BlackRock will cut staff by 500 to free up resources to focus on new priorities such as fee-rich alternative strategies and faster-growing markets, underscoring how the biggest players are revising their strategies in challenging industry conditions.
While the world’s biggest investment group, with about $6.4tn under management, remains comfortably profitable — with a margin of more than 40 per cent — the entire asset management industry is under increasing pressure on fees at a time of weakening investor sentiment.
That has sent the average share price of listed US investment management groups down nearly 26 per cent last year, with BlackRock’s stock dropping 24 per cent.
On Wednesday chief executive Larry Fink announced a management reshuffle, and on Thursday, Rob Kapito, the group’s president, followed up with a rare announcement about the round of job cuts.
The redundancies amount to about 3 per cent of BlackRock’s 14,900 employees. Mr Kapito stressed that the headcount would still be about 4 per cent higher than a year ago.
“After several years of meaningful headcount growth, we are making some changes this week to the size and shape of our workforce,” Mr Kapito said in a company-wide memo seen by the FT. “BlackRock is a growth company, and growth requires investment. The changes we are making now will help us continue to invest in our most important strategic growth opportunities for the future.”
The asset manager plans to plough the savings into some of its main priorities, such as enhancing its factor investing, exchange traded funds and illiquid alternative strategies in private debt and equity. It is also planning greater investments in technology and building up distribution in faster-growing markets around the world.
“While key competitors will be playing defence, BlackRock is continuing to invest in the critical strategic initiatives that will fuel our growth in the years ahead,” Mr Kapito said in the memo. “Even in volatile markets and with significant industry headwinds, we can find opportunities for growth.”
BlackRock, and particularly its cheap passive index investing business — whose crown jewel is the $1.8tn iShares ETF empire — has been a moneymaking machine since the financial crisis, sucking up more than $1bn a day on average in 2017.
It started to splutter as markets became more turbulent last year, sending its long-term net inflows to a two-year low of $10.6bn in the third quarter. ETF flows picked up strongly in the fourth quarter, however, and BlackRock is expected to deliver creditable results again when it reports earnings next week.
On Wednesday, Mr Fink announced that Mark Wiedman, the head of BlackRock’s index investing business, would be given a new enlarged role that would put him in charge of its international operations, corporate strategy and marketing.
Although there is no suggestion that Mr Fink is presently considering stepping down from the company he founded three decades ago, the move positions Mr Wiedman as a frontrunner.
“The changes transforming our industry put a premium on strategy to drive growth, on unifying our focus on international markets, and on using our brand to drive our business,” Mr Fink wrote in the memo sent out on Wednesday. “Mark will work with me and the rest of our senior leadership team to achieve these objectives.”
