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BlackRock to Buy SMA, Custom Index Shop for $1.05B

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BlackRock headquarters in New York. (Photo: AP)

BlackRock is buying personalized indexer Aperio Group from Golden Gate Capital for $1.05 billion in cash.

Aperio focuses on tax-optimized index equity separately managed accounts (SMAs) and customized ESG portfolios for ultra-high net worth households and institutions served by RIAs and private banks. It had over $36 billion of assets under management as of Sept. 30 and has grown these assets about  20% over the past five years.

The purchase of Aperio should increase BlackRock’s SMA assets by roughly 30% to over $160 billion, the asset manager said in a press release late Monday. BlackRock, which owns a minority stake of wealth-platform provider Envestnet, currently focuses its SMA business on tailored actively managed fixed income, equity and multi-asset strategies.

The development comes about six weeks after Morgan Stanley agreed to buy money manager Eaton Vance — which includes direct indexer Parametric — for $7 billion, creating a firm with about $4.4 trillion. It also happens seven weeks after Trian Fund Management bought 9.9% stakes in assets managers Invesco and Janus Henderson, for some $881 million in total.

As of Sept. 30, BlackRock managed some $7.8 trillion in assets, including over $2 trillion in its iShares ETFs.

The Latest SMA Deal, Market

“The wealth manager’s portfolio of the future will be powered by the twin engines of better after-tax performance and hyper-personalization. BlackRock and Aperio … will bring unmatched capabilities to meet these objectives,” said Martin Small, head of BlackRock’s U.S. Wealth Advisory business, in a statement.

“The combination will bring institutional quality, personalized portfolios to ultra-high net worth advisors and will create one of the most compelling client opportunities in the investment management industry today,” Small explained.

According to Cerrulli, the U.S. retail and wealth SMA market totaled about  $1.7 trillion as of late 2019 and is growing at roughly 15% a year and 35% among RIAs.

“Aperio has been honored to earn the trust of the most demanding wealth managers by always putting investors’ interests first and partnering with advisors to solve the complexities of UHNW investors through research integrity and excellence in human-centric client experience,” said Aperio co-heads, Liz Michaels and Ran Leshem, in a statement.

“With BlackRock, we have found a like-minded fiduciary firm with long-standing roots in tax-efficient indexing, a commitment to sustainable investing, and Diversity, Equity & Inclusion, and a track record of delivering consultative whole portfolio solutions to wealth management intermediaries,” they added.

The announcement left David Nadig, chief investment officer and director of Research for ETFTrends, a bit perplexed: “Interesting they don’t use the words “Direct Indexing” in this anywhere … because folks, that’s what this is. Like everything else, it starts institutional, and works down. It’s how indexing itself moved through the ecosystem,” he tweeted.

And Sonya Dreizler, and ESG consultant and head of Solution With Sonya, responded in a Tweet: “I’m surprised a custodian didn’t purchase for this reason.”

ESG investor Graham Sinclair predicted: “Expect defection from UHNW clients who prefer niche not mega: “#Aperio brand #ESG-SRI processes … will be integrated w #BlackRock’s US Wealth Advisory business.” Strategies of investors who want zero #fossilfuels w max co engagement do not care to be averaged out in quintiles,” he explained on Twitter.

What’s Next

BlackRock plans to keep the Aperio brand, as well as its investment, business development, client service and ESG-SRI processes — which will be led by Leshem and Michaels. But the group will be integrated with BlackRock’s U.S. Wealth Advisory business.

Aperio CEO Patrick Geddes is set to maintain his role as the firm’s chief tax strategist and become a BlackRock senior advisor.

“This transaction deepens our presence in the San Francisco area and reflects the critical importance to BlackRock of tapping the innovation taking place on the West Coast of the U.S.,” according to BlackRock Chief Client Officer Mark McCombe.

BlackRock says the purchase of Aperio will be funded from its current liquid funds and should close in the first quarter of 2021. It expects the deal to be ”minimally dilutive to earnings per share” and not dilutive on a cash basis.

Related: BlackRock Rolls Out More ETFs Without iShares Brand

Earlier Deals

In early 2019, BlackRock said it was buying alternative investment software maker eFront for $1.3 billion. That deal happened less than four months after the asset manager bought a nearly 5% stake of Envestnet.

BlackRock also bought robo-advice platform FutureAdvisor several years ago, and holds stakes in iCapital, a alternative-investing platform for RIAs and similar businesses, and in the micro-investing app Acorns.

Plus, it’s worked with Microsoft on a retirement platform for mass affluent investors.

“To everyone who is afraid of Amazon entering the Wealth Management space… don’t sleep on Blackrock,” said tech blogger and executive Kyle Van Pelt on Twitter, after news of the eFront acquisition broke. “They are running a very similar playbook with much deeper domain expertise.”

See: Is BlackRock Quietly Building a Wealth Management Colossus?