Income, multi-asset and exchange-traded fund (ETF) products are three areas in which BlackRock expects to see swift growth globally and particularly in Asia in the next year or so.
Robert Fairbairn, head of the US-based fund manager's global client group in New York, outlined the rationale for this to AsianInvestor while he was in Hong Kong last week. He looks after all global client businesses, including pension funds, endowments, insurers and sovereign wealth funds, as well as institutional cash-business clients, such as corporate treasurers, and intermediaries.
“It won’t surprise you to hear me say that we believe the Asia business should grow faster than our businesses elsewhere, with the possible exception of Latin America and the Middle East,” says Fairbairn. “All those three will be more important [growth regions] than Europe and the US.”
As a result, he says, BlackRock has “disproportionately” allocated resources and is working on initiatives to boost its presence as a ‘local’ player in the region. For example, it is registering more products locally and building up local investment capabilities (it has manufacturing platforms in Australia, Hong Kong, Japan, Singapore and Taiwan).
Fairbairn points to an “aggressive timetable” for building up the iShares ETF platform, which involves developing and registering more funds locally.
He expects to see rising inflows into ETFs from Asian institutions, including hedge funds, sovereign wealth funds and pension funds. They are all net buyers of these products for exposure to individual markets, transition management etcetera, he says.
Another big theme for BlackRock is its multi-asset solutions business whereby it helps clients allocate capital across more than one portfolio and asset class. This is the fastest-growing part of the firm’s business in Asia and globally, says Fairbairn.
The company has been building its Asia teams in recent months – in both existing and new areas, such as corporate governance and corporate strategy – and more staff increases are planned this year, in investment, sales and marketing, among other areas.
More investment is going into the iShares business than the mutual-funds side, where the firm already has a well established team in the region. ETFs are “very under-penetrated” in Asia, especially compared with the US, explains Fairbairn, although it’s difficult to get accurate sales and volume figures because of the nature of the product.
As at the end of February, there were $86.4 billion in ETF assets under management in the Asia-Pacific region, compared with $1.367 trillion globally, according to BlackRock research. However, it's tough to determine an accurate breakdown of ETF inflows by client or region.
Fairbairn expects to see rising inflows into ETFs from Asian institutions, including hedge funds, sovereign wealth funds and pension funds. They are all net buyers of these products for exposure to individual markets, transition management etcetera, he adds.
Even the big retail markets such as Hong Kong are very under-penetrated, hence continued new launches in Asia from players like HSBC and Mirae Asset. “This is indicative of how the ETF markets will develop,” says Fairbairn.
He points to Australia as a market with huge potential, given the proliferation there of self-managed superannuation funds, whose members want liquid, transparent products.
What about Deutsche Börse’s move to offer trading of listed mutual funds in Asia? Fairbairn sees this as an interesting move, but not something that will threaten ETFs. “It’s just one more area of development for the mutual-funds market. The key is to provide quality in both markets,” he says. It’s no coincidence, he adds, that BlackRock has been building both businesses for a long time.
Meanwhile, distributors are becoming increasingly selective over the products they have on their shelves, notes Fairbairn, which has worked for, rather than against, his firm.
“The world is seeking out underperforming managers very aggressively and quickly, so the life cycle of underperformers is not as long as it used to be,” he says. “On the whole, that’s a good thing.”
Looking ahead, Fairbairn says BlackRock will be launching more products globally and in Asia with income as a theme. They will be along the lines of its global equity income fund, which launched in November and aims to generate a yield greater than 1.5 times the MSCI All Country World dividend yield.
On Thursday, the company posted an 8% increase in AUM to $3.648 trillion for the first quarter, from $3.364 trillion the year before, and a 34% year-on-year rise in net profit to $568 million, from $423 million on the back of an 8% rise in revenue to $2.282 billion, from $1.995 billion.
BlackRock has around $400 billion in AUM in Asia-Pacific, making it the biggest non-Asian asset manager in the region and among the biggest asset managers overall.