BlackRock Starts Retirement Indexes in Retail Asset Push

BlackRock Inc., seeking a bigger share in U.S. mutual funds, unveiled a series of indexes and funds to attract more retirement savers.

BlackRock, the world’s largest asset manager, is starting 10 indexes that will let investors approaching retirement calculate how much their savings will equal in annual income when they turn 65. The New York-based firm filed with the Securities and Exchange Commission to offer five investment-grade bond mutual funds that will be linked to the indexes, which adjust for variables including interest rates, inflation and assumptions about lifespans.

Led by Chief Executive Officer Laurence D. Fink, BlackRock last year started a five-year branding campaign and reorganized its leadership to help improve fund performance as it seeks to expand its retail business. The firm has less than a 2 percent market share in open-end mutual funds, compared with 11 percent for Boston-based Fidelity Investments and 12 percent for American Funds, run by Capital Group Cos. in Los Angeles, according to data from Morningstar Inc.

“Over the next five years, I believe the delta for BlackRock will continue to be in retail and our mutual-fund platforms,” Fink, who co-founded BlackRock in 1988, said at an analyst conference May 30.

IRAs, 401(k)s

Americans held an estimated $5.7 trillion in individual retirement accounts, known as IRAs, and $3.8 trillion in 401(k) plans as of March 31, according to the Washington-based Investment Company Institute, a trade group for the mutual-fund industry. More than half of workers say they have less than $25,000 in savings and investments, excluding their home and defined-benefit pension plans, according to a 2013 survey by the Washington-based Employee Benefit Research Institute.

Managing money for individuals is a lucrative business. It represented about 11 percent of BlackRock’s $3.86 trillion assets under management as of June 30, while accounting for 33 percent of long-term asset base fees.

The firm anticipates “huge demand” for the indexes and funds because of the number of savers seeking to secure income following market uncertainty and volatility, BlackRock President Robert Kapito said today in an interview.

Trailing Fidelity

BlackRock was the sixth-largest manager of mutual-fund assets in 401(k)-type plans as of 2011, behind firms such as Fidelity and Vanguard Group Inc., according to Boston-based research firm Cerulli Associates. That ranking excludes assets BlackRock manages in 401(k)s through collective trusts and separately managed accounts, usually used by employers with at least $250 million in plan assets, said Kevin Chisholm, associate director at Cerulli.

BlackRock has taken a number of steps in the past to attract more retirement money. In 2007, it opened nine funds for retirement-plan sponsors. In 2010, it started a push to sell its iShares exchange-traded funds through retirement plans with $50 million or less.

The new indexes are designed for use by people starting at age 55 and investors select the one that corresponds to the year they’ll turn 65 and expect to need retirement income. They tell savers how much $1 in the future will cost today and that figure fluctuates daily, according to Chip Castille, head of BlackRock’s U.S. and Canada defined contribution group.

Asset-management firms such as Putnam Investments have developed lifetime income calculators or evaluations on websites for customers. Fidelity and Vanguard have partnered with insurers to offer customers annuity options to help them turn their retirement savings into payments.

“This is the beginning of what should be a very powerful set of tools, indices and funds that allow people to take action,” Castille said in an interview.

The new products are aimed at investment advisers and could also be used by insurance companies as a bond component of variable annuities, as well as by 401(k) plan sponsors as part of target-date funds, Castille said.

(Updates with comments from BlackRock President Robert Kapito in seventh paragraph.)
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