BlackRock could start offering indexes and exchange-traded funds (ETFs) for private markets, the asset manager said on Monday, after it announced a deal to buy data provider Preqin for nearly $3.2 billion.
The move underscores BlackRock's push to become a major player in alternative assets, which are fast becoming a bigger component of investors' portfolios.
"Risk models, indexes, they've become the language of public markets, they've built the entire ETF market, and we see all of those ... opportunities in the private markets," Blackrock's Chief Financial Officer Martin Small said in an investor call on Monday.
Bringing indexes and iShares - BlackRock's ETF arm - into the private markets will help improve the industry's transparency and attract more investments, the asset manager said.
"In the long range ... we have a great platform in iShares to be able to take some of this data, use it, and create investable indices through ... things like exchange traded products," said BlackRock's Small.
The Preqin acquisition follows a $12.5 billion deal earlier this year to buy Global Infrastructure Partners (GIP), a bet on alternative assets that will put BlackRock at the heart of investing in infrastructure projects around the globe.
Preqin will be integrated with eFront, an alternative investment management software BlackRock bought in 2019.
"Between GIP, eFront in 2019, and Preqin, that’s $17 billion BlackRock spent on private markets over the past five years and I wouldn’t say they’re done," said Kyle Sanders, senior equity research analyst at Edward Jones.
Rather than buying private asset managers outright, the Preqin deal showed a "Trojan horse approach" to grow assets, he said. "They’re buying the data and they offer the software to customers and they’re going to use that over the long term to deepen those relationships with customers and ultimately get those customers to put assets into BlackRock private market products," added Sanders.
Alternative investments encompass everything other than stocks and bonds. They mostly consist of assets that are traded privately, and not on public exchanges or stock markets.
Such investments are more appealing when public markets are volatile, but analyzing them is tougher due to limited transparency and inconsistent calculation methodologies.
Indexes offer a standard benchmark for investors to measure the performance of their portfolios, while ETFs, popular among passive investors, provide access to a bunch of diversified assets. Typically, these products have only been available for investors looking for access to stocks, bonds or commodities, though some financial firms have begun to expand the pool recently.
Preqin will be a part of BlackRock's technology services unit, which accounted for 8% of the company's total revenue in the first quarter. Although a small business, it brings in revenue that is less sensitive to market fluctuations.
"Preqin represents the building block for BlackRock to grow a private markets, data indexing product development business," said Cathy Seifert, vice president at CFRA Research. "While this deal is not needle moving in terms of revenue contribution, strategically it makes a lot of sense," she said.
BlackRock shares dipped 0.4%. The deal is expected to be modestly dilutive to its adjusted earnings per share in 2025.
