The Office of Fair Trading (OFT) is looking into BlackRock’s agreement to acquire Credit Suisse’s exchange traded fund (ETF) business, to assess the potential effects the merger would have on the market.
The industry body, which aims to make markets ‘work well’ for consumers, is contacting some of BlackRock’s ETF clients to gain their opinion on the proposed merger in a bid to determine how the combined entity would affect competition, product choice and pricing.
As part of the deal, BlackRock has to file with the OFT and has been asked to provide the contact details of some of its clients.
A spokesperson for BlackRock confirms the firms are working closely with the OFT as well as the Irish Competition Authority to help them understand the nature of the transaction.The asset manager entered into a definitive agreement to acquire the Swiss firm’s ETF business at the start of the year, further strengthening BlackRock’s position in Switzerland in particular.
The transaction, which is expected to complete by the end of the second quarter, will see BlackRock bring on board Credit Suisse’s $17.6 billion in assets, across 58 funds in its ETF range, the majority of which are physically-backed.
At the time of the deal, Joe Linhares, head of iShares EMEA, said: 'Our long-term strategy is based on tapping growth markets in a disciplined way and deepening our presence with investors, and this acquisition will create an exceptional ETF platform with which to serve local investors and deliver value to shareholders.'
However, there are concerns the acquisition would see BlackRock control nearly three quarters of assets in the European physical ETF market place, according to figures from ETFGI.
BlackRock’s iShares already dominates European and global market share. At the end of last year, iShares had around $125 billion in assets under management, accounting for 64.4% of all assets in physically-backed ETFs, ETFGI said.
The firm’s market share of the physical ETF space will rise to 73.1% following the acquisition, the research firm added.
Such a stronghold on the market has sparked some concerns that competition is being squeezed out, leading to fewer products, less choice and potentially less price competition.
iShares has been the preeminent provider of physical-based ETFs since it entered the UK market in 2000.
Yet the last couple of years have seen a range of other providers, including Credit Suisse, change tack and switch from their predominantly swap-based offering to physical ETFs, in order to gain more traction among investors for whom the notion of counterparty risk became synonymous with synthetic products.
Other providers are now playing catch-up in the physical arena, with the likes of db X-trackers recently launching a raft of physical products alongside its established swap-based range.
Newer entrants to the UK and European market, such as Vanguard, are also helping to provide a level of price competition, offering lower-cost products.