- Gap Competitors Analysis - August 15, 2022
- Subway Competitors Analysis - August 15, 2022
- Stephen Schwarzman Bio: One of New York’s Wealthiest Businessmen - August 15, 2022
Founded in 1988, Blackrock, Inc is a multinational investment management corporation based in New York, but you probably knew that already. The company oversees $10 trillion, so it’s not exactly an obscure startup. Blackrock isn’t just one of the Big Three index fund managers; it is the leading corporation in this industry worldwide. You might not know that Blackrock is also an extremely influential Wall Street player in Washington, with at least three ex-employees in Joe Biden’s cabinet.
Blackrock doesn’t just play a role in shaping the economy; it also influences the very society Americans to live inhabit. It’s that powerful. I’ve spent a lot of time researching the level of influence that financial companies like Blackrock wield, and frankly, it’s startling, but that’s a discussion for another day. In 2019, the global asset management market was valued at $216.98 billion, which is expected to grow to $1113.53 billion by 2028. Unsurprisingly, competition is fierce amongst rival firms for assets under management (AUM).
Blackrock operates globally with clients in over 100 countries and 70 offices spread across 30 countries, so it is already in a solid position to react to emerging trends in various global markets. However, Blackrock’s competitors aren’t limited to other investment management firms; it must also compete with insurance companies, banks, mutual fund complexes, brokerage firms, and other financial institutions offering similar services.
To differentiate itself, the company has sought to position itself as a leader in environmental, social, and corporate governance (ESG). However, it has also faced backlash for investing in China and exacerbating climate change – criticisms I’ve noticed people frequently level at financial firms due to their stereotypical uncaring image. Despite stiff competition, Blackrock remains the world’s most significant investment management corporation. In this Blackrock competitors analysis, I’ll analyze the company’s key competitors and the strategies it utilizes to stay ahead in finance.
The Bottom Line Up Front
Blackrock competes for a market share in the highly competitive and lucrative asset management industry. Out of the Big Three index fund managers – Blackrock, Vanguard, and State Street – it is the leading firm overseeing trillions of funds. Traditionally, Blackrock has relied on its low-risk business strategy and the trust it engenders in consumers to stay ahead. Still, newer firms with better organizational structures are beginning to steal Blackrock’s market share.
List of Blackrock’s Main Competitors
- The Vanguard Group
- State Street Corp
- Goldman Sachs
Blackrock’s Business Strategy
Blackrock’s business strategy is all about offering portfolios and funds investing in areas such as fixed income, equities, and money market instruments. Often, customers come to Blackrock to look after college savings, exchange-traded funds, and access mutual funds. The company’s revenue is driven primarily by fees for investment advisory services. Below you can see a breakdown of BlackRock’s revenue:
- Investment advisory, administration fees, and securities lending – 78%
- Distribution fees – 8%
- Technology services – 7%
- Investment advisory performance fees – 6%
I think Blackrock has found an almost perfect business model in many ways, but this didn’t happen by chance. One essential thing for investment and asset management companies is reputation; without a good one, you cannot succeed. Blackrock solidified its reputation during the financial crisis when banks and even the US government scrambled to dispose of complex credit portfolios. They turned to Blackrock because there was no conflict of interest; the company didn’t hold any investments for its account. Blackrock delivered, and the rest is history – its financial advisory service is in hot demand today.
I would attribute the second pillar of success in Blackrock’s business strategy to low-risk earnings. There is no inventory risk, little collection risk, and extremely low capital expenditures. Further, the cost structure is highly scalable. As a result, Blackrock has grown exponentially without attracting negative attention from regulators. This successful strategy culminates in annual revenue of $19.17 billion (2021) and a company valuation of $69 billion. In 2022, Blackrock was also one of Fortune’s most admired companies, which speaks volumes when compared to the negative reputations of many banks.
Blackrock bolsters its stellar reputation by creating a community for like-minded investors. For example, it regularly offers industry insights (including a podcast) and resources for customers to use. One such resource is Aladdin, an investment and risk management platform that allows professionals to view and manage their everyday investments. Blackrock Solutions, the company’s risk management division, built the electronic system. Aladdin contains a centralized database and has more than 55,000 investment workers relying on it. I have a few friends who speak highly of this platform, and though I’ve never used it myself, I trust their judgment. Many say they would never use an alternative because Aladdin is efficient and easy to use. Blackrock’s position within the asset management industry was further solidified in 2009 when it agreed to purchase Barclays Global Investors business for $15.2 billion, giving Blackrock the most significant market share of any company.
Blackrock Competitors Analysis
Blackrock is part of the Big Three index fund managers, so naturally, its main competitors are The Vanguard Group and State Street Corp. However, there are many other highly successful asset management companies that Blackrock must also compete with to maintain its position as the industry leader.
1. The Vanguard Group
Like Blackrock, The Vanguard Group is an American investment management company. It was founded in 1975, but despite having a head start over Blackrock, it hasn’t achieved the same success. Nevertheless, Vanguard is a force to be reckoned with. It enjoys a place alongside Blackrock as one of the Big Three index fund managers, with around $7 trillion in AUM as of January 2021, and it is also the largest provider of mutual funds.
As well as mutual funds, Vanguard also offers:
- Exchange-traded funds
- Variable and fixed annuities
- Brokerage services
- Educational account services
- Asset management
- Financial planning
- Trust services
I always like to say that Vanguard walked so Blackrock could run. I mean that former chairman and founder John Bogle created the first index fund available to individuals and were also a major proponent of low-cost investing. These are services Blackrock has subsequently built on and used to overtake Vanguard’s success.
One of the things that make Vanguard stand out against some other investment firms that aren’t in the Big Three is its status as a publicly owned company. Each person who invests via Vanguard owns a piece of the company, which strongly appeals to many consumers. A common criticism of Blackrock is its poor organizational structure, with a high staff turnover. Vanguard claims to be different, arguing “strategy follows structure,” but this hasn’t necessarily played out in reality. Vanguard has come under fire for its high employee turnover, though it seems more recently to have stabilized.
Comparing Vanguard and Blackrock directly, it’s fascinating to note that just because a company is innovative does not necessarily mean it will outperform competitors. Blackrock has beaten Vanguard despite the other company’s stronger focus on innovation. As recently as 2017, Vanguard opened the doors of its Innovation Center – the home of a new operation that aims to find new ways to meet clients’ evolving needs. Innovation has brought Vanguard a lot of success, but it shows just how easy it is for competitors to adopt the new ideas of their rivals and achieve tremendous success.
2. State Street Corp
State Street Corporation is an American bank holding and financial services company that operates worldwide. It is based in Boston and was founded in 1972, though back then, it was known as Union Bank. State Street Corp is the second-oldest continually operating bank in the US. It offers:
- Investment management
- Financial data analytics
While the company enjoys its status as one of the Big Three, it is ranked 15th on the list of largest banks in America based on assets, suggesting it has found more success as an index fund manager. As of 2021, State Street has $4.14 trillion in assets under management – less than half the amount overseen by Blackrock and less than Vanguard’s total AUM. This makes me wonder whether the Big Three may soon become the Big Two; State Street is lagging.
The company made a total revenue of $12.03 billion in 2021, whereas Blackrock made $19.17 – a significant difference. Furthermore, toward the end of the year, Blackrock also announced it was going to pull $2 trillion out of State Street’s safekeeping, redistributing the assets to JPMorgan and Citigroup, among others. There’s no doubt that State Street’s position is weaker than it was just a few years ago, but it’s important to remember that this is still an extremely powerful and successful bank.
Unfortunately, because the company serves as both a bank and an index fund manager, some of the strengths that have galvanized Blackrock’s position as the industry leader (such as the lack of risk involved in its business strategy) do not apply to State Street. Let me elaborate. State Street Corp’s status as a bank means it faces significantly more risk from multiple directions: credit risk, market risk, and operational risk. Add that to the public’s general distrust of banks, especially big ones, and it’s no surprise State Street cannot keep up with the immense success of Blackrock. State Street Corp’s mission, as defined on the company’s website, is to be the world’s leading provider of asset intelligence. To achieve this, State Street has come up with several solutions, of which GlobalLink is one.
GlobalLink is an award-winning suite of electronic trading platforms offering solutions designed to increase transparency, deliver quantifiable execution, and improve trading efficiency. In addition to GlobalLink, there is State Street Alpha, a tool similar to Blackrock’s Aladdin that helps you manage investments in one place. It offers access to analytics, aggregated data, and real-time insights. These tools are great – even more so than Blackrock’s – but technical innovation isn’t enough in the financial sector to secure the top spot. If you ask me, it all comes down to that elusive and hard-to-obtain quality of trust.
Fidelity Investments Inc., known simply as Fidelity, is a privately owned American investment management company based in Boston, Massachusetts. It was founded in 1946 as a mutual fund company and used to operate under the name of Fidelity Management & Research. Those with eagle eyes might have spotted the critical difference between Fidelity and Blackrock: the first is privately owned, while the latter is publicly owned. Here, again, I’m going to bore you with the idea of trust.
Being publicly owned, Blackrock can engender trust in its immediate employees and the wider world by portraying itself as existing for the people. Naturally, more significant skepticism surrounds privately owned investment management companies like Fidelity. In 2021, Fidelity had $4.5 trillion in AUM, which pales in comparison to Blackrock’s $10 trillion, but overall still makes it a strong player in the market. This is especially true in the UK, where Fidelity took the top spot in an annual ranking of investment groups.
Fidelity provides resources and tools for casual investors and active traders, which is undoubtedly one of its strengths. Rather than focusing on experienced investors and corporate entities, Fidelity provides newcomers with the information they need to succeed and notoriously low costs. Nevertheless, it does still cater to more serious traders and investors. Like its rival companies, Fidelity provides a tool with a customizable trading interface and real-time data called Active Trader Pro. There are some important limitations regarding Fidelity which help to explain why it hasn’t quite achieved the level of success enjoyed by some of its competitors. Namely, it doesn’t cater to people who want to trade crypto, futures, or commodities, and it also doesn’t cater to clients outside the US and central islands.
4. Goldman Sachs
The Goldman Sachs Group, Inc. has been a leading investment banking, investment management, and securities firm for over 150 years. It offers various financial services to a large and diverse client base, including financial institutions, individuals, governments, and corporations. With regional headquarters in Hong Kong, Bangalore, Tokyo, London, Salt Lake City, and Warsaw, to name just a few, it is a truly global firm. It is the second biggest investment bank by revenue ($59.3 billion in 2021), and by this measurement alone, it is also bigger than Blackrock.
However, regarding assets under management, Blackrock is the more prominent firm; Goldman Sachs has just $2.5 trillion as of 2021. There’s no doubt that Goldman Sachs is a significant and influential company, but you’d need to have lived under a rock for the past decade to be unaware of its various criticisms.
These criticisms are about a range of issues, such as the company’s ethical standards and toxic culture; poor employee working conditions; a cozy relationship with the US government (like I mentioned earlier); and its role in the 2008 financial crisis (resulting in a $550 million settlement after an investigation by the US Congress, Department of Justice, and Securities and Exchange Commission). Blackrock has benefitted from an unusually high level of public trust, and Goldman Sachs represents the converse side of this coin: it is viewed by many (including me) as amoral, calculating, and ethically vacuous in its pursuit of money.
This brings me to one area where Blackrock must proceed with caution because, in recent years, some analysts have adopted the view that Blackrock is becoming like Goldman Sachs, described in one article as “the most hated behemoth of the financial services industry.” While Goldman Sachs has faced severe criticism, this has also brought a level of notoriety that has, at least accidentally, helped the company out. It is one of the better-known investment banks, and many highly skilled graduates seek employment within the company each year. As for whether it poses a serious threat to Blackrock, I don’t think so. It is a powerful company, but its golden years are far behind it.
Blackrock SWOT analysis
I have included below a SWOT analysis of Blackrock demonstrating the company’s strengths, weaknesses, opportunities, and threats.
- Low-risk business operation with low capital expenditures
- Highly scalable cost structure that can be sustained without trouble from regulators
- Strong customer focus – Blackrock aims to provide the best advice that will help customers become financially stable
- New projects have a high return on investment
- Strong brand awareness from the general public
- Has gained trust from consumers despite being a financial company (thus often viewed with skepticism)
- Strong free cash flow
- Operates globally in over 60 countries
- Good performance in new markets
- It is the leading asset management company after acquiring Barclays Global Investors
- Investment and risk management platform Aladdin is successfully driving growth
- Affected by regulatory and legal changes in the US and across the globe
- Dependent on a single risk management platform
- There is high attrition in investment banking
- High staff turnover presents difficulties since training new staff takes time and resources
- The criticism leveled at the company for worsening climate change
- Inefficient financial planning
- Lack of investment in marketing
- Losing market share to new companies
- An ageing population will make post-retirement financial solutions demand grow
- Technology acquisitions could help diversify asset management capabilities
- The world population is increasing, providing more potential customers
- Future mergers and acquisitions will boost growth and present new opportunities
- Could use the company’s competencies to succeed in a new sector
- Trends in consumer behavior could present unexpected opportunities
- Vulnerable to currency fluctuations that could severely affect business
- Intense competition from rival firms
- Innovation is slow
- New environment regulations could pose a threat to some parts of current business activity
- Security threats are more prominent as business increasingly happens online
Blackrock Competitors Analysis FAQs
Question: What makes Blackrock different from other firms?
Answer: One of the things that sets Blackrock apart is its status as an independently managed public company with no majority shareholder. The company’s investors and employees own it, and this knowledge fosters greater trust from the general public. Trust, after all, is one of the most difficult to acquire in the asset management industry.
Question: Is Blackrock better than Vanguard?
Answer: Blackrock oversees more assets than Vanguard – $10 trillion compared to $7 trillion – so the company is better in this respect. However, each has strengths and weaknesses, so which is better depends on what you are looking for.
Question: Is Blackrock a good company to work for?
Answer: Based on employee reviews, Blackrock is rated 4.1 on Glassdoor, which is generally good. It is a fast-paced company where you have to work hard, but the rewards and the salaries are often generous.
Blackrock has attained such a high level of success for three reasons: it is publicly owned, it operates with a low-risk business strategy, and it played a vital role in the post-financial crisis recovery. Blackrock is by far the biggest and most successful company in the Big Three, but to maintain this position, it must continue to bolster its positive reputation.