BlackRock Expands ETF Footprint in Europe

The world’s largest asset manager, BlackRock (BLK - Analyst Report), announced the acquisition of Europe’s fifth largest exchange traded fund business unit of Credit Suisse (CS - Snapshot Report). The price of the deal, which is expected to close by the end of second quarter, was not disclosed by BlackRock.

This business unit purchase is yet another addition to BlackRock’s plans to bring together smaller asset managers. The acquisition further aims at strengthening its position in Switzerland and Europe overall, hopefully providing a boost to its overall growth after losing a portion of its market share in the U.S. to Vanguard (Vanguard Ends 2012 with a Bang, Cuts Fees on 22 ETFs).

On the other hand, the purpose of Credit Suisse to sell the unit entails the raising of $16.5 billion in capital, which it announced in July. This also included issuing convertible bonds and prime Zurich real estate and other assets sales.

However, Credit Suisse through Private Banking and Wealth Management division will continue to be a large player in the ETF world. The firm will assist BlackRock in expanding the ETF product offering.

The Credit Suisse unit has $17.6 billion assets under management spread across 58 ETFs on five exchanges. BlackRock currently has approximately 42% share in $331 billion European ETF market (see Three European ETFs with Incredible 2012 Gains).

With this purchase, BlackRock share in the European ETF market will increase over 47%, and cement its dominant position in that region of the world as well. The acquisition would result in widening the ETF base in Europe to the largest ETF platform offering products across different classes and commodities.

In the coming years, the European ETF market is expected to show strength attributable to the fact that more financial advisors are shifting from charging commissions toward fee-based businesses.

BlackRock is a leader in the ETF industry and its track record appears to be quite impressive. This is BlackRocks’s second attempt to expand its footprint and ETF offering in the international ETF market in the last year.

Before Credit Suisse’s unit purchase, BlackRock had acquired a Canadian ETF operation. It was a Toronto-based Claymore Investments, and was from Guggenheim Partners LLC. The acquisition was made in March by BlackRock and included 34 ETFs with more than C$6.9 billion assets under management (BlackRock to Buy ETF firm Claymore).

Exchange traded funds are low margin business and its growth is highly dependent on adding scale to the business. These acquisitions by asset managers assist in scaling the business platform. In fact, the ETF industry could see similar acquisitions made by bigger asset houses in order to scale their business.

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