Stephen Foley reports in the Financial Times:
Funds whose managers use traditional investment research to try to pick winning stocks in liquid and efficient markets have consistently been shown to lag behind cheap index-tracker funds, and have suffered accelerating outflows. BlackRock is the world’s largest asset manager, with more than $5tn in assets under management. But $20bn flowed out of its actively managed equities business last year.
BlackRock has fired several prominent stockpicking fund managers and plans to switch their funds to quantitative investment strategies, in what chief executive Larry Fink called a “pivot” away from areas of active management that have fallen out of favour.The company on Tuesday said it was introducing sweeping changes across its troubled actively managed equities funds, in a new example of the upheaval being wrought across the asset management industry by an investor shift towards lower cost passive funds.About 40 staff are being laid off, including seven portfolio managers, according to people familiar with the details of the plan. BlackRock is the world’s largest asset manager, with more than $5tn in assets under management. But $20bn flowed out of its actively managed equities business last year. Across the industry, funds whose managers use traditional fundamental investment research to try to pick winning stocks in highly liquid and efficient markets such as the US have consistently been shown to lag behind cheap index-tracker funds, and have suffered accelerating outflows.By switching dozens of large funds to new strategies that he hopes will prove more popular, Mr Fink is trying to signal to BlackRock’s shareholders that the company has more options than smaller fund groups who specialise only in active equity management.BlackRock “embraces change and turns it into an opportunity”, he said. “We are constantly anticipating how macro trends will reshape both our industry and our clients’ needs. We then pivot accordingly.”The shake-up is the result of a six-month review led by Mark Wiseman, who was poached by Mr Fink last year from the Canada Pension Plan Investment Board, the largest pension fund north of the border.The changes stretch beyond the US large-cap equity funds that have borne the brunt of the shift to passive investing and whose long-term results have been the worst compared with their benchmarks. Even funds such as the $825m BlackRock Global Small Cap fund will be converted to a new quantitative trading strategy that picks stocks based on numeric characteristics. It will adopt the new BlackRock Advantage brand, under which its quant funds will be grouped.That fund’s two managers, Murali Balaraman and John Coyle, are among the seven leaving the company. In an interview, Mr Wiseman dismissed the idea that the fortunes of individual stockpickers will improve dramatically as central banks dial back easy monetary policy, as some fund managers have been hoping. “We don’t believe that hope is a viable strategy,” he said.A full list of affected funds will become clear on Wednesday morning, when BlackRock makes regulatory filings and begins to seek board approvals for the strategy shifts. In all, actively managed equity funds with assets totalling $8bn are involved, with about $6bn shifting to new quantitative investment strategies and $2bn switching to become fixed income funds.All of the new strategies come with lower fees, so BlackRock is hoping to limit the number of investors who pull their money because of the changes. The lower fees will mean $30m less in annual income, even if it manages to hold the existing assets. The company will also record a $25m charge in its next quarterly results to cover redundancy costs.According to the consensus of analysts surveyed by Bloomberg, the company is expected to post earnings of $793m for the first three months of this year, up 20 per cent, on revenues of $2.8bn.