How JPMorgan and BlackRock are thinking of playing fund manager M&A
- Top brass from JPMorgan and BlackRock, among the firms to kick off earnings season with their results, said Tuesday that they expect more consolidation in the wealth- and asset-management industries.
- Pressures on money managers have fueled a flurry of acquisitions in those areas this year, and analysts questioned executives about their own deal ambitions, albeit coming from different corners of the market.
- JPMorgan boss Jamie Dimon said the bank would be “very interested” in deals in that space, and BlackRock finance chief Gary Shedlin said the firm was focused on targets that could expand its technology, global distribution, and private markets capabilities.
- Last week, Morgan Stanley said it would buy investment manager Eaton Vance in a deal valued at $7 billion just days after it closed on its E-Trade acquisition.
- Visit Business Insider’s homepage for more stories.
Top brass at the world’s largest asset manager and largest US bank told analysts on Tuesday that they expect more mergers and acquisitions in the wealth- and asset-management industries, and signaled both firms are on the prowl.
On the back of Morgan Stanley’s $7 billion deal for Eaton Vance last week, analysts peppered JPMorgan and BlackRock executives with questions about their appetites for deals during their respective third-quarter calls, which helped kick off the latest earnings season.
“Well, since we have you all on the line, our doors, our lines are wide open. We would be very interested, and we do think you’ll see consolidation of the business,” JPMorgan Chief Executive Jamie Dimon said.
“But we’re not going to be more specific than that,” he said, adding there were considerations around what type of deal would make sense for the largest US bank by assets, like technology, product, and execution.
Dimon emphasized early this year that he was interested in carrying out more deals. But JPMorgan, which reported $2.6 trillion in assets under management from its wealth and asset management unit, has yet to announce one publicly.
“We’re looking at everything,” Mary Callahan Erdoes, chief executive of JPMorgan’s asset and wealth management business, said in February during the bank’s investor day, referring to M&A possibilities. “But we’re looking for adjacent capabilities. We’re not looking for scale.”
Read more: Jamie Dimon says JPMorgan will be ‘much more aggressive’ on acquisitions just days after Morgan Stanley revealed plans to buy E-Trade
JPMorgan and BlackRock, which both reported better-than-expected earnings results on Tuesday, are coming from different corners of the market, with very different business models.
Still, the renewed focus and speculation around consolidation comes as mounting pressures on small- and mid-sized asset managers have pushed M&A activity to a boiling point this year.
As fees have dropped for investment products like exchange-traded funds and many customers favor cheaper, passive investing strategies over active ones, fund managers have found it increasingly difficult to turn the profits they did years ago.
BlackRock, the world’s largest fund manager with $7.8 trillion in assets under management, has benefited from the trend toward passive with its iShares business.
It’s now focusing on growing out its alternatives and private markets units, and has a virtually unrivaled risk management and investment analysis-tech business with Aladdin.
Where BlackRock stands
Executives struck a superior tone on the call with analysts as they leaned into BlackRock’s size and scope.
The industry is consolidating “in the hopes of creating what we already have,” BlackRock Chief Financial Officer Gary Shedlin, a veteran investment banker who was focused on financial services, said on the firm’s Tuesday earnings call.
“From our standpoint, our M&A strategy has not changed,” he said, adding the firm is not looking to cut costs through a deal.
“We are much more focused on thinking about tactical M&A that will broaden our technology capabilities, expand our global distribution reach and potentially scale certain parts of our private markets franchise, but really are much less focused on the pursuit of traditional investment management consolidation,” he said, according to a transcript on the investment research platform Sentieo.
Shedlin added that BlackRock was looking to “more aggressively” make minority investments where that type of structure made more sense than having full control, like in the alternative investments fintech iCapital.
Read more: The US government has pitched a policy that would allow private equity into your retirement fund. BlackRock is salivating at the possibility — here’s how the $7 trillion manager would benefit.
The Wall Street Journal reported last year that BlackRock and iCapital were in talks to undo previous terms of their relationship that stated BlackRock could one day take over the startup. The Journal’s article did not specify whether either firm commented on those talks.
‘The industry has a revenue problem’
Deals across wealth and asset management have shown no signs of slowing. The industry was already braced for more activity before Morgan Stanley said it would buy investment manager Eaton Vance just days after it closed on its E-Trade acquisition.
Earlier this month, it was reported by the Wall Street Journal that activist hedge fund Trian Fund Management has taken sizeable stakes in asset managers Invesco and Janus Henderson as part of a plan to push for a tie-up.
Trian also helped agitate the deal behind asset management behemoth Franklin Resources $4.5 billion purchase of Legg Mason in February.
“The industry has a revenue problem and an inability to grow revenues organically on a sustainable basis,” the Jefferies analyst Daniel Fannon wrote in a report to clients last week, adding he views “strategic M&A as a source of diversity and growth as a potential driver of increased value over time.”
Industry Insiders reveal the 5 companies they think JPMorgan could try and buy after Jamie Dimon said the bank would be ‘much more aggressive’ on M&A
Meet the 17 BlackRock power players carrying out CEO Larry Fink’s vision to turbocharge private equity and alternative investments growth
Morgan Stanley’s big bet on Eaton Vance is the latest in a wave of asset manager M&A. Here are 4 firms that could be the next target.