Blackrock triples annual investment in Apac real assets to US$3B
In keeping with its increased commitment, the world’s largest asset manager has beefed up its private markets talent pool in the region.
BLACKROCK has tripled its capital deployment into private assets in the Asia-pacific to around US$3 billion a year, compared to US$1 billion in 2020.
Michael Dennis, Blackrock head of alternatives strategy and capital markets (Asia-pacific), said: “To be a leading player in private markets, given our ambitions, we have to be present locally. That has been our push over the past four years… We’re really proud of the (capital) deployment. Because that reflects the change in the Asian business in the best way.”
In keeping with its increased commitment, the firm has beefed up its private markets talent pool in the region, which currently employs around 150. Of these, 30 are in Singapore working in the areas of infrastructure, real estate, private equity and private debt. Brad Kim, managing director of Blackrock Global Infrastructure Funds, is based in Singapore and heads the Apac diversified infrastructure team.
Dennis said: “We’re now up to US$3 billion a year of investments in Asia. We’ve done a number of Asia-dedicated or Asia-skewed strategies; we have some global funds that are 40 to 50 per cent invested in Apac. So we don’t treat the region as a 10 per cent allocation.” Since 2022, the firm has invested US$5.5 billion in Asia-pacific.
“With our Asia-focused strategy, we’ve had bigger deals in Southeast Asia, Korea and Australia. That has had an effect on our conversations with different clients on how they build their exposures to alternatives in different asset classes.”
Recently Blackrock backed an Asian infrastructure fund by Singapore-based private equity firm Seraya Partners. The fund raised US$800 million to invest in digital infrastructure and energy transition investments.
Blackrock is the world’s largest asset manager with a total of more than US$10 trillion under management. Alternative assets comprise some US$330 billion as at endmarch 2024.
Dennis is unfazed by the prospect of higher-for-longer interest rates. “We’ve always taken the view that there would be a couple of rate cuts this year, but we thought rates would flatten out or you could see them go back up again.”
Asset repricing in segments like real estate is creating opportunities – in Europe, for instance, in segments such as child care centres, last-mile logistics and multifamily living, he added.
“If we see the return of equity capital markets, you’re going to have more secondaries and an IPO (initial public offer) market. So, the exit dynamic for private equity will look a lot healthier. That gives us confidence in the health of private markets, in that the mechanisms to give money back to clients are coming through again.”
Interest in private market assets has surged after 2022, when the rapid rise in interest rates caused both equities and bonds to fall in tandem. As clients seek alternatives to help diversify portfolios, bankers believe private market allocations could grow substantially in Asia. Today allocations are said to be low, ranging from zero to 5 per cent.
One of the major hurdles is liquidity. Typically a fund invested in alternatives is closed-ended, where capital must be locked up until the fund matures, which may be in eight to 10 years. Increasingly, however, there are liquid alternatives which are structured like mutual funds with daily liquidity. Blackrock offers liquid alternatives as well, comprising absolute return strategies invested in public markets.
Some private market funds also offer a limited liquidity window of up to 5 per cent of net asset value quarterly, which has helped to attract private clients.
Dennis explained: “As you see growing participation by the wealth market, the ability to evolve and curate structures will be a much-bigger feature and will go hand in hand with the ability to increase allocations... Semi-liquids had a very good three to four years, where there has been good innovation.
“The next iteration is that as people evolve from a 60/40 (60 per cent equity, 40 per cent bonds) portfolio, they’d want to have 25 per cent of their long-term allocation in alternatives. The reality is that when interest rates are higher, how are investors going to get a return in the teens? If that anchor or ballast for portfolios can come from private markets, it’s an attractive opportunity.”
He expects momentum may come from clients in the underus$15 million segment of investible assets. But fund structures “have to make sense” by easing access and “not adding too much risk”.
“That’s where the evolution and innovation are happening,” Dennis added.
For product providers, disparate regulatory frameworks in Asia are another challenge. “Europe has the European Union (EU), but the Asia-pacific is 13 different markets with no single regulator. Even between private banking powerhouses in Hong Kong and Singapore, it’s still quite hard to have a common approach,” he noted.
The EU has the European Longterm Investment (ELTIF) vehicle, a fund passport regime for Europe, rolled out in 2015 to encourage investments in real assets including infrastructure and private equity. It is open to retail investors. Blackrock rolled out four new strategies last year, under the ELTIF structure.
One is the Blackrock Private Infrastructure Opportunities ELTIF, for which it raised 415 million euros (S$602 million) late last year. The fund will invest in a portfolio of global infrastructure, tapping into three trends – digitalisation, decarbonisation and decentralisation.