BY JOHN FOLEY AND ROB COX
Steve Schwarzman has one big regret. In 1994 the Blackstone boss sold a stake in some funds that later became BlackRock, the $7 trillion asset manager run by Larry Fink. Schwarzman describes the sale as “a heroic mistake.” It’s not too late to fix it.
Yet he might not be alone in coveting the investment manager. The stability of BlackRock’s earnings has won it the respect from investors that its Wall Street peers, such as Goldman Sachs, covet. It fetches 16 times the next 12 months’ forecast earnings, according to Refinitiv, compared to 9 times for the investment bank and money manager helmed by David Solomon.
Today, BlackRock serves opposite ends of the market from Blackstone and Goldman Sachs. Fink’s company houses two-thirds of its assets in exchange-traded and passively managed index funds. Blackstone’s $545 billion of private equity, real estate and other investments, managed for wealthy clients and institutions, are active. Ditto most of the $1.5 trillion Goldman oversees.
Yet all are hungrily eyeing the middle. BlackRock’s fees from easy-to-trade products are under pressure amid tough competition, so Fink is growing alternative investments like private equity. Blackstone is eyeing more retail money – so it’s perhaps no wonder Schwarzman says he often pictures the two together. As for Goldman, it’s somewhere in between but looking to grow at both ends, having entered consumer financial services with its Marcus electronic bank and Apple credit card.
Valuation has always been the obstacle, though needn’t be for much longer. Blackstone’s shares had risen around 85% in 2019 by mid-December, helped by a restructuring that let passive funds like BlackRock’s buy shares. The $63 billion buyout firm even trades at a higher multiple of 2020 earnings, after a decade of trading at a discount. Goldman is only a couple of billion dollars larger than BlackRock, which was worth $78 billion in mid-December. Mathematically, a merger of equals is doable.
Fink has little reason to contemplate such a deal for now. But at 67, and an oft-cited contender to lead the Treasury under a Democratic president, succession is a live topic. One of the candidates to replace him, Mark Wiseman, was fired in December for having a relationship with a subordinate. Fink shouldn’t be surprised to see a pitchbook with his company’s name on it do the rounds on Wall Street in the year ahead.
First published Dec. 23, 2019
IMAGE: REUTERS/Lucas Jackson