BlackRock plans broader, open-ended infrastructure offering

The group is eyeing a lower risk-and-return structure which will also see it expand into new infrastructure sectors, Jim Barry tells us.

BlackRock Real Assets is mulling the launch of a new open-ended “sustainable infrastructure” offering, global head Jim Barry told Infrastructure Investor.

The lower risk-return vehicle would have “renewables at its heart”, Barry said, although it will also see BlackRock expand its infrastructure equity offering beyond energy and renewables and into sectors such as telecoms, transport and social infrastructure.

“It’s purely been about building out the franchise and doing it in a phased basis,” Barry explained when asked why BlackRock had not invested in these infrastructure sectors previously. “We’re definitely getting to the point now where we’re looking to broaden the capability set. From a general institutional capability, we’re going to be much more focused on that over the next 12 to 18 months. We’ll definitely look at sustainable infrastructure in more of a lower-risk, lower-return and more open-ended structure, akin to what you might find in real estate.”

BlackRock already manages the open-ended Renewable Income UK and Renewable Income Europe funds, launched in 2014 and 2015 respectively. It has also addressed the wider infrastructure market in a limited fashion through Latin America-focused funds. This approach has been due to “nothing other than you walk before you run,” Barry said.

“As we think about these offerings, we’re clearly thinking about them in the context of making them as client-friendly and responsive as possible,” he added.

‘Shifting conversations’

BlackRock remains in fundraising for its Global Renewable Power Fund III, which is targeting $2.5 billion, with its gross return target of 12-13 percent and focus on development making it a different risk profile from the potential new offering. Barry predicted a wealth of capital going into onshore and offshore developments, as well as into grid-balancing technologies such as storage and hydrogen.

“We can’t have a conversation with any client these days without talking about renewable power,” he said. “There has been a general inflection point over the last 12 to 18 months on the whole issue of climate change. The pandemic did bring home the threats of these and accordingly, we saw a lot of engagement from clients over the last 12 months.”

Naturally, this has led to discussions about the next steps for BlackRock’s Global Energy and Power Infrastructure Fund series, which targets investments in oil and gas pipelines and midstream energy, as well as certain renewable assets.

BlackRock closed GEPIF III on $5.1 billion in April, the largest alternatives vehicle the group has raised, although future vintages of the fund might look a little different as BlackRock responds to the challenges hitting the energy sector.

“It’s always been our strategy to continue to broaden the franchise,” he maintained. “We were explicit in this fund on including things outside of energy and power such as storage. We will be doing more and I would expect a more general infrastructure positioning to the next fund.”

Despite last year’s fundraising success, discussions with investors on the strategy, originally launched by First Reserve before BlackRock’s acquisition of the series in 2017, has made BlackRock think differently.

“We haven’t had people suddenly saying ‘no’, but there has been a general sensitivity. Even in the context of successfully raising GEPIF III, the conversation was beginning to shift,” Barry explained. “Certain parts of the world are moving faster than others. Europe, for example, is moving faster than certain elements of the US institutional market. It’s impacting our investing. We’re being very selective and thoughtful about the life of the asset. For a lot of assets, even though the life might extend beyond the contract they may have, you may be putting no value on that life.”

Barry pointed to its deal with the Abu Dhabi National Oil Company in 2019 as a transaction where the counterparty and oil price made it worthwhile, although he highlighted an asset in Latin America where, despite being “attractive in many ways”, its attachment to a high cost of oil was unattractive to the group.

“We’re being much more thoughtful and selective around our fossil exposure than we would have needed to be five to seven years ago,” Barry added.