Will the Pension Protection Act prove an opportunity for Barclays Global Investors (BGI)? Blake Grossman
, CEO of the world's largest money manager, thinks it just may prove to be a boon for the San Francisco-based institutional investor and ETF maker. His theory: that the default asset allocation funds in the DoL's latest safe harbor will increase the need for the sophisticated services provided by BGI.
Grossman told Barron's
that Britain's Barclays (the U.S. firm's corporate parent) already manages some $30 billion in "explicit mandates built around the liability structures of defined-benefit programs," in Britain. He sees BGI having the potential to replicate that success in the United States. He also points to a 2 to 4 percent performance difference between DB and DC plans as a gap that Barclays can try to close.
However, Barron's fails to point out that BGI will have its work cut out for it. To gain market share in the defined contribution market, the money manager will have to outwit opponents in the high end of the market that is now dominated by investment firms such as Callan Associates and Frank Russell. Meanwhile, in the small and mid-size plan markets it is battling entrenched solutions from Financial Engines and Morningstar.
One issue for BGI is that is seen as a competitor by other plan providers (the firms that provide recordkeeping and administration in all but the small plan market are typically asset managers themselves and do not look kindly on handing revenues over to a well-heeled rival). That conflict will likely keep BGI out of the large plan market where rivals such as Vanguard, Fidelity and others can offer either their own ETFs or low cost institutional separate accounts for plan sponsors that want them.
BGI's core retail product -- its ETFs -- is also struggling to gain a foothold in the 401k market and are for now a niche product offered by fringe players in the market. The core problem with ETFs is that they are too bare bones for most providers to include in a plan that involves any kind of revenue sharing. While full fee disclosure is becoming more the norm, plan sponsors that will bypass the opportunity to use revenue sharing, 12b-1 fees and sub-TA fees to offset their plan administration costs are still few and far between.
The most realistic hope for growth in the DC market may be the fixed income arena. Peter Knez, head of BGI's bond business, told the paper that BGI has built a scientific approach to bond investing that could win it clients. However, the firm is not a significant presence in the 401(k) market today compared to BlackRock, Pimco, TCW and other big players in bonds.
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