BlackRock Inc. is used to breaking records. The world’s largest asset manager was the first firm to break through $10 trillion of assets under management. But the bigger they are the harder they fall. And this year BlackRock chalked up another record: the largest amount of money lost by a single firm over a six-month period. In the first half of this year, it lost $1.7 trillion of clients’ money.
BlackRock management was quick to invoke the first-half market carnage when revealing the investment performance last week. “2022 ranks as the worst start in 50 years for both stocks and bonds,” Chairman and Chief Executive Officer Larry Fink said on his earnings call.
While few firms are able to avoid what the market throws at them, some at least try to overcome it. BlackRock is increasingly giving up: At the end of June, only about a quarter of its assets were actively managed to beat a benchmark — rather than track it seamlessly as passive strategies are designed to do. That’s down from a third when BlackRock acquired Barclays Global Investors in 2009 to become the leading player in exchange-traded funds.
Within the equities business, the divergence is especially pronounced. Across the industry, assets have leached away from active strategies and into passive. In BlackRock’s case, around $21 billion has flowed out of active equity in the past decade, with $730 billion flowing into indexed equity. The firm’s passive equity holdings are now 10 times larger than its active business, although it does operate some active multi-asset and alternatives strategies that narrow the gap.
For portfolio managers on the fixed-income side, the evolution of the business portends an ominous future.
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