In the port city of Duluth, Minnesota, local activists and Washington-based groups are coalescing to scrutinize — and possibly stall — a $6.2 billion acquisition of a power utility led by Global Infrastructure Partners.
More than 8,000 miles away, GIP’s role in a multibillion-dollar deal to privatize Malaysia Airports Holdings Bhd., the country’s biggest airport operator, also sparked fierce opposition.
While the two deals have little in common on the surface, they share a link to GIP’s new owner, BlackRock Inc., the world’s largest asset manager and a global power broker. Some in the US worry about the firm’s increasing scale, while critics in majority-Muslim Malaysia viewed its prominent chief executive officer, Larry Fink, as being too cozy with Israel.
That opposition reflects a new political reality for New York-based BlackRock, which manages roughly $11.5 trillion of stocks, bonds and, increasingly, lucrative private assets. BlackRock said Tuesday that it’s paying $12 billion to buy HPS Investment Partners, a major private credit player with $148 billion of client assets under management.
But it’s BlackRock’s infrastructure business, which can affect local residents and encroach on their space, that could stoke controversy. BlackRock became one of the world’s largest managers of infrastructure assets — with about $170 billion — after its acquisition of GIP was completed on Oct. 1. GIP, a worldwide infrastructure player for almost two decades, will have to grapple with an entirely new level of public scrutiny under its new parent.
BlackRock’s growth has underscored the need to “engage with more people in more places” and to work with a “broader range of stakeholders,” John Kelly, the firm’s global head of corporate affairs, said in a statement.
“Many people have different views on how we should invest our clients’ assets – that isn’t a new phenomenon,” he added. “We have a long history of investing in infrastructure, and engaging with the stakeholders of those investments is critical.”
BlackRock declined to comment on specific infrastructure investments.
For BlackRock, private financing of infrastructure projects is a key component of investing, even if it comes with extra scrutiny. Government debt levels and interest payments have surged across the world in recent years and especially since the pandemic, leaving policymakers with few resources to finance projects themselves. That has created a potentially massive opportunity for BlackRock — especially now that Donald Trump is reclaiming the White House with plans to slash federal spending. He would also possibly ease permitting regulations, a move that Fink has sought, too.
But his $12.5 billion infrastructure bet on GIP will keep inviting criticism, from federal lawmakers to local residents who fear that a BlackRock-owned power plant or data center will drive up their electricity bills. While the Federal Energy Regulatory Commission greenlit BlackRock’s bid to buy GIP, one commissioner expressed concerns over “huge asset managers” like Fink’s.
‘Greater Scrutiny’
“The influence that large shareholders, BlackRock or otherwise, can potentially exert across the consumer-serving utility industry should not be underestimated,” FERC Commissioner Mark Christie wrote in a concurring opinion that approved the deal, despite his reservations. “This is an issue that deserves much greater scrutiny.”
In some ways, BlackRock is well-equipped to respond. Fink regularly meets with heads of state, and the US government has turned to the firm for its services, including enlisting the asset manager last year to sell off the securities of lenders that failed during the regional banking crisis.
But its stature can make BlackRock an easy scapegoat, even while politicians try to curry favor with Fink.
Take Texas: Republican lawmakers spent much of the past three years criticizing BlackRock for promoting ESG and sustainable investing, and one of its education funds decided to yank $8.5 billion from the company. Last week, Texas led a group of 11 attorneys general accusing BlackRock and other money managers of using their market power to pressure coal producers to curb output.
But the state’s lieutenant governor, Dan Patrick, also declared Fink to be the “king of Wall Street” this year, praising him during a meeting about how to draw private investment to Texas’ beleaguered electricity grid.
Bruised from the three-year ESG battle, BlackRock is positioning itself to respond to further attacks and to engage with local leaders on a range of issues. The firm has expanded its state-level government affairs teams in the US — including in Austin, Nashville and San Francisco and soon the Midwest, and is refashioning its lobbying team in Washington.
Top Ranks
The GIP deal is BlackRock’s biggest since it bought the iShares index-fund business in 2009, and the company hopes the acquisition will boost its private assets alongside its dominance of stocks and bonds. Fink’s firm aims to deploy teams of investors to scour the globe for airports, communications towers, data warehouses, pipelines and sewage plants to buy, manage and then sell.
Already, though, investments by GIP, a once-private boutique based in New York, are raising questions.
In May, GIP and Canada Pension Plan Investment Board announced a deal to buy Allete Inc., a publicly traded power utility in Duluth. Minnesota Power, the company’s biggest business, has 150,000 retail customers. Its CEO has said the take-private deal will give it the capital to finance growth into solar, wind and other renewable energy while limiting its exposure to “volatile financial markets.”
But consumer advocates from Public Citizen and the Private Equity Stakeholder Project, both national organizations, along with the Citizens Utility Board of Minnesota, pressed state regulators to inspect the deal. The Sierra Club said it wants to ensure the utility moves away from fossil fuels. And the state’s attorney general, Keith Ellison, has questioned whether the transaction would harm ratepayers.
“We just don’t know the folks at GIP or CPP or BlackRock and how those relationships will change if folks from out of state are making decisions or influencing decisions that affect everyday Minnesotans,” Brian Edstrom, senior regulatory advocate at the Citizens Utility Board, said in an interview. “The institutional investors are motivated primarily to earn a return for their clients.”
Ellison asked for an additional legal review of the deal, arguing that Minnesota Power would become only a “minor part of the vast investment portfolios” of GIP and Canada Pension and its “decreased relevance” may hurt consumers and the state.
In its 530-page filing on July 19 seeking approval for the deal from Minnesota regulators, the utility said it doesn’t expect rates to change. And it stressed that GIP — not BlackRock — would have the ownership stake. BlackRock, it said, will have an “indirect interest,” and GIP will “continue to operate in its current form and to manage the GIP funds involved in the acquisition.” Allete has also said its current management and CEO Bethany Owen, will remain at the firm, and that its headquarters won’t move from Duluth.
BlackRock’s scale combined with GIP is a major concern for Tyson Slocum, director of the energy program of Public Citizen, the Private Equity Stakeholder Project and US Senator Bernie Sanders, a Vermont independent who opposed BlackRock’s acquisition of GIP.
The firm’s existing investment funds are already the largest owner of shares of Allete, with a roughly 13% stake in the company, which would be bought out in the deal.
BlackRock controls more than 10% of the shares of 19 electric utilities in FERC markets, according to a September note from Slocum published by Public Citizen.
While BlackRock has maintained that its overall equity investments are overwhelmingly passive — the firm backed companies’ management on about 88% of total proposals voted globally in the 12 months through June — its sheer scale worries critics.
“BlackRock, it’s gotten too big,” Slocum said in an interview. “Those passive investments convey all sorts of strategic benefits to BlackRock. When you marry that with significant direct control over energy infrastructure, it creates anticompetitive concerns.”
“What prevents BlackRock from replacing, overruling or influencing GIP’s current management team?” he asked.
Wake-Up Call
In Malaysia, trouble started quickly after GIP joined a group of investors in May led by Khazanah Nasional Bhd., the country’s sovereign wealth fund, and public-pension provider Employees Provident Fund, in a take-private deal for Malaysia Airports that valued it at 18.4 billion ringgit ($4.2 billion).
This account is based on conversations with several dealmakers who asked not to be identified discussing confidential matters.
At the time, the Boycott, Divestment, Sanctions movement was ramping up its campaign against companies doing business with Israel in Malaysia. The group soon homed in on BlackRock, targeting the firm and Fink as friends of Israel and seeking to pressure Prime Minister Anwar Ibrahim to block the transaction.
Even though it was GIP taking part in the deal, local opposition sought to tie the airport acquisition to BlackRock and Fink in particular, who had expressed outrage at last year’s Hamas attacks on Israel. The investor group was broadened to include the Abu Dhabi Investment Authority, which has a track record of investments in Malaysia, a knowledge of the country’s political environment and ties to a fellow Muslim nation.
The deal fueled discussion among investment bankers and lawyers in Kuala Lumpur who were trying to orchestrate a transaction involving new co-investors or a counter-bid. Some existing shareholders in the airport operator, including Australian fund manager Northcape Capital, viewed the bid as opportunistic and potentially low given the company’s growth prospects.
The prime minister has since reassured both the opposition and society that the airport operator will remain in Malaysia’s hands. Tensions over the transaction gradually receded, and the deal is expected to be completed by early next year.
Still, the tensions in Malaysia show how the GIP-BlackRock combo could trigger political and social resistance. For GIP’s dealmakers, the local campaign was a wake-up call to the type of opposition they could expect once they were part of BlackRock and something they hadn’t anticipated.
K Street Overhaul
BlackRock, no stranger to opposition, has been working on messaging on a local and international level. The firm hired ex-Goldman Sachs Group Inc. lobbyist Joe Wall to run US government affairs and its first-ever head of state and local government affairs, also from Goldman.
Fink, meanwhile, has recently been traversing the US and globe to talk infrastructure — meeting with Italian Prime Minister Giorgia Meloni about infrastructure and speaking with British PM Keir Starmer last month. He also did a fireside chat alongside GIP CEO Adebayo Ogunlesi with the Washington State Investment Board in July. Ogunlesi recently joined BlackRock’s board and is one of its largest individual shareholders.
In September, the asset manager unveiled a $30 billion artificial-intelligence partnership with Microsoft Corp. to invest in data centers and the energy infrastructure to power them. The companies were already laying the groundwork with lawmakers before the announcement, Microsoft President Brad Smith said at the time.
“You do not need a Ph.D. in economics to see the potential for anticompetitive conduct and outcomes when an investment entity like a huge asset manager seeks to own generation assets that will be — or should be — competitors,” Christie, the FERC commissioner, wrote. “Market power is an ever-present concern.”
On Nov. 12, Utah’s attorney general led a group of more than a dozen states to demand much greater scrutiny of BlackRock’s ownership in power utilities, saying Fink’s firm shouldn’t get an easy pass any longer.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out some of our webcasts.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
Read more articles by Silla Brush
