Blackrock just changed the world of finance forever. While we all read about this major shift in fund management to automation overnight by the financial behemoth, the implications are just now beginning to be fully understood. Some say it will help wealth managers provide more competitively priced financial products to customers. We agree that is one possible outcome. We know for sure it will result in massive portfolio manager layoffs, too. Bad news for institutional traders, and it will likely drive more fee compression for hedge funds.
What we DON’T know is how these algorithms may be written. We’re a bit paranoid here at FintekNews and we often discuss that as more of these trading transactions become roboticized, who can be TOTALLY sure that there are not separate corporate accounts skimming the trades, even by the tiniest fraction? Now to be clear, we are NOT implying or accusing Blackrock of this by any means, but…..we’re just saying. Then there’s that other argument that the robots can function fine in a market that’s been up-trending for the past 7 years. How will then do in a down-trending market? Lots of questions.
‘BlackRock just made it harder for traditional active money managers to compete in an increasingly price-conscious market, and, in the process, created more low-cost investment choices to be tapped by financial advisors.
The world’s largest money management firm, known best for its iShares index funds, announced a major overhaul of its actively managed mutual funds, which includes shifting assets from fundamentally actively managed equity funds into a new Advantage series of quant fund and shifting other actively managed assets into an income series producing higher dividend yields. The changes will result in billions of dollars’ worth of cuts in fees as well as portfolio manager layoffs.
“The active equity industry needs to change,” said Mark Wiseman, global head of active equities at BlackRock, in a statement. “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 added that “at the same time, client preferences are shifting, focusing not just on outcomes but on how both performance and fees impact value.”
Daniel Culloton, director of equity manager research at Morningstar, was not surprised by BlackRock’s move. “They’ve been trying to improve the equity lineup for a long time,” and CEO Laurence Fink grew “more enamored [of the] scientific active equity unit [quant unit] when BlackRock acquired Barclays with iShares in 2009, investing in a lot of technology and people there.” ‘
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