June 8, 2009 / 9:58 PM / 8 years ago

A BlackRock-BGI deal would reorder industry

<p>People stand outside Barclays Capital offices in New York June 8, 2009. REUTERS/Shannon Stapleton</p>

By Svea Herbst-Bayliss - Analysis

BOSTON (Reuters) - Money manager BlackRock Inc, known for working with institutions and governments, could get a lot closer to retail investors as a result of a potential marriage with Barclays Global Investors, or BGI.

For New York-based BlackRock, which built its reputation by offering debt funds to institutional clients, BGI would add $1.5 trillion in new assets, give it access to fast-growing exchange traded funds and attract retail clients.

The deal would dramatically alter industry rankings and force rivals to find new ways to add assets for which they earn fees at a time many have seen assets fall during the financial crisis.

“This would catapult BlackRock into an almost completely dominant position in the money management industry by opening up new sources of income and further distancing itself from competitors,” said Burton Greenwald, president of mutual fund industry consulting firm Greenwald Associates.

The deal, while far from done, is already being heralded as a coup for BlackRock, a 21-year old firm with roots in the mortgage markets that has used takeovers and top returns to branch into stocks and amass $1.3 trillion in assets.

BlackRock and Barclays Plc declined to comment.

Other managers, including Bank of New York Mellon, are also interested in BGI, people familiar with the matter told Reuters. Industry analysts who follow BlackRock, however, believe it has a good chance to win because it is said to have arranged financing for the $12 billion price.

San Francisco-based BGI would bring BlackRock $1.5 trillion in new assets. This would let what is already the largest publicly traded asset manager in the United States zoom past State Street Corp, which manages $1.4 trillion, and Fidelity Investments, which oversees $1.25 trillion, to become the world’s biggest asset manager.

A deal would also help BlackRock, long popular with big pension funds and endowments, woo retail investors through BGI’s hugely popular exchange traded funds, which trade like stocks and are often less expensive than mutual funds.

“This would completely distinguish BlackRock from its fixed income rival PIMCO, which does not have much of a presence in this area,” Greenwald said.

In Europe, BGI is a powerful hedge fund manager, an area where BlackRock is also eager to expand with profitable products that can earn more in fees than mutual funds.

So far the possible deal suggest the work of Laurence Fink, BlackRock’s co-founder, who has won plaudits from investors and analysts for finding appropriate acquisitions and running a tight ship where every office around the world looks the same.

Three years ago Fink spent $8.5 billion to buy Merrill Lynch’s fund unit and a year later he was widely rumored to be on the short list to head of the Wall Street investment firm. Fink stayed put at BlackRock, however, and has since grown into one of Wall Street’s most trusted spokesmen whose company survived the financial crisis unscathed and has been selected by the U.S. government to manage the sale of toxic assets.

Reporting by Svea Herbst-Bayliss; Editing by Phil Berlowitz

Our Standards:The Thomson Reuters Trust Principles.
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