How big can BlackRock get? With more than US$4.4-trillion in assets under management, BlackRock is the largest money manager in the world by a wide margin

How big can BlackRock get?

Jonathan Ratner | June 19, 2014 7:50 AM ET
With more than US$4.4-trillion in assets under management, BlackRock Inc. is the largest money manager in the world by a wide margin, but that has some investors worried that its growth will inevitably slow down.

RBC Capital Markets analyst Eric Berg, however, is confident BlackRock is being very disciplined in launching new products that can help increase AUM over time and is targeting market leadership in key markets to help boost overall growth.

Some of BlackRock’s more recent offerings include the Global Multi-Asset Income Fund and Fixed Income Balance Risk product.

Mr. Berg also highlighted the iShares business, where management believes growth in passively-managed ETFs will not simply come from fund investors substituting actively managed funds with passively managed funds.

“Rather, within BlackRock’s world view, a multitude of potential clients, ranging from self-directed retail investors to institutional investors such as pension plans, sovereign funds and insurance companies, can utilize ETFs for distinct purposes,” the analyst told clients.

He’s not surprised to see BlackRock focusing on the growth opportunity in alternative investing either.

Only 3% of BlackRock’s AUM is currently allocated to alternatives, so there is room for more exposure through hedge-fund strategies, private-equity funds of funds, opportunistic credit strategies, real estate and infrastructure investments.

Deutsche Bank analyst Brian Bedell thinks BlackRock management effectively tackled the “too-big-to-grow” question at its investor day by identifying good traction and solid execution plans in key growth areas. The company also reaffirmed a 5% annual organic AUM growth target, as well as an expectation of continued double-digit EPS growth in normal markets.

As a result, Mr. Bedell has more confidence in his EPS growth forecasts of 12% in 2014 and 16% in 2015, both of which are above analysts’ average expectations.

The analyst expects BlackRock shares to re-attain a 10% P/E premium versus the S&P 500 in the next 12 months, which drives his US$358 price target.

Mr. Berg at RBC also noted BlackRock has traded at an average premium to peers of roughly 10% in the past five years. However, in the new world of “solutions-oriented money managers” he sees emerging, BlackRock is in a good position to take additional market share. The analyst expects that will translate into faster organic growth than its competitors.

As a result, he believes BlackRock’s premium could rise to 23%, producing a price target of US$386 on the stock, representing an upside of more than 20%.