MoneySense and Blackrock and "retirement rich" ??

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George$
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MoneySense and Blackrock and "retirement rich" ??

Post by George$ »

Yesterday morning I was at the MoneySense workshop(?) here in Toronto - see
Retire Rich: Four hours that will change your financial future
Good turnout - my guess between 350 to 450. Registration fee at $45 - reasonable.

A couple of presenters I appreciated - like Malcolm Hamilton and Dan Bortolotti - but some less so.

I have some questions -

(1) Was anybody else on this FWF forum there? If so - any thoughts?
(2) Why was the event "sponsored" by BlackRock. They made a presentation. A sales gimmick?
(3) What is the financial model at MoneySense for its activities?
(4) What is the financial model at BlackRock for its activities?

At the end as I was leaving - wondering - how much money did BlackRock contribute. So asked the B-R people there - no response, they did "not know". Then tried same with some MoneySense folks there - same response.

:(
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by NormR »

George$ wrote:(2) Why was the event "sponsored" by BlackRock. They made a presentation. A sales gimmick?
Presumably they wanted to talk to potential customers.
George$ wrote:(3) What is the financial model at MoneySense for its activities?
As far as I know, they sell subscriptions, tickets to the event, and ad/sponsorship space.
George$ wrote:(4) What is the financial model at BlackRock for its activities?
Like any other fund company, they hope to grow assets under management. (Simplifying here because it's really a big financial conglomerate.)
George$ wrote:At the end as I was leaving - wondering - how much money did BlackRock contribute.
I don't know, but likely enough to cover the food&drink, perhaps the rental of the space or a speaker's fee. The ticket price does not generally cover the costs involved.
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by George$ »

Thanks Norm. Much appreciated.
NormR wrote:
George$ wrote:(2) Why was the event "sponsored" by BlackRock. They made a presentation. A sales gimmick?
Presumably they wanted to talk to potential customers.
Yes, I agree - but this was not made clear by MoneySense. To illustrate - for decades I have subscribed to "Consumers Report" - and they have never wore two hats or served two masters at the same time. My reaction listening to B-R is - "Should I buy BLK shares - and so do better than listen to the sales of their funds?"

NormR wrote:
George$ wrote:(3) What is the financial model at MoneySense for its activities?
As far as I know, they sell subscriptions, tickets to the event, and ad/sponsorship space.
Yes, but 400 x $45 = $18,000. Is that not enough to cover MoneySense costs for the event? My experience with TD WebBroker - I never pay admission to hear their sales pitch. And my experience with running the Wildeness & Canoeing Symposium for 28 years is that for $45 admission I cover 16 hours - 18 speakers, space rentals, etc etc :roll:
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by NormR »

George$ wrote:
NormR wrote:
George$ wrote:(2) Why was the event "sponsored" by BlackRock. They made a presentation. A sales gimmick?
Presumably they wanted to talk to potential customers.
Yes, I agree - but this was not made clear by MoneySense. To illustrate - for decades I have subscribed to "Consumers Report" - and they have never wore two hats or served two masters at the same time. My reaction listening to B-R is - "Should I buy BLK shares - and so do better than listen to the sales of their funds?
Like almost all other media properties in the country, the magazine earns money from subscriptions and ads. Typically the subscriptions pay for the printing and distribution costs and the ads for everything else. Even then, it doesn't tend to be a very profitable business these days.

If you're disturbed by the notion of ads, you'd best stay away from newspapers, commercial tv, the vast majority of websites, etc.

In addition, BR was clearly called a sponsour. The relationship wasn't hidden. It was right out there in the open. The only thing you don't know is how much they paid. But you also don't know how much MS paid for their staff, speakers, etc.
George$ wrote:
NormR wrote:
George$ wrote:(3) What is the financial model at MoneySense for its activities?
As far as I know, they sell subscriptions, tickets to the event, and ad/sponsorship space.
Yes, but 400 x $45 = $18,000. Is that not enough to cover MoneySense costs for the event? My experience with TD WebBroker - I never pay admission to hear their sales pitch. And my experience with running the Wildeness & Canoeing Symposium for 28 years is that for $45 admission I cover 16 hours - 18 speakers, space rentals, etc etc :roll:
How much did you pay for speakers? How much did you pay staff? Did you expect to earn a return on the capital/time employed? I think you've unrealistic expectations here. FYI, high profile speakers can easily earn $10k+ per event and I'm not even talking about ex-presidents or the like.

The model is much more like a TV show that comes with a few ads. The prior event included a very short time for the sponsor to say a few words before the main event. Just step out of the room for a few minutes and grab a drink if you don't want to hear it.
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by George$ »

Well, perhaps I am over reacting or perhaps over sensitive Norm - but I will try to briefly explain and respond.
NormR wrote:Like almost all other media properties in the country, the magazine earns money from subscriptions and ads. Typically the subscriptions pay for the printing and distribution costs and the ads for everything else. Even then, it doesn't tend to be a very profitable business these days.

If you're disturbed by the notion of ads, you'd best stay away from newspapers, commercial tv, the vast majority of websites, etc.

In addition, BR was clearly called a sponsour. The relationship wasn't hidden. It was right out there in the open. The only thing you don't know is how much they paid. But you also don't know how much MS paid for their staff, speakers, etc.
Yes, I understand the need for adds in magazines and newspapers. I subscribe to MonetSense - and will continue to do so - it has many fine articles - including yours.

Yes, BR was listed as a sponsor. I knew that before I went. But they were not listed as being in the program - (they appeared twice once a presentation on their 2014 survey). I have attended other financial events with sponsors - and where they are also listed in the program.

And as my first posting here states - there were some good presentations.

Cost. True, I don't know what MS paid - and I don't expect the same as my WCS reference.



NormR wrote:How much did you pay for speakers? How much did you pay staff? Did you expect to earn a return on the capital/time employed? I think you've unrealistic expectations here. FYI, high profile speakers can easily earn $10k+ per event and I'm not even talking about ex-presidents or the like.

The model is much more like a TV show that comes with a few ads. The prior event included a very short time for the sponsor to say a few words before the main event. Just step out of the room for a few minutes and grab a drink if you don't want to hear it.


My cost at the WC symposium- some folks I had needed more than $2,000 to cover travel costs from the far north. Others came at $50.
Why your reference to $10k? - I would have thought most presenters yesterday, if not all were pro bono. But I could be wrong.


With a smile Norm - :) - in your view is MoneySense perfect in all things at all times? :)
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by George$ »

To change the MS topic - to BlackRock.

I have not owned BLK shares - but I would like to know more about it.

Today BLk shares are worth about $57 billion With a P/E of about 17 - suggests the earnings are running at $3 billion a year.

My question - can they really maintain their low cost ETS - and see at the same time huge profits? I simply don't understand how they are doing it.

From Wikipedia
Origins[

BlackRock was founded in 1988 by eight people including Larry Fink, Robert S. Kapito, Susan Wagner, Barbara Novick, Ben Golub, Hugh Frater, Ralph Schlosstein, and Keith Anderson to provide institutional clients with asset management services from a risk management perspective.

Fink, Kapito, Golub and Novick had worked together at First Boston, where Fink and his team were pioneers in the mortgage-backed securities market in the United States. During Fink's tenure, he had lost $100 Million as head of First Boston. That was the motivation to develop the world's greatest risk management and fiduciary.

Initially, Fink sought funding (for initial operating capital) from Pete Peterson of the The Blackstone Group L.P. who believed in Fink's vision of a firm devoted to risk management. Peterson called it Blackstone Financial Management.

In 1992, due to internal confusion, the decision was made to change their name from Blackstone Financial Management to BlackRock. In 1995, Schwarzman and Fink had an internal dispute over equity. Fink wanted to share equity with his employees. Schwarzman did not. They agreed to part ways, so the BlackRock partners, (Sue Wagner) orchestrated a deal with PNC Financial.

In 1995, BlackRock closed the deal with PNC Financial Services Group, while continuing to be managed independently. In 1998, PNC’s equity, liquidity, and mutual fund activities were merged into BlackRock. BlackRock went public in 1999 at $14 a share.[4]
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by AltaRed »

In defence of MoneySense, the ad for this event in the latest MoneySense mag was pretty clear it was sponsored by Blackrock (Platinum Sponsor) and Rogers (as magazine owner I imagine). I would have expected BlackRock to be present at the event and to make a presentation, albeit I would expect the presentation to be fairly generic on the pros and cons of ETFs...and the rise of ETF sponsors at the expense of high cost mutual funds. I was not there so cannot comment on content. Rogers is not a charity, nor should MoneySense, intended to be profitable, not tap into sponsorships such as this.

That was a similar approach to a recent cross-Canada tour (Larry Berman event) where folks like BMO had an ETF presentation on the pros/cons/growth of ETF assets. As long as such presentations are not super slick unabashed misleading marketing, they have a place in getting the word out educating the public.

FWIW, I have subscribed to MoneySense for about 3 years (maybe more) and could have used it 15 years ago. But like George$, I contiunue to learn from it and only occasionally do I believe articles have clearly missed their mark.
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Re: MoneySense and Blackrock and "retirement rich" ??

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George$ wrote:My cost at the WC symposium- some folks I had needed more than $2,000 to cover travel costs from the far north. Others came at $50.
Why your reference to $10k? - I would have thought most presenters yesterday, if not all were pro bono. But I could be wrong.
Here's an article from CB on the topic ... $20,000 embarrassing? It’s the going rate on the speakers’ circuit

I don't know what they were paid in this instance.

Keep in mind that pro-bono speakers are themselves not without conflicts of interest. They might be trying to sell a book or service, for instance. What motivates them to take the time to talk?
George$ wrote:With a smile Norm - :) - in your view is MoneySense perfect in all things at all times? :)
Far from it, but it's a bit much to talk about reasonable ticket costs and them complain about how they were subsidized by the ads/sponsourship.

But, with the decline in ad revenues in print media, many people will discover just how much it costs to produce a paper/magazine soon enough.
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by ig17 »

George$ wrote:My question - can they really maintain their low cost ETS - and see at the same time huge profits? I simply don't understand how they are doing it.
AUM: 4.32T
Revenue: 11.07B

Assuming that all their revenue comes from the management fees:

11,070,000,000 / 4,320,000,000,000 = 0.26% average fee. Sounds plausible.

I don't understand what you don't understand.
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by George$ »

ig17 wrote:
George$ wrote:My question - can they really maintain their low cost ETS - and see at the same time huge profits? I simply don't understand how they are doing it.
AUM: 4.32T
Revenue: 11.07B

Assuming that all their revenue comes from the management fees:

11,070,000,000 / 4,320,000,000,000 = 0.26% average fee. Sounds plausible.

I don't understand what you don't understand.

Thanks - I will look further and try to understand more. Can I assume your numbers are from the BlackRock 2013 annual report?

In 1999 their share was at $14 - and today it is at $341 per share with a dividend at $1.93 per share. Do you understand how this happened? I don't think I do. :(
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by ig17 »

AUM number is from Page 2 here:
https://www.blackrock.com/institutions/ ... porate.pdf

Revenue number is from Yahoo:
http://finance.yahoo.com/q/ks?s=BLK+Key+Statistics
George$ wrote:In 1999 their share was at $14 - and today it is at $341 per share with a dividend at $1.93 per share. Do you understand how this happened? I don't think I do. :(
Stock Price, End Of Year

1999: $17
2013: $316
-----
Compounding rate: 25.2%

Assets Under Management, End of Year

1999: 165B
2013: 4324B
-----
Compounding rate: 28.6%

Their revenue is a percentage of assets. Revenue grows at the same rate as assets. The big secret is, their expenses don't have to keep up with the assets. For example, they can grow their assets just by riding the coattails of a strong bull market. They don't have to spend an extra penny to do this.

What happens if you grow your assets (revenue) at a much faster rate than your expenses? Your margins expand. It's a highly scalable business model.
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by DanH »

It's true that scale is key for fund management businesses like BlackRock. In the early going, the capital investment required to build the business property is very significant. And operating expenses of the business are high. Such is the downside of operating leverage. That's why so many money management firms talk about scale and why some unprofitable small fund managers can sell their businesses to larger firms for what seems like a high price (but at the margin those assets are a valuable source of ongoing cash flow). There is a lot of pain for potentially several years as the business builds to the point where expenses are nicely surpassed by revenues. A fund manager once told me that he'd heard that the giant fund company Capital Group operated for 20 years before hitting break-even. But after that, every dollar of assets grew revenues and more of each extra revenue dollar landed on the bottom line (i.e. because of the upside of operating leverage).

Sorry for the tangent...I don't know if the story is true. But even if it was 10 or 12 years, I suspect they waited longer than most to hit break-even and the story now circulates to demonstrate the long-term thinking so many decades ago during the firm's early days. All to say that yes these are scalable businesses which means that a large AUM base = mo' money! ;) It's worth noting that BlackRock is known to most as an indexer through its iShares business (which it acquired from Barclays during the financial crisis). But BlackRock (like Barclays before them) has a huge institutional active management business - which has higher margins than the ETF business.

As for speakers, the figures are generally lower for Canadian based speakers but they're not cheap. And the speaking fee tends to be in addition to costs for travel, accommodations, meals, etc. For example the Speakers Spotlight website features a half-dozen financial 'personalities'. If I filter for those who charge $5,000 or less none of them pass that filter. Half of them fall into the $5,001 to $10k range. One is between $10,001 and $20k. And two others are north of $20k.

Now it's quite possible that they didn't pay for speakers. But even if they did they likely didn't pay these kinds of prices.
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by George$ »

ig17 wrote:
George$ wrote:My question - can they really maintain their low cost ETS - and see at the same time huge profits? I simply don't understand how they are doing it.
AUM: 4.32T
Revenue: 11.07B
....
I think this ratio number is misleading - it depends on client type - but correct me if necessary.

On page 4 in the 2013 annual report it reflects that for BlackRock

For institutional income AUM / Base fees ratio is about 2:1 and this is 65% of total AUM
but
For retail AUM / Base fees the ratio is about 0.33:1 and this is only 12% of total AUM
and
for iShares about 0.66:1 and this is about 23% of total AUM

In other words lumping total assets to total income is misleading if applied to retail and ishares. Don't you agree?
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by ig17 »

Friday's action in WisdomTree ETFs vs. WisdomTree stock is instructive.

WisdomTree Japan Hedged Equity ETF (DXJ): +6.6%
WisdomTree Japan Hedged SmallCap Equity ETF (DXJS): +7.2%
WisdomTree Japan Hedged Real Estate ETF (DXJR): +11.6%

WisdomTree stock (WETF): +25.96%

This is only one day but the message seems clear. The market views the asset manager as a leveraged play on the underlying assets.
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by ig17 »

George$ wrote:In other words lumping total assets to total income is misleading if applied to retail and ishares. Don't you agree?
Misleading in what sense?
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by George$ »

DanH wrote:It's true that scale is key for fund management businesses like BlackRock. In the early going, the capital investment required to build the business property is very significant. And operating expenses of the business are high. Such is the downside of operating leverage. ...

Thanks Dan - but there are significant exceptions to - "scale is key". I was recently comparing Chou RRSP fund with UTAM-UofT, with OTPP, with HOOPP, etc - and Chou is way ahead in investment performance over the last 5 years - yet is much much smaller.

If you send me your email via the PM here - I can pass my brief pdf presentation on this (not posted yet on web :( )

Yes about the speaker fees - can vary so much from one event to another and one presenter to another. :)
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by George$ »

ig17 wrote:
George$ wrote:In other words lumping total assets to total income is misleading if applied to retail and ishares. Don't you agree?
Misleading in what sense?
The ratio is very different if you are referring to institutional assets - or referring to retail assets - or referring to iShare assets - all at BlackRock.

Not on the above issue - but I gather from other posts you think I overvalue Vanguard compared to BlackRock - here is a recent Reuters report worth looking at -
http://www.reuters.com/article/2014/06/ ... BZ20140630
"BlackRock ETFs near $1 trillion as it loses market share to Vanguard"
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by ig17 »

George$ wrote:The ratio is very different if you are referring to institutional assets - or referring to retail assets - or referring to iShare assets - all at BlackRock.
Sure.

Revenue divided by AUM is the average fee per dollar managed. I calculated it to see if it passes a basic smell test. I think it does. Nothing more than that.
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by DanH »

George$ wrote:Thanks Dan - but there are significant exceptions to - "scale is key". I was recently comparing Chou RRSP fund with UTAM-UofT, with OTPP, with HOOPP, etc - and Chou is way ahead in investment performance over the last 5 years - yet is much much smaller.
Just remember that the last five years have been very kind to stocks. Canadian stocks are up about 8% per year; global about 12% per year the last five years. Canadian bonds are up about 5% annually. Those are current to mid-October (haven't updated to Oct 31 yet).
George$ wrote:If you send me your email via the PM here - I can pass my brief pdf presentation on this (not posted yet on web :( )
Done!
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by ig17 »

Scale is key to manager's profit margins, not to their investment performance. :D

I suspect that Chou's margins are thinner than BlackRock's.
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by DanH »

ig17 wrote:Scale is key to manager's profit margins, not to their investment performance. :D

I suspect that Chou's margins are thinner than BlackRock's.
I don't know about that. Chou's fees are much higher than BlackRock's and he runs a pretty lean shop. Just a few people if memory serves. Firms like Chou and ABC Funds are likely very profitable little businesses. Chou isn't the size of BlackRock but he managers north of $700 million across his funds. If memory serves he charges between 1.5% to 1.75% per year as a management fee for his funds. While most of his funds will pay dealers 0.5% per year in trailing commissions the total paid to dealers was less than 19% of management fees last year. In other words, more than 80% of the gross management fees are left to the firm to pay himself, for his modest office, staff and other outside suppliers. He appears to deserve the money and success.

I'd quickly peg his net revenue at about $8 million per year but that has to get reduced to reflect Chou's own money and that of Fairfax Financial which would be charged lower effective fees. So call it somewhere between $6 and $7 million in net revenue. But I wrote earlier about operating leverage. The smaller the nut (i.e. amount of fixed costs), the quicker that operating leverage kicks in to push up profits and cash flows exponentially.
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by George$ »

Just a brief comment about Chou Funds. It is the only "active fund" where I have some of our personal portfolio. It has done well for us. True there is an annual fee of about 1.7% or so. But I am also attracted by Chou's clarity and truth in his reports. And some years ago he did perform this amazing action - he returned fees already paid by some fund clients because he did not think he did well for them. Not easy to do. Don't think anyone else ever did this.
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by DanH »

Very true George. Francis Chou is a standout in the investment industry in more ways than one. And he should be commended and recognized for that.
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Re: MoneySense and Blackrock and "retirement rich" ??

Post by Taggart »

George$ wrote: ....And some years ago he did perform this amazing action - he returned fees already paid by some fund clients because he did not think he did well for them. Not easy to do. Don't think anyone else ever did this.
Perhaps Chou is the only one in Canada, but Benjamin Graham and Walter & Edwin Schloss were doing much the same decades before.
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