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ALADDIN BY BLACKROCK
THE INSTRUMENTS OF CHANGE: EMPOWERING SCALABILITY & GROWTH THROUGH UNCERTAINTY
An investment management technology thesis for the next six months
By Tarek Chouman, Managing Director, BlackRock Aladdin
We’re halfway through this year—and we’ve already seen a number of adverse events impact the health of institutional and retail portfolios alike: a late-stage global pandemic, new inflationary pressures, myriad and evolving supply-chain challenges, and geopolitical tensions that continue to permutate and metastasize an overarching feeling of uncertainty. This feeling is sustained and pervasive.
But, it is not the only feeling.
In my conversations with current and potential clients, despite this backdrop, there is also a feeling of determination. They are determined to navigate evolving market dynamics. They are determined to remain competitive. And they are determined to work on behalf of their various constituencies—including the end investor—the teachers and firefighters and pensioners and the many many other working people whose money they are managing. People who deserve dignity—now more than ever.
Each of these conversations have shared a common theme. In them, these business leaders know they need to drive change; they are on the hunt for more scale and accelerated growth—through large, transformational projects.
Growth—itself—is fundamentally about enabling new activities.
For asset managers, asset owners, and private markets players, that growth has to map back to what’s best for their clients. Similarly, enabling those new activities at a scalable rate requires conscious efficiencies that keep operations tight and positioned for longevity; the quintessential lean machine. A machine that is based on clarity—with eyes on an achievable target operating model, combined with the confidence that your infrastructure, your people, and your operations are working together toward that model—with the appropriate speed.
Technology underpins all of this. It is the instrument of change for any investment manager.
And the ecosystem, connectivity, and true partnerships that technology brings, are, in fact, what will help determine success during a continued period of market volatility—especially now, where there are seemingly more unknowns than knowns.
But, it will be up to leaders across public and private markets–the chiefs: viz. CEOs, CIOs, COOs, CTOs, and CROs; portfolio and wealth managers; heads of trading; and the whole choir of acronyms and asset classes, across geographies and firm types—to leverage a common data language, while pursuing controlled profitable scale (and growth) that benefits the end investor.
But how?
ECOSYSTEM AS A CATALYST
Technology within the broader financial services industry remains highly fractured, inconsistent, and is not always “fit for purpose.” In most cases, it consists of too many legacy systems and outdated business processes. (Ultimately, this cost is passed down to investors.)
At client organizations, we’re seeing an increased appetite for undertaking large technology transformation projects.
And if anything, COVID has accelerated this appetite as organizations look to technology to prepare their business for the future. Winning solutions must be open architecture and interoperable to support connectivity, convenience, and a persona-driven user experience (everything in one place—tailored for each user). More than ever, investors and advisors are choosing a small number of scaled platforms that offer everything in their ecosystem—in one place.
Since our early days at BlackRock, we have been on a mission to redefine investing through technology. This has led to a 30+ year journey to build and continuously refine Aladdin® as a tech platform that unifies the investment management process.
Today, the Aladdin® platform is a whole portfolio solution that delivers scale by supporting the full investment process—risk management, portfolio management, trading, compliance, operations, and accounting. Aladdin’s open architecture enables clients and partners to “plug in”—in a way that gives our clients flexibility, optionality, and interoperability—where Aladdin® works seamlessly alongside other aspects of a client’s investment process and tech stack. This model, where Aladdin® serves as the foundation—while providing flexibility for clients to create custom solutions to meet their specific needs—is one of the reasons clients trust us with a growing number of portfolios. To get here, we have also forged deep integrations with custodial banks, fund accountants, broker-dealers, and other leading ecosystem partners (boutique, start-up, and Fortune 500) like Microsoft.
And those integrations are bidirectional. Twenty years ago, Microsoft Treasury tapped us to streamline their investment infrastructure—empowering them to invest with clarity. Meanwhile, we began the process of migrating the Aladdin® infrastructure to the Microsoft Azure cloud platform—a venture that will unlock more innovation and capabilities. As a result, firms can now work with their clients directly in their Aladdin® environments to provide a more seamless, integrated experience.
TAPPING NEW (AND EXISTING) DATA
Clients continually tell us that they are focused on doing more with data—from supporting alpha generation to delivering customized digital advice at scale. They need a platform that supports this goal and ties their portfolio to other key business data.
And the challenge is staggering. Since inception, BlackRock has had the view that asset management is an information processing business.
Today, the amount of data that is considered relevant to the investment process has exploded in recent years. Compounding this, the complexity involved in sourcing, cleaning, and making disparate data sources “speak the same language” is cumbersome. By making this leap from a sequential model to a model that understands in the two dimensions of the page, we created an NLP model that can process any document the same way. It doesn’t require extensive training and onerous tweaking for every document type.
Simultaneously, the demographic of people using data within an investment firm is changing and getting increasingly technical.
Investment managers (including BlackRock) have a growing number of employees with coding skills. They want to interact with technology to program, innovate, and differentiate themselves.
Of course, these “citizen developers” can be engineers, but many more are traders, portfolio managers, compliance officers, and operations professionals. Organizations are increasingly recognizing the importance of enabling this group to innovate—not as “shadow IT” coders but as an integrated part of the investment process with proper governance and controls in place.
This is a very modern use of resources.
We have focused on delivering technology solutions that blend traditional investment data with the increasingly large amounts of “non-investment” data to generate unique analytics and insights—in both a controlled and governed manner. This was the ethos behind moving Aladdin from an operating system to a true platform that is open and extensible to new sources of data, making Aladdin the data destination of choice for market practitioners—with solutions like Aladdin® Data Cloud. What’s more, our partnership with Snowflake has accelerated the pace at which we make new data available through Aladdin, backed by a rich product roadmap that will make more data, developer tools, and APIs available through the Aladdin® platform to help our clients innovate further.
EXPANDING INTO NEW ASSET CLASSES
Meanwhile, within portfolios—investors are increasing their allocation in private markets to seek higher returns than those generated in liquid markets. The historical outperformance of private markets is typically attributed to active ownership, longer investment horizons, and more direct corporate governance. Once considered a ‘nice to have’, the ability to support public and private assets on a single platform is becoming a ‘must-have’. To meet the trend in private markets, both Aladdin® and eFront® clients are demanding technology solutions that cover the whole portfolio, across asset classes.
But investors at large, who are accustomed to public markets, find that—by comparison—private markets are less standardized, with limited automation, and less frequent transaction data, creating a technological challenge in unifying public and private investment management on a single platform.
The scarcity and low frequency of private market data, combined with diverse reporting standards, makes it challenging for investors to consistently capture and correlate investment exposures across assets.
The management of private and public investments is often siloed within organizations. Dealing with separate teams, processes, and data creates significant inefficiencies. For an investment manager, a single source of data for both private and public markets enables the seamless production of portfolio-wide insights and performance reports.
The Aladdin® platform delivers a whole portfolio solution that supports investors’ portfolio and risk management operations, allowing full look-through reporting across both public and private markets.
A whole portfolio solution fuels organizational transformation by unifying the teams that manage different asset classes. Clients are beginning to shift from having a whole risk-and-performance portfolio view to a fulsome solution that includes operational workflows across asset classes. But unifying asset classes is not enough.
As clients add asset classes to their portfolios, efficiency is crucial.
To meet this demand, we architected the Aladdin® platform to efficiently support the full operational investment lifecycle across the markets.
A DANCE OF ALTS
As private markets gain steam for portfolio construction among non-traditional players, general partners are looking for better ways to manage operational scale, adopt ESG within mutually agreed standards and new regulatory frameworks, streamline business processes, and meet the evolving demands of investors.
At the beginning of the client relationship, private equity and venture capital firms that we work with—and are in growth mode—are often looking to replace spreadsheets or other manual operations with a turn-key solution that helps them make data-driven investment decisions—faster, at scale, and with greater transparency.
But the long-running obscurity and decentralized operations of the private markets ecosystem have meant their technology needs haven’t been addressed to the degree that the public markets have. We are helping to close that gap with off-the-shelf solutions like GP Suite, eFront® Insight, and our own private-markets-flavor of natural language processing. In this way, PE and VC funds can raise more capital, make better investment decisions, increase runway and margin, while being more transparent with their investors and ultimately deepening their attractiveness as an asset class.
At the beginning of the client relationship, private equity and venture capital firms that we work with—and are in growth mode—are often looking to replace spreadsheets or other manual operations with a turn-key solution that helps them make data-driven investment decisions—faster, at scale, and with greater transparency.
But the long-running obscurity and decentralized operations of the private markets ecosystem have meant their technology needs haven’t been addressed to the degree that the public markets have. We are helping to close that gap with off-the-shelf solutions like GP Suite, eFront® Insight, and our own private-markets-flavor of natural language processing. In this way, PE and VC funds can raise more capital, make better investment decisions, increase runway and margin, while being more transparent with their investors and ultimately deepening their attractiveness as an asset class.
THE NEW (DATA) ERA OF SUSTAINABILITY
Across portfolios, there has been a tectonic shift of capital towards sustainable assets. More and more investors are agreeing that sustainability—and climate-related risks—are investment risks. And they want that conviction expressed in their portfolios. This is transforming the way institutions and individuals invest, which has significant implications for risk and return.
As this shift in market preferences unfolds and sustainable investing becomes the new standard, investors need access to high-quality data, analytics, and tools to help them understand, report and act on both risks and opportunities related to sustainability.
This is particularly true in the context of the risks and opportunities presented by the transition to decarbonize the global economy.
As the world has begun to transition toward a net-zero future, investors want to know what this transformation means for their portfolios and long-term goals.
And because the shape and speed of the transition is so uncertain, technology will play a key role by providing the analytics that help investors better understand and navigate that transition.
We’re continuously developing new sustainability-focused capabilities within the Aladdin® platform, by integrating climate and ESG metrics, analytics, and functionality into investors’ daily workflows to drive more informed decisions. We launched Aladdin® Climate and eFront® ESG Outreach to do just that. And just over the past year we have added over 2,000 new ESG-related data elements that support public and/or private markets investing.
ONE LAST THING
In the second half of this year, these priorities, along with the need to dynamically navigate market forces must be backed by thoughtful, informed decisions. Those decisions will require a technological backbone that is not only purpose-built but offers innovative solutions (the instruments of change) that anticipate priorities—with institutional-grade support, consistent research and development, and a decades-long track record that is public, proven, and purpose-driven.
Get in touch to learn more about Aladdin®
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Aladdin® is a technology platform used by asset managers and owners including banks, financial institutions, pensions, corporations, insurers, and wealth managers. The Aladdin platform unifies the investment management process, providing a common data language within an organization to enable scale, provide insights, and support business transformation. Through eFront® technology, alternative investment data management is covered to meet the needs of alternative investment professionals worldwide and across all major alternative asset classes. From fundraising, fund administration and reporting to data services and analytics, the platform provides capabilities to support decision making and investment oversight.
Aladdin® and eFront® platforms bring together public and private asset class data to create an industry-recognized whole portfolio solution for investment professionals globally. Find out more at www.blackrock.com/aladdin | request@blackrock.com
This material is provided for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are subject to change at any time without notice. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Performance and risk calculations, including those incorporated into Aladdin technology, are based on assumptions, historical correlations, and other factors (such as inputs provided by the Aladdin users) and are not assured to predict future results. All graphs and screenshots are for illustrative purposes only. BlackRock’s Aladdin platform is a financial technology platform designed for institutional, wholesale, qualified, and professional investor/client use only and is not intended for end investor use. Aladdin users undertake sole responsibility and liability for investment or other decisions related to the technology’s calculations and for compliance with applicable laws and regulations. The technology should not be viewed or construed by any Aladdin users, or their customers or clients, as providing investment advice or investment recommendations to any parties. For additional information on any of the descriptions contained herein, please contact your Aladdin Relationship Management representative. BlackRock may modify or discontinue any functionality or service component described herein at any time without prior advance notice to you.
Certain Aladdin technology products and services may not be offered by BlackRock in your local jurisdiction.
In the U.S. and Canada, this material is intended for institutional investors. In the UK, this material is for professional clients (as defined by the Financial Conduct Authority or MiFID Rules) and qualified investors only and should not be relied upon by any other persons. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock. In the EEA, this material is for professional clients, professional investors, qualified clients and qualified investors. For qualified investors in Switzerland: This information is marketing material. This material shall be exclusively made available to, and directed at, qualified investors as defined in Article 10 (3) of the CISA of 23 June 2006, as amended, at the exclusion of qualified investors with an opting-out pursuant to Art. 5 (1) of the Swiss Federal Act on Financial Services ("FinSA"). For information on art. 8 / 9 Financial Services Act (FinSA) and on your client segmentation under art. 4 FinSA, please see the following website: www.blackrock.com/finsa. In Singapore, this is for use only with institutional investors as defined in Section 4A of the Securities and Futures Act, Chapter 289 of Singapore. In the provision of any of the services described herein, neither BlackRock (nor any of its affiliates) will be acting in a capacity as investment adviser or broker-dealer nor will it be performing the functions of an organized market or exchange (and has not been recognized as doing so by the Monetary Authority of Singapore). In Hong Kong, the technology and the material is for distribution to "Professional Investors" (as defined in the Securities and Futures Ordinance (Cap.571 of the laws of Hong Kong) and any rules made under that ordinance.) and should not be relied upon by any other persons or redistributed to retail clients in Hong Kong. In Japan, this is for Professional Investors only (Professional Investor is defined in Financial Instruments and Exchange Act). In Australia, issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975 AFSL 230 523 (BIMAL) for the exclusive use of the recipient who warrants by receipt of this material that they are a wholesale client and not a retail client as those terms are defined under the Australian Corporations Act 2001 (Cth). In Brunei, Indonesia, and Malaysia, this material is issued for institutional investors only. In Latin America, for institutional investors and financial intermediaries only (not for public distribution). No securities regulator within Latin America has confirmed the accuracy of any information contained herein. Please note that IN MEXICO, the provision of investment management and investment advisory services (“Investment Services”) is a regulated activity, subject to strict rules, and performed under the supervision of the Mexican National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores, the “CNBV”). BlackRock does not provide, and it shall not be deemed that it provides through [Aladdin or eFront] technology, any personalized investment advice to the recipient of this document, by reason of its use or otherwise. These materials are shared for information purposes only, do not constitute investment advice, and are being shared in the understanding that the addressee is an Institutional or Qualified investor as defined under Mexican Securities (Ley del Mercado de Valores). Each potential investor shall make its own investment decision based on their own analysis of the available information. Please note that by receiving these materials, it shall be construed as a representation by the receiver that it is an Institutional or Qualified investor as defined under Mexican law. BlackRock México Operadora, S.A. de C.V., Sociedad Operadora de Fondos de Inversión (“BlackRock México Operadora”) is a Mexican subsidiary of BlackRock, Inc., authorized by the CNBV as a Mutual Fund Manager (Operadora de Fondos), and as such, authorized to manage Mexican mutual funds, ETFs and provide Investment Services. For more information on the Investment Services offered by BlackRock Mexico, please review our Investment Services Guide available in www.blackrock.com/mx. 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Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock. Please be advised that BlackRock Investment Management (UK) Limited is an authorised Financial Services provider with the South African Financial Services Conduct Authority, FSP No. 43288.
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