The asset management market likely to see a wave of M&A

Larry Fink sees the waters in the asset management scene as choppy in the short run.

Larry Fink, the CEO of the BlackRock Inc, the world’s largest asset manager, has said he sees a wave of mergers and acquisitions taking place in asset management. He will however limit his company’s involvement in small deals only.

“I believe you’re going to see a consolidation in our industry,” said Fink in a telephone interview, citing previous waves in industries such as banking.

He underscored the fact that “We’re not going to be a big participant” in M&A. He however disclosed that BlackRock is considering three or four small acquisitions and that the company is focused on shoring up its technological expertise in investment making across asset segments and geographic locations.

As per the company’s earnings report, during the first quarter of this year, BlackRock has attracted around $65 billion in new cash investments from clients while many of its peers have been trying to stanch cash outflows.

The heavy inflows in BlackRock, which oversees $5.4 trillion in assets, raises the prospect that an industry that has nurtured dozens of brand names from Fidelity Investments to Pacific Investment Management Co, is increasingly turning into a winner takes-it-all game.

As per Morningstar Inc, BlackRock along with, Vanguard Group and State Street Corp have captured nearly 72% of the net cash collected globally in 2016 by mutual funds, money market funds and exchange-traded funds.

“Asset managers historically benefited – in most cases, they benefited – from rising beta so you didn’t have this need for consolidation,” said Fink, referring to how rising markets boosted asset managers’ earnings.

The next leg of growth promises to be much harder.

Fink’s leaning towards a technological driven asset investment is unusual for an asset manager.

BlackRock has boosted its revenues by licensing its Aladdin operating system to its rivals. The company is also exploring how computer models can improve stock picking while reducing costs.

In an interview, Fink said he is “100 percent confidence” that a technologically driven investment model will help improve performance.

Incidentally, BlackRock’s overhaul of its active equities franchise includes doubling-down on niche geographic specialties, such as Asia, increases the chance of it beating the market.

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