Acquisitions in Asset Management industry concerns the economists
With Blackrock acquiring Barclays Global Investors, the economists are concerned with the question of diminishing margins and capital deficiency in the asset management industry and in this regard, one can definitely quote here the words of BlackRock vice chair Bob Doll, “As many as half of the world’s asset managers are breaking even at best”.
The point to be noted here is that the asset management business is not primarily a risky business as it has a predictable fee-based revenue stream. But the fact is that the economic recession in the past year has resulted in a failure to materialize anticipated cost savings leading to acquisitions of many asset management firms.
The drawback of these firms may be attributed to firms’ expanding their cost structures, a combination of investment growth and new contributions to 401(k) funds, and finally decreasing efficiency. At the same time, while marketing directly to institutions is fairly inexpensive, marketing your services to a retail audience can become costly. The economists also say that the asset management industry often fails to adjust its scale when it comes to increasing efficiency in management with the growth. As funds grow, it’s inevitable that their holdings make them more and more like the major indices. They can’t possibly take large enough positions in small caps to impact performance as they grow.
The economists conclude that in the years to come, there will be a growth in smaller, independent firms in asset management sector but the giant firms like BlackRock Global Investors, T. Rowe Price, Fidelity and Vanguard will surely continue to grow.
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