When Black rock CEO Larry Fink bought the iShares ETF business from Barclays for roughly $13 billion in 2009, with the economy still reeling from the Great Financial Crisis.
At the time, $13 billion seemed like a lot of money to spend on a small business. ETFs were still in their infancy: there were roughly $700 million in total assets under management, a pittance compared to the trillions in mutual funds at the time.
By these indicators, Fink’s gamble has proven to be one of the greatest financial investments of all time.
Doing a sum analysis of Blackrock’s ETF business would be a difficult endeavor, but certainly revenue, assets under management (AUM) and growth potential are important factors.
According to Greggory Warren, equity strategist at Morningstar, Blackrock’s total revenue was $17.8 billion in 2023. Of that, the iShares Equity ETF pulled in $4.41 billion and iShares Fixed Income totaled $1.23 billion (They don’t break out ETFs -alternatives, but the multi-asset category, they are both relatively small.)
So iShares ETF revenue was about a third of Blackrock’s revenue, and Warren said that segment is still growing.
Revenue growth: Check.
Assets under management for Blackrock’s ETF business were $3.85 billion, a number that has roughly doubled from the $1.79 trillion ETF AUM announced five years ago in November 2018. That figure appears to include ETFs that are listed and traded outside the U.S. United States, including London and Canada, but even excluding non-US ETFs, Blackrock still holds the dominant position in total AUM.
ETFs: Where the money is
Blackrock: $2.9 trillion
Vanguard: $2.7 trillion
State Street: $1.3 trillion
Invesco: $570 billion
Schwab: $360 billion
The remainder: about $1.5 billion
Source: ETF Action
AUM Growth: Check.
In terms of growth potential, inflows were $83 billion in the second quarter, or $150 billion year-to-date. To give you an idea of how big it is, it’s about a third of the inflows in the entire ETF business.
Increase feeds: check.
By any metric, Blackrock’s ETF business continues to become more valuable. Income: growing.
AUM: growing. Streams: growing.
The entire ETF business is growing
Blackrock’s ETF business is a goldmine, but the total AUM for the entire ETF business is now just over $9 trillion, meaning Blackrock and several rivals control a staggering amount of ETF investment dollars.
If you look at the list above, it is clear that the rich are getting richer. There are about 300 ETF providers, but the top five represent about 85% of all ETF assets.
The search for new income is endless
The ETF business is still raising money, but there is tremendous fee pressure across the ETF universe, so the search for more income continues.
Neither Fink at Blackrock nor anyone else in the asset management business can afford to rest on their AUM.
For example, Blackrock recently announced their LifePath Paycheck program, an attempt to enter a difficult area: the annuity business. Investors have historically been deeply suspicious of annuities because of their low payouts and high commissions.
LifePath Paycheck uses Blackrock’s existing target date fund framework, which automatically adjusts asset allocation as participants approach retirement (less stocks, more bonds). Here’s the key: Beginning at age 55, a participant can allocate a portion of their assets to an asset class with lifetime income. Participants can begin redeeming their investment at 59½ and purchase annuities from selected BlackRock insurers.
Another area of potential growth is private equity. Blackrock recently acquired Preq, a leading provider of alternative equity data, for approximately $3.2 billion in cash. What they want is more access to private equity data. With the IPO market still limited, there is big money to be made in private equity. It is possible to create indices for private capital investments.
But the investment is bigger than just data. The great hope—that somehow a private equity investment ETF could be created—remains, for now, a pipe dream, for the simple reason that buying private equity assets and managing them in an ETF wrapper is extremely difficult. (To create and redeem ETF shares, market makers must be allowed to buy and sell the underlying assets, difficult, if not impossible, to do on a daily basis when dealing with private equity.)
Could it be possible to create an index and then find a way to synthetically mimic the index without owning any underlying private equity? This is an opportunity.
Bottom line: It’s good to have a business that scales
Regardless of the challenges, remember that this is a business of scale. You can get billions of dollars more, and because it’s so technologically advanced, the costs are minimal.
And that’s what keeps a smile on Fink’s face.
“We have $2 trillion more in assets than a year ago with the same amount of employees. That’s technology at work,” Fink said on CNBC’s “Squawk on the Street” Monday morning.