Extracts from the full letter which can be read here 

Unlocking private markets

BlackRock’s past 14 months — and the future

Economies run on capital. Whether you’re assembling 17th-century trading fleets or 21st-century data centers, the money has to come from somewhere. But historically, it hasn’t been investors. Despite 400 years of financial innovation, from Amsterdam to Change Alley to the New York Stock Exchange, most financing has come from banks, corporations, and governments—not the capital markets.

Why banks, corporations, and governments? Because that’s where people put their money. They parked their savings in bank accounts, drove corporate growth through consumption, and paid taxes that fund public spending.

But when my partners and I founded BlackRock in 1988, we believed the world was changing. The capital markets wouldn’t just supplement banks, corporations, and governments—they’d stand alongside them as a coequal source of capital.

The logic was simple: Markets delivered better returns than the other three. Better returns would attract more investors. More investors would deepen markets. And deeper markets meant more capital. Plus, asset managers could accelerate this shift through innovation. For BlackRock, that meant first developing better technology to manage risk, then expanding choice and lowering fees through products like exchange-traded funds (ETFs).

We’ve been fortunate these past 37 years. Our logic panned out. But what’s striking now is how early we still are in the story of market expansion. The real payoff is only just beginning.

As we enter our century’s second quarter, there’s a growing mismatch between the demand for investment and the capital available from traditional sources.

Governments can’t fund infrastructure through deficits. The deficits can’t get much higher. Instead, they’ll turn to private investors.

Meanwhile, companies won’t rely solely on banks for credit. Bank lending is constrained. Instead, businesses will go to the markets.

The money is already there. In fact, more capital is sitting idle today than at any point in my career. In the U.S. alone, roughly $25 trillion is parked in banks and money market funds.⁷

But we’re repeating a mistake from the earliest days of finance: Abundant capital. Deployed too narrowly. As one historian wrote, Amsterdam’s first stock exchange “could have made a much greater contribution to the economy” if investors had more companies to invest in. The same is true today.⁸

Assets that will define the future—data centers, ports, power grids, the world’s fastest-growing private companies—aren’t available to most investors. They’re in private markets, locked behind high walls, with gates that open only for the wealthiest or largest market participants.

The reason for the exclusivity has always been risk. Illiquidity. Complexity. That’s why only certain investors are allowed in. But nothing in finance is immutable. Private markets don’t have to be as risky. Or opaque. Or out of reach. Not if the investment industry is willing to innovate—and that’s exactly what we’ve spent the past year doing at BlackRock.

BlackRock has always had a foot in private markets. But we’ve been—first and foremost—a traditional asset manager. That’s who we were at the start of 2024. But it’s not who we are anymore.

In the past 14 months, we’ve announced the acquisition of two of the top firms in the fastest-growing areas of private markets: infrastructure and private credit. We bought another firm to get better data and analytics, so we can better measure risk, spot opportunities, and unlock access to private markets.

We’ve transformed our company. The next section details why we did it, how we did it, and why it matters.

Private markets are private

Most of us associate “markets” with public markets—stocks, bonds, commodities. But you generally cannot buy shares in a new high-speed rail line or a next-generation power grid on the London or New York Stock Exchange. Instead, infrastructure projects are typically investable only through private markets.

Private markets are, as their name suggests, private. For individual investors, they often require higher minimum investments. And even when the minimums are lower, investing is often limited to people with a certain income or net worth.

The same hurdles apply to most of the world’s companies. Only a tiny fraction are publicly traded, and that fraction is shrinking: The path BlackRock took 25 years ago—raising money through an IPO—is becoming rarer. Instead, 81% of U.S. companies with over $100 million in revenue are privately held. The percentage is higher in the EU, and even higher in the U.K.

Yet these companies still need money to innovate and grow. For decades, they turned to banks, much like families turn to lenders for home mortgages. But that era is rapidly fading. Today, banks by themselves cannot meet the capital demands of growing companies.

The private credit industry is stepping in to help fill that gap. In fact, private credit assets are projected to more than double by the end of this decade.¹⁶ Yet, as with infrastructure, many individual investors aren’t able to participate in the growth. Even some larger institutional investors have trouble building a portfolio that allocates these assets the way they want.

From 60/40 to 50/30/20

The beauty of investing in private markets isn’t about owning a particular bridge, tunnel, or mid-sized company. It’s how these assets complement your stocks and bonds—diversification.

Diversification has been called the “only free lunch.” It was the motivating idea that led Nobel Prize-winning economists like Harry Markowitz and Bill Sharpe to develop Modern Portfolio Theory, which became the foundation for the standard portfolio of roughly 60% stocks and 40% bonds. Generations of investors have done well following this approach, owning a mix of the entire market rather than individual securities. But as the global financial system continues to evolve, the classic 60/40 portfolio may no longer fully represent true diversification.

The future standard portfolio may look more like 50/30/20—stocks, bonds, and private assets like real estate, infrastructure, and private credit.

Tokenization is democratization

The world’s money moves through plumbing built when trading floors still shouted orders and fax machines felt revolutionary.

Take the Society for Worldwide Interbank Financial Telecommunication (SWIFT). It’s the system that underpins trillions of dollars in global transactions every day, and it works much like a relay race: Banks hand off instructions one by one, meticulously checking details at each step. That relay approach made sense in the 1970s, an analog era when the markets were much smaller and daily transactions were much fewer. But today, relying on SWIFT feels like routing emails through the postal office.

Tokenization changes all that. If SWIFT is the postal service, tokenization is email itself—assets move directly and instantly, sidestepping intermediaries.

What exactly is tokenization? It’s turning real-world assets—stocks, bonds, real estate—into digital tokens tradable online. Each token certifies your ownership of a specific asset, much like a digital deed. Unlike traditional paper certificates, these tokens live securely on a blockchain, enabling instant buying, selling, and transferring without cumbersome paperwork or waiting periods.

Every stock, every bond, every fund—every asset—can be tokenized. If they are, it will revolutionize investing. Markets wouldn’t need to close. Transactions that currently take days would clear in seconds. And billions of dollars currently immobilized by settlement delays could be reinvested immediately back into the economy, generating more growth.

Perhaps most importantly, tokenization makes investing much more democratic.

It can democratize access. Tokenization allows for fractional ownership. That means assets could be sliced into infinitely small pieces. This lowers one of the barriers to investing in valuable, previously inaccessible assets like private real estate and private equity.

It can democratize shareholder voting. When you own a stock, you have a right to vote on the company’s shareholder proposals. Tokenization makes that easier because your ownership and voting rights are digitally tracked, allowing you to vote seamlessly and securely from anywhere.

It can democratize yield. Some investments produce much higher returns than others, but only big investors can get into them. One reason? Friction. Legal, operational, bureaucratic. Tokenization strips that away, allowing more people access to potentially higher returns.

One day, I expect tokenized funds will become as familiar to investors as ETFs—provided we crack one critical problem: identity verification.

Financial transactions demand rigorous identity checks. Apple Pay and credit cards handle identity verification effortlessly, billions of times a day. Trade venues like NYSE and MarketAxess manage to do the same for buying and selling securities. But tokenized assets won’t run through those traditional channels, meaning we need a new digital identity verification system. It sounds complex, but India, the world’s most populous country, has already done it. Today, over 90% of Indians can securely verify transactions directly from their smartphones.⁶⁰

The takeaway is clear. If we’re serious about building an efficient and accessible financial system, championing tokenization alone won’t suffice. We must solve digital verification, too.

The full letter can be read here