The United States just isn't a big enough market for BlackRock Inc.
After completing its $13.5 billion purchase of Barclays Global Investors, which closed in December, BlackRock more than doubled its assets under management, to $3.3 trillion, from $1.3 trillion a year earlier and became the industry's largest money manager as measured by assets.
Now the New York company says it plans to step up its international presence, and analysts are saying this should not be too hard.
"The competitive environment is favorable for BlackRock," J. Jeffrey Hopson, an analyst at Stifel Nicolaus & Co., said in an interview Wednesday. "The global market selloff has hurt everything, especially smaller companies. From a competitive standpoint, BlackRock is in a position to pick up share. … This is a year for the larger, stronger companies."
Laurence D. Fink, BlackRock's chairman and chief executive officer, is specifically targeting Latin America and Asia. At Dec. 31, 40% of BlackRock's assets were held outside the United States.
"The amount of business in the non-U.S. space is growing dramatically," Fink said on the company's fourth-quarter results call. "This is where we plan to invest in the future. … We will continue to spend money investing overseas, especially in Latin America and Asia."
The company also wants to develop its exchange-traded fund platform and its defined contribution business, Fink said. The deal for Barclays gave BlackRock the iShares ETF platform and made it the dominant player in the product. More than $500 billion of ETF assets are managed by iShares. In the fourth quarter, the platform attracted $21 billion of BlackRock's $85 billion in net inflows.
ETF returns have been strong thus far this year, Fink said, despite the fact that, "traditionally, ETFs have strong fourth quarters and weaker first quarters." ETF flows have been "pretty resounding" this month, he said.
Hopson said BlackRock has "overwhelming momentum right now, especially in ETFs."
Fink said actively managed ETFs remain a "very large growth area" and that he also sees an opportunity to add international ETFs. BlackRock wants to be "vigilant," he said, as it develops ETFs so that they can "meet the test of time."
Analysts said BlackRock will lose some share in ETFs as new competitors enter the business. Last year nine companies began offering the product, entering a market long dominated by a handful of large providers. The number of funds grew 10% last year.
But iShares remains the dominant player in the business, with 49.3% of all ETF assets.
Fink admitted that iShares' market share may decline as competition grows, but he noted that customers respond to BlackRock's "having been the first mover" and its "scale."
"We welcome the competition and agree with the competition that this is the space to be in," he said. "We are not frightened of competition and believe there is room for many more competitors."
Fink said many synergies exist between iShares ETFs and BlackRock's legacy proprietary mutual funds. "The one real surprise in this integration," he said, "is how strong the connections are and the opportunities" to develop business "in the retail space with beta and alpha products working together."
In the defined contribution business, Fink admitted that BlackRock would "never be as large as some players," but he said he sees an opportunity to subadvise more such products.
The company is working with insurance carriers to develop more defined contribution products, he said, and more companies are adding BlackRock products to their 401(k) plans' investment offerings.
"We have a dedicated DC team that we are building out," he said. "This is an area that we are underinvested in, and we believe that we didn't have the appropriate scale. Today, we have the scale, and we have made the investments to be a player in the future."
BlackRock reported fourth-quarter earnings of $256 million, or $1.62 a share, compared to $52 million, or 39 cents a share, a year earlier.