By: Larry MacDonald
So, Barclays PLC has sold its iShares family of exchange-traded funds to CVC Capital Partners Group, one of the top five private-equity firms in the world. Are higher management expense ratios (MERs) coming for iShares investors?
Blogger Canadian Financial DIY fears this may be the case – perhaps less so in the U.S. where there are several competing, low-cost offerings but more so in Canada where the choices are limited.
The sale appears to be the usual leveraged buyout. CVC Capital is putting up just $1.05 billion of the purchase price with Barclays itself providing $3.1 billion of debt financing to CVC Capital. Will CVC Capital now be squeezing iShares to wring out as much profit as possible to meet debt charges? Their website would have us believe that they won’t try and extract every cent:
“CVC focuses on building businesses over the long-term, typically holding investments for five years or more …. CVC believes that the effective ownership and management of a company creates benefits for all stakeholders, from employees to customers, suppliers to shareholders and the wider community …. “
The buyout aside, do Canadian investors in iShares have another thing to concern them? On April 1, Barclays Global Investors Services Canada Limited resigned its membership in the Investment Industry Regulatory Organization of Canada, the Canadian regulator responsible for investor protection when it comes to overseeing investment dealers and investment funds.
Update: I’m told by Som Seif, CEO of Claymore Investments that “IIROC really doesn’t have any regulatory impact on us or iShares. They regulate market trading organizations. There is really no reason for iShares to be a member.”
Update 2: Barclays says: “Barclays Global Investors Services Canada Limited is anentity separate from Barclays Global Investors Canada Limited, the manager of the iShares Funds. BGISCL had no involvement in the management of the iShares funds and, therefore, would not have impact on the sale of iShares to CVC Capital Partners. BGISCL was the institutional transition management sevices business which is now being supported through our affiliates, and hence membership in IIROC was no longer required. Investors in the iShares Funds need not be concerned with, nor will they be affected by, this membership resignation.”
4 Responses to “ Sale of iShares ETFs ”
Maybe CVC would like to reassure us and make a statement about fees? Of course, the first thing after a company takeover is a statement of reassurance that “nothing will change” followed weeks or months later by layoffs, firings, restructuring etc.
By CanadianInvestor on Apr 10, 2009
A big issue here is whether this private equity firm can retain the people required to effectively run the iShares units sold in Canada. There is a certain bit of skill to effectively constructing the portfolios of securities to mimic the index without generating excess turnover or tracking error. If Barclays is no longer the owner, I worry that their transactional skill will be lost. Pity if fees go up.
By Jason on Apr 13, 2009
There is no reason for long-term investors to own any of the iShares US offerings. Vanguard offers everything that iShares does at a lower cost. A few years back, investors did not have alternatives to EFA and EEM but now they do.
I really hope iShares doesn’t increase fees in Canada. If they did, it might be an opening for competitors interested in the ETF space. After all, the ETF market is now getting crowded with BMO jumping into the fray.
By Canadian Capitalist on Apr 15, 2009