BlackRock, the world’s largest investment firm with $5.1 trillion of assets, has announced a shake-up of its US business that will reduce the number of its funds run by active stock pickers as it responds to the threat from cheap, index-tracking rivals.
The company has removed seven portfolio managers from funds with around $30 billion of assets under plans to shift more of its domestic business from active equity management towards a numbers-driven quantitative approach. Some will leave the group with BlackRock paying $25 million in severance and bonuses to those affected.
Although the changes do not affect any Blackrock funds managed outside the US they are significant in terms of how conventional investment managers respond to the challenge from trackers, in particular exchange traded funds (ETFs).
The group plans to launch a new range of funds called BlackRock Advantage, which will be made up of converted active equity funds and new offerings. The firm said the plan would save investors around $30 million per annum in lower fees.
The move comes as actively managed funds, particularly in mainstream equity markets, suffer significant outflows of money to passive funds such as ETFs.
While BlackRock’s iShares ETF business has been a huge beneficiary of this trend, taking in a record $140 billion in net flows in 2016, its active US-based equity business has suffered with $19.3 billion withdrawn from these funds last year, according to data from Morningstar.
The decision to move this part of the business away from human stock picking and towards a more machine-based quantitative approach has been taken by Mark Wiseman, BlackRock global head of active equities, who joined the firm from the Canada Pension Plan Investment Board last year.
Having reviewed the active equity business Wiseman has concluded it ‘needs to change,’ announcing: ‘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,’ he said. ‘The steps we are taking are an extension of the strategy we announced in 2016 to combine our quantitative and fundamental investment teams.’
The firm plans to place a greater focus on data analysis and invest further in technology to support its plans. It will segment its active equity offering into four product ranges: core alpha (including the new quant Advantage funds); high conviction alpha (run by active managers using unconstrained, absolute return strategies); outcome oriented (such as income funds); and country and sector specialist funds.