Alternative Solutions Group (ASG)

Why BlackRock for multi-alternative portfolio management?

As investors’ allocations to alternatives increase and the investible private markets universe expands, are you best positioned to take advantage of the opportunity?

Over the past 20 years, the private markets have expanded significantly in both size and heterogeneity. Investors have ramped their exposure to the private markets in search of: new sources of total return and income amidst low rates, risk diversification, and the ability to effect other outcomes (such as long-dated liability matching and inflation linkage). Amidst increased complexity and competition, many investors are moving towards the formation of long-term, multi-asset class partnerships with asset managers who can add value through risk-based portfolio construction and broader market access. Though historically used in the public markets, active portfolio management and relative value analyses are now emerging as an important source of sustainable alpha in the private markets.

ASG is BlackRock’s multi-alternative portfolio management team. We construct outcome-oriented private market portfolios on behalf of our clients, leveraging both top-down and bottom-up capabilities. ASG brings active portfolio management to private markets, combining quantitative and fundamental approaches to manage risk and assess relative value. ASG capitalizes on BlackRock’s scale, access, and expertise across private markets and seeks to generate attractive risk-adjusted returns by investing across asset classes, sectors, geographies and capital structure, working in close collaboration with the 970+ underlying specialist investors within BlackRock Alternative Investors.

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Market opportunity

Average allocations to private markets have significantly expanded over the past decade as investors recognize the important role private markets play in achieving their desired investment outcomes. An increasingly crowded market, however, has caused valuations in the private assets to spike, making harder for investors to find well-priced opportunities and, more importantly, manage associated risk exposures. As private market allocations grow and become more complex, active portfolio management has become increasingly relevant.

We believe private markets have plenty to offer patient investors who can find and unlock returns in less exploited areas. Adding private markets exposure to a portfolio can help broaden the opportunity set, increase return potential, portfolio diversification, and help deliver on overall portfolio outcomes.

Source: BlackRock. For illustrative purposes only.

Philosophy and process

Alternatives allocations have historically been modest in the context of an investor’s overall portfolio. Moreover, the private markets were also simpler and more limited. As investors’ allocations to alternatives increase and private markets expand, outcome-based portfolio construction, holistic risk management, top-down relative value analysis, and technology have emerged as important sources of alpha generation supplementing bottom-up investment underwriting and manager selection. Many asset owners are correspondingly shifting their focus to the formation of long-term strategic partnerships / solutions.

BlackRock believes that using an outcome-oriented approach when investing in private markets is key. This approach starts by defining a client’s investment objective(s) and casts a wide net across regions, asset classes, and capital structures in search of the optimal asset mix. Bottom-up investment underwriting in private markets is supplemented by top-down portfolio management to deliver superior investment portfolio performance. This entire process is underpinned by an integrated technology system. We believe this holistic approach can:

• Effectively integrate fundamental and quantitative views of risk-adjusted returns, cash flows, and liquidity across varied private market investments
• Dynamically respond to changes in markets and relative value across asset classes
• Provide a consistent risk framework that identifies risk factors for individual investments and balances them across portfolios
• Make growing and managing a private market allocation more convenient and transparent

Investment solutions

Outcome-based portfolios are designed to achieve client-specific objectives and are implemented by investing across private market asset classes via a flexible approach. Sample investor outcomes include:

• Total return: Targets total return through a combination of capital appreciation and income

• Enhanced income: Targets meaningful yield with managed exposure to duration / high-yield beta

• Stable income: Targets yield, diversification, and limited volatility while delivering returns in excess of inflation / liabilities

Implementation ranges from more concentrated, Opportunistic portfolios of direct positions to Diversified private markets allocations comprised of direct, co-investment, secondary, and primary investments.

In building outcome-oriented portfolios, ASG is supported by BlackRock’s proprietary risk software, Aladdin. Aladdin facilitates ASG’s factor-based approach to risk management, public markets expertise, and data-driven relative value assessment across asset classes. Leveraging BlackRock’s platform, ASG decomposes economic drivers of returns to both public markets risk factors (e.g. rates, commodity prices, etc.) and idiosyncratic risk factors (e.g. wind production, catastrophe risk). Utilizing a proprietary set of 3,000+ risk factors, ASG can identify hidden risks and embedded correlations, which guide investment evaluation and sizing in the context of the existing portfolio’s risk factors.

Meet our team

Alternative Solutions Group is a 30+ member dedicated portfolio management team responsible for multi-alternative mandates.

ASG is part of BlackRock Alternative Investors and is supported by over 970 investment professionals across BlackRock’s real estate, infrastructure, credit, hedge fund, private equity, and private equity solutions businesses. These teams provide ASG with investment sourcing, diligence, transaction structuring and execution depth, and form multi-disciplinary deal teams on an investment by investment basis.