Larry Fink Questions 60/40 Investment Rule in Annual Letter

In the world of investing, there has been a long-standing principle known as Modern Portfolio Theory (MPT) that has guided professional investors for over 70 years. This strategy, popularized by Nobel Prize-winning economists Harry Markowitz and Bill Sharpe in the 1950s, advocates for a classic 60/40 portfolio—60 percent stocks and 40 percent bonds—to diversify risk and maximize returns. However, Larry Fink, the CEO of BlackRock, the world’s largest asset manager, is challenging this traditional approach.

Fink believes that as the global financial landscape evolves, a new formula for asset allocation is needed. He proposes a 50/30/20 portfolio: 50 percent stocks, 30 percent bonds, and 20 percent private assets such as infrastructure, real estate, and equity in privately owned companies. This idea was presented in Fink’s recent annual letter to investors, where he emphasized the importance of broadening access to private markets for retail investors.

Private assets, which include infrastructure projects and privately owned companies, have historically been limited to governments, banks, and high-net-worth individuals. These investments carry higher risks but also offer potentially higher returns. With more companies choosing to stay private for longer periods and the demand for infrastructure investments on the rise, traditional funding sources are struggling to keep pace.

To address this funding gap, BlackRock is leading the way in connecting clients to private market opportunities through strategic acquisitions. In 2024, BlackRock acquired Global Infrastructure Partners (GIP), a firm specializing in energy, transportation, and digital infrastructure assets. Additionally, the company is in the process of acquiring data providers like Preqin and asset managers such as HPS Investment Partners to enhance transparency in private markets.

One of the key challenges in private markets is the lack of transparency, which can deter investors from participating. Fink compares investing in private markets to buying a house in an unfamiliar neighborhood before the existence of platforms like Zillow. To address this issue, BlackRock aims to provide greater transparency through data providers like Preqin, which track thousands of funds and asset managers globally.

By bringing clarity and accessibility to private markets through data and technology, Fink believes that investing in private assets will become as straightforward as investing in traditional stocks and bonds. This increased transparency will not only benefit investors but also facilitate the flow of capital throughout the economy, driving growth and innovation in the years to come.