Key Takeaways
- • Dan Loeb's Third Point hedge fund has taken a significant long position in BlackRock, the world's largest asset manager with $5.7 trillion in assets under management, according to a July 26 client letter.
- • Third Point characterizes BlackRock as a "misunderstood franchise" trading at less than 15x 2019 estimated earnings, with potential for consistent mid-teens earnings-per-share growth driven by high-margin, oligopoly-like businesses in ETFs and data analytics rather than traditional asset management.
- • iShares, BlackRock's ETF platform, captured more inflows in the first half of 2017 than the next 10 competitors combined, with BlackRock holding approximately 50% global market share in fixed-income ETF products—a segment positioned for accelerated growth as regulatory pressures favor lower-cost, transparent investment vehicles.
- • ETFs and index strategies represent only 10% of global equity market capitalization, according to BlackRock CEO Larry Fink, signaling substantial runway for future expansion across both equities and fixed income.
- • Third Point's hedge fund returned 10.7% in the first half of 2017, demonstrating positive performance amid broader market conditions.
Summary
Dan Loeb's Third Point hedge fund has established a meaningful position in BlackRock, positioning the $5.7 trillion asset manager as a core holding. In a client letter dated July 26, Third Point outlined its investment thesis, arguing that BlackRock is fundamentally mischaracterized by markets as a traditional asset manager vulnerable to market fluctuations. Instead, the hedge fund sees BlackRock's value deriving increasingly from higher-margin, oligopolistic businesses centered on exchange-traded funds through its iShares platform and data analytics services via its Aladdin platform.
The investment case centers on valuation and structural tailwinds. Third Point notes BlackRock trades at less than 15x forward 2019 earnings-per-share estimates while maintaining visibility for consistent mid-teens EPS growth. This valuation disconnect reflects what Loeb characterizes as a fundamental misunderstanding of the company's business evolution. The hedge fund emphasizes that traditional asset management—vulnerable to market movements and fee compression—represents a shrinking portion of BlackRock's earnings power relative to ETF and data-driven revenue streams, which benefit from more durable competitive moats and higher incremental margins.
The ETF growth thesis appears central to Third Point's conviction. During the first half of 2017, iShares generated more inflows than the combined total of the next 10 competitors, demonstrating significant market share consolidation. BlackRock maintains approximately 50% market share in global fixed-income ETF products, a segment poised for substantial expansion. BlackRock CEO Larry Fink reinforced this growth narrative on the company's July 17 second-quarter earnings call, noting that ETFs and index strategies currently represent only 10% of global equity market capitalization against a $160 trillion addressable market. Regulatory momentum globally favoring transparent, lower-cost investment products, coupled with institutional investor adoption of ETF-based solutions—particularly in fixed income—positions the company for extended growth beyond traditional asset management.
Third Point's broader fund performance provides context for the conviction behind this position. The hedge fund returned 10.7% in the first half of 2017, indicating positive results during the period covered by the BlackRock investment letter. The timing of this positioning reflects Loeb's confidence in both BlackRock's structural advantages and his broader market outlook heading into the second half of the year.
The investment case centers on valuation and structural tailwinds. Third Point notes BlackRock trades at less than 15x forward 2019 earnings-per-share estimates while maintaining visibility for consistent mid-teens EPS growth. This valuation disconnect reflects what Loeb characterizes as a fundamental misunderstanding of the company's business evolution. The hedge fund emphasizes that traditional asset management—vulnerable to market movements and fee compression—represents a shrinking portion of BlackRock's earnings power relative to ETF and data-driven revenue streams, which benefit from more durable competitive moats and higher incremental margins.
The ETF growth thesis appears central to Third Point's conviction. During the first half of 2017, iShares generated more inflows than the combined total of the next 10 competitors, demonstrating significant market share consolidation. BlackRock maintains approximately 50% market share in global fixed-income ETF products, a segment poised for substantial expansion. BlackRock CEO Larry Fink reinforced this growth narrative on the company's July 17 second-quarter earnings call, noting that ETFs and index strategies currently represent only 10% of global equity market capitalization against a $160 trillion addressable market. Regulatory momentum globally favoring transparent, lower-cost investment products, coupled with institutional investor adoption of ETF-based solutions—particularly in fixed income—positions the company for extended growth beyond traditional asset management.
Third Point's broader fund performance provides context for the conviction behind this position. The hedge fund returned 10.7% in the first half of 2017, indicating positive results during the period covered by the BlackRock investment letter. The timing of this positioning reflects Loeb's confidence in both BlackRock's structural advantages and his broader market outlook heading into the second half of the year.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.