BlackRock knows the world of investment is changing. As Gen-Xers and Millennials begin to accumulate more wealth, it intends to stay ahead of the curve.
Earlier this year, the world's largest asset manager took a stake in Acorns, an app that invests people's spare change. BlackRock (BLK) hopes Acorns can give it insight into the behavior of a younger investors, so it can develop products to suit their needs down the line.
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The company is also fleshing out its suite of ethical and sustainable investing funds, which it expects to appeal to younger clients.
"BlackRock is looking at how can they take their analytical infrastructure ... and apply that to the changing financial advice landscape," said Robert Lee, an analyst at Keefe, Bruyette & Woods.
That's the big reason BlackRock partnered with Acorns in May, when the company led Acorns' $50 million funding round. Chief Marketing Officer Frank Cooper now holds an observer seat on the Acorns board of directors.
Noah Kerner, the CEO of Acorns, said BlackRock gives Acorns counsel and support for its investment products. In return, BlackRock gets an inside look at Acorns' business.
"They're interested in learning and evolving and growing," Kerner said. "So I think they're intrigued by the things we're doing."
For example, Acorns has a team of people looking at behavioral economics. The group has found that encouraging people to invest $5 per day is more effective than asking them to invest $35 per week. It shared these results with BlackRock, allowing the company to use that information to inform its own products.
BlackRock is "trying to get a better sense [and] a better understanding of how a different generation invests: what they look for, how you access them," Lee said.
The company is also making a full-throttle push into so-called ESG exchange-traded funds, which select companies with a positive environmental, social or governmental impact. CEO Larry Fink wants BlackRock's iShares ETF business to develop those funds for a host of reasons — not the least of which being their resonance with the socially conscious Generation X and Millennial sets.
BlackRock in October launched "iShares Sustainable Core," a lineup of stock and bond ESG ETFs meant to act as the bedrock of investors' portfolios, not just auxiliary investments to explore on the side.
Previously, investors could find funds that focused on companies with low carbon footprints, or high gender diversity and inclusion, said Martin Small, head of iShares for the United States and Canada. "But you could never find anything that said, 'I want my whole portfolio — stock and bonds — through a sustainable lens.'"
BlackRock projects that global assets in ESG ETFs will grow to $400 billion in 2028, from $25 billion today. The company currently manages $7.5 billion in sustainable ETF assets, and has seen $525 million of inflows in the United States and Europe since it unveiled iShares Sustainable Core.
Younger investors aren't expected to wholly drive the spike projected within the next decade, according to Small.
"The growth in this segment, in the near term to medium term, is actually going to come from more established investors," Small said. "Larger investors are evaluating what they view as the failure of public institutions, and thinking about what they can do more with private capital."
But over time, "you will see investors matching more and more money with their political, social and environmental beliefs," Small said.
BlackRock recently revealed that it would offer ESG metrics on all iShares ETFs by early next year, whether they were specific ESG funds or not. Some are already available. For example, investors can now get a score for iShares' popular Core S&P 500 ETF fund (IVV) that shows the fund's exposure to carbon intensive companies.
Lee emphasized that the company's efforts to look to the future aren't only about Generation X and Millennials.
"A lot of people who have more money are older, and they're also changing how they invest," Lee said.
But there's a massive transfer of wealth from Baby Boomers to their children expected in the coming decades — often estimated at $30 trillion in North America alone. It behooves BlackRock to get ready.
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