Earlier this week, BlackRock (NYSE:BLK) announced its decision to acquire Swiss Re Private Equity Partners – a deal that will make the world’s largest asset manager one of the largest private equity fund of funds manager once it is completed.  The all-cash deal will add nearly $7.5 billion in commitments to BlackRock’s Alternative Investors unit, doubling the business which was setup in 2010 to compete with the likes of Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS). 
We maintain a $217 price estimate for BlackRock, which is nearly 25% above its current market price – something we attribute to the pessimism prevalent in the stock market toward stocks of financial firms.
Swiss Re Private Equity Partners (SRPEP) is a Switzerland-based European private equity and infrastructure fund of funds franchise. The parent company, Swiss Re, accounts for a significant portion of the $7.5 billion commitment that the fund manager garnered till the end of May 2012. As part of the deal, BlackRock has ensured that all the commitments, including that by the parent firm, are transferred to BlackRock Private Equity Partners.
BlackRock outlines several advantages of the deal to its business. The acquisition adds SRPEP’s expertise in infrastructure investment to BlackRock, besides expanding the latter’s presence in Europe and Asia. Also, the deal opens up alternative investment avenues that can yield higher returns for BlackRock at a time when depressed global conditions have kept yields on conventional assets quite low and volatile. Additionally, the diversification should also help BlackRock manage its risks better.
The impact of the increase in BlackRock’s alternative asset portfolio by the soon to be added $7.5 billion can be understood by making changes to the chart above.Notes:
- BlackRock to Acquire Swiss Re Private Equity Partners AG, BlackRock Press Releases, Jul 3 2012 [↩]
- BlackRock to buy Swiss Re’s PE funds unit, Financial Times, Jul 3 2012 [↩]