Co-investments the new mainstream at BlackRock

In the world of alternative investments, there’s a lot of focus on which funds get to join the all-important ‘Billion Dollar Club’.

But fewer still can say they’re part of the Trillion Dollar Club. BlackRock tops that exclusive ten-figure list, with a staggering $4.59 trillion in assets under management as of June 30, 2014. That makes them the world’s largest investor, one of the biggest employers on the planet, and as such, an extremely well-qualified commentator on pretty much any market or asset class.

So in August in New York, we caught up with Russ Steenberg, global head of BlackRock’s Private Equity Partners, to find out what the private equity landscape looks like from this lofty perch.

Steenberg heads up BlackRock’s private equity fund of funds group, which has approximately $19 billion in assets under management, $13 billion of which is invested (there are not many places in the universe where that would look like a mere bagatelle, but BlackRock is arguably one of them.)

BlackRock Private Equity Partners, as it is called, is part of the alternatives group, which accounts for some $110 billion in assets under management within BlackRock overall. Just don’t mention the name.

“The world alternative is always something that has irritated me – alternative to what? It’s a phrase that means something other than stocks, bonds and cash, and there are a lot of things in this bucket that are very different from each other. So being lumped together with everything else kind of annoys me. We’re trying to move away from that. Alternatives are the new mainstream.”


The 65-person PEP team invests in primary partnerships across the spectrum from venture capital to buyouts. The group also manages a substantial co-investment programme (of which more later) as well as an opportunistic secondaries investment program. Capital is invested in a mix of commingled funds, co-investments, and separately managed accounts across all three business lines.

Steenberg explains that the team has adopted the phrase ‘private equity solutions’ to refer to its offering post-2008, as the fund of funds moniker has fallen out of favour. Does that mean he thinks the fund of funds model is dead, too?

“I love it when I read in publications like yours that funds of funds are dying, that our world is going away,” laughs Steenberg. “Because we’re not – like the rest of the private equity world, funds of funds are evolving and changing, and our growth over the last 3-4 years is testimony to that.”

“If you walked into the grocery store either in the US or UK 20 years ago, you would’ve seen Coke or Pepsi and two or three sub-brands. If you go to that same aisle today, you’ll find all kinds of brands underneath Coke or Pepsi.

Specialisation is something that is happening in the private equity world. As a result, core funds have become a mature area. There is still a place for them, but it is not an area that is fast-growing. Most of those organisations are taking longer to raise core funds, and are raising less.”

He believes specialism is the way forward, especially as alpha becomes harder to generate. “Specialised funds, whether that’s VC, co-investments or middle market funds, are growing – driven by separately managed accounts in those funds. Large institutions across the world look at their portfolio, and they look at the evolution of private equity, and they still see holes. They don’t have the expertise, or the reach, to go into those holes – so as a result folks decide that if they are going to do it, they have to resource it or do a co-investment. If you’re large enough, you can customise the separately managed account.”

In 2012, BlackRock acquired Swiss Re Private Equity Partners, doubling both its assets and internal resources with the stroke of a pen. Unlike some M&A deals, BlackRock says it viewed the acquisition as a pure growth play. While it was already global before, bringing on Swiss Re gave it a much bigger market share in Europe, and helped to put its London office on the map. It also super-charged Blackrock’s pre-existing Asia expansion plans, and helped it to build out its burgeoning infrastructure business.


Prior to joining BlackRock, Steenberg managed AT&T’s pension during the 1980s. There he developed a strategy and expertise in co-investments that he brought with him when he made the move to BlackRock in 1999 (after a four-year period where he co-founded and ran mid-market buyout group Fenway Partners).

By the time Steenberg left AT&T, most of that pension’s portfolio was in co-investments. He adopted a similar approach at BlackRock – and today, around 30 percent of the Private Equity Partners portfolio at BlackRock is in co-investments. “We like to think we’re a major player in co-investments,” he says. “We’ve carved out a niche for ourselves.”