Make way for the 1,600-pound gorilla in the money management industry.
BlackRock Global Investors — scheduled to emerge in the fourth quarter from the mega-marriage of
BlackRock Inc. and
Barclays Global Investors — will be the world's largest money manager, with a stunning $2.7 trillion in assets under management.
While the vast majority of the existing firms' assets are in the institutional world, the pairing of the two behemoths will give the “new”
BlackRock the firepower to become a dominant force in the retail marketplace as well.
During a conference call Friday to discuss the $13.5 billion deal, Laurence D. Fink, BlackRock's chairman and chief executive, specifically noted that adding BGI increases BlackRock's ability to work with financial advisers in creating more customized and “comprehensive” products for individual investors.
“What we saw in BGI is the best indexing and scientific investing platform in the world, and the leading [exchange traded fund] platform in the world,” he said.
Barclays' ETF operation in particular — San Francisco-based iShares — arms New York-based
BlackRock with its most significant retail weapon.
About half of iShares' $300 -billion in global assets under management comes from individual investors. By contrast, only about 20% of BlackRock's $1.4 trillion in assets — or $228 billion — belongs to retail and high-net-worth individuals.
The acquisition of iShares immediately increases BlackRock's share of the retail marketplace and creates a platform controlling about $526 billion in individual investors' assets.
Adding iShares' roughly 350 products — by far the largest lineup of any ETF provider — to the
BlackRock retail platform positions the firm to capitalize on what is expected to be an enormous period of growth for ETFs.
According to projections from New York-based Strategic Insight Mutual Fund Research and Consulting LLC, the $550 billion in total ETF assets in the United States should surpass the $1 trillion mark in less than three years,
At the same time, Mr. Fink pointed out that BlackRock also will be able to package iShares' ETFs alongside its own actively managed mutual funds — a pairing that significantly increases its ability to create “tailored” portfolios for advisers and their clients.
“Through the iShares platform, our investment solutions for retail have changed dramatically,” he said. “The ability to work with financial advisers to create an investment solution utilizing both passive and active strategies is a very, very important positioning for BlackRock.”
Bing Waldert, a director specializing in intermediary distribution at Boston-based research firm Cerulli Associates Inc., noted that “it's a clear advantage” for any firm to have a product such as ETFs in its arsenal.
“But to have the dominant player — iShares — in your bag is a game-changer,” he added, specifically pointing to iShares' broad array of global ETF offerings.
That isn't all that BlackRock has in its bag, of course. The firm also has a distribution deal with New York-based Merrill Lynch & Co. Inc.'s Global Wealth Management business, an agreement it inked in 2006 when Merrill offloaded its investment management unit to BlackRock in exchange for a roughly 49% ownership stake in the combined company.
As a result, BlackRock now has the ability to connect the dots between the world's largest retail ETF provider and one of the world's largest retail brokerage forces: the
Bank of America/Merrill “Thundering Herd” of more than 14,000 reps.
“It's a potential marriage of a manufacturer and a distributor that has yet to be seen in the ETF market,” said Eric Weber, chief operating officer of Freeman & Co. LLC, a New York-based investment bank that focuses on financial services.
“It would be a kick in the pants and a huge advancement for ETFs, in general,” said Jason Heller, vice president and director of investments for National Planning Corp., a broker-dealer and registered investment advisory firm based in Tampa, Fla.
Despite the increased popularity of ETFs in recent years and the “explosive growth” of iShares, the financial advisory and brokerage communities are still largely under-penetrated distribution channels, noted Robert Fairbairn, vice chairman and head of account management at BlackRock.
“It's still pretty early days,” he said, estimating that ETFs comprise less than 5% of all assets overseen by advisers. “But we see tremendous growth potential across our distribution partners, who have already expressed their excitement about being able to talk with one house that has both ETF and actively managed retail capabilities.”
It is too early to suggest how, specifically, BlackRock will leverage its relationship with Merrill, Mr. Fairbairn added.
But Mr. Weber and other ob-servers noted that iShares ETFs could be packaged with Merrill's managed-account products — either in place of or alongside actively managed mutual funds — to push the ETFs through the adviser channel.
“It gives the Merrill reps the ability to put some very attractive, cost-effective products together for their wealthy clients,” said Sean Cunniff, research director in the brokerage and wealth management unit at The TowerGroup, a consulting firm in Needham, Mass. “And that could put some pressure on other brokerages.”
That, of course, assumes BlackRock's acquisition of BGI takes place as planned.
In April, Barclays agreed to sell iShares for $4.4 billion to private-equity firm CVC Capital Partners Ltd. of Luxembourg.
As part of that deal, however, there was a 45-day “go shop” period in which Barclays could pursue a better offer for iShares, or the entire BGI business.
Mr. Fink said that CVC has until Thursday to match the terms of BlackRock's offer before the purchase agreement with Barclays becomes final.
E-mail Mark Bruno at [email protected].
