BlackRock is best known as the world’s biggest asset manager, with more than $ 10tn in assets under management. But the company is also an under-the-radar fintech. Aladdin – its portfolio management technology platform – is now used by many of the investment industry’s biggest names.
Aladdin’s steady growth and reliable revenues have contributed to BlackRock’s all-conquering rise. Despite an 18 per cent drop in its price this year, the stock continues to trade at a premium to most financial services stocks.
Aladdin stands for Asset, Liability, and Debt and Derivatives Investment Network. The business started out as an in-house risk management tool. It has grown to become an operating system that combines risk analytics, portfolio management, trading and accounting tools. Users range from portfolio managers to compliance officers.
Aladdin accounted for the bulk of the $ 1.3bn of revenue reported by BlackRock’s technology services unit last year. The figure is almost double the level of four years ago and represents nearly 7 per cent of the group total.
BlackRock reckons the addressable market for Aladdin could be as much as $ 10bn. Fund managers are under pressure to streamline. Technology spending is rising. Aladdin should benefit. Its 2019 acquisition of eFront for $ 1.3bn has expanded its capabilities even further. It can now offer big institutions analytical tools for both private as well as public holdings.
There would be dangers if Aladdin became the industry standard system for US fund managers. If most big investors used the same risk metrics they might make the same mistakes, fostering systemic instabilities.
That argument echoes parallel criticisms of BlackRock’s own heft as the world’s largest asset manager.
BlackRock ripostes that Aladdin can be customized easily. As long as plenty of users tweak the system’s risk management framework to suit their particular needs, common errors should be reduced. Moreover, the system should be just one of a range of risk controls.
Humans have an innate tendency for groupthink, however. The solution is for BlackRock to build enough ramifying choices into Aladdin to forestall herd behavior – and for competing systems developers to raise their game.
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