BlackRock Inc.’s purchase of alternative assets data provider Preqin could unlock private-market indexes and funds for the asset management firm. That would come with both opportunities and challenges for any provider, industry professionals say.
“ETFs fundamentally offer minute-by-minute liquidity for investors in terms of being able to access the exposure,” said Pat Chiefalo, head of ETFs and indexed strategies with Invesco Canada Ltd. in Toronto, speaking generally about private-market products.
“As you move away from more liquid assets, it gets harder and harder to deliver that type of liquidity and that type of exposure in an active ETF. [That’s] similar [for] alternatives, and certainly, if you go all the way to private.”
BlackRock announced its US$3.2-billion acquisition of Preqin on June 30, saying it “adds a highly complementary data business to BlackRock’s investment technology, marking a strategic expansion into the fast-growing private markets data segment.”
It comes after BlackRock purchased Global Infrastructure Partners (GIP) for US$12.5 billion earlier this year, as well as eFront, an alternative investment software provider, for US$1.3 billion in 2019 — moves that highlight the firm’s attempts to bolster its exposure to the private asset space.
BlackRock said in an investor call on Monday that it could begin offering indexes and ETFs tracking private markets.
“I know investors do look to alternatives and even privates in terms of gaining investment exposure. Delivering that in an ETF certainly presents its challenges given the expectations of liquidity that clients expect,” Chiefalo said.
BlackRock acknowledged in a presentation that there is less transparency in private-market investment performance, risk and company valuations compared to public markets, but hopes to make detailed investment data widely available to increase valuation transparency, enabling advanced analytics and improving benchmarks.
Chiefalo said he would “never discount anything that will be tried out there in market.”
“Are these solutions that are going to work? I’m sure at some point we’ll sort it out, but those represent certainly important challenges that providers need to address,” he said.
Alternative assets are expected to reach nearly US$40 trillion in assets under management by the end of the decade, according to BlackRock.
Brent Smith, chief investment officer with Kinsted Wealth in Calgary, said BlackRock has focused on the alts space over the past few years and called the firm’s purchase of Preqin “just another foray into the private markets.”
He added that the Preqin acquisition will help BlackRock provide more data about private markets to investors, especially when paired with its Aladdin investment management and risk assessment software.
But Smith also questioned how BlackRock will pull off launching ETFs for private markets.
“I’ve been thinking about how they’re going to go about creating an ETF based upon the private markets, where access to information is very, very limited,” he said.
“I just don’t know how they’re going to go about doing that.”
Smith said wealth management firms like Kinsted will be watching what BlackRock is able to accomplish, both in terms of private-market indexes and ETFs, as it will allow wealth managers to offer clients greater access to alternative investments.
“We’re always balancing how much exposure to long-term, blocked-up strategies we can invest in, versus how much could be in daily liquidity, how much should be in monthly or quarterly liquidity vehicles,” he said.
“Having a daily-traded ETF that in some form or fashion can duplicate the performance of private assets would be tremendous for a firm like ours.”
Not everyone is bullish on the acquisition.
Ratings agency Moody’s Corp. on Tuesday downgraded BlackRock’s outlook to negative from stable “due to the size and scope of two acquisitions it announced in a short span of time this year,” including GIP and Preqin.
London-based Preqin provides private-market information on 190,000 funds, 60,000 fund managers and 30,000 private-markets investors, reaching more than 200,000 users.
The transaction is expected to close before the end of the year, subject to regulatory approvals and other closing conditions.