The world's biggest money manager seeks to use growing heft in pursuit of business
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This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 5, 2017).
Many of Wall Street's largest banks paid BlackRock Inc. for help in passing the Federal Reserve's annual stress tests last year, but not J.P. Morgan Chase & Co. A campaign to fill that gap is part of a cross-selling push at the world's largest money manager.
BlackRock has spent much of the past year trying to interest J.P. Morgan, a big trading partner and technology client, in the services of a small business known as Financial Markets Advisory, according to people familiar with the effort. That unit has struggled to match the money it made in the aftermath of the 2008 financial crisis, when it assisted banks with a variety of regulatory and financial headaches.
BlackRock's embrace of cross selling demonstrates how the giant money manager is using its expanding heft and reach in the financial world.
Top executives targeted J.P. Morgan partly because of the existing relationship between the two financial giants. BlackRock is also J.P. Morgan's second largest shareholder. Several meetings haven't yet resulted in a new assignment, the people said.
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It is unclear why J.P. Morgan hasn't hired the firm in that capacity. A spokesman for the bank declined to comment.
BlackRock is well positioned to sell multiple products to its customers because it has a wider range of services than many rivals and has interlocking relationships with many of the world's largest financial firms as one of their largest shareholders and clients. A growing internal program helps coordinate interaction between the firm's businesses and its large existing clients.
The New York company is now triple the size it was during the financial crisis, with $5.69 trillion in assets under management. That surge is due largely to a string of acquisitions and an unprecedented investor shift to lower cost, passively managed funds that track market indexes.
The growth of cheaper funds has put pressure on revenues, prompting BlackRock to pitch existing clients on other business lines like advisory work and technology where it can collect extra fees. BlackRock is also searching for ways to replace revenue lost to the decline of traditional pension plans and aging baby boomers who are withdrawing their life savings from retirement plans.
The company's revenue dropped about 2% in 2016, although many rivals experienced deeper drops and BlackRock's revenue rose 5.7% during this year's second quarter to $2.97 billion.
"The biggest fear asset managers have right now is not necessarily gaining new clients because industry growth is flattening out; it's losing the ones they already have," said Ben Phillips, principal at Casey Quirk, a Deloitte Consulting LLP practice focused on the asset-management industry.
U.S. banks have been employing the same cross-selling strategy for decades, using it to justify waves of mergers that created national giants that sell everything from mortgages to wealth management to credit cards. Some have attracted scrutiny for more aggressive tactics. Employees at Wells Fargo & Co., in efforts to reach lofty sales goals, opened as many as 2.1 million accounts without customers' knowledge, sparking public and political outcries as well as numerous investigations. Wells Fargo updated that number Thursday, saying around 3.5 million accounts were "potentially unauthorized."
BlackRock doesn't sell money-management products directly to individuals. Instead it works with large companies and financial firms, some of which market BlackRock's funds to investors. It also offers those firms technology, regulatory and risk-management advice, giving BlackRock several chances to sell additional services to the same clients.
Its cross-selling approach worked early last year in the case of St. Louis money manager Ascension Investment Management.
The company hired BlackRock, which already managed some of its assets, to help it move $125 million out of a fixed-income fund and invest in other asset classes. It exchanged two-thirds of the roughly 1,200 bonds it held in the fund for shares in three iShares fixed-income ETFs also offered by BlackRock, Ascension Investment executives said.
Another cross sale happened in July when a customer of BlackRock's risk management and technology system, Arizona State's University's endowment, hired BlackRock to take on an additional role as the organization's chief investment officer.
The internal group at the center of many of these cross-selling efforts at BlackRock is known as the strategic partner program and helps manage relationships between the firm and big clients. The program includes about 100 of the firm's biggest clients including sovereign-wealth funds and pension funds such as the Teacher Retirement System of Texas as well as banks including Deutsche Bank AG and Credit Suisse Group AG, the people said.
BlackRock has a centralized database that keeps track of the business BlackRock does with those firms and conversations its executives have had with them. In November, BlackRock reshuffled some executives to better coordinate, track and streamline the firm's interactions with its biggest customers, according to a memo at the time.
BlackRock is currently relying on this internal network as it seeks new clients for its Financial Markets Advisory unit, which thrived in the depths of the financial crisis but generated less revenue as markets returned to health. Executives described the strategy to Financial Markets Advisory employees during a March town hall, one of the people said.
Certain BlackRock executives were assigned a counterpart to press at key clients, the people said.
During the financial crisis, this unit helped the Federal Reserve manage assets that had been owned by Bear Stearns and American International Group, two firms that symbolized the fallout from the financial crisis. Bear Stearns was bought by J.P. Morgan and AIG received a big federal bailout that it has since paid back. Later, during the European debt crisis, the BlackRock unit advised Greece's central bank on the country's banking sector and the European Central Bank on stress testing the institutions it oversees.
More recently, BlackRock tried to refocus the business on regulatory and other consulting work, particularly bank-balance-sheet consulting, according to the people familiar with the matter.
Yet the advisory unit fell short of a $160 million revenue goal last year, instead posting revenue of $118 million, the people said. This year, as BlackRock ramps up its cross-selling efforts, it is aiming to generate $130 million.
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(END) Dow Jones Newswires
September 05, 2017 02:47 ET (06:47 GMT)