Blackrock is upending the cozy status quo of high fees and high risk in private equity with its $ 870 million investment in Authentic Brands

Is Blackrock cutting fees and forcing private equity firms to follow?

Blackrock’s Long-Term Private Capital Fund (LTPC) made waves with its inaugural primary private equity deal when it invested $ 870 million for a majority stake in the marketing business of Authentic Brands.

The private equity industry sat up and took notice. But alarm bells are ringing in the industry: Will Blackrock move its cheese?

Blackrock cutting fees… and risk

Blackrock’s LTPC fund heralds the world’s largest asset manager’s biggest foray to date into alternative investing. And it stems from a peculiar phenomenon in listed equities: they appear to be going out of fashion. Businesses appear to be less and less interested in listing.

Private equity, an industry which has burgeoned in size in recent years, is the logical beneficiary of this trend. But Blackrock is likely also to disrupt, as it did with equity funds, the industry’s high-fee, high-risk business model.

With its sheer size and access to plum deals, Blackrock could easily undercut fees. Larry Fink, the owner of Blackrock, also intends to chip away at investing risk by deleveraging portfolio companies.

Two-and-20 under threat

The LTPC fund has already raised about $ 3 billion from five marquee investors, including the Minnesota State Board of Investment. Blackrock has also invested some of its own cash.

LTPC has a fundraising target of $ 12 billion. At that size, economies of scale will help Blackrock cut management fees.