Rarely if ever are changes to passively-managed index funds topics of consternation on Wall Street, but that all changed this week when one asset management giant decided to blink first.
Seeing billions of assets under management vanish in recent years, Fidelity is launching two new index funds on Friday that are completely free to invest in. By announcing the no-cost funds – an industry-first – Fidelity not only set off a PR firestorm among “roiled” competitors like BlackRock and Vanguard, it also sent the stock prices of its rivals spinning, leaving employees with equity stakes wondering what hit them.
The move, referred to as “a shocker” by one Bloomberg analyst, is an effort by Fidelity to reclaim market share from the likes of BlackRock, the world’s largest asset manager that has won over clients with its cheap iShare ETFs. The free funds will obviously result in a loss for Fidelity, but the idea is to leverage them to bring in new customers who will then hopefully hire a Fidelity advisor or buy into one of the company’s active products.
“Since we expect Fidelity is a profit making organization, we expect somehow they will look to make money,” Robert Lee, an analyst at Keefe, Bruyette & Woods, said in a note that likely wasn’t meant to be funny. Fidelity’s bold bet should force competitors to follow a similar path, which could result in diminished revenues across the industry over the long-term.
The immediate response to the announcement wasn’t pretty for rivals, either, particularly for BlackRock. Shares traded at as high as $510 before the news broke. As of market close on Thursday, BlackRock’s stock price had dropped to $475. Co-founder Larry Fink personally suffered $40 million in paper losses following the announcement. Several other rivals also saw their shares slide.
The imminent price war will surely affect all large asset managers – and perhaps the bonus pool for their employees – and could put additional pressure on wealth managers and even hedge funds, many of which have already lowered their fees in response to performances that have recently been bested by passively-managed index funds.
Elsewhere, Bloomberg just published a feature on Stephanie Cohen, the 41-year-old Goldman Sachs exec who was recently named to the firm’s highly-coveted management panel. She’s the committee’s youngest-ever member, earning a seat at the big table just four years after being named partner. Cohen, who worked in M&A before taking on the role of chief strategy officer late last year, was named to the committee just days after Goldman announced that current COO David Solomon will take over as chief executive on Oct. 1.
The move may portend a theme at Goldman Sachs under Solomon, who, like Cohen, is a former investment banker. He’s also gone on the record several times about the need for greater gender diversity at the upper echelons of management. It’s safe to assume that similar promotions will become more of the norm under Solomon.
Former bond titan Bill Gross is having a tough run. The performance of his fund is trailing every single one of its peers over the last three years. An editorial piece is questioning whether Gross should hang up his spurs, without even mentioning that whole fart spray incident at his ex-wife’s home. (Bloomberg)
Credit Suisse’s algorithmic trading boss has left the bank after a near-20-year run. Chris Marsh, co-head of the firm’s cash execution services in Europe, the Middle East and Africa, has given notice. His future plans are unclear. (Financial News)
Barclays’ second quarter numbers would look a lot better than they appear if you take away their misconduct charges. The U.K. bank may be better-positioned than many analysts thought. (Reuters)
Wells Fargo has agreed to pay $2.09 billion to settle a federal probe dating back to the mortgage crisis. The penalty is less than what other banks paid for their role in the scandal but in line with what analysts had predicted. (Bloomberg)
BlackRock has hired Elga Bartsch, Morgan Stanley’s former chief European economist and global co-head of economics. Bartsch will spearhead macroeconomic research within BlackRock’s “investment institute.” (Reuters)
J.P. Morgan has acknowledged that it is one of the banks under investigation over claims that it may have mishandled securities that represent shares of foreign companies, known as American Depository Receipts, or ADRs. (Bloomberg)
Apple has become the first company to be valued at over $1 trillion, if you haven’t heard. It’s valuation is now equal to the GDP of the entire state of Florida, and greater than that of Turkey or the Netherlands. (Twitter)
People who abstain from alcohol in their middle years are at greater risk of developing dementia later in life, according to a new study. However, people who drink in excess during middle age are also at an increased risk, so measure carefully. (The Guardian)
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