Tri-Star/Courtesy Everett Collection
Artificial Intelligence is prepared to take jobs at all levels, managerial as well as labor.
By SARAH KROUSE, March 28, 2017 for The Wall Street Journal
BlackRock Inc. has started a shake-up of its stock picking business, relying more on robots rather than humans to make decisions on what to buy and sell.
The firm has become the world’s largest asset manager, with $5.1 trillion in total assets, in large part because of its dominant position in low-cost, passive investment such as exchange-traded funds.
But its stock-picking unit – which depends on money managers to choose investments – has lagged rivals in performance and clients have been withdrawing their money.
The company has taken the view that it is difficult for human beings to beat the market with traditional bets on large U.S. stocks. So the firm on Tuesday announced an overhaul of its actively-managed equities business that will include job losses, pricing changes and a greater emphasis on computer models that inform investments. Seven stock portfolio managers are among several dozen employees who are expected to leave the firm as part of the revamp, a person familiar with the matter said.
The firm is offering its Main Street customers lower-cost quantitative stock funds that rely on data and computer systems to make predictions, an investment option previously available only to large institutional investors. Some existing funds will merge, get new investment mandates or close.
The changes are the most significant attempt yet to rejuvenate a unit that has long lagged behind rivals in performance. Clients have pulled money from the actively managed stock business in three of the past four years even as BlackRock’s total assets climbed to a record $5.1 trillion. BlackRock had $275.1 billion in active stock assets under management at the end of December, down from $317.3 billion three years earlier. . . .
Three days later WSJ follows up with this article:
By RYAN VLASTELICA, March 31, 2017 for The Wall Street Journal
Robots won’t be compiling your portfolio anytime soon.
The recent news that BlackRock Inc. would be overhauling its actively managed equities business, putting a greater emphasis on computer models rather than human managers, sent a shudder through the heart of stock pickers, who have already seen their status fall amid a broad industry move to passive management. But the change amounts to more of a makeover than a face lift, an expansion of a years-old team rather than an entirely new direction.
In the move, BlackRock is increasing the size of its quantitative analysis division, which uses machine learning and advanced computing capabilities to devise portfolios, at the expense of its traditional active management group, which is run by human managers and has already been falling in size as investors gravitate towards passive products, which simply track indexes like the S&P. While the change will result in a net reduction of funds, with three fewer after the changes are implemented, as well as layoffs of some current managers, the size of the shift is essentially minor.
BlackRock — which oversees more than $5 trillion as the world’s largest asset manager — has roughly $275 billion in its actively managed equity products, according to data provided by the company. About $200 billion of that is in the traditional active group, with the remaining $75 billion in the quant team. Roughly $6 billion is shifting from traditional to quant in the restructuring, with U.S. large-cap funds seeing the biggest impact. Fees for quant-driven funds will also be lowered, BlackRock said . . . .
“The active equity industry needs to change. 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,” said Mark Wiseman, global head of active equities at BlackRock in a press release announcing the changes. “Traditional methods of equity investing are being reshaped by massive advances in technology and data sciences. At the same time, client preferences are shifting, focusing not just on outcomes but on how both performance and fees impact value.”
Investors have gravitated toward passive products over the past decade because they charge lower fees and because data have shown that actively managed products have dismal records of outperforming the market over long periods of time. . . .