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Wednesday, April 20, 2016

The Most Successful Money Managers Are Actually Something Else

News summary by MFWire's editors

Here's some food for thought for fundsters with big ambitions: the largest asset managers in the world tend to be, well, more than just asset managers.

William Katz
Citigroup
Analyst
Chris Dieterich of Barron's highlights Citigroup analyst Bill Katz's recent upgrade of BlackRock [profile], the largest asset manager and largest ETF shop in the world. In Barron's words, Katz "says that BlackRock could begin to be seen as a play on financial technology."

Running ETFs is more about operational efficiency than money management. BlackRock is famous for its proprietary Aladdin risk management system. And now it even has its own roboadvisor.

But BlackRock's not the only asset manager that seems to spill outside the category. Fidelity [profile], the second-largest mutual fund company and the largest 401(k) plan provider, famously spends hundreds of millions on its technology, to the point of having lower margins than other traditional pureplay asset managers. The 401(k) game, the retail IRA game, RIA and B-D support, are all less about money management, again, than about operations.

Or consider Vanguard [profile]. The world's largest mutual fund company doesn't really manage money: it selects and monitors subadvisors, like Wellington, and it tracks indexes.

Of the four biggest mutual fund shops, only Capital Group's American Funds [profile] is really all about money management.

It's worth noting that, unlike pure money management, technology and operations tend to be scale games. Being big really helps you squeeze out an extra basis point of cost on an ETF, and it helps you develop really good software because you can spread the cost out further.

So, to be really big in asset management, you want to consider breaking the mold. 

Edited by: Neil Anderson, Managing Editor


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