BlackRock Has 8 Trillion Reasons for Fund Euphoria

(Bloomberg Opinion) -- BlackRock Inc., the biggest beast in the fund management forest, on Tuesday announced that it grew its assets under management by 12% to $7.81 trillion in the third quarter from a year earlier. In normal times, that would be a staggering achievement; coming in the middle of a pandemic, it’s astonishing. It highlights the advantage that scale brings in winning new business and retaining existing clients in the arena of managing other people’s money.

It’s one of a trio of recent developments that reinforce the growing schism between the haves and the have-not-enoughs in the fund management industry. This week’s announcement that Fidelity Investments plans to hire 4,000 new staff in the next six months is further evidence that size matters more than just about everything else, as is Morgan Stanley’s $7 billion purchase last week of Eaton Vance Corp. to gain its $500 billion of assets.

With $3.3 trillion under management, Fidelity is a member of the exclusive $1 trillion club — the supposed minimum amount of funds required to compete effectively for customers. As central banks have pumped trillions of dollars into the global economy to offset the economic effects of the pandemic, the firm says it’s enjoying a bonanza of new and existing customers opening more accounts and trading more actively.

For Morgan Stanley, the Eaton Vance transaction will swell the amount it oversees in its eponymous investment management division to $1.2 trillion. As my colleague Brian Chappatta wrote last week, the U.S. bank’s Chief Executive Officer James Gorman had made no secret of the need to scale up in asset management.

But fewer than 30 asset managers around the world have managed to clear the $1 trillion hurdle, according to a report published this week by Greenwich Associates. Those on the wrong side of the velvet rope need to distinguish themselves by either the products they offer, the clients they serve or the investment approach they pursue. Even then, the Greenwich report says, “success will be achieved only by managers who select the proper strategy and then beat the competition through consistent, superior execution.”

Although that’s a chilling message for the mid-tier firms that make up most of the sector, it could be a boon for the mergers and acquisitions bankers who’ve been circling the fund management industry for years with deals in mind. In Europe in particular, only France’s Amundi SA currently qualifies for the top division, with about $1.9 trillion of assets.

The mergers that produced Janus Henderson Group Plc and Standard Life Aberdeen Plc saw clients pulling money out of both firms as they struggled to integrate different cultures. The results have deterred rivals from following suit. But as the biggest firms continue to win an even greater slice of the asset management pie, the message is becoming clearer: Go big, or go home.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Mark Gilbert is a Bloomberg Opinion columnist covering asset management. He previously was the London bureau chief for Bloomberg News. He is also the author of "Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable."

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