Fink Aspires to Be No. 1 Fund Manager With Barclays Unit Offer

By Sree Vidya Bhaktavatsalam and Jon Menon

June 8 (Bloomberg) -- BlackRock Inc., the bond boutique co- founded in a one-room office by Laurence Fink in 1988, is a step closer to becoming the world’s biggest money manager after emerging as the leading bidder for Barclays Plc’s fund unit.

Fink has moved ahead of contenders for Barclays Global Investors including Bank of New York Mellon Corp., three people familiar with the talks said late last week. London-based Barclays, the U.K.’s third-largest bank, is seeking more than $12 billion for BGI, and may keep a 20 percent stake in the unit, one of the people said.

Barclays Global, which oversees $1.5 trillion, would be Fink’s biggest acquisition, building on his 2006 takeover of Merrill Lynch & Co.’s asset-management business. That deal pushed the New York-based company deeper into actively managed stock funds. BGI would add passive investments where rivals such as Pacific Investment Management Co. aren’t as competitive.

“This could be a transformational deal,” Burton Greenwald, a mutual-fund consultant based in Philadelphia, said in an interview.

The talks between Barclays and BlackRock aren’t exclusive, according to the people, who asked not to be identified because the auction is private. An agreement could be announced this week. BlackRock is in discussions with Mideast investors to provide equity financing for the deal, one of the people said.

Barclays agreed in April to sell iShares, BGI’s exchange- traded fund business, to London-based CVC Capital Partners Ltd. for $4.4 billion. The bank has until June 18 to find a better deal for iShares, the world’s largest manager of exchange-traded funds, or all of San Francisco-based Barclays Global.

Alistair Smith, a spokesman for Barclays in London, and Bobbie Collins, a spokeswoman for BlackRock, declined to comment.

Barclays Seeks Capital

Barclays, which shunned U.K. government funds, is seeking to raise cash after $18.6 billion of credit losses and writedowns. The bank’s capital adequacy ratios lag behind those of London-based Lloyds Banking Group Plc and Royal Bank of Scotland Group Plc of Edinburgh, which accepted state control in return for taxpayer assistance.

A purchase of BGI, the world largest money manager, would give BlackRock, currently No. 3, about $2.81 trillion in assets and more customers outside the U.S. It would surpass State Street Corp., which managed $1.44 trillion as of Dec. 31, and Fidelity Investments, with $1.25 trillion. Both companies are based in Boston.

BGI is Europe’s biggest hedge-fund manager, the largest independent manager of pension-fund assets in Canada and Japan’s largest discretionary investment manager, according to the company.

Pimco Challenge

Fink, 56, is in a position to gain funds at a time when customer redemptions and market declines have slashed assets under management at money-management firms. First-quarter net income fell 65 percent to $84 million, mirroring declines at other firms.

BGI’s ETF business would help BlackRock compete with Pimco, its biggest rival in managing fixed-income. The Newport Beach, California-based firm, co-founded by Bill Gross, is in the early stage of building a roster of ETFs.

“We could see BlackRock open a number of ETFs in the fixed-income space that they specialize in,” consultant Greenwald said.

Valuation Expertise

BlackRock has a division called BlackRock Solutions that advises clients such as banks, pension funds and governments on risk-management. BlackRock has been hired by the U.S. government to help evaluate distressed portfolios since the onset of the credit crisis in 2007, including those previously managed by insurer American International Group Inc. and Bear Stearns Cos.

The company has also applied to be one of at least five assets managers of the U.S. government’s Public-Private Investment Program, which aims to buy mortgage-related assets from banks to help revive lending stabilize the financial markets.

The BGI transaction would be the largest acquisition of an asset-management firm, eclipsing the previous record set by Fink’s $8.5 billion purchase of New York-based Merrill Lynch’s fund unit. Merrill Lynch ended up with 49.8 percent of BlackRock following the 2006 transaction, a stake now owned by Bank of America Corp., based in Charlotte, North Carolina, after its acquisition of Merrill Lynch in January.

Fink joined with Ralph Schlosstein, a friend and managing director at Lehman Brothers, in 1988 to start the firm that would become BlackRock. It began life as Financial Management Group within private-equity firm Blackstone Group LP. Blackstone, based in New York, provided an office, a telephone line and a $5 million line of credit in return for a 40 percent stake in the company.

BlackRock parted company with Blackstone in 1994 after PNC Financial Services Group Inc. of Pittsburgh bought Fink’s group for $240 million. BlackRock went public on Oct. 1, 1999, at $14 a share.

BlackRock has since climbed almost 12-fold to $163.74 as of June 5, including a 22 percent gain in 2009. The company is the largest publicly traded asset manager in the U.S.

To contact the reporters on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net; Jon Menon in London at jmenon1@bloomberg.net.