BlackRock Inc. 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.
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