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Published: Sat, April 01, 2017
Economy | By Melissa Porter

BlackRock replaces people with machines in revamp of stock unit

BlackRock replaces people with machines in revamp of stock unit

BlackRock, the world's largest asset manager, is shaking up its struggling stock-picking unit by cutting jobs, reorganizing funds and lowering fees.

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 ETFs, some of which charge as little as $3 annually for every $10,000 they manage, while the average charged by US stock mutual fund managers is $131, according to data for 2015 from the Investment Company Institute trade group.

Fink's shift to quantitative strategies follows similar moves by hedge funds seeking a high-tech fix to their investment woes.

Fink, who has re-jiggered BlackRock's active-equity business before, and his rivals face mounting pressure from investors over fees. The lower fees will reduce annual revenue by about $30 million, the New York-based company, which manages $5.1 trillion, said in a statement Tuesday. "We are in a regulatory environment that is pushing hard on the traditional active-equity model". And since a year ago, BlackRock's dyed-in-the-wool stock pickers have worked in the same division as its quants.

The group plans to launch a new range of funds called BlackRock Advantage, which will be made up of converted active equity funds and new offerings.

Picker said the changes come at a time when clients at BlackRock and other competing firms are frustrated with the high fees and investments that generated sub-par results, especially compared to much cheaper exchange traded funds.

"These are stormy seas for active managers, but we at BlackRock are an aircraft carrier, and we are going to chart our way through these seas".

John Bogle.REUTERS/Tim ShafferToday, BlackRock is less optimistic that active managers will "consistently outperform passive after accounting for the higher fee levels", according to the bank.

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.

Last year, for example, $423 billion left actively managed stock funds and $390 poured into index funds, according to Morningstar. Bogle told Business Insider earlier this year that active managers were likely to lose against passive funds. The company's quarterly revenue was up.9% compared to the same quarter a year ago.

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 US stock mutual fund managers is $131, according to data for 2015 from the Investment Company Institute trade group. Meanwhile, the firm's ETF business has been booming, with record inflows previous year.

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