BlackRock’s Fink Expects Consolidation Among Asset Managers

Will Asset Managers Move to More Passive Investing?
  • Predicts a ‘massive shift’ into more passive investing
  • Says too many investment firms struggle to deliver alpha

BlackRock Inc.’s Laurence D. Fink said he expects consolidation in the asset management industry as firms struggle to beat benchmarks and new U.S. rules favor passive strategies.

There are too many money managers having a tough time extracting alpha, Fink said Tuesday at the Deutsche Bank Global Financial Services Conference. A new Labor Department rule, which requires brokers to put clients’ interests ahead of their own when handling retirement investments, will additionally benefit passive strategies, he said.

"We fundamentally believe there will be a massive shift more into passive," Fink, who built BlackRock into the world’s largest money manager through a series of acquisitions, said at the conference. He said he doesn’t know who the buyers would be in such a scenario.

Active fund managers have struggled in recent years as investors disappointed with performance flocked to low-cost index funds. Slightly less than 35 percent of actively managed equity mutual funds beat their benchmarks in the first four months of this year. In 2015, 47 percent did, compared with 26 percent the year earlier, according to data compiled by Morningstar Inc. Investors responded by pulling about $193 billion from funds run by stock pickers over the past 12 months and added money to funds that track indexes.

Hedge funds, among the most expensive money managers, have been hit particularly hard this year. Hedge fund manager Dan Loeb said in April that the industry is in the first stage of a “washout,” and Blackstone Group LP President Tony James predicted last week that hedge funds may lose 25 percent of assets.

To read Cliff Asness’s defense of hedge funds, click here.

Fink, whose firm oversees the largest lineup of exchange-traded funds as well as active bond and stock offerings, said that the opportunities for active management to succeed will become more realistic as money moves into passive.

"We are a big believer in active," said Fink.

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