Raquel Pichardo-Allison looks at how the integration of BlackRock and Barclays Global Investors' international transition management teams is proceeding
BlackRock’s international transition management team is in transition, but the new co-heads say they’ve made progress in bringing two previous rivals – BlackRock and Barclays Global Investors – together.
The new team is being led by managing directors Peter Walker, previously head of transition management at BlackRock; and Lachlan French previously European head of transition management at Barclays Global Investors.
Both have said similar cultures at the firms has made bringing the two teams together a smooth process, but the integration is far from complete, and industry watchers are taking a wait and see approach to how two transition management powerhouses come together.
The industry is just waiting to see how these two very able individuals will work together given the co-head structure will sometimes work and sometimes not
“The core bedrock of an experienced team, established infrastructure, and buy-side model was very much there. And then it was a case of picking out the best bits of each organisation,” said French.
BlackRock completed it’s acquisition of Barclays Global Investors on December 1 and in doing so, brought together two companies with seemingly diverging businesses. BlackRock is considered one of the fixed income oligarchs in the US and is known globally for its risk management solutions, while BGI is well respected as an indexed equity behemoth.
In the transition management world, the extent of the split was similar with BlackRock mainly managing transitions for external clients, and BGI managing transition for internal transfers of assets, with a portion of its business used for external clients.
French and Walker said there was less overlap on the client level between the two businesses than expected.
Walker said: “Looking at the sort of mandates we were asked to execute, the reality was that we were asked to do a lot of equity to equity transitions, or active to active transitions plus multi-asset transitions including fixed income.”
French added: “We have a lot of clients that have asset allocation mandates tied in with passive mandates, other multi-asset class transitions, LDI-type activities, and a strong focus on fixed income.”
One consultant argued that despite overlap between the product offerings of the two firms, their differing client base is mainly a result of their individual strengths. As a result, the firms will have to work harder to maintain the same level of success they enjoyed before, the consultant said.
“BGI wasn’t just equity... It wasn’t that BlackRock was pitching to fixed income clients and BGI was pitching to a particular client. They were pitching to both clients. Their pitch rates will have to be much higher to keep the same level of business,” said the consultant, who declined to be named.
Business for both teams has been strong over the past year. The transaction volume for the combined firms, ex-US, jumped nearly 30% from US$249.2bn in 2008 to $323.8bn in 2009.
French and Walker expect that to continue. French said: “We’ve had a period of increasing diversification.” The duo expects much of the growth in the long term to come from Asian investors and Middle Eastern sovereign wealth funds increasing their use of transition managers.
But industry watchers wait and see how the ultimate team will come together.
Sources familiar with the two firms said they were concerned about the existence of co-heads.
One source, who declined to be named said: “The industry is just waiting to see how these two very able individuals will work together given the co-head structure will sometimes work and sometimes not.”
Walker said he and French are firming up individual roles. He said: “We’ve had to work very closely together and our activities have been very joined up. Having now completed the integration process we will split responsibilities by functions and regions. Within the 36 people, we have also developed a structure for managing transitions and maintaining the highest level of client service.”
The new 36-person strong team also continues to grow, they said.
Separately, officials at the firm have spent the last two months pitching their new trading platform, developed using two differing trading systems, to clients and consultants.
Walker said they have put together a combination of Aladdin, BlackRock’s platform, and BGI’s legacy platform. For now, all their positions sit within the Aladdin system.
Walker said: “There are very good capabilities in the legacy BGI world for trade order creation, approach to trading research, and calibrating and organising trading strategy. There are some very good risk tools within the BlackRock Aladdin platform that we’re using to model multi-asset class risk. We wanted something that was new to put together for clients, and we wanted a new pre-trade that we could go to market with.”
One consultant believes the combined firm has the potential to be stronger than its parts.
Mercer Sentinel Group European director Ben Gunnee said: “In terms of BlackRock, they’ve put together two teams; two teams that did things differently and looked at the world in slightly different ways. The expectation is to take the best of both and put them together.”
Gunnee said there could be efficiency gains, “if they do it right”.
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