BlackRock's Institutional Clients Moving to Private Capital

(Bloomberg) -- Almost half of BlackRock Inc.’s institutional clients plan to increase their allocation to private asset classes, said Mark Wiseman, the firm’s global head of active equities.

“This is profound,” Wiseman said Thursday at the C4K Investors Conference in Toronto. “We’ve never seen numbers like this before.” Wiseman said the firm conducted a survey of such clients, who represented $9 trillion in assets.

With public markets becoming so efficient it has become difficult to produce returns in excess of market gains, so institutional investors are looking to private markets to generate alpha, he said.

BlackRock is working to expand its range of offerings beyond indexed products, which still accounts for about two-thirds of the money manager’s assets under management. The New York-based firm, which oversees $6.9 trillion, has been trying to move into alternative investments that include private equity, hedge funds, commodities and real-estate.

The firm said last year it was seeking to raise up to $12 billion for a private equity-style vehicle called Long Term Private Capital, which takes stakes in private companies. The business gathered $2.75 billion as of April and struck its first deal in August, backing a company that manages brands including Sports Illustrated, Marilyn Monroe and Juicy Couture.

The world’s largest asset manager has faced challenges raising such a fund, Wiseman said at the Bloomberg Invest conference in June. Wiseman is chairman of the alternatives business, which managed $167 billion in assets as of Sept. 30.

Before joining BlackRock in 2016, Wiseman was chief executive of the Canada Pension Plan Investment Board. He’s one of about seven contenders widely thought to be in the running to succeed BlackRock CEO Larry Fink, who turns 67 in November.

Wiseman said that the future of the asset management industry lies in big data. BlackRock’s equity business is purchasing between 400 and 500 proprietary data sets at any one time, and the firm has tripled its data budget in the last two years, he said. It uses alternative data sources to predict metrics like sales, customer traffic and inventory.

“We at BlackRock today have better information on most companies than their CFO staff,” Wiseman said. “If you are waiting to get a company’s quarterly or annual report, and you think that’s how you’re going to make an investment, you are dead meat,” he added. “It’s priced into the market faster than you can open a PDF file, let alone print the report."

In comments on Bloomberg TV, Wiseman said:

• WeWork’s failed plans for an IPO show that you should “do your diligence and understand the quality of what you’re investing in,” though it’s hard to draw conclusions from a single company’s story.
• Companies are staying private longer because of the availability of capital outside public markets, and to avoid the costs and transparency of being a public company.

--With assistance from Erik Schatzker and Michael Bellusci.

To contact the reporters on this story: Hema Parmar in New York at hparmar6@bloomberg.net;Annie Massa in New York at amassa12@bloomberg.net

To contact the editors responsible for this story: Alan Mirabella at amirabella@bloomberg.net, Vincent Bielski

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