Carlyle co-founder David Rubenstein once sounded like he had asset management envy. Interviewing BlackRock head Larry Fink in 2017, Rubenstein several times pointed out that Fink had created the world’s largest asset manager. BlackRock has only grown since, reaching over $10 trillion of assets under management at the end of last year and dwarfing Carlyle at around $380 billion. But now, Rubenstein’s firm has something that Fink may want.
The vast majority of BlackRock’s assets are invested in stocks and fixed-income securities. That business is steady and popular, and BlackRock is one of the best – as is reflected in its valuation. The company trades at a price-to-earnings ratio of more than 17 times, more than double peers Invesco and Janus Henderson and far higher than T. Rowe Price.
But this traditional business is becoming increasingly competitive, which tends to force fees lower. In the year Rubenstein and Fink chatted, BlackRock took in $1.98 in fee income per $1,000 in assets. Last year, that figure fell about 3%. Revenue made from assets invested in equities fell around 10% over that period. Overall the results would have been worse if not for so-called alternatives like private equity and infrastructure. BlackRock had some $265 billion invested there at the end of 2021, and this group punches above its weight, booking almost $9.20 per $1,000.
That happens to be Carlyle’s main business – only Carlyle does it a little differently, which has enabled it to keep more investment gains for itself. Including performance fees – those that the firm keeps when its investments perform well – it raked in $29 per $1,000 in assets last year.
The trouble is that Carlyle is adrift. Efforts to transition stewardship of the firm away from its founders and towards the next generation recently failed, with successor Chief Executive Kewsong Lee stepping down after handling the top spot solo since 2020. Share price performance including dividends has lagged peers KKR, Blackstone and Apollo Global Management over the past one, three and five years.
Importantly, its share price performance has lagged BlackRock’s, too. That – plus the fact that BlackRock has nearly no debt – would make funding a deal pretty easy. Owing to a quirk of private equity mergers, Rubenstein and his fellow founders would have to get the approval of investors in their funds. For a group of people who have spent their lives wheeling and dealing, though, that seems but a small hurdle.