(Adds details on job cuts; BlackRock share price)
By Trevor Hunnicutt
NEW YORK, March 28 BlackRock Inc on
Tuesday 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
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
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
"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.
(Reporting by Trevor Hunnicutt; Editing by Jennifer Ablan and