BlackRock asset management company has recently acquired an infrastructure business. The news did not surprise me. I wondered for sometime when a vigilant company like BlackRock would make such smart investment.
BlackRock acquired Global Infrastructure Partners (“GIP”), founded in 2006, to create an Infrastructure Private Markets Investment Platform. GIP is a large independent infrastructure manager with over $100 billion in Assets Under Management (AUM). GIP also enjoys a strong reputation for driving operational improvements in its portfolio companies & proprietary origination.
With such transaction, BlackRock created a multi-asset class infrastructure investing platform to raise the AUM to US$150 billion across equity, debt and solutions & strengthens deal flow and co-investment opportunities. But the buck does not stop here.
BlackRock agreed to pay $3 billion cash and approximately 12 million shares of BlackRock common stock. Such acquisition provided BlackRock an access to a market worth US$1 trillion today. The infrastructure market is one of the fastest growing segments of private markets foe several decades ahead.
A large asset management company like BlackRock normally makes the investment decision and acquisitions based on several key factors. Such as the following:
1.Diversification of Investments: Acquiring an infrastructure company allows BlackRock to diversify its investment portfolio. Infrastructure investments often have different risk and return profiles compared to other asset classes, providing a hedge against market volatility.
2.Stable and Predictable Returns: Infrastructure investments, such as those in energy, transportation, or utilities, often offer stable and predictable cash flows. This is attractive to asset managers seeking long-term, reliable returns for their clients.
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3.Global Growth Opportunities: Infrastructure investments can provide exposure to global growth trends, especially in emerging markets where there is a need for significant infrastructure development. BlackRock, as a global asset manager, may seek opportunities in regions with expanding infrastructure needs.
4.Economic and Regulatory Environment: Favorable economic conditions and regulatory environments make the infrastructure investments attractive. Governments may incentivize private sector participation in infrastructure projects through policies that support investment and development.
5.Asset Management Expertise: BlackRock, with its expertise in asset management, may see opportunities to enhance the operational performance of the acquired infrastructure assets. Such would involve improving efficiency, implementing cost-saving measures, or leveraging technology to optimize operations.
6.Long-Term Investment Horizon: Infrastructure projects often require a long-term investment horizon, aligning with the nature of many institutional investors, including pension funds and sovereign wealth funds. Therefore, BlackRock found the infrastructure investments appealing for their long-term nature.
7.Environmental, Social, and Governance (ESG) Considerations: Infrastructure investments can align with ESG principles, contributing to sustainable and socially responsible investment practices. This is increasingly important as investors, including BlackRock, focus on incorporating ESG factors into their decision-making processes.
The acquisition circ*mstances, market conditions, and the strategic objectives of the BlackRock meant that they paid US$3 billion for a US$15 Trillion global market. And that was a smart and strategic move.
