BlackRock launches multi-manager alternatives fund for retail investors

NEW YORK Tue Aug 12, 2014 11:00am EDT

NEW YORK Aug 12 (Reuters) - BlackRock Inc, which has been heavily promoting alternative investments to retail investors, intensified that effort on Tuesday with the launch of a new multi-manager fund.

The BlackRock Multi-Manager Alternative Strategies Fund combines the strategies of seven different managers into one fund. It is the seventh of so-called alternative mutual funds that BlackRock has launched aimed at penetrating the retail alternatives market, an area that executives at the New York-based asset manager say they want to dominate.

Alternatives, which BlackRock defines as investments other than long-only stocks and bonds, and cash, typically command higher fees. They are already a big revenue driver at BlackRock, which manages nearly $4.6 trillion in assets as the world's largest money manager. Alternatives generated about 9.1 percent of the firm's total revenue last quarter, while accounting for just 2.6 percent of total assets under management.

The new fund will be a pricey addition, with an annual management fee of 1.95 percent. Annual fund operating expenses, after fee waivers and reimbursements, could be as much as 3.64 percent for some investors who buy the fund through brokers.

Cash flows into retail alternatives, including mutual funds, are projected to produce as much as 50 percent of the net new revenues that U.S. asset managers will make from retail customers over the next five years, according to an Aug. 6 report from McKinsey & Co.

"It's certainly a big opportunity for them," said KBW analyst Robert Lee, noting that BlackRock has already "invested a lot in beefing up" their retail business and alternative capabilities.

The fund is designed to seek total return and, like other alternatives, diversify investor portfolios beyond core stock and bond holdings. It includes alternative investment strategies from seven different managers, or sub-advisers, whose focuses range from fundamental long/short to event driven strategies.

Among the fund's sub-advisers is LibreMax Capital, whose manager Greg Lippmann told Reuters last year they have been "very active" in consumer asset-backed securities, particularly student loans but also credit card debt.

BlackRock already sells hedge funds, private equity, infrastructure and real estate investments - all termed alternatives - to institutional investors. Packaging offerings like that into mutual funds that Mom and Pop investors can buy is a logical extension of the firm's strategy.

"It fits very well with our footprint as a firm," said Matt Botein, chief investment officer and co-head of BlackRock's alternatives business, in an interview. The firm has been promoting alternatives to financial advisers through sales meetings, white papers and more.

BlackRock is not alone in its push with retail alternative funds, which generally tuck sophisticated hedge-fund type strategies into mutual funds anyone can buy. There have been 40 new alternative funds launched this year, by research firm Morningstar's tally, and $14.6 billion in net inflows into the category, which now boasts a total $156.3 billion in assets. (Reporting by Ashley Lau in New York; Editing by Linda Stern, Bernard Orr)