Four Trillion Reasons to Re-think What Business You're Really In
Four point six trillion actually… That’s how much money Blackrock oversees.
Ask most people what business Blackrock is in and they will undoubtedly just say, asset management. But that is a very myopic response.
In my eyes, it is more accurate to characterize Blackrock as a marketing and distribution company that manages assets as opposed to the other way around.
Thinking about it, calling Blackrock “just” a money manager is like calling Coke “just” a carbonated sugar water company.
Try this exercise. Next time you are talking to someone familiar with the financial services industry, point out how awesome Blackrock fund’s performance must be in order to garner that much in assets. And then sit back and watch their response.
Every time…seriously, every time, I ask the question, I get an anger-fueled response. It’s great bait actually. “What! Are you kidding?? Have you ever looked at the actual performance across their funds?”
Of course I looked. Like most people, I even own some. The performance is pedestrian at best.
But yet still, the firm is more than $1.5 trillion bigger than its next largest competitor. It is so big that it actually manage more assets than the entire hedge fund industry combined. Say what you want – its performance is clearly “good enough.”
The alternatives industry clings to all sorts of arguments on why capital raising is so tough. And most are wearing thin…
“It’s different - Blackrock sells mutual funds to retail investors. We focus on highly sophisticated large institutions.”
Um…it is also one of the largest alternatives investors, too, with a huge institutional investor base. And with nearly 10 million accredited investors in the US combined with a growing appreciation for alternatives across all investor bases, it’s time to come to grips that this is an important audience for you, too.
“It has a massive marketing budget, huge infrastructure and salespeople everywhere.”
That’s exactly the point. The alternatives industry needs to start re-thinking where it assigns its capex. Hint – it can’t only go toward portfolio management.
“It’s all about performance.”
Yes, your product can’t completely suck. That’s true of any business.
But as Blackrock has proved, it doesn’t have to be so great either. Performance is clearly not the only thing that drives consumer behavior – brand matters. And that is the case irrespective of sophistication level, industry or even size.
Not convinced? Just look out your window during your commute tomorrow and you will see what I mean.
That Jeep driving alongside you wasn’t bought for quality and it wasn’t bought for performance. According to Bloomberg, as of September, despite being ranked as the second least-reliable car in the US by Consumer Reports, Jeep was headed toward a second straight year as the fastest growing major auto line in the US.
So, while Blackrock’s ability to grow assets is probably less directly correlated to the performance of its funds than yours, it’s time to start recognizing that just like Blackrock, you are also in the marketing business.
And sometimes your marketing "business" matters a lot more than your other businesses. With a tagline of “There’s only one,” Jeep doesn’t even pretend to compete on performance. Interestingly, Blackrock’s slogan, “Investing for a new world” doesn’t mention performance either.
By JD David