It's widely known that we live in the age of fragmentation. Pick your favourite former mass market – say TV, for example – and take a look at the way it's consumed today. Chances are you'll find it fragmented beyond what you thought possible even five years ago, with options for every conceivable taste and the chance to consume those options on demand.
So when BlackRock, the world's largest money manager, said it was aggregating its infrastructure and real estate units under a single real assets umbrella, we sat up and took notice.
Funnily enough, our initial reaction here at PEI very much reflected our age of fragmentation. Upon hearing that Jim Barry, BlackRock's head of infrastructure, would also become the firm's new head of real assets, we, the infrastructure team, wondered what that said about infrastructure's place in the world. With infrastructure red hot right now, our initial reaction was to assume that Barry's promotion was a sign of infrastructure's growing importance to BlackRock as, perhaps, the new it asset class within real assets.
Unsurprisingly, our colleagues at sister real estate publication PERE took a different view, which you can read in full here . They looked at the combined unit's $29 billion of assets under management (AUM), subtracted the $8.6 billion that makes up infrastructure's share, and wondered why Barry, the infrastructure head, was put in charge of a real assets unit mostly made up, at this point, of real estate AUM.
When we sat down with Barry for this month's keynote interview , the answer turned out to be much more interesting. Internally, it seems to be very much a case of BlackRock wanting to capitalise on Barry's expertise as a former plc chief executive, a man very much used to building businesses. Externally is where things get juicy though. It turns out that, for a growing number of investors, real assets – including infrastructure, real estate and, increasingly, agriculture and timberland – is very much seen as larger than its constituent parts.
“What we have begun to see, especially at CIO level, is that conversations are happening around the real assets category, as opposed to the particular silos of infrastructure and real estate,” Barry told us. “I don't think it's been this mass movement, where suddenly you have a real assets executive buying real assets broadly. I think what you're beginning to see on the client side is real assets becoming an allocation as a category before it ever gets split into its component parts.”
It might be a nascent trend, but the fact that BlackRock is reorganising itself around it speaks volumes about where it believes things are headed. So what does this all mean for the average infrastructure manager? At the very least, it means that when investors are looking at their portfolios and their constituent parts, they are not seeing enough differences between real estate, infrastructure and agriculture to merit discreet allocations.
Or put differently: it means investors are more concerned about getting certain things from real assets – a certain risk-return profile, diversification, portfolio correlation, etc – and less concerned about which type of real assets ends up delivering them.
Exactly how this will affect infrastructure managers will depend on what the investor consensus around real assets ends up being. If investors decide that what they mostly want out of real assets is a long-term, low-risk steady yield with little J-curve then managers who don't subscribe to that world view will naturally be cut out of investors' real assets allocations.
And while the outcome might not be set in stone just yet, make no mistake: the conversation is ongoing and is only likely to accelerate. It's now up to managers to take part in it, or risk being cut out of the loop later.
What is your view on the real assets debate? Get in touch with the editor at firstname.lastname@example.org