BlackRock BLK, the world’s largest money manager with $5.1 trillion in total assets, is replacing their traditional stock pickers with computers. More than 30 people in their active-equity group are being fired; this includes five of the group’s 53 fundamental portfolio managers.
BlackRock’s decision is based on managers not keeping up with computer driven strategies. Blackrock’s clients have been withdrawing money as the firm has struggled to keep up performance compared to its rivals. Bloomberg shows that BlackRock’s active-equity group averages a five year return of 7.3% compared to the industry with 8.8%.
So to combat their woes, BlackRock is shifting to quantitative strategies like many fundamental hedge funds are. As a result, the shift will open lower-cost quantitative stock funds to their Main Street customers rather than just large institutional investors.
As CEO Laurence Fink feels data science and computer models are the future of active-equity management, executives are aware of the risks in fund and staffing changes. High manager turnover can scare investors away and changing fund structures can lead previous investors to flee as they are not receiving what they initially expected.
In response, executive statements show that the shift to computers will position their business to be more competitive in the long run. Also, executives expect to have the same number of employees in their active-equity group 18 months from now as they will be hiring as needed.
In an interview, Mr. Fink stated, “The democratization of information has made it much harder for active management. We have to change the ecosystem — that means relying more on big data, artificial intelligence, factors and models within quant and traditional investment strategies.”
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