Judged by these standards, Fink's bet proved to be one of the greatest financial investments of all time.
A comprehensive analysis of BlackRock's ETF business is a difficult task, but revenue, assets under management (AUM) and growth potential are certainly important factors.
According to Morningstar equity strategist Gregory Warren, BlackRock's total revenue for 2023 is $17.8 billion, with $4.41 billion coming from iShares equity ETFs and $1.23 billion from iShares fixed income. (The breakdown for alternative ETFs and multi-asset class is unclear, but both are relatively small.)
That means iShares ETF revenues are roughly one-third of BlackRock's revenues, and Warren said the segment is still growing.
Revenue growth: check.
BlackRock's ETF business had $3.85 billion in assets under management, nearly double the $1.79 trillion in ETF assets under management announced five years ago in November 2018. This figure appears to include ETFs listed and traded outside the U.S., such as in London and Canada, but even excluding ETFs outside the U.S., BlackRock still ranks first in terms of total assets under management.
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.
As for growth potential, inflows were $83 billion in the second quarter and $150 billion so far this year, roughly one-third of all inflows into the ETF business.
Increased inflow: check.
By any measure, BlackRock's ETF business is becoming more valuable. Revenues are growing.
AUM: Increasing. Inflows: Increasing.
The ETF business as a whole is growing
BlackRock's ETF business is a gold mine, but the total assets under management across the ETF business now exceed $9 trillion, meaning BlackRock and a few rivals manage huge sums of ETF investment money.
Looking at the list above, it's clear that the rich are getting richer. There are roughly 300 ETF providers, but the top five account for roughly 85% of all ETF assets.
The search for new revenue sources is never-ending
The ETF business remains profitable, but with so much pressure on fees across the ETF industry, the search for more revenue continues.
Neither BlackRock's Fink nor anyone else in the asset management industry can afford to rest on their laurels.
For example, BlackRock recently announced its LifePath Paycheck program as an attempt to enter the tricky field of the annuity business. Investors have historically been very skeptical of annuities because of their low payouts and high fees.
LifePath Paycheck uses BlackRock's existing target-date fund framework and automatically adjusts asset allocations (fewer stocks, more bonds) as participants approach retirement. The key takeaway here is that participants can allocate a portion of their assets to lifetime income asset classes starting at age 55. Participants can begin redeeming their investments at age 59 1/2, allowing them to purchase annuities from insurance companies selected by BlackRock.
Another area where we see growth is private equity. BlackRock recently acquired Preqin, a leading provider of alternative equity data, for about $3.2 billion in cash. The company is looking to expand access to private equity data. With the IPO market still range bound, there is potential for big money to be made in private equity. There is potential to create indexes for private equity investments.
But this investment is about more than just data. The high hopes that we could somehow create an ETF for private equity investments remain a pipe dream for now, for the simple reason that it is incredibly difficult to buy the underlying private equity assets and manage them in an ETF wrapper. (The creation and redemption of ETF shares requires that market makers be able to buy and sell the underlying assets, which is difficult or impossible to do on a day-to-day basis when dealing in private equity.)
Can we create an index and find a way to synthetically mimic that index without owning the underlying private equity? Yes, it is possible.
Conclusion: Having a larger business is a good thing
There are challenges, but remember this is a big business – billions of dollars in revenues are possible, and the costs are minimal because the technology is so advanced.
And that's what keeps Fink smiling.
“We have the same number of employees, but we have $2 trillion more in assets than we did a year ago. That's the power of technology,” Fink said on CNBC's “Squawk on the Street” Monday morning.
