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Friday, September 11, 2015

Why Are BlackRock and Aberdeen Buying Roboadvisors?

News summary by MFWire's editors

Two giant, publicly-traded asset managers just caught roboadvisor fever, and others may follow. On August 26 BlackRock [profile], the largest asset manager in the world, unveiled a deal to buy FutureAdvisor for an undisclosed sum. Brooke Southall of RIABiz reports that BlackRock is shelling out $152-million for the San Francisco-based roboadvisor. Meanwhile, Scottish multinational Aberdeen Asset Management bought Parmenion Capital Partners, a kind of advisor's roboadvisor.

From one perspective, that $152-million price tag for FutureAdvisor, looks kind of steep, a whopping 19 percent of its $800 million in AUM and more than seven times the $21 million in financing they raised in the past five years. Yet BlackRock chief Larry Fink clearly sees something in the startup.

RIABiz posts that the BlackRock folks see FutureAdvisor as a distribution outlet for BlackRock's iShares ETFs. Many roboadvisors, including FutureAdvisor, invest their clients' assets into various ETFs, and iShares is the biggest ETF shop around. The trade publication notes that two other big ETF shops, Vanguard and Schwab, both also run big roboadvisors, which not surprisingly favor their own ETFs; buying FutureAdvisor gives BlackRock a natural roboadvisor spot for iShares.

Aberdeen CEO Martin Gilbert frames his Parmenion purchase in the context of "the growing demand for investment services that are accessible online." And Tom Fortin, head of retail technology at BlackRock, highlights the growing "demand for digital wealth management." BlackRock and Aberdeen both work heavily with advisors and consultants, and having a roboadvisor solution can easily turn into having an online asset allocation and investing tool to help out intermediary partners.

And perhaps Fink has a different target in mind for the deal: talent. Bo Lu and Jon Xu, the ex-Microsoft engineers who created FutureAdvisor, are joining BlackRock as part of the deal. Maybe $152 million is a small price for Fink to pay to get a spot at the roboadvisor table and bring a key pair of young executives on board.

One final note on price: $152 million is a lot of money, but to BlackRock it sort of isn't. The world's largest asset manager's current market cap is $48.28 billion, and it had $4.971 billion in "cash and equivalents" on the books at the end of June. When the markets shook on August 24, BlackRock's share price fell 2.64 percent; such a drop now would reduce its market cap by $1.27 billion. So, a single bad stock market day is ten times more costly to BlackRock than this deal. Fink can afford the bet. 

Edited by: Neil Anderson, Managing Editor

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