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BlackRock cuts PMs and fees in active equity overhaul

BlackRock cuts PMs and fees in active equity overhaul

BlackRock is to remove a number of portfolio managers from funds under plans to shift away from active equity management and towards a quantitative approach.

The plans will impact around $30 billion of assets under management at the firm, with seven managers set to be taken off funds. Not all the managers in question will leave the firm but BlackRock has said it will pay out $25 million in severance and bonuses packages as a result of the changes.

The company has not yet announced which funds and managers will be affected by the changes, but is set to reveal this information when it files the necessary forms with the Security and Exchange Commission.

The world’s largest asset manager, with $5.1 trillion, 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.

It said the changes would not affect any active equity funds managed outside of the US.

The move comes as flows into actively managed fund, particularly in mainstream equity markets, suffer significant outflows to passives, often 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in a record $140 billion in net flows in 2016, its active US-based equity business has suffered with $19.3 billion withdrawn from these funds last year, according to data from Morningstar.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.

Since joining the firm he has been reviewing the active equity business and concluded it ‘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,’ 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.’

BlackRock chief executive Larry Fink (pitcured above) said: ‘We are constantly anticipating how macro trends will reshape both our industry and our clients’ needs; we then pivot accordingly.’

‘We are acting now to leverage our unique business model to lay the foundation for what we believe will be the future of active equity management.’

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, which it said would be based on client needs.

The four ranges will be:

  • Core alpha;
  • High conviction alpha;
  • Outcome oriented;
  • and country and sector specialty.

Core alpha will initially consist of nine mutual funds, including those in the firm’s new Advantage series, which will be made up of the affected active equity offerings plus new funds. All these funds will be run by BlackRock’s quantitative team. The Advantage range will take on $6 billion from the affected active equity funds.

The high conviction alpha range will consist of funds run by portfolio managers offering more concentrated and unconstrained, absolute return strategies.

Outcome oriented strategies will include income and sustainable offerings, among others, and the firm plans to launch further income products for clients who want higher dividend yields, these will encompass $2 billion from the affected active equity funds. 

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