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Barclays Global Investors (BGI) is now one of the largest institutional asset managers in the world. In the past six years it has grown client assets under management by over US$1.0trn, and now manages funds for some 2,900 clients in 52 countries, employing 2,700 people.
Our success to date has been built on an in-depth understanding of the three pillars of fund performance – risk, return and cost – but we have also gained a reputation for the skilled application of meticulous quantitative investment analysis.
One of our real strengths has always been in structured investing, where we apply our experience and expertise to develop new products, or create tailor-made investments for particular clients' needs. Our services in this area include guidance on asset allocation and a framework for using hedge funds, as well as standard investment services such as securities lending and cash management. Through the iShares™ brand we are the market leader in exchange-traded funds, a market that is predicted to reach US$2trn by 2011.
Looking ahead, we are continuing to focus our resources on areas where we already have a competitive advantage, notably exchange-traded funds and active product management, which currently account for around 39% of our assets, but over 70% of our profits.
We are also investing aggressively in businesses and initiatives that we expect to be high-growth in the future, which include alternative investments and fixed income. Looking more broadly at the market in which we operate, we see a continued trend towards greater consolidation as breadth and scale become increasingly important. At the same time, the exchange-traded funds market is also becoming more competitive, and attracting new players.
| Performance | ||
| 2006 | 2005 | |
| £m | £m | |
| Income | 1,665 | 1,318 |
| Operating expenses | (951) | (779) |
| Associates and joint ventures | – | 1 |
| Profit before tax | 714 | 540 |
The year in review
2006 was another very good year for BGI. Profit before tax increased 32% to £714m reflecting strong income growth and higher operating margins. Assets under management are now more than US$1.8trn. Income growth of 26% reflects increases in management fees and revenue from securities lending offset by lower incentive fees. Costs rose 22%, due to continued investment in people, new products and technology as well as a result of higher performance-related pay.
During 2006, we launched a number of new exchange-traded products, including S&P global sector funds, iPath exchange-traded notes, Dow Jones sub-sector funds and various commodity products such as gold, silver and oil. In October we announced the acquisition of Indexchange Investment AG, Germany's leading provider of exchange-traded funds.
The iPath™ to success
BGI was one of the first movers in the
Exchange Traded Funds (ETFs) market.
ETFs are index funds which are bought
and sold through stock exchanges.
Their flexibility enables investors to buy
and sell shares through any brokerage
firm or financial adviser. The market has
grown from US$5bn to over US$500bn
in the last ten years, and we still manage
more funds than anyone else – a total of
US$287bn at the end of 2006. In June,
BGI and Barclays Capital teamed up to
create and sell iPath exchange-traded
notes, providing access to difficult to
reach markets.
In the six months since launch, iPath
has over US$1.1bn in assets, including the
largest multi-commodity exchange-traded product on the market: iPath Dow
Jones – AIG Commodity Index Total Return
ETN with US$835m in assets.
Our Fixed Income division launched several new products during the year, including a synthetic collateralised debt obligation platform. We also set up a new Strategic Solutions Group, which will focus on more effective construction and delivery of multi- product solutions to address a broad range of client needs.
BGI was named Best Overall Transitions Manager by Global Investor magazine, Global Exchange-Traded Fund Provider of the Year by Global Pension magazine, Fund Manager of the year in Australia by Standard & Poor's and European Asset Management Firm of the Year by Financial News.
