In Star Trek, the Borg is a cybernetic alien race whose overriding mission is the assimilation of all other life forms into its pulsing, digital hive mind. It's also a parable of active equity management. Do what you will to push back against the inevitable cyborgian future: Resistance is futile.
Forty some-odd BlackRock stock-pickers learned that lesson Tuesday when the asset management leviathan announced a wide-ranging initiative to reposition its equity platform “For Future of Advice Management” and, in the process, let a bunch of its equity staff go. This isn't some elective choice or trend-following on the part of Larry Fink, BlackRock assures us. It is our ineluctable destiny:
“Traditional methods of equity investing are being reshaped by massive advances in technology and data sciences. At the same time, client preferences are shifting, focusing not just on outcomes but on how both performance and fees impact value,” said Mark Wiseman, Global Head of Active Equities at BlackRock.
“The active equity industry needs to change. Asset managers who simply use the same techniques and tools from the past will limit their ability to generate alpha and deliver on client expectations.”
Sadly, it's not like BlackRock's portfolio managers – five of whom reportedly lost their jobs in the shake-up – had all that strong a defense in the past few years. According to Bloomberg:
The company’s active-equity funds have lagged behind rivals for years. The funds’ annual average return is 4 percent and 7.3 percent over three and five years, according to data from Morningstar Inc. This compares with the industry average of 5.3 percent and 8.8 percent.
Clearly something had to give. It's only natural that the next step was toward the equity singularity.
There's no need to belabor the basic factors here: investors want quants, automation is coming for everyone, fees are bad. We all know the story. The deeper question is what happens when everyone, from the big bad BlackRock to the tiniest Midwestern mutual fund, has hitched their wagon to a bot. Is the endpoint for the long-term equity landscape similar to that of high-frequency trading, in which big returns for the first movers shrank to pennies once everyone got in on the action? Will the great quantitative shift cause a thousand flowers to bloom, each with its own unique approach and trading style – or will all the algorithms crowd into the same basic strategies? Will the pendulum ever swing back toward humans? Should I learn Python or C++?
We can't wait to find out. In the meantime, those who have already embraced the Borg might want to polish off their resumes:
Wiseman said his group plans over the next 18 months to hire about the same number of employees who were laid off. BlackRock is looking for people with deep research capabilities, technological and data analytics skills, and will put more emphasis on hiring in the emerging markets, especially Asia.
BlackRock Positions Equity Investment Platform for Future of Active Management [BlackRock]
BlackRock Cuts Dozens of Jobs and Fees in Stock-Picking Unit [Bloomberg]
BlackRock cuts fees and jobs; stockpicking goes high-tech [Reuters]