Why did BlackRock spend $3.2bn on Preqin?

BlackRock to acquire private markets data provider Preqin for 13x 2024 revenue

“He'd still see the matrix in his dreams, bright lattices of logic unfolding across that colourless void.” - William Gibson, Neuromancer

BlackRock (NYSE: BLK) announced on June 30th it had reached an agreement with private markets data vendor Preqin to acquire the business for $3.2bn (13x 2024 revenue). What is Preqin? Why did BlackRock pay so much?

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What is Preqin?

They primarily aggregate data on private fund performance. What was the IRR for investors in New Mountain Capital Fund V? Check Preqin. How does that compare to other private equity firms in the same vintage? Check Preqin.

It's a data and information provider. Yes, they have software, but that's not why firms pay for Preqin. The software is a vessel for delivering data to customers via APIs and GUIs, but the actual product is the information (i.e., 33% IRR for New Mountain Capital Fund V).

Preqin started in 2003 by soliciting investment performance data from public pension funds via the Freedom of Information Act (FOIA) which gives people the right to request federal agency records. The company has supplemented that dataset over time with voluntary data submissions from thousands of fund managers globally.

Why pay so much?

1) Long-term thesis around private markets

BlackRock's customer base is increasingly allocating to private markets (private equity, private credit, etc.) and $BLK wants a piece. This is consistent with their 2019 acquisition of eFront which was more of a workflow tool for alternatives (a synonym for private markets). Their customer base is also multi-asset class and wants to see consolidated portfolio views across public/private holdings.

Data on private assets is nascent but growing rapidly. BlackRock expects the TAM to grow from $8bn to $18bn by 2030. Given shifts in asset allocations, private markets data is becoming increasingly important and yet is largely an unsolved problem. Even financial data behemoths like Bloomberg haven't nailed private markets data yet.

BlackRock sees a massive opportunity for private markets index. It's clear $BLK wants to build the S&P 500 for private markets and license that benchmark to an ETF provider. Perhaps they’ll manage those funds themselves via iShares, although I’m not sure if there are rules separating calculating the index and managing the funds.

Investors want passive access to markets and the first one to unlock that for markets like Private Equity and Private Credit will make a ton of money. Those ETF providers need a trusted source of underlying performance data to track against, and pay a lot for it. State Street pays 30%+ of SPDR revenues to S&P for licensing the S&P 500 index. The big three index providers (S&P, MSCI, and FTSE Russell), generated a combined $6.5bn in index revenues in 2024. It’s no surprise S&P Global was the rumored runner-up in the bid for Preqin.

The Preqin acquisition brings an extensive network of private markets participants into the BlackRock umbrella of investments, technology, and data. BlackRock highlighted Preqin’s client base of 4,000+ GPs, LPs, and private markets service providers. This network will be especially relevant if BlackRock can build and sell them the aforementioned private markets index products.

2) Data is plug and play

If you're a software company and buy another software company, you can run it as a separate product, sunset one system and force customers to migrate, or integrate the two systems technologically. Building software is hard. Combining two different software systems is REALLY HARD.

Data is different. If your portfolio management system already calls a database to return a data point on last year's ETF performance, it requires relatively little retooling to enable that same system to return a data point on last year's private credit fund performance.

BlackRock's Aladdin software is already plugged into an enormous portion of the financial markets. It's primarily a risk system and is responsible for managing an estimated $20tn+ of assets.

Via Aladdin/eFront, BlackRock has a great vessel for distributing private markets data to a client base that wants it. Now, BlackRock can have their APIs call Preqin's database to sell more of a zero marginal cost product and provide an enhanced user experience. I'm simplifying the challenges around data M&A, but it’s directionally correct. Below is a previous podcast diving deep into Aladdin with the former Chief Architect.

Jody Kochansky - Building the Operating System for Capital Markets

3) Preqin is also just a nice asset

Over the last 20 years Preqin has bootstrapped an impressive business: $240m of revenues growing 20% with 99% recurring revenues, network effects, and a difficult to replicate data asset.

BlackRock paid a huge price on topline, and it probably looks even more expensive on any sort of profitability metric, but it might not matter. Outside-in, $BLK can probably make the numbers work by cutting costs and aggressively cross-selling Preqin data into the Aladdin customer base.

If they can pull off a private markets index, it'll be a home run.

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Note from the author:

You might’ve noticed this is a slightly different form factor than my usual 5,000 word deep dives. My intention for Wall Street Fintech was never to cover news, but I have a particularly strong interest in private markets data so felt this transaction warranted a post. Down the line I will likely put together a longform piece on private markets data. I think it’s a fascinating segment of fintech and a massive market opportunity. If you would be interested in something like that, let me know below.

Sources:

• BlackRock Preqin Investor Presentation (June 30, 2024)

• Preqin Private Capital Performance Data Guide

• Index Providers: Whales Behind the Scenes of ETFs (An, Benetton, Song 2022)

• New Mountain Performance

• FT Piece on Index Providers