BOSTON American asset managers woke up to a reordered world on Friday after BlackRock and Barclays Global Investors inked a blockbuster deal that may prompt many of them to consider mergers of their own.
BlackRock, already the largest publicly traded U.S. money manager with $1.3 trillion in assets, will pay $13.5 billion for BGI's $1.5 trillion in assets.
The deal puts a huge distance between the new company and its closest rivals, State Street Corp with $1.4 trillion, and privately held Fidelity Investments with $1.25 trillion.
"Fidelity is no longer the industry's 800-pound gorilla. We now have a new 16,000-pound gorilla," said Geoff Bobroff, president of Bobroff Consulting, a mutual fund advisory firm.
For the industry's biggest players, including Bank of New York Mellon and Vanguard, the move could hasten talk about how best to compete with the new BlackRock Global Investors in products like index funds and exchange traded funds where scale matters, industry analysts who follow the group closely said.
Analysts have long expected a fresh wave of mergers among fund managers after many were badly battered by last year's financial crisis that cost them billions in lost assets and forced thousands of job cuts.
"There are a lot of managers interested in acquiring something and building out the investment areas they don't have," said Robert Lee, analyst at Keefe, Bruyette & Woods.
Bank of New York Mellon was also interested in BGI, and because the company is flush with cash, some analysts speculate it may be next to announce a deal. "I wouldn't be surprised if they do something big relatively soon," said Michael Herbst, mutual fund analyst at Morningstar Inc.
Several analysts said a likely target may be Bank of America's Boston-based Columbia Management unit, which is for sale to help shore up its parent's financial strength and offers potentially attractive money market funds.
Even Fidelity may become more interested in offering more exchange traded funds, the hugely popular portfolios that trade like stock, analysts said.
And the BlackRock deal may revive long-simmering speculation that State Street's investment unit State Street Global Advisors, also a strong player in index funds, may be better off separated from its parent, which offers custody and accounting services.
State Street does not comment on rumors and its chief executive officer Ron Logue has previously said that a part of State Street's recipe for success lies in being able to cross sell products to various clients.
With roughly 8,700 mutual funds offered by about 650 fund firms, analysts agree there will be a significant downsizing.
"Players like Putnam Investments and Janus Capital will probably have to do something because they are subscale," Bobroff said.
However, BlackRock's high price for BGI might prompt some players to hold out for bigger prices that analysts say are not entirely justified after the financial crisis cost firms billions in assets.
"The thing that will most likely stimulate another wave of mergers is another downdraft in the market," Bobroff said.
At the same time, analysts said that smaller, well-run players, like T Rowe Price, will still be able to attract assets by posting strong returns.
"Bigger doesn't always lead to better returns," Morningstar's Herbst said.
(Reporting by Svea Herbst-Bayliss; Editing by Gary Hill)