Innovation will be necessary to offset inflationary pressures as interest rates remain low for the foreseeable future, chief executive Lawrence Fink proclaimed on BlackRock‘s Q3 earnings call Wednesday.
Inflationary trends appear “more than transitory”, Fink cautioned, reflecting structural changes in the economy. These changes include a shift from consumerism to job creation, rising wage growth and the energy transition.
“Society needs to rapidly invest in innovations to offset inflationary pressures associated with the transition to a net-zero economy,” said Fink, echoing comments he made to the G20 in July.
Against this backdrop, Fink is seeing an increase in allocations to private markets from clients. In total, BlackRock raised approximately $5 billion dollars of illiquid alternative contributed and committed capital during the third quarter.
The alternatives franchise is currently armed with $29 billion in dry powder, according to president Robert Kapito. The firm manages $180 billion across liquid and illiquid alternatives.
The firm raised $100 billion of gross capital over the past five years and expects to raise an additional $100 billion in the next three years, Kapito said.
In September alone, BlackRock raised $25 billion of gross capital and deployed $10 billion, he added, because of the expectations that rates will rise. However, Kapito still concurs with Fink, that globally, economies are poised for a “lower for longer” rate environment.
Limited partners, for their part, are keen to continue allocating to alternatives, according to a recent survey by placement agent Eaton Partners.
Sixty-five percent of investors will increase their allocation to the asset class in the fourth quarter, with 42 percent looking to do the same in growth equity. Some 44 percent said they will increase their allocation to VC over the same period.
Macroeconomic factors could impact these plans, however. Fifty-eight percent of respondents said their investment allocations would be affected by the US Federal Reserve hiking interest rates or starting to taper the US economic stimulus programme.
Eaton’s findings chime with those from a recent survey conducted by Private Equity International, which found that the potential for interest rate hikes was viewed as the third-greatest threat to PE returns. You can read our results in full here.
Don’t forget retail
Continuing to access the retail opportunity within alternatives remains a compelling area of growth for the firm. Bringing a diversified product line-up to the retail alternative investor is key, says Kapito.
In recent years, BlackRock has expanded its retail offerings to include private equity, private credit, and pre-IPO access to growth equity. The firm is working now to expand its offerings to real assets, co-investments and sustainable opportunities.
Year-to-date, BlackRock has raised $24 billion of inflows across its liquid alternatives, which includes private equity, credit, and public and private closed-end fund products.
At a period when rates and returns are very low, BlackRock has seen allocations from retail clients go from 1 to 2 percent to up to 20 percent in some cases.