Why $11 trillion in assets isn’t enough for BlackRock’s Larry Fink

Managing more assets such as private equity, private credit, real estate and infrastructure would allow BlackRock to compete with the biggest alternative asset managers. It could also make BlackRock more valuable.

Firms such as Blackstone, Apollo Global Management and KKR manage just a fraction of BlackRock’s $11.5 trillion in assets. Yet those rivals command market values that are in the ballpark of BlackRock’s, which is around $150 billion.

The reason: Private-market funds can charge more than BlackRock gets for much of its plain-vanilla, index-based funds. And the market rewards that.

Over the past one, three and five years, shares of Blackstone, Apollo and KKR have handily outperformed those of BlackRock. To change that, Fink is taking an “if you can’t beat ’em, join ’em" approach, largely through acquisitions.

The 72-year-old, who has led BlackRock since its 1988 founding, isn’t a stranger to transforming the business through deals. Building BlackRock into a formidable private-markets manager would help him solidify its status as King of Wall Street.

Demand for private investments from institutional investors like pensions and insurance companies has soared over the past decade. As its clients increase their private market allocations, BlackRock is hoping to keep more of their business.

BlackRock’s two major acquisitions this year were both aimed at boosting its private-market capabilities. It agreed to buy Preqin, which provides data on private assets, for $3.2 billion in June. And in October, BlackRock closed its $12.5 billion acquisition of Global Infrastructure Partners, an alternative asset manager focused on infrastructure that marks BlackRock’s most significant foray into private markets yet.

The GIP deal boosted BlackRock’s alternative asset tally by 35% to $450 billion. That puts it in striking distance of KKR and Apollo, but well behind market leader Blackstone at $1.1 trillion.

After BlackRock executives emphasized their embrace of private markets on October’s earnings call, analysts are speculating which firm is next on the shopping list.

“They’ve been doing some smaller strategic bolt-on acquisitions that increase their presence in private credit and alternative assets," said Cathy Seifert, an analyst at CFRA Research. “I think there’s a cohort in the investment community that would like to see them do a bigger deal—acquire a private-equity firm, that kind of thing."

Bloomberg reported in October that BlackRock is in advanced talks to buy HPS Investment Partners, a private-credit manager with roughly $100 billion in assets. Such a deal would make BlackRock one of the largest private-credit managers. Private credit, where asset managers directly lend money to companies at higher rates than are typical in the bond market, is one of the hottest investments on Wall Street.

Executives have been holding any deal plans close to the vest, but their private-market ambition is clear.

“Private markets are a strategic priority," BlackRock Chief Financial Officer Martin Small said on the earnings call.

Investors are cheering the push into alternatives, which marks BlackRock’s most pivotal strategy shift since it acquired the iShares exchange-traded fund business 15 years ago. BlackRock shares—up more than 60% over the past year—set a fresh record in October for the first time since 2021, after it reported results.

“While we still see opportunities for growth in the iShares franchise, its large sheer size could make ETF growth more challenging to sustain," said Kyle Sanders, an analyst at Edward Jones. “BlackRock could pull the trigger on more acquisitions to improve its private-market positioning compared to rivals."

Alternatives made up just 3% of BlackRock’s total assets in the third quarter, but generated 11% of total revenue, highlighting how lucrative the fees are.

Small, BlackRock’s finance chief, called out that opportunity, noting that insurance companies have $700 billion of assets with BlackRock, and flipping just 10% of that to private-credit strategies would be a huge boost to alternative assets.

Potential roadblocks to a successful private-market pivot are numerous. Asset management mergers are famously complicated and challenging. Much of the value attributed to an asset manager has to do with its relationships and investment professionals, who can easily walk out the door.

Valuations for alternative asset managers have soared, so any acquisition target is likely to come at a premium. The case for paying a high price rests on BlackRock’s ability to increase the value of a private-markets manager by integrating it with existing clients and sales channels.

BlackRock is already working to place its private-market assets with more investors, including a new model-portfolio aimed at getting private assets into the hands of individuals who use wealth advisers.

Write to Jack Pitcher at jack.pitcher@wsj.com