BlackRock Inc.'s plans to reorganize its active equity investment platform and rely more on lower-priced strategies based on quantitative computer models is another sign the money management industry is relying more on technology to serve clients and protect profits.
The New York-based giant isn't alone.
Asset managers such as J.P. Morgan Asset Management, ClearBridge Investments LLC, Acadian Asset Management LLC, and Legg Mason Inc., to name a few, are investing in technological capabilities to reduce fees, grow their assets, identify new market opportunities, run operations more efficiently, better manage data and handle clients' increasingly complex needs.
“Traditional methods of equity investing are being reshaped by massive advances in technology and data sciences. At the same time, client preferences are shifting, focusing not just on outcomes but on how both performance and fees impact value,” said Mark Wiseman, BlackRock's global head of active equities in a March 28 news release announcing the reorganization.
Added Mr. Wiseman: “The active equity industry needs to change. Asset managers who simply use the same techniques and tools from the past will limit their ability to generate alpha and deliver on client expectations.”
For BlackRock, with $5.1 trillion in total AUM, the move should also help it address ongoing problems generating alpha in its equity funds in recent years. Data from Morningstar Direct reviewed by Pensions & Investments show that BlackRock's average excess return for its equity funds is below its peers on a three- and five-year basis.
According to Morningstar, the average excess return of BlackRock's institutional class active equity mutual funds was -1.43% for the three years ended Dec. 31, vs. an average excess return of -0.76% for its active equity manager peers. Its five-year excess return was -0.99%, vs. -0.29% for its peers.
BlackRock is restructuring its active equity strategies into four areas: core alpha (including its new Advantage series), high-conviction alpha, outcome-oriented and country/sector specific.
It's also lowering fees across several strategies, increasing the role that quantitative research will play in its investment process and reducing its active equity team by a few dozen people.
BlackRock is investing further in data science innovation by leveraging capabilities of its end-to-end investment and risk management operating system, Aladdin, to distill vast stores of data into investible insights for both quantitative and fundamental investors.