Growth through acquisition is high on the agenda for some investment managers this year, according to executives who spoke at a Lehman Brothers conference in New York this week.
Laurence D. Fink, the chairman and chief executive of BlackRock Inc., said he State Street Research - despite his long-standing antipathy to mergers - because of the companies' similar cultures.
"Culture first, people second; then we can get into the strategic issues," Mr. Fink said Wednesday at the 2004 Financial Services Conference.
BlackRock, whose majority shareholder is PNC Financial Services Group Inc. of Pittsburgh, said in August that it was buying the MetLife Inc. unit SSRM Holdings Inc., State Street Research's parent, for $325 million in cash and $50 million in stock.
The deal, slated to close in the first quarter, would create an operation with $366 billion of assets under management. It would also give BlackRock extra depth in equities, more wholesalers, and a chance for additional work with MetLife, which will continue a close relationship with State Street, Mr. Fink said.
The deal is part of BlackRock's ongoing effort to expand beyond its core business of serving tax-exempt clients, he said. To that end, the company plans to introduce five products before yearend and is pursing a more advisory role with institutional clients.
Managing those clients' balance sheets through BlackRock Solutions is also a growing activity. Another conference speaker, Kerry K. Killinger, the president and CEO of Washington Mutual Inc., mentioned that his company had hired the group for those services.
PNC is also a client of BlackRock Solutions, and their relationship "never been as strong," Mr. Fink said.
Mellon Financial Corp. also wants to acquire in order to expand its asset management and servicing business. Steven G. Elliott, a senior vice chairman for the Pittsburgh company, said at the conference Tuesday that it is considering both domestic and international acquisitions.
Mellon hopes to expand its institutional asset management, private client, and custody servicing groups, he said. "We have been very proactive on the private-client side," Mr. Elliott said. "We are looking at different geographic regions and plan on getting more scale in certain areas."
Mellon wants to buy companies that are culturally and strategically compatible with it, he said. "We have looked at a lot of things and passed on a lot of things. … We are trying to find the appropriate opportunity that fits financially."
The company has made three purchases in the past four years to develop its private wealth unit. Four more deals are pending, for Providence Group Investment Advisory Co. in Rhode Island; Pareto Partners, a London currency management group; Paragon Asset Management Co. in Las Vegas; and the Norwalk, Conn., hedge fund manager Evaluation Associates Capital Markets.
Mellon's private wealth unit has $75 billion of assets under management and 60 offices in 14 states and the District of Columbia.
Jim Palermo, a Mellon vice chairman, said there are many opportunities to develop asset servicing, especially overseas. Mellon has custodial relationships in 40 countries, versus 17 in 2000. "Internationally, the market is growing rapidly," Mr. Palermo said. "We are seeing more activity and more demand for custodial and related services."
Assets under custody have risen 18% annually since 1995, to $3 trillion at midyear.
Northern Trust Corp.'s focus is on expanding its growing private client and wealth management services. William A. Osborn, Northern Trust's chairman and chief executive officer, said Tuesday that it wants to build the wealth advisory business, which targets clients with $25 million to $75 million of investable assets.
The company's main growth strategies are expanding client relationships, increasing share in existing markets and entering new ones, focusing on demographic trends, and emphasizing its product and advisory strengths, Mr. Osborn said. He did not say whether Northern Trust intends to grow organically or through acquisition in new markets.
Technology is also an important element in Northern Trust's growth, Mr. Osborn said. "We spend roughly $275 million a year on technology … and we will continue to spend at a high level."
High-net-worth markets have been increasing too, he said. Northern Trust defines ultrahigh-net-worth clients as those with more than $75 million to invest. It has $17.8 billion in assets under management and $94.3 billion of assets under custody in this sector, representing more than 285 families.
Northern Trust had a total of $527 billion of assets under management at the end of the second quarter.
Its personal client unit includes the private client group, which targets investors with more than $1 million in investable assets, and the wealth management group, for those with more than $75 million.
New private-client business largely consists of the newly wealthy or those who want a change, Mr. Osborn said. Most "are new money or are dissatisfied with their provider," he said. "We show that we provide more than just custody, more than just advice."
