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BlackRock has bought a bonanza of billionaires. Now comes the challenge of keeping them in line.
The world’s largest asset manager has been on a $28bn acquisition tear, snapping up two of the best known firms that specialise in the complex and rapidly growing fields of infrastructure, private credit and other alternative assets. To gain a stronger foothold, the $11.5tn money manager has opted to pay dearly for outside talent and take steps to ensure that it sticks around long enough to make a difference.
Last week’s $12bn-plus deal for private credit specialist HPS will make billionaires of Scott Kapnick and the other two founders, but they will be paid out over a five-year period and the final total is contingent on the deal meeting performance targets.
Similarly, BlackRock’s $12.5bn purchase of Global Infrastructure Partners earlier this year has collectively made five GIP founders the second largest BlackRock shareholder, and it too has a five-year payout. The £2.55bn deal for private markets data provider Preqin is an all-cash transaction so it places fewer constraints on founder Mark O’Hare, but he had already stepped down as CEO in 2022.
With nine new billionaires due to come on the payroll, BlackRock founder Larry Fink is moving quickly to put them to work. The top two GIP executives have already joined BlackRock’s global executive committee and the three HPS founders will follow suit. GIP chair Adebayo Ogunlesi also sits on the BlackRock board of directors, while Kapnick will become an observer.
In theory, that all makes good sense. While BlackRock has built a commanding position in traditional asset management and associated technology, its private markets business has historically punched below its weight.
Ogunlesi and Kapnick are towering Wall Street figures, with entrepreneurial chops in precisely the areas where the larger firm wants to grow. Each has staked his personal wealth and substantial reputation on becoming part of what Fink likes to refer to as “One BlackRock”, with all the cross-selling and joint product development that implies.
In practice, management meetings with that many newly minted billionaires in the room are going to be something to behold. These are men accustomed to running their own shows. Now they must deal with one another, the other BlackRock executives and the constraints of being part of a 20,000-employee public company.
Fink, of course, is more than qualified to play ringmaster to his newly recruited private capital lions. They may have created highly profitable boutiques, but he has built a global juggernaut and run it for more than 35 years. He also has experience with integrating multiple bet-the-farm acquisitions, including the 2006 deal for Merrill Lynch’s asset management arm and the 2009 purchase of Barclays Global Investors.
That invites the question of what happens after Fink, who recently turned 72, steps back. Before the HPS deal, he had been walking a fine line between saying he still loved his job while also assuring investors that he had “no higher priority” than ensuring a smooth succession. Last January, the company granted chunky stock option packages to three men it described as “senior leaders who we believe will play critical roles in BlackRock’s future”. Rob Goldstein, Martin Small and Mark Wiedman are longtime BlackRock managers, rather than entrepreneurs like the new arrivals.
“Buying an entrepreneurial business is very risky because entrepreneurs drive it in a particular way and managers don’t . . . They don’t fit together particularly well,” says Charles Elson, a corporate governance expert.
BlackRock could tap one of the HPS or GIP leaders to replace Fink, but each firm is so highly specialised that BlackRock watchers find it hard to imagine the leader of one or the other at the top of the gigantic financial supermarket that the company has become.
Fink currently shows no sign of slowing down. He has been on the road all year visiting clients and political leaders, including recent high profile stops in Saudi Arabia and the UK. He also sounded energised on last week’s investor call about the challenges of integration and the prospects of combining HPS with BlackRock’s offerings.
Still, investors and BlackRock’s board cannot afford to be complacent. The company is due to appoint a new lead independent director in 2025. That person should take a fresh look at transition planning and consider whether the pool of possible candidates is large and deep enough. The bigger Fink’s shoes grow, the harder they will be to fill.