LONDON/NEW YORK: BlackRock , the world's biggest asset manager, made its first push into Europe's "robo-advice" market on Tuesday after taking a stake in Anglo-German digital investment manager Scalable Capital.
BlackRock, which manages US$5.4 trillion across a range of actively managed and index-tracking funds, led a 30 million euro (US$33.6 million) funding round for Scalable alongside its two existing German venture capital backers, a joint statement said.
The funding will help Scalable expand its robo-advice business - which uses low-cost exchange-based funds and online distribution - with financial institutions and corporates to help grow assets past the 250 million euros raised in the 16 months since launch from more than 6,000 retail clients.
The expansion of BlackRock's digital efforts comes as fund and wealth managers globally look to overhaul their distribution models amid tougher regulation, pressure on fees and the changing investment needs of a younger generation.
Patrick Olson, BlackRock's chief operating officer for Europe, the Middle East and Africa, and who will join Scalable's supervisory board, said the decision to invest came as investors increasingly wanted to access their holdings using technology.
"This trend is prompting strong demand from European financial institutions – including banks, insurers, wealth managers and advisory firms – for high-quality technology-enabled investment solutions," Olsen said.
Scalable Capital, founded in 2014 and based in Munich and London, uses exchange-traded funds from BlackRock and others to build low-cost portfolios for clients and is actively looking to expand into other European countries. As well as Britain and Germany, it is also active in Austria.
New European rules aimed at improving transparency, value for money and protections for investors meant traditional asset and wealth managers would need to use technology to help design, manage and distribute investments, the companies said.
"Technology is not just a competitive advantage but a requirement for wealth management businesses to be successful in the future," Adam French, co-founder and co-CEO at Scalable Capital, said.
The deal is subject to regulatory approval and is expected to close in the third quarter. The companies declined to specify the size of the equity stake taken by BlackRock or its growth targets.
The deal for Scalable comes several months after BlackRock Chief Executive Officer Larry Fink told Reuters he was considering up to four small acquisitions to shore up its technology and investment expertise.
It also follows the purchase in 2015 of U.S.-based robo-adviser FutureAdvisor which, like Scalable, uses exchange-traded funds to build portfolios for clients and began serving retail customers.
Since then, FutureAdvisor has put more emphasis on licensing its service to big wealth management companies to offer through their own advisers, typically to lower-tier clients who they might otherwise not retain.
BlackRock is keen to win more market share with those wealth management firms, which are already a primary distributor of its funds to the general public.
FutureAdvisor disclosed having US$969 million in assets under management and 13,751 accounts in a February filing with U.S. regulators, up from US$232 million and 3,460 accounts around when the BlackRock deal was announced in 2015.
As well as FutureAdvisor, BlackRock's digital wealth management business includes Aladdin Risk for Wealth, iRetire and iCapital, all of which are solely for U.S.-based clients.
Fink has placed an unusual emphasis on technology for a company in his industry, including through the company's Aladdin operating system for investment management, which it licenses to rivals.
It is also exploring how computer models can improve stock picking while reducing costs and in March announced plans to bolster an internal team known for data-driven approaches to picking stocks.
(US$1 = 0.8940 euros)
(Reporting by Simon Jessop, editing by David Evans)