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BlackRock Has Gotten Bigger, but Not Necessarily Better

The next few years present another test for BlackRock's investment culture.

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It's no secret that  BlackRock (BLK) has grown by leaps and bounds in recent years. That growth has been fueled in part by increased demand for its asset-management and risk-management expertise, particularly in the wake of 2008's market meltdown. Yet most of the firm's expansion has come through acquisitions, notably through its 2006 deal to acquire Merrill Lynch Investment Management and its 2009 purchase of Barclays Global Investors. Those deals have made it the largest publicly traded asset manager in the world, with roughly $3.4 trillion under management as 2009 ended.

Mergers and acquisitions in asset management frequently lead to disappointing results for investors, thanks to cultural differences among organizations, operational challenges, personnel turnover, or a combination of those and other unforeseen factors. Given BlackRock's recent growth spurt and the challenges that may lie ahead, there's no guarantee that it will consistently or uniformly produce better results for mutual fund investors.

Points in BlackRock's Favor
There are several factors that increase the likelihood of investors' success. BlackRock executives are seasoned business builders and have proved thoughtful in their approach to acquisitions. They typically move quickly and decisively, which can ease the friction of combining varying investment organizations under one roof. They've also maintained a high degree of control at the corporate level, which sharply reduces the chance of the wholesale shifts in investment policy or attempted makeovers that caused many other asset-management firms to stumble over the years. In addition, BlackRock remains almost exclusively an asset manager. That last point sets BlackRock apart from some other large firms in which an asset-management operation may be forced to compete with a company's other business units (such as broker/dealer operations, record keeping, proprietary trading, or investment banking) for time, support, or resources.

Michael Herbst does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.