Jim Barry is in fighting spirits even as the ferocious market rebound drains his pool of cheap investable assets.
The chief investment officer at BlackRock Inc.’s alternative investment unit is looking to deploy some of his US$23 billion cash war chest on companies laid low by the pandemic. He’s sizing up new opportunities in distressed real estate, and private debt and equity.
While the market rebound is enriching corporate valuations, the economic carnage the world over is creating all manner of cross-asset prizes, Barry said in an interview.
“There is no question that dislocations have created opportunity,” said the managing director who is also head of real assets at the investing behemoth. He estimates that valuations for alternative assets fell by 5 per cent to 15 per cent in the first quarter.
BlackRock, which deployed US$9 billion in alternative investments last year, is unlikely to spend all of its private capital in 2020, Barry said. Deals have become harder as competition gets fiercer and evaluating deals, which in some cases include on-site visits, takes longer.
Demand for alternative investments has ballooned in recent years with endowments, pension funds and institutional investors willing to accept higher risks and less liquidity in return for higher yields.
The market for private investing, a catch-all term that covers unlisted companies, loans, real estate and hedge funds, has seen assets swell 44 per cent over the past five years, reaching an estimated US$18 trillion by the end of 2019, according to JPMorgan Chase & Co. Globally, alternative asset managers have US$2.4 trillion available to spend, based on data from Preqin, a London-based consultant.
Barry says it’ll take time for markets to return to pre-pandemic levels. Even after lockdowns ease, social-distancing populations may stay away from shopping malls, pubs and restaurants, creating a consumer-led slowdown that could drag on through 2021.
“The negative economic impact is more than just the impact of aggressive government policy -- this is about the legitimate fear related to health that will continue to affect consumer and corporate behavior in a way that has a dampening effect on the economy,” Barry said. “People may leave their houses for work, but they won’t necessarily leave their houses for leisure.”
Among possible investment opportunities, BlackRock says it’s looking at providing short-term lending to high-quality companies that have either lost bank financing or need a bridge to manage cash flows.
It’s also planning to buy assets from private-equity firms that need to quickly raise cash during the downturn, essentially in forced sales. “Private-equity secondaries are one of the most interesting opportunities here,” Barry wrote in a June report.
There’s also a chance that BlackRock could purchase stakes directly in private-equity firms. Pension funds, institutions and wealthy individuals will probably need to sell some holdings to rebalance their positions after the market downturn.
“We anticipate that quality assets will become available at attractive pricing,” according to Barry. “As the year goes on, we expect to see more limited partner-led deals.”
--With assistance from Justina Lee.