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Mark Everitt [ME]:   Welcome to BlackRock's 2022 Private Markets Outlook. I'm Mark Everitt, the head of research and strategy for BlackRock Alternatives, and I'm joined today in discussion by Jim Barry, who is the CIO for BlackRock Alternatives. We are going to be talking about our 2022 private market outlook. It has a panel overview in it and a deep dive into the world of private credit, private equity, and also real assets. And today we're going to bring you three core elements from that discussion. Firstly, we're going to dig into how we see the private markets today and how we see them evolving in the future.

Then secondly, in a world where returns are challenged across public and private markets, we're going to look at the role that thematics might play in the 2022 private market vintages. And there we're going to cover themes such as technology and decarbonisation. But also in our outlook, you will see coverage of health care, changing consumption patterns and growth in Asia as core thematics that we anticipate in 2022. And then finally, we are going to give you some recommendations. I'm not going to give you those now, stay tuned for those later in our discussion.

So let's get going. And I'd like to turn over to Jim Barry and Jim, what are your reflections on the state of the private markets as you see them today.

Jim Barry [JB]:   Thanks, Mark. Hi, everybody. Look, we have and are living through extraordinary times. I mean, last year really is unprecedented in economic history. You know with the surge of growth on the back of the broad economic restart, both the initial phase of pandemic, we had really supply dislocation driven inflation. And then we had central banks implementing a new framework where they are taking a much more benign view on that inflation, creating a great year for equities, not such a good one for bonds, but really, in that context, private markets had a very successful year with continual accumulation of capital really getting deployed at scale and we saw it in our own business quite particularly.

But look, I think that if Omicron tells you everything or anything, it's the fact that there is no back to normal. We're dealing with a new normal where ultimately combinations of behaviours, vaccinations and treatments allows us to deal with an endemic virus. But I think one has to take account of that as we think about our investing. And there's no question the pandemic has accelerated some massive structural thematic changes and in turn generated some new ones. And we'll come back to that.

But I think as we look out this year and beyond, I think you've got to see where we've got to restart that's a bit delayed rather than derailed. I think you're looking at a stronger inflationary environment, maybe without the sort of current headline rates, but certainly at a level ahead of pre pandemic levels. And I think you're going to see this new central bank framework lead to a tightening of monetary policy leading to some increased rates, but very delayed as you might expect for the given level of inflation. Into that mix, we play with private markets that's a way you as a client, as an investor, can get real exposure to some of these macro dynamics as well as thematics we will talk about.

[ME]:   Yeah, I think just picking up on that, Jim, I think one thing I wanted to mention is just the growth that we have in the private markets. And now I think the private markets, you know, around about 8/9 trillion, depending on how you add it up. I just oversize now where there is, what I would call convergence happening. And I mean convergence in two dimensions, right? I think Firstly, there's convergence between the private and the public markets. And secondly, there's convergence between what used to be kind of discrete elements of the private markets.

And what I mean by this is that there are real opportunities for investors. Private markets in many ways are becoming larger because of this convergence. But also one has to navigate carefully and think about, you know, financing of companies. High quality corporate borrowers can now toggle between the private and the public markets. So if you are talking to a borrower, you're looking for an investment. You need to have a relationship where you can discuss the private and the public financing options, because that company could start with private financing, go to public, toggle back to a combination or back to private overall. And being involved with that company having access now, it's not just about being in the private markets, it's about being in both. Similarly, investing in private equity used to always be through just the primary funds. Now, secondary funds offer a really interesting way to play continuation vehicles. And I think we'll see more and more high-quality companies remaining private through their lives and have access to new investors coming about through the secondary markets. Something investors to think about there, is this concept of convergence and how you are playing that opportunity set between those markets.

But, Jim, I'd like to move on into thematics. We talked about Start, and I didn't mention perhaps the strongest thematic of all which is decarbonization, something I know it's close to your heart. It's close to your background. Tell us your thoughts on how you see decarbonisation playing out in the private markets.

[JB]:   Well, Mark, I think your decarbonisation is going to dominate the next two to three decades from an investment perspective. I think that there's been an inflection point in terms of the acceptance of the need to address climate change. And we've seen that play out in just a sort of a tsunami of a new policy that will only build momentum over time. And, I think we're all getting head around the scale of transition, but the challenge is the pace. It's effectively something at the scale of the industrial revolution in half the time frame.

And so into that, there's going to be almost limitless opportunities to play. We've got to effectively get more for every unit of energy we put into our global economy. We've got to electrify anything we can. We then got to decarbonize electricity generation and then finally, there are categories of difficult things. Industrial processes heat, large scale transport, aviation, maritime. These are things that will require fairly unique solutions and a lot of those solutions really still not clear. But I think from a private market perspective, there's just going to be a whole host of opportunity, equity, and credit across the risk return spectrum to play into that in a very focused way, allowing you to curate very specific exposures and opportunities. But also one has to think about the risks now in your portfolio, in new investments, particularly where you get carbon exposure, but very dynamic and very exciting.

[ME]:   Yeah, definitely lots to do there. I'm going to talk quickly about technology, which is just a thematic that is everywhere in public and private world. We have this saying same ocean, different boats, meaning that in the private world, you can play it in a very curated, specific way. And I think across our verticals, we see just technology opportunities everywhere. But the thing I point out to people is knowing the words technology being able to talk a little about it isn't going to be enough. There's going to be real winners and losers in this space, and you are going to have to pick carefully.

Let me give you a few examples of how we see it affecting our space. So, you know, I think Firstly, at the corporate level, companies are struggling to maintain operating margins for some of the challenges they've had in 2021. They're also looking to grow and they're using technology, technology being used to manage supply chain issues. It's been used to improve efficiency. It's been used to manage Labour inflation that's happened to workforce through robotics and automation, and it's giving companies new ways to engage directly with consumers and therefore have that direct relationship and protect margin. In the real assets space, digitization is huge. We're seeing it across the decarbonisation spectrum. We're seeing introduction of different ways of measuring and managing and monitoring energy delivery, for sure. But we're also seeing it in real assets in real estate. If you look at the tremendous growth in logistics and the demands that are there for prime locations and the effect that there's been on yields, there has been quite profound, and we're also starting to look at opportunities in the way in which people change the way in their living, engaging technology such as green tech to upgrade buildings such as offices and improve rental income and exit values through doing that.

So technology just a massive, persistent theme. Whether it's cloud AI software as a service, it's really permeating all of the verticals and something I think requires that multi-dimensional approach to really understand what is going on there. And we're seeing that multi dimensionality everywhere. Right. We're seeing assets come together that previously might have been a bit discreet. Think about the delivery of power such as gas into a residential home alongside fibre, two different areas of expertise coming together in one corporate in one opportunity. Very interesting, multi-dimensional space.

I want to leave you with three things today to think about as you go forward in 2022. Firstly, don't give up on vintage investing. It's been shown and proven to be a great way to invest in the private markets. We outlined some of that in our outlook document. Secondly, be multi-dimensional public, private, cross verticals. Think about a broad way to approach the private markets and finally pay attention to portfolio construction. We've been doing a lot of work with clients modelling it. We'd be happy to help you.

What are your closing thoughts, Jim?

[JB]:   Thanks, Mark. I'll close with a few specific opportunities that I see. Clearly decarbonisation, a lot of new assets required, clearly renewables being an obvious area, but a whole range of assets need further evolution and development. I think that I definitely would look at the credit space generally, you touched on the vast array of options now, but I would look at the stress and opportunistic too. I think some of the scar tissue from the pandemic has yet to really appear and I think it will appear in 2022.

Secondaries, you touched on it earlier. I think that's got the best supply demand dynamic for assets in the private market space, and I think better risk adjusted returns the most. And then I would just also touch on growth equity as it plays into some of these big thematics, not least decarbonisation a lot of new stuff to be done and growth opportunities to be exploited.

[ME]:   Great. Thank you, Jim, and thank you everyone for listening today, we hope to engage with you in 2022 and you know where to find us and have a healthy and successful 2022 thank you very much.

MKTGH0122A/S-1998250

Mark Everitt [ME]:   Welcome to BlackRock's 2022 Private Markets Outlook. I'm Mark Everitt, the head of research and strategy for BlackRock Alternatives, and I'm joined today in discussion by Jim Barry, who is the CIO for BlackRock Alternatives. We are going to be talking about our 2022 private market outlook. It has a panel overview in it and a deep dive into the world of private credit, private equity, and also real assets. And today we're going to bring you three core elements from that discussion. Firstly, we're going to dig into how we see the private markets today and how we see them evolving in the future.

Then secondly, in a world where returns are challenged across public and private markets, we're going to look at the role that thematics might play in the 2022 private market vintages. And there we're going to cover themes such as technology and decarbonisation. But also in our outlook, you will see coverage of health care, changing consumption patterns and growth in Asia as core thematics that we anticipate in 2022. And then finally, we are going to give you some recommendations. I'm not going to give you those now, stay tuned for those later in our discussion.

So let's get going. And I'd like to turn over to Jim Barry and Jim, what are your reflections on the state of the private markets as you see them today.

Jim Barry [JB]:   Thanks, Mark. Hi, everybody. Look, we have and are living through extraordinary times. I mean, last year really is unprecedented in economic history. You know with the surge of growth on the back of the broad economic restart, both the initial phase of pandemic, we had really supply dislocation driven inflation. And then we had central banks implementing a new framework where they are taking a much more benign view on that inflation, creating a great year for equities, not such a good one for bonds, but really, in that context, private markets had a very successful year with continual accumulation of capital really getting deployed at scale and we saw it in our own business quite particularly.

But look, I think that if Omicron tells you everything or anything, it's the fact that there is no back to normal. We're dealing with a new normal where ultimately combinations of behaviours, vaccinations and treatments allows us to deal with an endemic virus. But I think one has to take account of that as we think about our investing. And there's no question the pandemic has accelerated some massive structural thematic changes and in turn generated some new ones. And we'll come back to that.

But I think as we look out this year and beyond, I think you've got to see where we've got to restart that's a bit delayed rather than derailed. I think you're looking at a stronger inflationary environment, maybe without the sort of current headline rates, but certainly at a level ahead of pre pandemic levels. And I think you're going to see this new central bank framework lead to a tightening of monetary policy leading to some increased rates, but very delayed as you might expect for the given level of inflation. Into that mix, we play with private markets that's a way you as a client, as an investor, can get real exposure to some of these macro dynamics as well as thematics we will talk about.

[ME]:   Yeah, I think just picking up on that, Jim, I think one thing I wanted to mention is just the growth that we have in the private markets. And now I think the private markets, you know, around about 8/9 trillion, depending on how you add it up. I just oversize now where there is, what I would call convergence happening. And I mean convergence in two dimensions, right? I think Firstly, there's convergence between the private and the public markets. And secondly, there's convergence between what used to be kind of discrete elements of the private markets.

And what I mean by this is that there are real opportunities for investors. Private markets in many ways are becoming larger because of this convergence. But also one has to navigate carefully and think about, you know, financing of companies. High quality corporate borrowers can now toggle between the private and the public markets. So if you are talking to a borrower, you're looking for an investment. You need to have a relationship where you can discuss the private and the public financing options, because that company could start with private financing, go to public, toggle back to a combination or back to private overall. And being involved with that company having access now, it's not just about being in the private markets, it's about being in both. Similarly, investing in private equity used to always be through just the primary funds. Now, secondary funds offer a really interesting way to play continuation vehicles. And I think we'll see more and more high-quality companies remaining private through their lives and have access to new investors coming about through the secondary markets. Something investors to think about there, is this concept of convergence and how you are playing that opportunity set between those markets.

But, Jim, I'd like to move on into thematics. We talked about Start, and I didn't mention perhaps the strongest thematic of all which is decarbonization, something I know it's close to your heart. It's close to your background. Tell us your thoughts on how you see decarbonisation playing out in the private markets.

[JB]:   Well, Mark, I think your decarbonisation is going to dominate the next two to three decades from an investment perspective. I think that there's been an inflection point in terms of the acceptance of the need to address climate change. And we've seen that play out in just a sort of a tsunami of a new policy that will only build momentum over time. And, I think we're all getting head around the scale of transition, but the challenge is the pace. It's effectively something at the scale of the industrial revolution in half the time frame.

And so into that, there's going to be almost limitless opportunities to play. We've got to effectively get more for every unit of energy we put into our global economy. We've got to electrify anything we can. We then got to decarbonize electricity generation and then finally, there are categories of difficult things. Industrial processes heat, large scale transport, aviation, maritime. These are things that will require fairly unique solutions and a lot of those solutions really still not clear. But I think from a private market perspective, there's just going to be a whole host of opportunity, equity, and credit across the risk return spectrum to play into that in a very focused way, allowing you to curate very specific exposures and opportunities. But also one has to think about the risks now in your portfolio, in new investments, particularly where you get carbon exposure, but very dynamic and very exciting.

[ME]:   Yeah, definitely lots to do there. I'm going to talk quickly about technology, which is just a thematic that is everywhere in public and private world. We have this saying same ocean, different boats, meaning that in the private world, you can play it in a very curated, specific way. And I think across our verticals, we see just technology opportunities everywhere. But the thing I point out to people is knowing the words technology being able to talk a little about it isn't going to be enough. There's going to be real winners and losers in this space, and you are going to have to pick carefully.

Let me give you a few examples of how we see it affecting our space. So, you know, I think Firstly, at the corporate level, companies are struggling to maintain operating margins for some of the challenges they've had in 2021. They're also looking to grow and they're using technology, technology being used to manage supply chain issues. It's been used to improve efficiency. It's been used to manage Labour inflation that's happened to workforce through robotics and automation, and it's giving companies new ways to engage directly with consumers and therefore have that direct relationship and protect margin. In the real assets space, digitization is huge. We're seeing it across the decarbonisation spectrum. We're seeing introduction of different ways of measuring and managing and monitoring energy delivery, for sure. But we're also seeing it in real assets in real estate. If you look at the tremendous growth in logistics and the demands that are there for prime locations and the effect that there's been on yields, there has been quite profound, and we're also starting to look at opportunities in the way in which people change the way in their living, engaging technology such as green tech to upgrade buildings such as offices and improve rental income and exit values through doing that.

So technology just a massive, persistent theme. Whether it's cloud AI software as a service, it's really permeating all of the verticals and something I think requires that multi-dimensional approach to really understand what is going on there. And we're seeing that multi dimensionality everywhere. Right. We're seeing assets come together that previously might have been a bit discreet. Think about the delivery of power such as gas into a residential home alongside fibre, two different areas of expertise coming together in one corporate in one opportunity. Very interesting, multi-dimensional space.

I want to leave you with three things today to think about as you go forward in 2022. Firstly, don't give up on vintage investing. It's been shown and proven to be a great way to invest in the private markets. We outlined some of that in our outlook document. Secondly, be multi-dimensional public, private, cross verticals. Think about a broad way to approach the private markets and finally pay attention to portfolio construction. We've been doing a lot of work with clients modelling it. We'd be happy to help you.

What are your closing thoughts, Jim?

[JB]:   Thanks, Mark. I'll close with a few specific opportunities that I see. Clearly decarbonisation, a lot of new assets required, clearly renewables being an obvious area, but a whole range of assets need further evolution and development. I think that I definitely would look at the credit space generally, you touched on the vast array of options now, but I would look at the stress and opportunistic too. I think some of the scar tissue from the pandemic has yet to really appear and I think it will appear in 2022.

Secondaries, you touched on it earlier. I think that's got the best supply demand dynamic for assets in the private market space, and I think better risk adjusted returns the most. And then I would just also touch on growth equity as it plays into some of these big thematics, not least decarbonisation a lot of new stuff to be done and growth opportunities to be exploited.

[ME]:   Great. Thank you, Jim, and thank you everyone for listening today, we hope to engage with you in 2022 and you know where to find us and have a healthy and successful 2022 thank you very much.

MKTGH0122A/S-1998250

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Our US$239 billion platform is designed to deliver outperformance with true partnership across a range of investment solutions in: real estateinfrastructureprivate equitycredithedge funds and alternative solutions.

We continue to innovate, leveraging our technology, our scale and our fiduciary model to better serve our clients now and in the future. We have:

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We provide you with a whole portfolio view so you have a deeper understanding of how alternatives impact the rest of your portfolio.
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We work with investors as a true partner and fiduciary by understanding your needs and challenges and delivering tailored solutions.

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Alternative investment strategies

Alternative solutions
The Alternative Solutions Group (ASG) is BlackRock’s multi-alternative portfolio management team, responsible for constructing outcome-oriented private market portfolios on behalf of our clients.
Alternative solutions

BlackRock’s latest alterative investing insights

Mastering alternatives with the BlackRock Educational Academy (BEA)

BEA takes you through Alternatives and how you can better understand how to incorporate this asset class into your portfolio. You will also better understand the different investment opportunities across Alternatives, including private markets, real assets, and credit.

Unlock the full BEA video library
BlackRock clients can now login to access the full trainings on-demand. We invite you to experience the full educational academy by logging into our secure online portal.
Education

Sessions now available on-demand

  • ALTERNATIVES

    Risk management in private markets

    David shares the private equity characteristics and the key risk considerations when allocating to private equity positions, risk associated in measuring performance as well as how benchmarking can provide additional data.
  • ALTERNATIVES

    Portfolio construction for private markets

    Vidy and Thiago discuss the key industry trends as it relates to supply and demand dynamics for private assets, a multi-alternative approach to portfolio construction, and how to create an outcome-oriented portfolio solution.
  • PRIVATE EQUITY

    Building private equity portfolios

    Chris Rock shares the private equity market review and outlook and the warning signs to watch for when investing in today’s private equity markets. You will learn the common investor challenges and the solutions to mitigate those barriers.
  • PRIVATE EQUITY

    Common private equity myths and drivers of performance

    Julia helps to separate fact from fiction as it relates to common PE beliefs and helps break down private equity return drivers and how it enables investors to more precisely understand performance drivers within their private equity investments.
  • ALTERNATIVES

    Hedge fund landscape and strategies overview

    Briana shares the growth of the hedge fund universe along with its increasing complexity. While the landscape has evolved there is an investment opportunity and benefits to incorporating hedge funds into investor portfolios.
  • ALTERNATIVES

    Manager sourcing, evaluation, and portfolio construction

    Nick and Jeff highlight best practices and pitfalls of manager sourcing and evaluation including sharing their disciplined investment approach founded on specific core principles
  • ALTERNATIVES

    Fixed income hedge funds and multi-strategy relative value

    Jack pulls back the curtain on the portfolio management team to share our investment process, how he looks at risk based on changing market conditions and opportunities, and also the critical partnership with the risk management team.
  • CREDIT

    The evolution of distressed investing

    Mark shares the foundations of distressed investing and the variety of strategies that investment managers employ to generate returns in distressed securities.
  • REAL ASSETS

    Global real estate market outlook

    Steven shares BlackRock’s real estate outlook by reviewing the current state of the global market and risks, megatrends that are intersecting the near-term outlook, the risks associated with searching for alpha.
  • REAL ASSETS

    Global real assets securities: real estate in liquid form

    Mark shares the benefits and disadvantages of investing in private versus public real estate and where are the trends and themes to help you make those investment decisions.
  • PRIVATE EQUITY

    New horizons in private equity

    Colm shares the confluence of factors that are driving the need for innovation in the PE space. He shares that navigating these factors require insights on Alpha and a focus on structure.
  • CREDIT

    Credit Investing markets

    James starts with defining credit and sharing where the opportunity as expanded. He shares examples of when successfully navigating the global credit markets can fit within an asset allocation framework as well as lead to alpha.

Meet our alternatives team

The BlackRock Alternative Investors (BAI) team of 990+ dedicated professionals partner with the firm’s multidisciplinary teams and leverage extensive company-wide resources in an effort to deliver consistent returns over the long term.

Meet the alternatives team

Source: BlackRock. All dollar figures are in US dollars. Number of professionals is as of September 30, 2019 and excludes contingent workers and interns. Client assets are as of September 30, 2019 and include committed capital. Client assets include currencies and commodities. Alternative credit is reported in BlackRock Alternatives. Leveraged finance is not included in the alternative client assets figure.

Global leadership
Edwin N. Conway
Head of BlackRock Alternative Investors
Edwin N. Conway, is responsible for BlackRock’s alternatives strategy and the delivery of the firm’s alternatives investments to institutional clients.
Jim Barry
Chief Investment Officer, BlackRock Alternative Investors
Jim Barry, Managing Director, is the Chief Investment Officer of BlackRock Alternatives Investors (BAI) and Global Head of BlackRock Real Assets.
APAC leadership
Michael Dennis
Head of Alternatives Strategy & Capital Markets in Asia-Pacific
Michael Dennis, Managing Director, is responsible for leading BlackRock Alternative Investors (BAI) and BlackRock Capital Markets (BCM) in Asia-Pacific.