BlackRock Inc on Tuesday said it
would overhaul its actively managed equities business, cutting jobs, dropping
fees and relying more on computers to pick stocks in a move that highlights how
difficult it has become for humans to beat the market.
The world's biggest money manager
has faced active stock fund withdrawals and the revamp is its biggest attempt
yet to engineer a turnaround.
Last May, BlackRock said it had
recruited Mark Wiseman, the head of Canada's biggest public pension fund, to
oversee the stockpicking operations after he revamped that fund's operations to
embrace data-mining and other technological approaches to investing.
BlackRock is rebranding or
adjusting investment strategies on about 11 percent of its $275 billion active
stock fund business, putting a greater emphasis on technology-driven investing
approaches in the largest set of sweeping changes for the business since
transformational mergers that allowed it to grow to manage more than $5
trillion in assets.
Among the changes, BlackRock is
removing some seven traditionalist "Fundamental" portfolio managers
from their current assignments, according to a source familiar with the matter.
More than 40 employees are being laid off, including some of the portfolio
managers, according to another source.
The company will also cut fees on
some products that are being rebranded as an "Advantage" series of
lower-cost active funds.
Planned fee cuts on that group of
funds and its "Income" products will slice about $30 million of
BlackRock's revenue, and the company will take a $25 million charge this
quarter to reflect severance and other compensation expenses.
The company said it will also
expand its investments in data-mining techniques that it said can improve
investment performance. Other funds are being refocused to take
"high-conviction" bets on stocks.
Active stock managers in the
United States have been smacked with withdrawals in recent years as investors
increasingly fled to lower-cost products, including index-tracking
exchange-traded funds, some of which charge as little as $3 annually for every
$10,000 they manage, while the average charged by U.S. stock mutual fund
managers is $131, according to data for 2015 from the Investment Company
Institute trade group.
An industry bellwether, New
York-based BlackRock also owns one of the most prized businesses in asset
management, its iShares ETF franchise purchased from Barclays in 2009. Much of
the company's active stock franchise is from its 2006 acquisition of Merrill
Lynch Investment Managers.
The changes mark the latest of
several attempts by BlackRock to boost an active fund business that represents
nearly a third of its assets but an outsized near-50 percent of its fees.
BlackRock CEO Larry Fink has
sometimes expressed disappointment in the performance of the company's actively
managed stock funds, and he has pivoted increasingly to focusing on the
company's data-driven "Scientific" equity teams.
"It seems like the Vanguard
approach to active equity management," said Jason Kephart, senior analyst
at Morningstar Inc, referring to the giant BlackRock rival that aggressively
cuts fees and has also invested in tech-driven investment styles.
"The easiest way to make an
active strategy more attractive is just to charge less for it."
BlackRock's equity overhaul also
invites comparisons to that of another major asset firm rival, Pacific
Investment Management Co. In 2015, Pimco's equity chief left and the Newport
Beach, Calif firm liquidated two of its equity strategies after spending years
attempting to diversify its investor base to include those buying equity
products.
BlackRock shares rose 1.50
percent to $380.63 per share on Tuesday before the announcement.