BlackRock committed to local markets throughout region
Firm focused on providing solutions to secure the financial future for its clients
In the world of investment management, they don't come any bigger than BlackRock, the global firm that was transformed following the US$13.5 billion acquisition of Barclays Global Investors (BGI) last year. With approximately US$3.15 trillion of global assets under management, BlackRock leaves its nearest rivals trailing in its wake. Put another way, the amount of assets under its management is approximately the same as the GDP of the 5th largest economy.
Given its massive scale, the firm enjoys advantages in the business that few can muster and it is now flexing those muscles in the Asia-Pacific region. Rohit Bhagat, recently appointed as chairman for the Asia-Pacific region, says the firm is committed to expanding its franchise in Asia Pacific to serve its clients, adding new capabilities to complement its existing strengths and advantages.
"There is a lot more that we can do in the region both for our local and global clients," proclaims Mr. Bhagat. Among the items on his to-do-list, Mr. Bhagat says BlackRock wants to bring to its clients a broader array of locally manufactured products. "Currently, we have strong global distribution, complemented by pockets of high quality local product manufacturing. We plan to continue to substantially invest in and grow our onshore capabilities" says Mr. Bhagat. Prior to becoming the head of Asia Pacific for BlackRock, he spent five years at BGI as the global chief operating officer. Mr. Bhagat had previously worked for two global consulting firms in the United States.
BlackRock already has a large presence in Asia Pacific, with offices across the region from Japan to Australia, and two joint-ventures in China and India. Of BlackRock's 8,500 global employees, about 1,500 are based in Asia. Regionally sourced assets exceed US$350 billion from both retail and institutional clients (including the iShares franchise). However, these assets represent approximately 10% of the global total, so there is plenty of upside to capture in the years ahead, not just in the faster growing markets such as China and India but also in more mature markets such as Australia and Japan.
To get there, though, Mr. Bhagat and his colleagues are implementing a plan to roll out several key initiatives. One such proposal is to participate in the growth of the regional debt markets by managing local currency bonds out of its Singapore hub, a move which will significantly expand coverage of the Asian fixed income markets. Other initiatives include establishing local manufacturing in Taiwan and Korea, two markets in Northeast Asia that have seen a steady expansion of their asset base in the last five years. "These are key objectives and we are investing to ensure that we have the right platform to deliver the products," says Mr. Bhagat. "Our belief is that as regional regulators and policymakers continue to promote the development of the domestic asset management industry, offering access to high quality global products must be accompanied by deep commitment to local markets" he explains. Allocations to the alternatives and index sectors have been rising providing new opportunities for providers in that space. In recognition, BlackRock recently established a new division focused on this sector globally, known as BlackRock Alternative Investors.
In Australia, BlackRock has been servicing the institutional market through an onshore presence for some time. The huge pool of mandated retirement savings, the second largest in the region after Japan, is set to grow further if plans to raise contribution levels from the current 9% to 12% are implemented. Mr. Bhagat says the firm's business, including its growing retail and ETF franchises, will stand to benefit as the market expands.
Being the largest and deepest capital market in the region, Japan has long been a focus for global asset management firms. The corporate pensions market, while broad and deep, will enjoy modest growth at best. "For us, we see good opportunities in the financial institutions and retail market. We believe that given the low yields in the local market, and the retirement/demographic trends, domestic investors will continue to look overseas for higher returns and we want to play a bigger role in serving those needs," he adds.
China and India should are attractive for firms with the right platform and products given their huge domestic markets. But distribution remains a tricky and challenging proposition, not to mention the fluid regulatory regimes. This was brought to the fore in India last year when the regulator introduced a new rule banning mutual fund front-end loads; an unintended side effect of the rule saw distributors move to sell relatively opaque investment-linked insurance products instead. Mutual fund sales, as a result, plummeted, while the goal of providing more transparency to end-investors was at least partially compromised. But beyond the recent market travails, Mr. Bhagat sees good opportunities to leverage off the skill set of the joint-venture, DSP BlackRock Investment Managers, to serve both Indian investors and global investors seeking exposure to Indian equity, fixed income and money market securities.
As for the Mainland, it is obviously a market that is high on BlackRock's agenda; aside from its JV there, launched with the Bank of China in 2004, the firm is looking to raise its profile in both the QDII and QFII space. "We are deeply committed to China and to helping develop its capital markets - we are excited about the recent reforms that are now shaping the market and we are looking to raise our level of participation across the board," notes Mr. Bhagat.
As Mr. Bhagat moves forward with BlackRock's strategic plan for the region, there is no question that the firm's scale puts it in a different league altogether in the business; a sine qua non of the firm's success. However, Mr. Bhagat is clear that scale is not a goal in and as of itself for BlackRock - instead it is the benefits that the firm's scale provides its clients that are the driving factors. In a business which has been turned on its head following the recent crisis, scale can provide critical competitive advantage.
As an example, Mr. Bhagat points to the enhanced focus on risk management and all its attendant implications - investments in controls, risk management systems, etc. In addition, he points to the need to invest heavily in technology and research in the global pursuit of uncorrelated sources of alpha. "All of these require massive investments on an ongoing basis and this is where a firm with our scale is able to muster the resources in order to invest and remain competitive," he explains.
There is already a palpable shift taking place in the world of passive investing, with the larger players separating themselves from the pack even as more providers throw their hat in the ring. BlackRock's ETF platform, home to its iShares franchise, is seeing increased inflows. Post crisis, Mr. Bhagat says there is even stronger recognition that the attributes of ETFs are well suited for both retail and institutional investors. Interestingly, the world of alternatives is following a similar trend, with the larger providers gaining ground at the expense of their smaller competitors.
That said, Mr. Bhagat is very clear that while scale provides some key advantages, it is not a panacea for continued success in the years ahead. Compared to the landscape 15 years ago, the investment world of asset managers today has changed dramatically in both shape and form. Some of the leaders then have disappeared, swallowed up in some cases by their smaller rivals. Others have been sold off, leaving little of their legacy behind. He notes that the quantitative world of investing is going through a period of change following the market disruption in 2008. Through that period, quant funds discovered that their models did not work as well as assets and markets became more correlated. Many are now returning to the drawing board, re-working their models and basic assumptions while the weaker players are leaving the industry.
The lesson to be learnt then is to stay relevant to client needs. As Mr. Bhagat points out, "We are intensely focused on providing solutions to secure the financial future for our clients."