New-York based BlackRock announced on June 11 its agreement to acquire Barclays’ asset management unit, Barclays Global Investors (BGI).

The deal will create the world’s largest asset management firm with a combined $2.7 trillion of assets under management. BGI is the manager of iShares, a leading brand in the $530 billion Exchange Traded Funds (EFT) market with a roughly 50% share.

The firm’s products will include equities, fixed income, cash management and alternatives, and will offer clients diversified access to global markets through separate accounts, common trust funds, mutual funds, ETFs, hedge funds, and closed-end funds.

At the closing of this transaction, which is expected to occur in 4Q09, Barclays will hold a 19.9% economic interest in BlackRock. The two firms will seek to expand their relationships in investment banking and wealth management.

“We are incredibly excited about the potential to significantly expand the scale and scope of our work with investors throughout the world,” said Laurence Fink, BlackRock chairman and CEO. “The combination of active and passive investment products will be unsurpassed, and will enhance our ability to offer comprehensive solutions and tailored portfolios to institutional and retail clients.”

The acquisition is expected to result in market dominance in multiple investment sectors if well executed. It also elevates the combined firm’s market position.

“Asset managers and retail and institutional investors will take careful note of this deal, given its potential impact on the competitive landscape,” Moody’s Investors Service analysts said. “Even though BlackRock will continue to focus on the institutional market, the largest credit implications ironically may be on major, retail-focused, active asset managers. For these firms, such as Fidelity and other non-rated firms such as Vanguard and Capital Group, more competitive pricing and lost market share could further pressure AUM, margins, and ultimately, debt coverage.”

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