Fink: Consolidation In Store For Asset Management Industry

Apr 19 2017 | 10:37pm ET

By Trevor Hunnicutt (Reuters) - BlackRock Chief Executive Officer Larry Fink, who runs the world's largest asset manager, on Wednesday forecast a wave of mergers and acquisitions in asset management, but said his company may be limited for now to small deals.

"I believe you're going to see a consolidation in our industry," Fink told Reuters in a telephone interview, citing previous waves in industries such as banking.

Even so, he said, "We're not going to be a big participant" in M&A. He did say BlackRock is considering three or four small acquisitions that would be focused on shoring up the company's technology and its investment expertise in different assets and geographic regions.

Started as a bond-focused fund manager in 1988, BlackRock later used acquisitions to add index-tracking exchange-traded funds and equities to its menu of offerings. Yet its traditionalist stock-picking unit has remained a source of frustration.

BlackRock's earnings reported on Wednesday showed it attracted nearly $65 billion in new cash from clients in the first quarter, while many of its peers have been trying to stanch outflows. BlackRock oversees $5.4 trillion in assets.

The massive inflows at BlackRock raise the prospect that an industry that has nurtured dozens of brand names from Fidelity Investments to Pacific Investment Management Co is increasingly turning into a winner-take-all game.

BlackRock, Vanguard Group and State Street captured nearly 72 percent of the net cash collected globally last year by mutual funds, money market funds and exchange-traded funds, according to Morningstar Inc.

"Asset managers historically benefited - in most cases, they benefited - from rising beta so you didn't have this need for consolidation," said Fink, referring to how rising markets boosted asset managers' earnings.

The next leg of growth may be harder, including M&A and developing new business lines.

Fink has placed an unusual emphasis on technology for an asset manager.

BlackRock added revenue by licensing its Aladdin operating system for money managers to its rivals. The company is also exploring how computer models can improve stock picking while reducing costs.

Last month, BlackRock announced plans to transfer some responsibilities from more traditionalist fund managers to an internal team known for data-driven approaches to picking stocks.

In the interview, Fink said he has "100 percent confidence" that approach will help performance.

The company's overhaul of its active equities franchise includes doubling-down on niche geographic specialties, such as Asia, where it may have a greater chance to beat the market.

In Depth

PAAMCO: Will Inflation Deflate the Asset Bubble?

Jan 30 2018 | 9:49pm ET

As the U.S. shifts from monetary stimulus to fiscal stimulus, market pricing should...


CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Boost Hedge Fund Marketing ROI By Raising Your ROO

Feb 14 2018 | 9:57pm ET

Tasked with delivering returns on client capital, a common dilemma for many alternative...