BlackRock to buy Swiss Re’s PE funds unit

BlackRock is set to become one of the largest private equity fund of funds managers, as the world’s largest money manager by assets looks to expand in to territory once dominated by investment banks.

The company is buying Swiss Re’s private equity fund of funds business for an undisclosed all cash fee in a move that will see assets managed by its private equity unit double to about $15bn.

It is the first significant purchase by BlackRock for its Alternative Investors unit, which was set up in 2010 to compete with the likes of Goldman Sachs and Morgan Stanley.

“A very large runway has been opened up as investment banks are made subject to new regulations and we have an opportunity to take advantage of tectonic shifts in the investment landscape,” said Matthew Botein, head of BlackRock Alternative Investors.

BlackRock’s existing private equity business invests client money in funds and co-invests with private equity on specific buyout deals. Swiss Re’s business specialises in investing in infrastructure funds. And 46 staff will join BlackRock from the Swiss reinsurer, approximately doubling the headcount of BlackRock’s private equity team.

Fund of funds businesses do not generally disclose assets under management but only Goldman Sachs and HarbourVest Partners have raised more than $15bn from investors for publicly marketed funds of funds according to data provider Preqin.

Swiss Re is the main investor in the business it is selling to BlackRock but the unit also counts leading German and Swiss pension funds and insurers among its clients according to people familiar with the business. That will give BlackRock access to large European investors as it seeks to expand its customer base.

“Looking abroad will be a major source of growth for us, and we’re looking to advance our institutional footprint in particular,” Mr Botein said.

The Alternative Investors unit represents a push by BlackRock into fields such as hedge funds, property investments and private equity at a time when regulatory reforms are changing banks’ role in those areas.

BlackRock has sought to take advantage of uncertainty at banks, recruiting the leadership team from Merrill Lynch’s private equity business last year for example.

Assets managed by the Alternative Investors unit have grown by $20bn to $110bn in the last two years, but investor appetite for alternative products has shown some signs of waning since the financial crisis. Hedge funds of funds – a key offering of BlackRock’s alternatives business – have seen assets under management fall by almost a quarter since 2008.

For Swiss Re the sale allows a move out of “non-core” investment activities.

Rolf Tanner, a spokesman for the company, said: “There are certain specialities for which we don’t have in-house knowledge, or for which we don’t want to keep in-house knowledge going forward.”

Mr Tanner said the reinsurer had been approached several times to sell the private equity fund of funds business since 2009, but had not considered a sale until BlackRock made an offer.

BlackRock manages several other Swiss Re external investments and Swiss Re will continue to invest through the fund of funds business once it moves to BlackRock, according to Mr Tanner. The sale is expected to be completed within three months.

By Ajay Makan in New York for FT
http://www.ft.com/cms/s/0/1f417744-c48c-11e1-a98c-00144feabdc0.html#axzz1zYk3uc82