Blackrock 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 shows just how hard it has now become for a man or a woman to not only beat the market, but keep their job.
The world's largest money manager is firing more than 30 people in its active-equities group, including five of its 53 fundamental portfolio managers, according to a person familiar with the matter.
"There is fee compression in the USA, which is being driven by technological advances and by the successful and continued growth of ETFs", Mark Wiseman, BlackRock's global head of active equities, said in an interview.
Part of BlackRock's strategy is to separate its active equity products into four distinct product ranges: Core Alpha, High Conviction Alpha, Outcome Oriented, and Country and Sector Specialty.
"At the heart of BlackRock is a culture that embraces change and turns it into opportunity", CEO Larry Fink said in the statement. Meanwhile, its ETF business has been booming, with record inflows a year ago.
"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".
BlackRock shares rose 1.50 percent to US$380.63 per share on Tuesday before the announcement.
"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. Some existing funds will merge, get new investment mandates or close.
The changes, announced on Wednesday, follow the development of BlackRock's ETF offering and expansion of its active fixed income platform to combat low interest rates.
The layoffs in the active-equity unit, which has more than 400 employees, will contribute to a US$25 million charge for the first quarter. Clients are moving to cheaper index-tracking exchange-traded funds, which benefits BlackRock's ETF business while hurting its active managers. As a result, the shift will open lower-cost quantitative stock funds to their Main Street customers rather than just large institutional investors.