iShares, the king of ETF trading

There wouldn’t be much ETF trading without ETF’s being issued and managed. The global ETF market is being controlled by a handful powerful ETF providers and from this exclusive club of ETF providers iShares is absolutely King Leo.

With almost 1 trillion Euro’s invested in ETF’s iShares dwarves other contenders. It’s market share in ETF’s is estimated at around 45%. Here we will dig a little deeper into the world of iShares.

The Barclays days of iShares

iShares was originally launched by Barclays in 1996. In 2000 they offered 2 ETF’s that became the cornerstones of ETF trading in Europe: the iShares STOXX Europe 50 and the EURO STOXX 50 UCITS ETF, both traded on the German stock exchange.

After its launch ETF’s became popular among institutional investors who appreciated the cost advantages and transparency of ETF’s. Individual investors followed quickly.

Barclays Bank did a fine job in promoting ETF’s in Europe and it made iShares the shiny diamond in the Barclays Group. In the beginning of 2009 Barclays was set to sell iShares.

Why Barclays wanted to sell iShares?

One wonders what was driven them? First and foremost they needed the cash to steer off partial ownership of the UK government. Barclays was in need of cash and it preferred a role as an independent bank. Besides management would not prefer meddling from government in their daily affairs.

It would halt the transition to a more flexible and modern bank when they would be obliged to discuss all sorts of matters with politicians. A second reason for selling iShares was the embedment of iShares in BGI, Barclays Global Investors, based in San Francisco.

iShares had always been part of the BGI division which was essentially aimed at institutional investors. At the end of the first millennium ETF trading had grown as a very popular way of investing among consumers and that seemed not fitting to BGI.

The initial iShares deal with CVC Capital Partners

At the time Barclays was announcing (or rather whispering) that it wanted to sell the iShares brand and company, media got hold of the news and speculation began about the worth of iShares. Estimates were being made varying between 2 Billion US Dollars and 4 Billion US Dollars.

In the beginning of 2009 CVC Capital offered 4,4 Billion Us Dollars for iShares which at that time was expected to settle the deal. Barclays agreed to the price offered but it made a clause that it would be open for a better deal until the 18th of June 2009. That deal was not expected to come, but it came, packed in a bigger box.

An offer you can’t refuse from BlackRock

iShares was part of BGI and this is a real giant in asset management. In 2009 it managed more than 1.2 Trillion US Dollars. So iShares was only a small, but important and fast growing, part of the BGI company.

After the “deal” with CVC Capital Partners other investment firms were going after iShares as they all wanted the shiny ETF diamond it represented. BlackRock however took things on another level by issuing an offer for BGI as a whole. It was willing to put 13.5 Billion US Dollars on the table for BGI including iShares.

That offer was too good to pass so the deal went to BlackRock leaving CVC Capital back in the dust. But that dust was not hard to swallow, part of the clause with the June 18 provision was a $ 175 million breakup fee. Believe me, the management of CVC Capital opened a good bottle of champagne when the deal went off.

iShares today and tomorrow

With the power of BlackRock, the largest asset management firm in the world, iShares continued to grow exponentially. Under the guidance of BlackRock iShares nearly tripled in size in a 5 year period.

The ETF market also nearly doubled in size, especially in Europe, so in hindsight the takeover of iShares by BlackRock was a very fortunate deal. Today iShares is by far the leading ETF provider in the world.

iShares is adding new ETF’s on a regular basis and they also excel in promoting existing ETF’s in a way that it helps people to invest in a transparent and simple way. An example is the iShares Core Series that provides 9 popular ETF’s that cover a broad investment scope.

Will iShares remain the market leader in the years to come? Probably yes, although they face some heavy competition in the US coming from State Street and especially Vanguard. But with the back-up of BlackRock there is not any doubt that iShares will continue to grow.

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