annual letter to investors. “The divide has reshaped our politics, our policies, even our sense of what’s possible. Protectionism has returned with force.”
The world’s largest asset manager now sees part of its purpose as “unlocking private markets,” said Fink, whose firm has committed almost $30 billion in the past year to acquisitions in that area.
Capitalism has worked “for too few people” in recent years, Fink said, spreading anxiety across the economy. There’s more unease about the economy than at “any time in recent memory,” he said.
But expanding access to investments will help ease worries, according to Fink.
“Assets that will define the future — data centers, ports, power grids, the world’s fastest-growing private companies — aren’t available to most investors,” Fink said. “They’re in private markets, locked behind high walls, with gates that open only for the wealthiest or largest market participants.”
Fink has used years of letters to corporate executives and shareholders to weigh in on the market as well as hot-button social and political issues. With BlackRock managing considerable stakes in companies and bond issuers around the world, the firm’s size has given given Fink a powerful voice.
The missives have also drawn criticism over the years, particularly in 2020 when the CEO said sustainability would be the asset manager’s new standard for investing.
Identity Shift
The vision for private markets is the next step in Fink’s effort to transform BlackRock into the first firm to manage money at scale across traditional and alternative assets. BlackRock rode a decade-long boom in low-cost index funds and now sees the future in more lucrative private assets.
“We’ve been — first and foremost — a traditional asset manager,” Fink said. “That’s who we were at the start of 2024. But it’s not who we are anymore.”
Over the past 14 months, BlackRock committed $12.5 billion to buy Global Infrastructure Partners and £2.55 billion ($3.3 billion) for data firm Preqin. It’s in the process of completing a $12 billion acquisition of private credit firm HPS Investment Partners.
All told, the firm will manage about $600 billion in higher-fee alternative assets, competing directly against the likes of Blackstone Inc., Apollo Global Management Inc. and KKR & Co., which are all also increasingly campaigning to sell their investments to Main Street investors.
In his letter, Fink said the traditional 60/40 portfolio of stocks and bonds may no longer be sufficient for diversification. Instead, Fink said the new normal for portfolios may be 50/30/20, with 20% of investments being in private assets such as real estate, private credit and infrastructure. The global demand for infrastructure investment will reach $68 trillion by 2040, according to Fink.
BlackRock is planning to use its heft in markets and technology — and its new data from Preqin — to make private asset valuations less opaque to investors, enabling them to better judge performance, returns and risk. That will encourage more investment, both in ready-made model portfolios and retirement savings funds, Fink said.
The addition of private assets, such as infrastructure and private credit, to retirement funds would help increase returns over the long term and guard against downturns, he said.
Pension funds typically outperform 401(k)s by about 0.5% per year, in part, because they’ve invested in alternative assets, according to BlackRock. Over a 40-year period, Fink said, that extra annual return would produce 14.5% more money in a 401(k).
Fink said target-date funds, the default in many 401(k)s, are ideal investments to include private assets.
More comments from Fink’s letter:
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The US dollar’s status as the world’s reserve currency is “not guaranteed to last forever,” Fink said, warning that the country needs to get a handle on its debt. He raised the prospect that the dollar could lose its position to digital assets like Bitcoin.
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Wind and solar power “alone can’t reliably keep the lights on,” and Fink said there needs to be more “clear-eyed” thinking about the permitting process and energy sources, including nuclear power. “Today’s nuclear isn’t the old model of massive plants with the ominous cooling towers,” Fink said.
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The boom in artificial intelligence and data centers is pushing up demand for energy, raising the specter of an “unacceptable trade-off” of who gets the electricity: individuals needing air conditioning or heating, or computers needing power.
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“There’s a worry that AI might eliminate jobs,” Fink said. “It’s a valid concern. But in aging, wealthy societies facing inevitable labor shortages, AI may be less a threat than a lifeline.”
By Silla Brush
