The world's largest asset manager BlackRock has selected BNY Mellon, Citi, and J.P. Morgan as post-trade service providers for its US$2.3 trillion iShares exchange-traded funds (ETFs) listed in the United States, enabling the three banks to join its long-time partner State Street in the business.

The announcement culminates a due diligence process that took nearly two years to support the US iShares ETFs, which have grown in popularity during the pandemic as more investors choose the products for their relatively low cost and variety.

State Street, which had been informed of the upcoming move as early as February this year, says the portion of BlackRock's ETF business it expects to lose accounted for 1.5% of its 2020 fee revenue, or US$140 million. 

According to BlackRock, the firms were selected based on their continued investment in post-trade and technology platforms. Together they bring an expansive global servicing footprint, strong ties into the broader ETF ecosystem, differentiated service and proven expertise, it says.

Under the new deals, Citi will handle 40% of the funds, J.P. Morgan 30%, BNY Mellon 15%, and State Street 15%. Each firm will provide custodial, fund administration, fund accounting, and transfer agency services to a subset of US-listed iShares ETFs.

The transition of the assets to the new providers is expected to start in the second half of 2022 and projected to take 18 months to complete. As regards iShares’ Ireland-domiciled ETFs, BlackRock says the RFP (request for proposals) and due diligence process is ongoing, with the outcome to be announced at a later date.

“All four providers have long-standing relationships with BlackRock and have proven track records in the post-trade servicing of funds,” says Derek Stein, senior managing director and global head of technology & operations at BlackRock. “The decision to diversify across these world-class financial institutions is based on our desire to create a robust operating model for servicing ETFs, which will help us scale the iShares franchise and mitigate concentration risk.”

Salim Ramji, global head of iShares & index investing at BlackRock, adds: “Tens of millions of investors now choose ETFs to gain efficient and transparent access to sources of market return all around the world. Even as the ETF industry experienced record growth in 2021, ETF assets are still less than 3% of the markets they seek to access globally.

“As we anticipate decades of growth ahead for iShares and the industry, these changes reinforce and diversify our operational foundation so that we can deliver more ETF exposures at greater scale and with the high standards that our clients expect.”

Launched 25 years ago, iShares now has a global line-up of over 900 ETFs and US$3.04 trillion in assets under management.