Doubling down

Last year, BlackRock’s private equity fund of funds group completed the transformational acquisition of reinsurer Swiss Re’s Private Equity Partners, doubling AUM at a stroke to around $15 billion. PEI asked managing directors Lynn Baranski (who ran the old BlackRock team) and Nathalie von Niederhäusern (who ran the old Swiss Re team) about the rationale for the deal – and how the combined business hopes to win.

PEI: What did BlackRock like about the Swiss Re business?

LB: We’d seen many mergers and acquisitions within the fund of funds space, and I wouldn’t say BlackRock was actively pursuing any of those. The team and the platform had been growing very nicely organically, with close to $8 billion under management. But when the opportunity presented itself, it became apparent there were some very real synergies in pulling the two teams together.

This is a global market, and we need to have global solutions for our clients. At BlackRock we were just starting to build out our presence in Asia. Swiss Re already had three people on the ground in Hong Kong – so that immediately gave us a relatively large presence in the Asian market, with five professionals now in total. We [also] strengthened the platform by adding European-based senior professionals on both the investment team and on the investor relations team. 

What did the new team add in terms of fresh expertise?

LB: Infrastructure was something BlackRock had been looking at; we could see that it was becoming more important to our global clients, and we were thinking about how we might build up that capability. Swiss Re brought that expertise to the platform with two dedicated infrastructure vehicles focused on primary funds, secondaries and co-investments.

The same holds true for our secondary activities: while we were pursuing secondary transactions opportunistically, Swiss Re had a dedicated team we could leverage from day one for sourcing, analysis and execution of transactions, both buying and selling.

What was the attraction of the deal from the Swiss Re perspective?

NvN: We could see how the market was developing; you can’t just be a private equity provider. Many of our clients come to us and ask how alternatives or private market investments should fit into their overall asset allocation. So for us, to join an asset manager where you could see across the entire spectrum, and have that analytical framework – that was very important in terms of the service we offer to our clients.
Also, as regulation gets tougher, with more reporting and transparency requirements, being part of a larger platform where you have the scale to deal with this is very important too.

How will you differentiate yourselves from all the other funds of funds out there? 

LB: This is not a market any longer where you just create a product and take it out there and see who wants it. You need to work with clients to find a solution to their needs and challenges. Maybe we’ll work with them to increase their co-investment exposure. Or maybe an Asian client will want exposure to the lower mid-market in Europe, so we’ll help them fill that hole in their portfolio. It’s about providing customised solutions.
The other thing that really resonates is our ability to tap into BlackRock’s global organisation. We have over 470 portfolio managers around the world, so there’s not a market or an industry where we can’t get a very quick take. That’s a real competitive advantage for us, I think, particularly on the co-investment side.

Does this deal indicate that BlackRock wants to grow this bit of the business aggressively? 

LB: Alternatives are a very important area for BlackRock and a focus in terms of growth. But it’s not about growth for growth’s sake; it has to make sense for the platform. This just made sense strategically. ?