Secondaries’ new $6.3trn player

“Secondaries are a very smart way to deploy capital but I think they have been over-hyped.”

That’s what Nathalie von Niederhäusern, managing director in BlackRock’s Private Equity Partners unit, told sister publication Secondaries Investor in 2016. The comments reflected her firm’s then-view of the market – a place where it made more sense to sell fund stakes than buy them. Earlier that year, Jonathan Seeg, a managing director in PEP, told a panel at Private Equity International’s global investor forum that there were times to be a buyer and times to be a seller, and BlackRock had been focusing on selling.

Two years later, the world’s largest asset manager appears to have done an about-face. BlackRock has poached two Goldman Sachs Asset Management investment professionals: Steve Lessar, the investment bank’s co-head of secondaries, and Konnin Tam, who has spent almost two decades at the investment bank, most recently as a managing director in its private equity investment team. They will take up their posts in July.

BlackRock’s potential to rock the secondaries world is huge and the asset manager is successful in diving into new strategies. In 2009 it purchased Barclays’ iShares exchange-traded-funds platform for a cool $13.5 billion, turning it into what is now the largest global provider of ETFs.

Its move into private equity was swift – the firm doubled its PE assets under management overnight to around $15 billion when it acquired Swiss Re’s private equity and infrastructure fund of funds business in 2012. The reinsurer’s secondaries capability was a particularly attractive part of the business, BlackRock managing director Lynn Baranski told Private Equity International in 2013. But the firm continued to act mostly as a seller, only dabbling on the buyside when it saw an opportunity.

Now it wants to build a unit that will become “the leader in this business”, as it said in a memo to staff. Which part of the market BlackRock will play in isn’t immediately clear, but it’s likely the firm will build upon Lessar’s track record with Goldman’s Vintage fund series: think GP-led restructurings, sizeable LP portfolio deals and maybe even GP interests.

Large secondaries buyers should take note: BlackRock is likely to enter the upper end of the market and will seek at least $5 billion when it hits the fundraising trail, according to one veteran secondaries advisor. A fund of that size would place the asset manager squarely within the top 10 largest secondaries firms – only Ardian, Strategic Partners, Lexington, Goldman, Coller Capital and AlpInvest have raised larger vehicles.

Why is BlackRock getting into secondaries so late? It appears the asset manager is simply following client demand, as David Blumer, head of BlackRock Alternative Investors and Russ Steenberg, head of BlackRock Private Equity Partners, wrote in the memo this week.

“Clients increasingly are looking at secondaries as an important part of their alternative allocations and expect large and diversified alternative investment managers to offer these capabilities.

“Our plan is to place Steve and Konnin at the core of a team that will expand our existing offerings and make BAI the leader in this business – a business that leverages BlackRock’s capabilities across technology, data and portfolio analytics, and the scope and scale of our client franchise.”

It may take BlackRock at least a year, perhaps 18 months, before it is up and running and able to bid on large deals. But when it does, the market will have a behemoth of a competitor to contend with.

How big will BlackRock’s entry into the market be? Let us know: adam.l@peimedia.com or @adamtuyenle