03 April 2017
New York
Reporter: Drew Nicol

BlackRock revamps equity business

BlackRock has revamped its equities strategy into four distinct business lines, including the launch of a new series its Advantage products aimed at US mutual funds investors.

The bank’s equity business will be broken down into sections known as core alpha, high conviction alpha, outcome oriented, and country and sector specialty products.

Core alpha products promise market returns plus consistent alpha (outperformance over a benchmark) with lower levels of risk, including the Advantage series, which is expected to include nine mutual funds.

According to BlackRock, the Advantage series brings new products and the conversion of certain existing funds with approximately $8 billion in assets. This will bring approximately $30 million of annualised savings to clients from lower fees.

The firm will incur a charge of approximately $25 million in Q1 2017 reflecting certain one-time, severance and accelerated compensation expense associated with the repositioning.

In the second section, high conviction alpha products will cater for investors looking for higher risk/return products, while outcome oriented products are designed to provide clients with specific outcomes, such as income or sustainable investment strategies.

This will include an expanded range of income products to meet growing client needs for higher dividend yields, according to BlackRock.

Finally, country and sector specialty offerings bring specific country and sector exposures.

Mark Wiseman, global head of active equities at BlackRock, said: “The segmenting of our active equity offerings will sharpen the focus on different client needs, just as we have successfully done with our iShares exchange-traded funds product ranges.”

“This reinforces our commitment to our active equity franchise for offering important building blocks in the portfolios of many clients and to delivering maximum value for clients with those products.”

BlackRock predicts the strategy restructure will affect approximately $30 billion in assets under management (AUM), which equates to about 11 percent of total active equity AUM.

The bank confirmed that there will be no repositioning of active equity products currently managed outside of the US.

Wiseman continued: “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.”

“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. The steps we are taking are an extension of the strategy we announced in 2016 to combine our quantitative and fundamental investment teams into a cohesive active equity investment platform that leverages the full scale and resources of BlackRock.”

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