BGi’s Diamond Scores $36.5 Million; Vanguard Investors Pissed Off

Here’s a round-up of second day stories about the Blackrock purchase of BGI.

The Wall Street Journal says more than 400 top executives at Barclays will walk away from the deal pocketing a total of $630.3 million. It seems there was some sort of unusual management incentive plan in place at BGI that would have started to expire in 2010. They needed to do something quick to cash out. Barclays President Robert Diamond alone will walk away with $36.5 million.

WSJ’s Jason Zweig reports that Vanguard’s investors are furious with the mutual fund/ETF company for even making a bid on iShares. Zweig says this could have been a good move for Vanguard and I agree. Already the No. 3 ETF provider, Vanguard could have become the market leader. More important, Vanguard would have probably cut the expense ratios on the ETFs, which could have brought in even more investors. Few people realize that Vanguard doesn’t have an ETF to partner with its S&P 500 fund. Vanguard came to ETFs late in the game and wanted to make an ETF for its flagship index fund. However, S&P had already given an exclusive license to BGI for the iShares S&P 500 Index (IVV).This would have given Vanguard the S&P 500 ETF they’ve always wanted. Also, S&P sued Vanguard over basing the ETF on the index without giving S&P any additional licensing money That full story is in ETFs for the Long Run.

The Financial Times says Larry Fink, Blackrock’s CEO, has been trying to buy BGI for eight years, and capitalized on the financial crisis to make his dream come true.

Reuters’ Svea Herbst-Bayliss suggests the BGI deal will spark a buying spree as envious rivals figure out how to compete. Bank of New York Mellon (does that taste as good as a honeydew melon?) is expected to be the next buyer. BNY already plays a big part in the ETF industry as a trustee and custodian of many funds. BNY is the trustee and administrator of the second ETF, the MidCap SPDR (MDY).

DealJournal’s Michael Corkery says besides CVC, the big loser is Goldman Sachs, which advised CVC.

Jim Wiandt of IndexUniverse.com says by using an ETF company to create the largest asset manager in the world is a huge boost for the ETF industry and proves how big basis-point-linked passive assets have gotten. He asks a lot of questions, but doesn’t give any anawers. Questions like will Blackrock keep the ETF expense ratios low and what does this mean for the active ETFs?

What are your thoughts? I would love to hear them.

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