While some analysts questioned whether BlackRock's heft might hinder growth in the U.S., its sheer size has helped the firm in the EMEA region.
“We've seen (European bank-owned asset managers) go through divestitures or threat of divestitures, which are unsettling (to investors). So in Europe, the size and stability of BlackRock has clearly been a distinct advantage,” said Geoff Bobroff, president and founder of Bobroff Consulting Inc., a money management consulting firm in East Greenwich, R.I.
In contrast, many U.S. institutional investors “are close to filling the till at BlackRock and they might not want to give (BlackRock) more assets,” partly because of concerns over the need to diversify their money manager pool, Mr. Bobroff said. “Growth needs to occur elsewhere in the world.”
BlackRock is also moving into countries in which it has had a much smaller footprint, including Germany, France, Italy, Switzerland and the Nordic region. “We see tremendous growth potential in those markets,” Mr. Prideaux said. “The crisis has been a catalyst,” driving growth potential in certain markets that were previously dominated by local banks and insurance companies.
“We see these markets opening up more to international players like ourselves,” said Robert A.R. Hayes, managing director and head of strategic advice services, London.
In 2012, BlackRock entered into an agreement to acquire Credit Suisse AG's exchange-traded fund business, which is expected to add about $17.6 billion in non-U.S. AUM and expand the firm's presence in continental Europe, particularly in Switzerland. BlackRock has “a commanding 37% share” of the ETF sector in Europe, nearly twice that of the next biggest contender — Deutsche Bank with 14%, according to data from Sanford Bernstein.
The company also acquired Swiss Re Private Equity Partners in September 2012. The private equity and infrastructure funds-of-funds business added about $7.5 billion in total commitments largely sourced from outside the U.S.
“The alternative business is definitely an area where BlackRock would like to have a larger share,” said Greggory Warren, senior stock analyst at Morningstar Inc., Chicago, who covers money managers. “BlackRock is buying smaller (hedge fund and private equity) businesses, and then going to institutions directly and charging lower fees. The fee differential here is meaningful enough to attract inflows.”
Net long-term inflows for institutional core alternatives totaled about $700 million in the quarter ended March 31. “Single-strategy hedge funds' net long-term inflows were led by demand for our model-driven fixed-income and fundamental European equity hedge funds,” according to the firm's financial update published in April. Firmwide, BlackRock manages about $70 billion in core alternatives strategies, which excludes active currency and commodities. (A specific breakout on global ex-U.S. alternatives AUM was not available.)
In the EMEA region, BlackRock is also known for its active equity capabilities, Mr. Prideaux said. “That was Mercury's DNA,” he added. Mercury Asset Managers was part of Merrill Lynch Investment Management, which was acquired by BlackRock in 2006.
However, analysts and consultants said, growth in active equities — in Europe and elsewhere — will depend on the success of BlackRock's divisional restructuring that began last year. More than 50% of its fundamental active equities strategies underperformed in the one-, three- and five-year periods as of Dec. 31, according to the firm's annual report.
Its active scientific equities strategies fared better, but more needs to be done to generate and sustain better returns in active equities overall, sources said.
“Investors have been hiding in fixed income in the past five years,” Mr. Warren of Morningstar said. “There's going to be a reckoning when (interest rates) go up, and BlackRock needs to make sure that their equity strategies are up to snuff when that happens.”
Active equities account for only about 7% of BlackRock's total AUM as of March 31. Following the June 2012 announcement that Robert Doll, BlackRock's then chief equity strategist, was leaving, the company implemented a series of high-level changes in the active equity group. Most occurred in the U.S., but Europe also has been affected. For example, BlackRock promoted Nigel Bolton earlier this year to chief investment officer for the EMEA and Asia regions, a new position. He is responsible for international fundamental equities.
“There's constant pressure to make sure that (investors) are getting value,” Mr. Prideaux said. “From our perspective, some of our passive solutions don't cost very much. Some of our alternative strategies cost more, but if we can demonstrate value — and value is performance — then clients will look at that because demand for alpha remains high.”