Blackrock mulls listing products on JSE

Asset manager seeks to grow institutional and retail business, writes Evan Pickworth

THE world’s largest asset manager, BlackRock, which has $3.79-trillion under management, has given SA’s investment markets its vote of approval in wanting to expand its reach since launching its first office in the country in August last year.

BlackRock is mulling listing products directly on the JSE. However, even without a listing, it wants to grow its institutional and retail business in line with global trends to blend passive investing with traditional active fund management.

Over the past five years, indexing — or tracking the performance of a basket of shares, bonds or commodities via an investment product — has seen a steady inflow of new assets, while the active management industry has experienced one of its most difficult patches ever.

Since the onset of the financial crisis in 2007, cumulative net new flows into equity and fixed-income indexing funds have totalled nearly €1.5-trillion, according to BlackRock data, while active equity and active fixed-income fund net new flows have been in effect zero, driven by significant outflows in 2008 and 2011.

BlackRock’s model prospered during the financial crisis. In 2009, it bought Barclays’ investment management unit, Barclays Global Investors.

BlackRock benefited, as clients increasingly seek lowcost, but diverse offerings, with its product line said to be the largest in the world. It is also one of the world’s biggest hedge funds. BlackRock now wants to drive home the same advantage in SA, as regulatory changes will see clients seeking more costeffective and diversified solutions. Two major themes are expected to further drive the growth — stronger moves into retail-driven exchange-traded markets and more demand for fixed-income products.

New regulatory changes will likely sound the death knell of commission-based structures which will lead to fee pressure on margins and products.

BlackRock business iShares has a suite of exchange-traded funds on exchanges worldwide, and is an important part of the mix as institutions and individuals in SA will be able to utilise it to invest directly onto offshore product offerings. In turn, foreign investors can quickly gain exposure to SA.

“A big exchange-traded product trend in Europe, the Middle East and Africa over the next two years will be a move into the retail space through advisers,” iShares MD Stephen Cohen said at a briefing in Johannesburg yesterday.

BlackRock and iShares research to the end of March shows that the global exchangetraded product industry had its best first quarter, amassing flows of $70.1bn from the previous record of $65.5bn last year. But emerging markets did not fare as well, pulling back from a much better fourth quarter.

Mr Cohen says lower commodities growth fed into the decline, as did the stronger dollar, which “often corresponds with an underperformance of developing markets”.

Meanwhile, he says, underperformances by China and Brazil in the past few months added to the decline.

However, the main themes to watch will be the fact that pension and insurance companies will start to think about using exchange-traded products as they look for more liquidity in portfolios. Exchange-traded products tend to have tight buy and sell spreads, as those making these markets attempt to offer high degrees of liquidity.

Added to this will be growth in the retail market, as regulation creates more cost transparency and advisory-driven growth. Mr Cohen says SA has been a “late adopter” in growing these products, but that has been normal for emerging markets as they have only drawn 5% of the assets in the industry.

“There is a lot of incentive to make it work … and people are aware of the coming changes,” says BlackRock SA director Barbara Vintcent.

The first exchange-traded fund in SA, the Satrix 40, was launched in 2000. There are now just more than 30 exchange-trade products listed on the JSE — from international equity products to currency products — but their performances can vary widely.

The top funds achieved growth rates of over 35% last year, while the bottom feeders managed about 10%.