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BlackRock Bets $1 Billion on Personalized Index Investing

Aperio, a creator of tailored index strategies, oversees about $36 billion in assets for ultra-wealthy clients and institutions.

BlackRock Inc. is betting on the future of personalized index investing.

The world’s biggest asset manager agreed to buy Aperio, a creator of tailored index strategies, from private equity firm Golden Gate Capital and Aperio employees for $1.05 billion in cash, according to a statement Monday. Sausalito, California-based Aperio oversaw about $36 billion in assets as of Sept. 30 for ultra-wealthy clients and institutions.

The move advances BlackRock further into an approach that’s gaining popularity among the rich, who can tweak broad indexes of companies for tax reasons and personal preferences. BlackRock, a longstanding champion of cheap, passive investing, is seeking ways to branch out as fees for managing products such as exchange-traded funds come under persistent pressure. The U.S. market for separately managed accounts totals about $1.7 trillion, according to Cerulli Associates.

“This is really one of the fastest-growing parts of wealth management,” Martin Small, BlackRock’s head of U.S. Wealth Advisory, said in an interview. “We’ve been longtime admirers of Aperio.”

BlackRock will oversee more than $160 billion in separately managed accounts after the deal is complete, about a 30% jump. While that business at the firm currently focuses on bond and multi-asset strategies, Aperio will bring experience with public equities, Small said.

In a typical index fund, an investor’s money is tethered to the returns of a select group of securities. In contrast, Aperio can tailor indexes to suit an investor’s preferences. If a client wants to avoid investing in fossil-fuel companies or polluters, they can invest their money in an index adjusted accordingly.

What’s more, in a typical mutual fund or exchange-traded fund, the investor doesn’t directly own shares of the underlying companies. But the client does in a separately managed account, or direct index strategy, and some of those securities can be sold at times that help an investor minimize taxes.

BlackRock became an indexing behemoth after its purchase of Barclays Global Investors in 2009, at the height of the global financial crisis. Now it manages $7.81 trillion, with around two-thirds in index strategies.

This isn’t the only deal involving separate accounts this year. Morgan Stanley agreed in October to buy Eaton Vance Corp., whose Parametric business is a leader in custom index strategies that had about $316 billion in assets as of Sept. 30.

The Aperio deal is expected to close in the first quarter, according to the statement. Aperio, which means “to reveal the truth” in Latin, will have separate branding and be part of the firm’s wealth advisory business.

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