BlackRock Inc is seeking regulatory nod for its iShares exchange-traded funds to follow proprietary indexes rather than those developed by third parties such as Standard & Poor’s, Bloomberg reported.
The application, filed by iShares with the U.S. Securities and Exchange Commission, will allow future and existing funds to use in-house indexes the firm will create.
IShares, a San Francisco-based subsidiary of Black Rock, ranks as the biggest provider of index-based ETFs with some $649 billion in assets under management in more than 460 funds.
The ETF industry is becoming increasingly crowded, prompting managers to cut fees in order to attract and retain assets, according to Mark Luschini, chief investment strategist for Philpadelphia-based Janney Montgomery Scott LLC.
The offering of funds based on proprietary indexes will help New York’s Black Rock set itself apart from rivals and burnish the company’s brand name, said George Simon, a securities attorney at Foley & Lardner LLP in Chicago who specializes in ETFs.
All of the iShares index funds currently track benchmarks provided by firms like S&P, a unit of McGraw-Hill Cos and MSCI Inc. BlackRock which purchased IShares through its $15.2 billion purchase of Barclays Global Investors in 2009, must pay licensing fees in order for the funds to use the outside indexes.
BlackRock, which manages $3.7 trillion in assets, doesn’t break out licensing fees for outside indexes in its filings. IShares’ SEC application request permission to set up funds that use indexes created compiled, sponsored or maintained by affiliates.
The existing funds will also be able to change their respective investment objective from seeking to track an outside index to seeking to track a BlackRock index “if deemed appropriate” by the funds’ advisers, according to the application.
The indexes will be created and provided by a BlackRock subsidiary or division that relies on its “own proprietary model employing intellectual property and industry expertise.”
BlackRock Fund Advisors or an affiliate would pay the indexing subsidiary a licensing fee on behalf of funds that use its benchmarks.
Black Rock is a leading providers of investment, advisory and risk management solutions. The company offers solutions from fundamental and quantitative active management approaches aimed at maximizing outperformance to highly efficient indexing strategies designed to gain broad exposure to the world's capital markets.
