|
BlackRock may hasten ETFs' dawn in retirement plans
By John Spence, MarketWatch
Last Update: 1:08 PM ET Jun 12, 2009
BOSTON (MarketWatch) -- Laurence Fink has big plans for exchange-traded funds in the retirement market if he gets his hands on the largest ETF provider.
His firm, BlackRock Inc. BLK, has unveiled a widely expected deal to purchase Barclays Global Investors for $13.5 billion, one of the largest transactions ever in the asset-management business. See coverage of the deal.
Among other things, the Barclays BCS unit is the largest provider of ETFs, with 369 global iShares ETFs and assets of nearly $300 billion at the end of the first quarter.
"I believe with our strength in mutual funds and, importantly, the overwhelming position of iShares, that we can now bring a comprehensive solution to our retail clients, providing both solutions in the mutual-fund space and in the ETF space," Fink, the chief executive officer of BlackRock, said during a conference call Friday to discuss the proposed deal.
"We will continue to expand the iShares platform in different countries," he said.
Fink also said BlackRock could use its weight and influence to get ETFs into more retirement plans, which are dominated by mutual funds. One big hurdle for ETFs is that most 401(k) back offices aren't set up to handle ETFs, which are baskets of securities that trade like individual stocks.
"I think one of the real long-term trends is going to be lower-cost products," Fink said.
"I think the expenses associated with many retirement products overwhelm some of the relative returns," he said. "Some passive strategies will have a larger component to the future of our retirement strategies."
Most of the larger iShares ETFs are index-linked funds tied to recognizable stock and bond benchmarks.
Operational constraints
After so many 401(k) participants were burned by the market crash, there is once again talk of reform in the retirement market.
"We are going to see a pretty strong trend toward core/satellite strategies where there will be greater allocation to core index strategies," said Susan Wagner, BlackRock's chief operating officer.
Yet ETFs haven't been able to penetrate the 401(k) space in any meaningful way, and the entrenched mutual-fund business likely won't welcome a competitor to the retirement space. BlackRock offers actively managed mutual funds, and more firms are starting to manage both ETFs and mutual funds.
"The constraints for the ETF products have been operational in nature -- not because they are really not a good fit, but because the administrators have not been set up to handle that product," Wagner said.
"BGI has just begun to overcome some of those issues initially with smaller plans," she noted. "We believe that working together, we will be able to work with administrators to address those issues and be able to introduce efficient 'beta' products more broadly through those platforms. So I think that is a real opportunity for growth."
The recent entry of another bond giant, Pimco, into ETFs and other top-shelf financial firms waiting in the wings will likely bolster the popularity of ETFs. In particular, the business seems to have its sights set on the massive retirement-plan market.
Although BlackRock plans to keep its mutual-fund and ETF platforms separate, the BGI marriage would broaden its lineup and give investors more choices between active and passive products. Fink said the deal could be the "forefront of a big consolidation wave in the asset-management business." See related story.
The combination of BlackRock and BGI creates the world's largest asset manager with more than $2.7 trillion in assets.
The combined firm would oversee institutional assets of nearly $2.2 trillion, of which about one-third would be passively managed.
By adding BGI, BlackRock's retail assets would jump to $526 billion, with more than half comprised of iShares.
|