BOSTON BlackRock Inc may be best known for its huge institutional bond accounts and iShares exchange-traded funds, but the firm is planning a massive expansion in old-fashioned mutual funds and related retail offerings.
Already the world's largest asset manager, New York-based BlackRock wants to double its $300 billion U.S. retail business by the end of 2014, Frank Porcelli, managing director and head of U.S. retail, told Reuters.
"The firm has identified U.S. retail as a strategic priority," Porcelli said in a telephone interview. "We think we can double our business from where it is now."
The plan makes sense given BlackRock's relatively smaller profile in U.S. retail funds compared with some of its other businesses, analysts said.
At the end of 2010, BlackRock's $374 billion global retail segment, including $300 billion in the United States, was dwarfed by the firm's $2.2 trillion institutional fund side. It also trailed the $590 billion iShares ETF business, which included $450 billion in the United States.
BlackRock ended the year with $3.6 trillion of total assets under management worldwide -- about double the amount its nearest rivals such as State Street Corp and Fidelity Investments oversaw.
"Historically, it's never been a big focus," Greggory Warren, an analyst at Morningstar in Chicago, said. "There is definitely potential to expand there especially if they can piggyback off ETF users who know the BlackRock name."
After acquiring Barclays PLC's investment unit in 2009 and Merrill Lynch's in 2006, along with a series of smaller purchases to fill in some gaps, BlackRock does not need to introduce a lot of new funds aimed at different niches, Porcelli said.
Instead, the firm will increase its marketing effort this year with a 15 percent increase in staff working for Porcelli. They will aim for greater sales to brokers and financial advisers as well as workplace and education savings plans including 401(k) and 529 plans.
"The 401(k) opportunity is a big one for them," said Macrae Sykes, an analyst at Gabelli & Co in Rye, New York. "There is a chance to take market share from the major players."
BlackRock will also look to create customized investment programs that appeal to wealthy investors using separate accounts instead of mutual funds.
Such efforts might be modeled on a program BlackRock designed to create customized municipal and taxable bond portfolios for wealthy clients of UBS. The firm also made an actively managed asset allocation system using ETFs for clients of LPL Investment Holdings.
Since BlackRock already has a strong presence at the largest firms like Merrill, now owned by Bank of America, and Wells Fargo, much of the new effort will focus on the hundreds of thousands of financial advisers working in small firms or on their own, Porcelli said.
The marketing push could send one of the firm's most popular funds, the $53 billion BlackRock Global Allocation Fund, to new heights. The fund was the seventh best-selling mutual fund last year, taking in a net $8.7 billion, according to market researcher Financial Research Corp.
The fund is overseen by Dennis Stattman, a former investment officer at the World Bank who came to BlackRock in the 2006 acquisition of Merrill Lynch's investment unit. The fund has gained an average 8.86 percent a year over the past decade, almost double the return of the FTSE World Index and two percentage points a year better than the average similar fund.
"People used to be looking for a large cap value fund and large cap growth fund and all the other areas," Porcelli said. "Now the movement is to unconstrained mandates."
(Reporting by Aaron Pressman, editing by Maureen Bavdek)