Larry Fink's Vision for Alts in Wealth Management - Spoiler from His Letter

Larry Fink, as Chairman of BlackRock, published his annual letter to shareholders containing some of his thoughts on the future. As always, it contains some interesting insights on where he thinks our industry is going, so long as you do a little digging. We would like to highlight his comments on the future of alternative investments in the retail wealth channel. Here is our skinny take:

1. Alts will become more mainstream. He predicts that the traditional 60/40 portfolio is going to morph to a 50/30/20 portfolio, with the "20" being an allocation to alternatives. He says that Blackrock has traditionally seen itself as a traditional asset manager, but they now see themselves as an alts manager as of last year. It's their new mission to try and broaden the general investment of private capital. That is a difficult flag to retreat from once planted.

   
   

2. Leading with private infrastructure? He feels a strong affinity for the opportunity in private infrastructure, which he describes as a $68 trillion demand opportunity. It's interesting that he spent most of the time talking about infrastructure as opposed to private equity, which is what most advisors think about when they think of alts. Blackrock did buy Global Infrastructure Partners (GIP), a large public infrastructure company that owns Gatwick airport, a score or so of ports, and other assets. They plan to use it as a platform to help "bridge the gap" (pun perhaps intended) between the 60/40 portfolio and their new vision of a 50/30/20 portfolio.

   
   

3. Data will be key. He mentioned their acquisition of Preqin along with the desire, necessity, and perhaps inevitability of transparent data sources in alternative markets. He points to Zillow in the housing market. He points to the usual and intuitive argument about increased transparency increasing conviction, understanding, and ultimately, adoption. However, we think his subsequent comments around indexing are really where he thinks the data fits and, in fact, where he thinks the whole thing is going.

   
   

4. Data will lead to indexing, which will lead to massive adoption. We think the real argument around data that he is making is really at the very center of where he thinks alts are going in retail: indexing. It is our belief that Blackrock wants a series of alts index products that effectively becomes the "20" in Fink's 50/30/20 portfolio. Are there problems with this? Yes. Are there solutions? Probably. Will they find the solution? I certainly would not bet against it and I think we will find out relatively soon.

These are just our opinions. Feel free to read the whole letter here.

This fits solidly into our "Interest in Alternatives" WealthTech Theme of the Decade. To read more about this theme and the others, see our piece WealthTech Themes for the Rest of the Decade.