BlackRock woos wealth managers with Aladdin risk ‘X-Ray’ tool

Largest asset manager is marketing its risk analytics software

Almost three decades ago, BlackRock Inc created software to obsessively monitor the then-fledgling firm’s financial risks. Now, after turning it into an essential tool on Wall Street, the firm is zeroing in another kind of client: financial advisers.

The world’s largest asset manager is marketing its risk analytics software, known as Aladdin, to the army of wealth managers who oversee billions of dollars in client assets. The effort has gained a foothold, with the wealth-management units of Morgan Stanley and UBS Group AG, which oversee about $5.1 billion in client assets, using the program to screen portfolios and analyse their weak spots.

The software was the star of BlackRock’s bi-annual investor day last week. In an art deco ballroom in midtown Manhattan, a rotating cast of top executives took the stage bathed in teal light, where they outlined plans to spread Aladdin to further reaches of finance.

“There is a huge opportunity for Aladdin to be the language of portfolio construction,” said BlackRock Chief Operating Officer Rob Goldstein during his presentation. “We’ve only just scratched the surface here.”

Aladdin is the linchpin of BlackRock’s fast-growing technology business. Chief Executive Officer Larry Fink has said he hopes technology will power 30 per cent of the firm’s revenue by 2022, though he said last year that would be a “giant reach.” Winning over brokers and investment advisers will give the firm a huge platform from which to sell mutual funds and ETFs — and expand its already vast, some say alarming, influence in finance.

Today, outside firms and competitors license the software to 30,000 users in 50 countries, according to the company. In addition to asset managers, other clients using Aladdin include the largest US pension funds, Calstrs and Calpers, and some of the top insurers. Even competitor Vanguard Group uses Aladdin to supplement some of its inhouse risk-monitoring tools, a Vanguard spokesperson said.

Product licensing

The asset manager first got the idea to start licensing the product in the 1990s, during the US recession, according to Goldstein, a 24-year veteran of the company. Wall Street firms asked BlackRock to examine their portfolios, giving the company an idea: it could sell the technology to other industry players and competitors.

“We had built an X-ray machine, and there were a lot of people who felt like something didn’t feel right and they needed an X-ray,” Goldstein said in an interview.

In total, Aladdin watches over a vast sum, rivalling the US gross domestic product of more than $18 trillion.

BlackRock’s more recent plan grew out of an internal hackathon about three years ago. Engineers paved the way for a new product, called Aladdin for Wealth, which flipped the business model.

While the traditional Aladdin software examines data on millions of securities for large accounts, the wealth product helps brokers and investment advisers analyse client accounts invested in a more limited pool of securities, such as mutual funds.

That’s an area it can mine for opportunity. If Aladdin spots gaps or undue risk in portfolios, BlackRock can be in a good position to promote — and sell — its products, especially low-fee ETFs and index funds that clients on Main Street crave.

“This is something more holistic, which is where the industry’s going,” said Kyle Sanders, an analyst at Edward Jones. “There’s more demand for that now than there was five or ten years ago.”

There is a huge opportunity for Aladdin to be the language of portfolio construction. We’ve only just scratched the surface here.” Rob Goldstein | BlackRock Chief Operating Officer