This is an audio transcript of the Behind the Money podcast episode: ‘BlackRock goes all in on infrastructure

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Michela Tindera
The asset manager BlackRock is a massive firm. 

Brooke Masters
It’s a spider. 

Michela Tindera
That’s the FT’s US financial editor Brooke Masters. 

Brooke Masters
It does tons of public equities, tons of public debt. It has 20,000 employees. It owns sometimes 8 per cent of every American company or roughly, you know, somewhere around that. It is gigantic. 

Michela Tindera
BlackRock has $10tn in assets under management. Now, the company’s origins are in the traditional asset management space. 

Brooke Masters
The biggest part of their business is what is known as index funds. And so if you want to invest in something that tracks the S&P 500 or the FTSE 100, you can buy a BlackRock fund that does that. And they have lots and lots of them. If you want municipal bonds from Vermont, you could probably do a BlackRock fund for that. 

Michela Tindera
And that part of their business has been really successful. But more recently BlackRock’s also been trying, with only limited success, to expand into what are known as alternative assets. That’s things like private credit, private equity, hedge funds and infrastructure. 

Brooke Masters
These are the investments that make a lot of money. These are the investments that create the future billionaires of the world. 

Michela Tindera
So for years, BlackRock CEO Larry Fink has been on the hunt for the right deal to push BlackRock deeper into that private capital arena. And finally, earlier this month, Fink did just that. On January 12th, BlackRock revealed that it would be acquiring an investor in infrastructure aptly named Global Infrastructure Partners for about $12.5bn. It’s a deal that Fink has called transformational, and it’s the firm’s biggest deal in 15 years. 

Brooke Masters
BlackRock announced that what it would do is merge its existing $50bn infrastructure business into GIP’s $100bn infrastructure business, which together makes them the second-biggest private infrastructure business in the world. 

Michela Tindera
But beyond what this means for BlackRock, the FT’s US private capital correspondent Antoine Gara tells me that this deal has wide-ranging effects for the whole private capital sector in 2024. 

Antoine Gara
When the world’s largest asset manager buys one of the largest private capital players, it’s gonna make basically the heads of all the different firms on Wall Street rethink their strategy or take a second look. And so it’s really a wake-up call. It sort of sets the tone for a year where you’re gonna see a lot of surprises on who partners with who and how different corners of Wall Street start getting tied closer together. 

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Michela Tindera
I’m Michela Tindera from the Financial Times.

When BlackRock makes a deal, everyone on Wall Street pays attention. Today on Behind the Money, we’re going inside the asset manager’s recent acquisition of Global Infrastructure Partners, and we’re looking at what it means for the private capital industry this year.

Hi, Antoine, Brooke. Welcome to the show. 

Brooke Masters
Thanks for having us. 

Antoine Gara
Thank you. 

Michela Tindera
So, to kick things off, why did Larry Fink want this firm, Global Infrastructure Partners, which we can call GIP going forward? Why did he want this for BlackRock? 

Brooke Masters
So basically, Larry Fink’s been looking for something to buy in alternative assets, private equity infrastructure, private credit because he wanted to boost BlackRock’s offerings in those areas. And he had lots and lots of lunches and dinners with lots and lots of founders of various hedge funds and various private equity. 

Michela Tindera
Yeah. Like, what else were they considering? 

Brooke Masters
The BlackRock board considered, for example, whether they ought to talk to Carlyle, which is one of the very large private equity firms that has had some issues with succession and finding people to run it after its founders were starting to get old. They didn’t ever actually go that far in it, but they considered it. They also held some very early talks with another big private equity firm called Warburg Pincus. And that fell apart almost immediately because Warburg Pincus was like, we don’t want to be bought by somebody. We would be happy to have a minority investor. But BlackRock didn’t want that. 

Michela Tindera
Antoine, now tell me a bit more about Adebayo Ogunlesi, the founder of GIP. Now he’s someone that you followed on your beat for years, but I don’t think most people will have heard about him yet. 

Antoine Gara
Well, Ogunlesi has really charted maybe one of the most interesting careers in finance. So he was born in Nigeria. His father was really one of the first professors of medicine in Nigeria, and he was educated in Nigeria, then matriculated to Oxford where he was a star student and then went to the US to study at Harvard and got a joint JD-MBA at Harvard. 

Michela Tindera
Right. And he didn’t dive directly into finance from there. I read in one of your recent articles that he actually clerked for the US Supreme Court Justice Thurgood Marshall. But eventually he does end up pursuing finance. And in the 1980s, he ends up working at the same investment bank as Larry Fink. It’s called First Boston. And, they work there for a while, but then they go their separate ways and in short, Fink goes on to found BlackRock and Ogunlesi later starts GIP. So, tell me a bit more about GIP. What does it do exactly? 

Antoine Gara
Yeah. GIP manages infrastructure assets — so that means airports, pipelines, things like toll roads. And this is a sector in the private capital industry, which are sort of private investment firms that raise money from sovereign wealth funds and pensions. It’s a sector that has grown enormously over the past 20 years. And GIP is really one of the leading, if not the leading firm in that space. 

Michela Tindera
And why is that? What about its business model makes it such a growing appealing space? 

Antoine Gara
When you buy, let’s say, a pipeline, you have a really long visibility into like, your customers, you may have long-term supply arrangements with certain customers. Or in the case of an airport, you can kind of pretty accurately predict how many people are gonna go through that airport in a given year. So it’s considered much safer because there’s a tremendously greater predictability on kind of the annual earnings. And so that can be really different than private equity, where you own a business where revenues could fall 20 per cent and you could lose the investment, or you could double revenues and make 10 times your money. 

Michela Tindera
So as we mentioned, Fink spent some time, you know, roughly a couple of years looking around for the right deal for BlackRock. And ultimately he looks to his old colleague Ogunlesi. Brooke, do you know much about Fink and Ogunlesi’s relationship after they left First Boston? 

Brooke Masters
They sort of were in each other’s orbit as New York financiers for decades, and they ran across each other more and more once Ogunlesi became the founder of GIP, because GIP has funds and it needs investors, BlackRock has investors and it needs places to put money. So they would put money into GIP funds. And at the same time, they also would sometimes compete against each other to buy projects, because a BlackRock infrastructure fund would try to buy the same assets that GIP would try to buy, and so they were constantly running into each other. 

Michela Tindera
Now, back in October of last year, Fink and Ogunlesi meet for dinner in Manhattan. And essentially, this potential deal is what’s on the menu. So who’s convincing who in this situation? 

Brooke Masters
So Larry Fink’s challenge was to convince his old friend that his firm would be able to continue to be profitable and continue to maintain its culture, but benefit from being part of a bigger platform. Ogunlesi had spun out and created his own business. He’d gone from 0 to 100bn in assets, and he’s not obviously dying to have somebody else be his boss. And also his firm is very focused. I mean, it’s a small firm. It’s 400 people and it has a culture and it’s very successful. And he does one thing very well. BlackRock has $10tn in assets. 

Michela Tindera
Yeah. So then next the usual steps in a deal start to fall into place. 

Antoine Gara
On Wall Street, every deal has code names. It’s used to protect the secrecy of the deal. Sometimes they work off Shakespeare, so Romeo and Juliet or things like that. In the case of BlackRock, they came up with “Apple” for GIP. GIP reciprocated with “Banana” for BlackRock. So BlackRock was “Banana” and GIP was “Apple”. 

Michela Tindera
And finally just a few months later, the “Banana” announces that it’s gonna buy the “Apple”. 

News clip
We do have some breaking news and it’s breaking literally right now. BlackRock making the biggest changes to the firm in more than a decade. It’s acquiring global infrastructure partners in a cash and stock deal valued at about $12.5bn . . .  

Michela Tindera
And with that, Fink gets that transformational deal that he’s been hunting for.

Coming up, what this means for BlackRock, for GIP, and why my colleague Antoine thinks that this sets a new tone for Wall Street in 2024.

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Michela Tindera
So now I want to talk about what BlackRock’s GIP acquisition means for each firm. Brooke, let’s start with GIP. What’s it mean for them? 

Brooke Masters
Basically, what’s gonna happen to Ogunlesi is he’s gonna join BlackRock and he will be running the infrastructure, combined BlackRock-GIP infrastructure division, and he will sit on the board because he’s now becoming one of the big shareholders. And so, he joked about this because for the first time in 18 years he’s gonna have a boss. But when he joked about that, Larry Fink replied, well, wait, you’re gonna be sitting on the board of BlackRock, which means you’re gonna be my boss. And Ogunlesi said thus: oh, we have mutually assured destruction. 

Michela Tindera
And what about for BlackRock? 

Brooke Masters
Larry Fink has called it a transformational deal for their ambitions in what are known as alternative assets, which is private credit, private equity, infrastructure, that sort of stuff. BlackRock is the world’s biggest money manager. It is already a gorilla. But in the area of alternatives which carry higher fees, it has never quite punched its weight. This deal, I think, gives them the potential, certainly in the infrastructure part, to become the big dominant player. They are in other kinds of things like index funds. It also, I think, they are hopeful that having somebody like Ogunlesi who is a clearly talented entrepreneur who built an alternatives business, that he will be able to take that talent and build a broader alternatives business for BlackRock that really is as big as they would like. 

Michela Tindera
Now there’s another part of this too, right? Here’s a clip from Larry Fink speaking on the firm’s earnings call after the deal was announced earlier this month. 

Larry Fink voice clip
Growing public deficits, a modernising digital world, advancing energy independence and the energy transition are driving the mobilisation of private capital to fund critical infrastructure. Infrastructure investment is a fast-growing market. In a higher rate environment, the ability to drive operational enhancements will be critical to investment performance. 

Michela Tindera
So what’s Larry Fink talking about here? What does he mean when he’s referring to governments facing deficits? I mean, what does that have to do with BlackRock? 

Brooke Masters
Basically, what he is saying is that because of the energy transition and digitalisation and just growth, governments are gonna need to build a lot of infrastructure, roads, energy networks, you know, solar power, all of that stuff. And they don’t have lots of tax revenue to do it. So the way they’re going to do it is convince the private sector to build it in exchange for some of the profits, and that makes this a huge and growing area. Because of all this interest, the consultants at McKinsey predict that investment in infrastructure funds is going to more than double from $1tn today to $2.5tn in 2027. 

Michela Tindera
So, Antoine, you’ve said that this deal is big not only for BlackRock but also for the rest of Wall Street. What does this deal mean for them, or what does it tell us? 

Antoine Gara
It’s really a wake-up call to a whole host of firms, whether they want to stay, you know, independent and private, whether they want to go public, whether they need to create deeper relationships with the BlackRocks of the world or the Goldman Sachs’ of the world. 

Michela Tindera
What do you mean by that? 

Antoine Gara
In many ways, the private capital industry is coming out of the tail-end of kind of what’s been considered a golden age. Interest rates were low. Investors needed to put their money into unlisted assets to earn the returns they wanted that they couldn’t get from public markets. And that all kind of changed when interest rates went up so sharply in 2022, and it meant that the money pouring into the private markets wasn’t so abundant anymore. And so it’s really forced people to try to find deeper relationships with other institutions and realise that the next dollars coming into their firms are gonna be harder, and they may need more resources, and it might not be such a great time to go at it alone. 

Brooke Masters
There’s also an extra driving force, which is that the big private capital firms have mostly gotten their money from institutional investors. Everyone thinks that the next round of investors are going to be sort of rich individuals. And generally the traditional asset managers and the wealth management firms are the ones that have those clients. And so the alternative asset managers need to find a way to access those clients. 

Michela Tindera
So we’re already seeing some consolidations starting up. One example being the private equity firm General Atlantic, which is known for its tech investments. They recently bought an infrastructure manager too. So what else are you expecting to see in the future? 

Antoine Gara
I think the world of private equity and private infrastructure and private credit, this used to be a world that was like, exclusively to the largest investors in the world and maybe the ultra-rich. And I think this is also evidence of what’s coming in the next few years and decades, which is unlisted investments moving more and more to the mainstream of finance. So now you have a firm that was really started by just a handful of people, very under the radar and grew into a giant, and now it’s merging with a massive asset manager. And so we’ll probably see all kinds of private investment funds start coming our way in the next decades as people push these further into the mass. 

Michela Tindera
Got it. Because I guess what you’re saying is, like, theoretically, one day, 401K, my retirement plan, could then be invested in . . . 

Antoine Gara
That’s what all these CEOs of private asset firms want. You know, they eventually want to see these products as part of retirement plans. 

Michela Tindera
Brooke, thanks for being here. 

Brooke Masters
Thanks so much for having me. 

Michela Tindera
Antoine, thank you. 

Antoine Gara
Thank you for having me. 

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Michela Tindera
Behind the Money is hosted by me, Michela Tindera. Saffeya Ahmed is our producer. Topher Forhecz is our executive producer. Sound design and mixing by Sam Giovinco. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week. 

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