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BlackRock’s Fink: Tech to Overtake Its Money Managers Soon

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BlackRock CEO Larry Fink confirmed that more of the company’s revenue will come from software and technology rather than traditional money management within five years.

“Using technology is critical,” Fink said during the closing keynote session at the Morningstar Investment Conference in Chicago last week. “It’s critical for us as investors, as we’re spending more time analyzing new sources of data, spending more time creating algorithms on the new sources of data. We’re using technology to simplify and streamline the operation. And we’re using technology to be more connected with our clients to help with financial literacy, to help all our clients navigate all our clients’ money.”

(Fink was named one of this year’s IA 25 frontrunners.)

According to Fink, there is a “very large” opportunity especially with Aladdin, BlackRock’s proprietary risk analysis and asset management software.

Fink said the Aladdin system itself is growing 12-14% a year. According to The Economist, Aladdin already keeps its eyes on almost 7% of the world’s $225 trillion of financial assets as of 2013.

When BlackRock was founded in 1988, the company began building Aladdin almost immediately. At the time, the purpose of Aladdin was to provide a single investment system and common source of data within BlackRock. The system has evolved over the years to provide clients the ability to give a risk management tool for every single account that they have under management.

Today more than 28,000 users in nearly 50 countries use Aladdin.

One of BlackRock’s newest Aladdin technologies provides home offices and financial advisors with sophisticated risk management and portfolio construction capabilities to build better portfolios for their clients.

BlackRock also recently initiated “Aladdin Provider,” which Fink said will hopefully be rolled out by September or October. Fink described the new technology as “where any Aladdin client can do all the trade entry, trade processing, cash reconciliation with the custodian bank through Aladdin.”

According to Fink, this will eliminate “massive operation issues” and risks.

“To me, this is going to be one of the key elements of the transformation of Aladdin,” he added.

The firm has regular “hack-a-thons” where young programmers are encouraged to create new technology products for future investments.

According to Fink, this allows the whole firm to participate in what technology it’s going to invest in.

“The average age of the people that created these technologies was probably 25,” Fink said. “We’re probably going to invest in three or four of them.”

In fact, the recent addition to Aladdin for home offices and financial advisors came from one of these tech fests that BlackRock did three years ago, Fink said.

“It wasn’t created by a 40- or 50-year-old person,” he said. “It was created by some of our young tech people. This is the engine that’s transforming our firm.”

Beyond its Aladdin technology, BlackRock also has its robo-advice platform FutureAdvisor, which the firm recently acquired. And Fink said the firm is “going to make one or two more small acquisitions in technology.”

“We’re looking at many things to bring down the cost valuation for our clients, provide more efficiency, more efficiencies for our own operations,” Fink said.

Fink cited the move away from brokerage to advice, the move out of defined benefit into defined contribution plans, an increase in longevity, and poor financial literacy as reasons why BlackRock and the industry need to continue to evolve.

“We believe the whole world of the asset management industry is changing, alongside the role of advice,” Fink said.

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