STATESIDE: A matter of priority

Last month, BlackRock, the world’s largest money manager, announced that it was creating a new real assets group, following in the footsteps of asset managers such as JP Morgan Asset Management, AXA Investment Managers – Real Assets, Deutsche Asset Wealth Management (DeAWM) and Macquarie Infrastructure and Real Assets (MIRA).

In launching the group, however, BlackRock differed from its competitors in one key respect: its choice to lead the new platform. That executive, Jim Barry, is also BlackRock’s head of infrastructure, which represents $7.5 billion of the group’s more than $29 billion in assets under management (AUM), according to its website. While sizable, it is still significantly smaller than the company’s real estate business, which currently stands at more than $20 billion and is the largest platform with its real assets group.

By contrast, what all of BlackRock’s competitors in the real assets space did in determining the group’s leadership was to select someone from the largest underlying business. “It is the easiest thing to do,” said the real assets head at one competitor. Indeed, Joe Azelby, Pierre Cherki and Pierre Vaquier, the real asset heads of JPMorgan, DeAWM and AXA IM – Real Assets, respectively, all had backgrounds in real estate, which make up the largest percentage of the AUM of those groups. And Martin Stanley, the global head of MIRA, came from the world of infrastructure, which is that group’s largest platform.

In the case of BlackRock, however, Marcus Sperber, its global head of real estate, “will also play a key leadership role in the new group,” but will report to Barry, according to an internal memo from BlackRock chief executive officer Lawrence Fink and president Rob Kapito. The rationale for the BlackRock appointment therefore is not, on the face of things, as easily understood.
The memo cited Barry as having “effectively built out our global infrastructure business,” which PERE understands is a growth area for BlackRock. Indeed, that platform has expanded significantly through recent transactions, such as the acquisition last June of Infraestructura Institutional, a Mexican infrastructure investment firm with about $1 billion of invested and committed capital.

Yet real estate still appears to be an area of robust opportunity for the asset manager as well. In a November report, the company noted that “real estate dominates the real asset allocations,” with 96 percent of survey respondents reporting some allocation to the asset class, compared with 66 percent for infrastructure. And while 49 percent of infrastructure investors expect to increase their allocations over the next 18 months, pretty much the same percentage of real estate investors – 48 percent – anticipate doing the same.

By naming Barry rather than Sperber as real assets head, BlackRock risks giving the impression that the company is making its infrastructure platform more of a priority than its real estate business. Onlookers might well ask whether Barry, as head of infrastructure, will favor his own asset class when making decisions for the overall real assets group, and consequently direct more time and resources to that business. In fact, his higher-ups may even be urging him to do so. But such a strategy shift would surely not sit well with BlackRock’s real estate team.

This is not to say that Barry will not make a successful head of real assets, but it does mean he may have to tread more carefully than executives in the same role at rival firms. As the real assets head at the BlackRock competitor noted, the person in the top spot is not expected to be an expert in all of the underlying asset classes in the group. However, that leader’s credibility will rely heavily upon his or her ability to understand fundamentally the challenges and opportunities that each of the sub-groups in his oversight are facing. This should be an especially important consideration for Barry, since real estate, which represents the majority of the real assets business, is a platform where he has less knowledge.

Barry will almost certainly be focused on continuing to expand BlackRock’s infrastructure business, but he should also make it a priority to ensure that the real assets group’s largest group continues to be valued as such, and does not get sidelined in favor of infrastructure. Otherwise, he may see the company’s real estate professionals decamp to other shops that more evidently position their real estate platforms front and center.