Wednesday 23rd April 2014
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Clearstream has agreed to purchase Citco’s hedge fund custody processing unit in Cork for a sum in the ‘mid-double-digit-million euro range’ - The National Bank of Abu Dhabi (NBAD) has become the first licensed market-maker in the United Arab Emirates after winning approval from the Securities and Commodities Authority (SCA) - BlackRock has been awarded its first Renminbi Qualified Foreign Institutional Investor (RQFII) licence by the China Securities Regulatory Commission (CSRC) - An index joint venture between FTSE Group and Canada’s TMX Group has acquired the indices business of MTS, a European electronic fixed income trading business owned by the London Stock Exchange - The European leveraged finance market is set to undergo a shift this year, as private equity sponsors veer back towards loans to finance leveraged buyouts, says S&P Capital IQ - Turkish corporates are the most exposed among EMEA emerging markets to a scenario of slowing growth, rising interest rates and a persistently weak local currency, according to Fitch Ratings - London-based Global Markets Exchange Group (GMEX) is in talks to acquire an equity stake in ALTX Africa Group, a new exchange operator focusing on East Africa - Alternative asset managers with expertise in high-yield fixed income and distressed assets are upping their investments in the peer-to-peer loan market, according to a new report from Cerulli Associates.
Mark Wiedman, global head of BlackRock’s iShares brand. Mark Wiedman, global head of BlackRock’s iShares brand. Photograph kindly supplied by iShares, November 2011.

20-20: Turning BlackRock's ETF fortunes

Thursday, 15 December 2011
20-20: Turning BlackRock's ETF fortunesMark Wiedman’s appointment as global head of BlackRock’s iShares brand is a concerted effort to sharpen the focus of the consortium of exchange-traded funds launched by BGI in May 2000 that combines index fund-style diversification with the liquidity of stock trading. To date, iShares accounts for roughly half of the estimated $1.1trn in US-based ETF assets. While AUM continues to grow at a steady clip, competitors have gradually whittled away at the company’s domestic market share (currently around 43%). Can Wiedman buck the trend? David Simons reports.http://www.ftseglobalmarkets.com/media/k2/items/cache/bd3eebf32e04c907d6d9fc42f4213df5_XL.jpg

Mark Wiedman’s appointment as global head of BlackRock’s iShares brand is a concerted effort to sharpen the focus of the consortium of exchange-traded funds launched by BGI in May 2000 that combines index fund-style diversification with the liquidity of stock trading. To date, iShares accounts for roughly half of the estimated $1.1trn in US-based ETF assets. While AUM continues to grow at a steady clip, competitors have gradually whittled away at the company’s domestic market share (currently around 43%). Can Wiedman buck the trend? David Simons reports.

During a recent earnings conference call, Laurence Fink, BlackRock’s chairman and chief executive, likened the recent run-up in ETF product innovation to the pre-crisis market for mortgage-backed instruments. BlackRock, said Fink, “needs to be very assertive as a firm” in order to prevent “a lack of disclosure on these products”.

To help address issues such as transparency—while also enhancing its ETF product line—BlackRock in September 2011 announced it had tapped Mark Wiedman, managing director in charge of corporate strategy, to serve as the new global head of  iShares, the ETF provider acquired by BlackRock as part of the 2009 buyout of Barclays Global Investors (BGI). Wiedman succeeds Mike Latham, who will continue as iShares chairman. Having served as an adviser to global financial institutions on balance-sheet issues at the height of the crisis, as well as heading up corporate strategy for BlackRock, Wiedman got a “crash course” in understanding clients’ problems and mobilising BlackRock’s capabilities in order to solve them. “I worked closely with iShares throughout the BGI integration and on iShares strategy work, so I stepped into the role with some familiarity with the businesses and the terrific leadership team,” says Wiedman.

ETFs appear to be still in their infancy, and have benefited from factors that include greater use of fixed-income and commodity-based products, increased uptake among fee-based advisers, as well as new product launches within the major exchanges. These conditions will likely pave the way for larger ETF fund allocations over the near term. Wiedman claims: “ETFs are one of the top two or three socially productive financial innovations of the past 40 years, with a value proposition that speaks to a galaxy of clients, from sovereign wealth funds to retail investors. ETFs deliver efficient exposure to global markets using the most democratic, transparent, and liquid vehicle yet devised.”

From the perspective of iShares, key growth drivers over the near term include fixed-income ETFs (which currently represent only a fractional amount of total outstanding bonds within the US), as well as equity income. Meanwhile, the potential for across-the-board ETF uptake exists in nearly every market around the world, says Wiedman.

Unifying US and foreign ETF platforms was a priority for BlackRock following the acquisition of iShares, and the ability to offer both US and European product lines to investors around the globe has been one of iShares’ greatest strengths to date.  “Some 15% of the assets in domestic ETFs are currently held outside the US and in Europe in 2011, we’ve seen over 15% organic growth, in part driven by buyers from Asia. As we look forward, our UCITS-compliant European product line could possibly become the de facto global standard,” says Wiedman.

The rise in ETF fund flows has coincided with a marked increase in product complexity, and, in some instances, has sparked concerns over opacity. For its part, the SEC continues to take a dim view of derivatives-based ETF products, compelling many providers to back away from such offerings.  

Wiedman notes: “We would call products that trade on an exchange ‘exchange-traded products’ or ‘ETPs’ while reserving the label ‘ETF’ for a sub-category that meets certain agreed standards of simplicity and transparency, including backing by underlying securities, rather than derivatives. We understand that regulators around the world will have different views. However, we believe that a standardised classification system could help regulators develop appropriate rules in each jurisdiction.”

The proliferation of so-called “cheap beta” ETF products—or, in some instances, ETFs that are totally commission-free—has had a dramatic impact on the business as a whole. Rather than attempt to compete on price, however, iShares has instead turned its attention toward product development, including active ETFs, which mimic the performance of hedge funds at a fraction of the cost. In August 2011, the company sought the SEC’s permission to launch a set of actively-managed equity ETFs, each based on proprietary BlackRock benchmarks.

“If there is a one thing I learned from my past experience at BlackRock, it’s that iShares will succeed by doing what we do best—not by playing on others’ terms,” offers Wiedman. “We are the sole global player competing against regional players in every market. No one can match our global presence, scale, or brand. Capitalising on that unique position is where our future lies.”

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