Family Offices

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Melissa Ryan

Welcome back to In the Family, where we explore the investment themes shaping family offices today. Today's discussion focuses on a structural shift in equity markets, specifically how and where we see value being created and what that means for portfolio construction. We'll explore the role of growth equity within that evolution, and how advances in data and systematic investing are beginning to change, how investors source, evaluate, and access these opportunities.

00;00;30;17 - 00;00;43;28

Melissa Ryan

I'm pleased to be joined by Ali Almufti and Tom Wasserman, senior investors within our Private Markets platform, who bring a systematic investing perspective to this space. Ali, can you maybe share a little bit about your background and focus at the firm?

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Ali Almufti

Yeah. Happy to. Thanks, Melissa. Thanks for having us on today. This is my 20th year at BlackRock. I joined the systematic team in 2006 and spent the first half of my career on public markets, and then shifted more into the private space. Still on the systematic team applying quantitative techniques to private markets.

00;01;02;24 - 00;01;04;22

Melissa Ryan

Tom, if you can share a little bit as well.

00;01;04;24 - 00;01;21;00

Tom Wasserman

Yeah, absolutely. And I'll echo what Ali said. So thank you for having us. My background is primarily on the private side. I've been an investor at HPS since 2009, leading a lot of the growth equity efforts. And historically, I've spent most of my time in the communications and digital infrastructure worlds.

00;01;21;03 - 00;01;39;12

Melissa Ryan

Well, it's great to have you both here. So let's start with the structural shift itself. BlackRock's recent whitepaper detailing the opportunity set within systematic growth equity makes the point that an increasing share of equity value creation has been happening before companies reach public markets. Can you walk us through what's driving that change?

00;01;39;15 - 00;02;09;27

Tom Wasserman

Absolutely. I think as we think about what's driving the change here, it really has to do with the availability of capital. Companies are staying private longer because they can. No one's rushing into the public markets. No one wants to do quarterly reporting if they don't have to, particularly when they're at this phase in their lifecycle where they're really, really focused on commercialization. All eyes from the team are on driving the revenue. And in order to do that, they need capital. And the availability of capital has ballooned over the last decade + for this phase of their lifecycle.

00;02;09;29 - 00;02;43;06

Ali Almufti

Yeah. I would also add that there are multiple factors that have driven the flood of capital into this space. I think one of them is the success of some of these businesses while staying within this ecosystem. These companies are innovating, they're growing, they're creating value, and it's happening outside of public markets. And as the broader market sees that, they're more willing and more excited to allocate capital to this space. This is turning into a market where you're not able to get this exposure in public markets or in traditional PE buyout, for example.

00;02;43;08 - 00;02;55;19

Melissa Ryan

So in other words, this is not just about timing cycles or IPO windows. It's been a more durable shift in where growth is actually happening. And when you translate that into portfolio construction, Ali, where does the gap emerge?

00;02;55;21 - 00;03;29;20

Ali Almufti

So I think traditionally when thinking about a broad equity allocation, the two main pieces would be public equity and private equity, which would usually be private equity buyout. I think over the years there's been a small allocation to early venture. But as we talk about this late venture market and venture growth market that's become so big and kind of turned into this self-fulfilling market that's here to stay. I think unless you are allocating a specific portion of your portfolio to late venture growth, you are going to miss out on a lot of the innovation that we're seeing happen today.

00;03;29;22 - 00;04;03;19

Tom Wasserman

Right. I mean, I think, Melissa, if your clients are looking to gain exposure to the steepest part of the growth curve of these companies, ten years ago, they'd be IPO buyers. Today, their growth equity buyers. That's where the growth is occurring for these companies. That's the commercialization phase of these companies. That's when they're beyond, the sort of, reaching for product market fit. And they're not yet into sort of mass domination of the world. If you want to see things that are growing in the high teens or higher, really the best way to gain exposure to that is through growth equity.

00;04;03;25 - 00;04;28;20

Melissa Ryan

And I think for family offices, that distinction is quite intuitive. Many of them have direct experiences building businesses, so they recognize that the scaling phase often represents the most dynamic period of value creation, and one that has been increasingly happening while companies remain private. With that context, how should we think about growth equity as a distinct allocation or late stage venture within the portfolio?

00;04;28;23 - 00;04;51;00

Tom Wasserman

We really view growth equity as occupying a really specific and differentiated position, not just within the equity spectrum, so to speak, but really within the capital structure. These are companies that have established commercial traction and are ready to take off. These are companies that, you know, we're not investing in that 0 to 1 phase. We're investing as they go from 1 to 10.

00;04;51;01 - 00;05;18;22

Tom Wasserman

And I think, again, if people want exposure to that a decade + ago, they'd have achieved it by investing in an IPO. Today, at this stage, they need to come into it through growth equity. They're not going to get it through an early stage venture fund, where they're going to take on the risk of a success or failure of a technology. They're going to get it through funds like ours that are coming into these companies as they really are, using our capital as the fuel for their growth.

00;05;18;24 - 00;05;32;12

Ali Almufti

Yeah. I would just add that these companies are focused on top line growth. They're focused on product adoption, expanding to new markets. This is not about leverage or multiple expansion from an investor perspective.

00;05;32;14 - 00;05;57;07

Melissa Ryan

Yeah, that's exactly why we're seeing growth equity often come up as a compliment rather than a substitute. Balancing exposure to innovation with more selectivity and less binary risk than earlier stage investing is what many of our family offices are focused on. One of the more interesting developments highlighted in the paper is the idea that private markets are becoming increasingly observable. What has enabled that shift?

00;05;57;10 - 00;06;25;06

Ali Almufti

The main component is the proliferation of alternative data. So as these companies get bigger, they leave quite a large digital footprint. And Tom alluded to, earlier, how these companies are starting to look and feel more like public companies. That's true. More so even in the digital footprint perspective. As they generate all this data, we are able to glean this information and actually have a very rich, multi-dimensional view of these businesses and how they're doing, even in real time.

00;06;25;09 - 00;06;38;25

Ali Almufti

We have signals that we've been developing over the years, similar to how we think about systematic investing on the public side, that gives us a great view of the business even before engaging with them. So it allows us to have this outside-in view of the whole universe.

00;06;38;28 - 00;07;09;29

Tom Wasserman

Yeah. And the data is absolutely the fundamental thing that is shifted here. The volume of data that allows us to have these insights. And the other side of that equation is the tools to analyze it. The evolution of generative AI and some of these other toolsets that we're all talking about and reading about every day now, has enabled us to have the ability to take this morass of data and actually shape it into true insights. And that's what we're doing today on our BlackRock growth equity strategy.

00;07;10;06 - 00;07;27;16

Melissa Ryan

Yeah, that's an important point. I think what was largely qualitative is becoming increasingly measurable, which naturally changes how investors are approaching underwriting. Which brings us to the role of systematic investing. Why is growth equity particularly well-suited to these approaches?

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Tom Wasserman

I mean, the number one reason that growth equity links up so well with the systematic approach is the volume of data that exists today. These companies, as opposed to some of the earlier stage businesses, as Ali mentioned, have large digital footprints. There's a extreme amount of data that's out there that we can then utilize today's tools to be able to give us insights into the universe.

00;07;51;07 - 00;08;11;12

Tom Wasserman

And it's just so different than if you're looking at a seed stage business. And it's so differentiated from the buyout phase where a lot of that stuff is very obvious. Like here, it's the ability to use a bespoke set of tools that have been created in-house and then apply that to a vast data universe.

00;08;11;15 - 00;08;15;08

Melissa Ryan

So to be clear, this is not about replacing fundamental judgment.

00;08;15;11 - 00;08;42;19

Tom Wasserman

This is absolutely not about throwing out fundamental investing. What it is about is leveraging the modern tools and the data sets that are available to make fundamental investing more precise, to be able to look at a wider swath of companies and apply our fundamental skill set to achieve the decision making. This is about leveraging data to curate the best portfolio possible.

00;08;42;21 - 00;08;49;23

Melissa Ryan

The paper also introduces the idea of breath as an edge. How should investors be thinking about that?

00;08;49;25 - 00;09;23;26

Ali Almufti

Yeah, the idea here is that we want to have as broad a view as possible. So we want a view on every single company in our investable universe. So today, the way we think about late venture, there are about 8000 companies globally. We want a long-term forecast for each one of those companies. And I think this is different than how a traditional investor would think about this ecosystem, where they tend to rely on their specific deal flow or their networks or companies that they discover in more of kind of a manually curated way where they're looking at a subset of the broad universe.

00;09;23;29 - 00;09;37;24

Ali Almufti

So instead of 8000 companies, maybe they'll have a view on a few hundred and they'll select within that subset. Our approach is to select within as broad a universe as possible, so that we end up with the global winners.

00;09;37;26 - 00;10;00;20

Tom Wasserman

Yeah. And I think what's really compelling for us is that, and I think is somewhat unique to us and where we sit here at BlackRock, is that we can leverage that ability to curate this large universe and breadth of companies and then apply the access of BlackRock to get into these transactions. It's that combination that's really the differentiator.

00;10;00;22 - 00;10;29;15

Melissa Ryan

Makes sense. In that context, breadth becomes a source of potential informational advantage. As we bring this back to family offices, we see two clear implications. First, if the most dynamic phase of value creation is occurring in private growth, then portfolios that lack exposure to that segment may be structurally incomplete. Second, as the opportunity set expands, the ability to evaluate opportunities consistently and with discipline becomes increasingly important.

00;10;29;18 - 00;10;45;08

Melissa Ryan

Ultimately, what we are seeing is not a replacement of traditional approaches, but an evolution where data and systematic tools can complement experience and judgment in navigating a much more complex private market landscape. Ali, Tom, thank you both for the discussion.

00;10;45;11 - 00;10;46;12

Tom Wasserman

Thank you very much for having us.

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Ali Almufti

Thanks so much, Melissa.

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Melissa Ryan

And for our listeners, thank you for joining us. We look forward to continuing the conversation.

00;10;57;01 - 00;11;09;09

Melissa Ryan

Capital at risk. All financial investments involve an element of risk. Therefore, the value of the investment and the income from it will vary and the initial investment amount cannot be guaranteed.

00;11;09;14 - 00;12;50;00

Melissa Ryan

This material is provided for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are subject to change at any time without notice. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Performance and risk calculations, including those incorporated into Aladdin technology, are based on assumptions, historical correlations, and other factors (such as inputs provided by the Aladdin users) and are not assured to predict future results. All graphs and screenshots are for illustrative purposes only. BlackRock’s Aladdin platform is a financial technology platform designed for institutional, wholesale, qualified, and professional investor/client use only and is not intended for end investor use. Aladdin users undertake sole responsibility and liability for investment or other decisions related to the technology’s calculations and for compliance with applicable laws and regulations. The technology should not be viewed or construed by any Aladdin users, or their customers or clients, as providing investment advice or investment recommendations to any parties. For additional information on any of the descriptions contained herein, please contact your Aladdin Relationship Management representative. BlackRock may modify or discontinue any functionality or service component described herein at any time without prior advance notice to you.

00;12;50;02 - 00;13;30;16

Melissa Ryan

This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of yields or returns, and proposed or expected portfolio composition. No representation is made that the performance presented will be achieved, or that every assumption made in achieving, calculating or presenting either the forward-looking information or the historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein by way of example.

00;13;30;18 - 00;13;54;25

Melissa Ryan

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00;13;54;27 - 00;13;59;27

Melissa Ryan

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