BlackRock Inc., seeking to reverse withdrawals from active funds and boost assets as its acquisition spree ends, is expanding top leadership and shaking up its investment unit in the most sweeping overhaul since it became the world’s largest asset manager.
BlackRock is adding eight executives to its global executive committee, led by Chief Executive Officer Laurence D. Fink, bringing the total to 21, according to an internal memo sent today to employees, a copy of which was obtained by Bloomberg News. The portfolio-management group headed by Rich Kushel will be replaced by five new investment units, and Kushel will become deputy chief operating officer, working under President Robert Kapito and COO Charles Hallac.
Fink, who co-founded New York-based BlackRock more than two decades ago, is moving more fund-management executives into top leadership roles as he seeks to expand by attracting assets rather than making transformational deals. Since the December 2009 purchase of Barclays Global Investors, which vaulted BlackRock to the top rank by assets, investors have pulled about $70 billion from active stock and bond funds, not including merger-related redemptions, and the shares have trailed peers.
“Every day we hear that our clients are facing unprecedented challenges: volatility, low yields and underfunding,” Fink wrote in the memo. “The firm’s senior leadership is confident that our new organizational structure will allow us to navigate this radically new world more effectively” for investors and shareholders, he wrote.
The BGI acquisition helped give BlackRock its current $3.56 trillion in assets and made it the biggest manager to combine active and passive strategies, adding exchange-traded funds to active stock and bond funds, real estate and hedge funds. Separately, the firm added clients such as governments in the U.S., Greece and Ireland to its BlackRock Solutions advisory business, which helps analyze hard-to-value investments.
At the same time, BlackRock has struggled to leverage its size into client deposits, as equity performance lagged behind rivals and bond returns rebounded only recently from the 2008 credit crisis. That left smaller rivals Pacific Investment Management Co. and DoubleLine Capital LP, led by top-performing fund managers Bill Gross and Jeffrey Gundlach, to attract most of the new money flowing into active bond funds.
BlackRock’s active bond funds were hurt by the 2008 financial crisis and its aftermath. Performance has since rebounded, with 71 percent of BlackRock’s active taxable bond assets beating rivals over a one-year period, and 81 percent outperforming over the past three years.
On the active equity side, performance is “still not hitting as well as we need to,” Fink said last month on a conference call with investors and analysts. About 56 percent of stock-fund assets have trailed peers over the past year. Investors have pulled a combined $9.9 billion from BlackRock’s active stock and bond funds this year through June 30.
While BlackRock drew $23.5 billion into its iShares ETFs, Vanguard Group Inc.’s low-cost ETFs have increased their market share this year. BlackRock’s U.S. market share in the ETF business fell 1.4 percentage points to about 41 percent, compared with an increase of 1.7 percentage points for Vanguard to 18 percent, according to a report by State Street Global Advisors.
BlackRock’s fixed-income ETF deposits account for more than 50 percent of industrywide flows this year, Mark Lake, a spokesman for the company, said July 18. The firm has gathered $190 billion into its index products since the beginning of 2010.
BlackRock’s shares fell 0.4 percent to close at $169.62 in New York. The shares are down 4.8 percent this year.
BlackRock’s stock has declined 25 percent since the Barclays deal was completed on Dec. 1, 2009, compared with the 1.4 percent drop in the 20-member index of asset managers and custody banks. The shares have surged 12-fold since the firm went public in October 1999 at $14 a share.
As the firm has grown, co-founders including Ralph Schlosstein and Susan Wagner have either left or retired from an active role. With just half of the eight co-founders in an active management role, Fink is also grooming the next generation of leaders and hiring top executives such as Philipp Hildebrand, the former head of the Swiss central bank.
Fink himself, in private conversations with other Wall Street executives, hasn’t ruled out that he would be interested in the position of Treasury Secretary, should President Barack Obama get re-elected, a person familiar with the matter said last month. Fink hasn’t said publicly whether he would be interested in a government role if nominated. He told a senior member of his management team that he has the best job in the world at BlackRock.
In the memo today, Fink signaled to employees that he is planning to be around the firm.
“I look forward to working with all of you in the years to come to realize the full potential of this reorganization,” Fink wrote.
Wagner, who led BlackRock’s growth by overseeing purchases including the fund units of Merrill Lynch & Co. and Barclays Plc, retired in June and said she will join the company’s board in October. BlackRock the same month replaced Robert Doll as chief investment strategist for equities. The company has also restructured its fixed-income investment team.
BlackRock today said it’s creating five investment groups to replace the portfolio-management group, which was responsible for overseeing investment products. Alpha strategies, led by Quintin Price, BlackRock’s London-based global chief investment officer of fundamental equities, will include actively managed fixed income and equities. Amy Schioldager, who currently heads the equity indexing business, will lead beta strategies, which includes passive products such as ETFs.
Multiasset strategies, which generate returns for investors through asset allocation, will be managed by Ken Kroner, head of the global market strategies group. The alternative-strategies unit will be overseen by Matt Botein and includes the real estate and private-equity businesses. Richie Prager will lead trading and liquidity strategies, which includes cash and securities lending.
Price, Schioldager and Kroner will join the global executive committee, as will Rob Goldstein, head of BlackRock Solutions and the institutional group, Hildebrand, who will join the firm in October, and Barbara Novick, one of the co-founders and head of government relations.
Instead of a single global client group, BlackRock will have two client-oriented units that will be responsible for distributing products to investors. The first one will be made up of BlackRock Solutions, the unit that advises financial institutions and governments on hard-to-value assets, and the institutional group. It will be managed by Goldstein. The second will include sales of iShares, BlackRock’s ETF business, and retail funds. That will be led by Robert Fairbairn, currently the head of BlackRock’s global client group.
With its range of assets, BlackRock has increasingly been pointing to its role as a provider of investment “solutions.”
The reorganization will help the firm provide products to investors in what they call the “new world” characterized by slower growth, higher volatility and macroeconomic uncertainty, BlackRock said in the memo.
Investors “want a trusted and versatile adviser -- someone who can solve the complex problems that have reshaped investing in the new world, including the need to ensure pension funds will meet their obligations, that individuals will not outlive their retirement savings and that foundations and endowments are able to sustain their missions for the long term,” BlackRock said in the memo.
BlackRock is part of a small group of money managers trying to provide products such as asset allocation, alternative funds such as hedge funds, risk management and passive funds in additional to traditional investing, wrote Eric Berg, an analyst at RBC Capital Markets, in a July 24 research report.
“In the future it won’t be enough for a money manager to be a stock picker only or a firm that only avoids major losses in the bond market,” Berg and his colleagues wrote. “We believe BlackRock is further along than any of its competitors in developing this concept of solutions-oriented money management.”