BlackRock Uses Analytics To Unwind Financial Failures
Money manager helps feds value Bear Sterns holdings and more.
In the wake of the financial industry crisis, BlackRock has emerged as one of the most influential advisers to the U.S. government. Not only is it the world's largest money manager, with $2.7 trillion in assets under management factoring in its pending acquisition of Barclays Global Investors, but BlackRock also has become a key contractor to the U.S. Treasury department because of the quantitative asset manager's expertise in valuing complex debt instruments.
At the heart of BlackRock's rise to prominence has been its analytics capabilities, housed in its BlackRock Solutions technology division. Even before Bear Stearns' hedge funds imploded in the spring of 2007, some of the industry's "headline names" were calling on BlackRock for its risk analytics expertise, says Rob Goldstein, the managing director who heads BlackRock Solutions. Goldstein declined to identify those clients.
Known for its expertise in fixed income, BlackRock reportedly was hired by the feds to help value and unwind the complex holdings of Bear Stearns, American International Group, and Citigroup. In addition, the government engaged BlackRock to evaluate Fannie Mae and Freddie Mac, the mortgage finance giants, and to perform risk assessments of banks and insurance companies in the U.S. and abroad.
These capabilities are delivered through Aladdin, BlackRock's investment management, operations, and risk management system. It's a proprietary platform--BlackRock divulges few technical details beyond noting that Aladdin leverages a single data warehouse containing extensive amounts of historical information on mortgages and other fixed-income securities going back many years, as well as pricing feeds, all subject to sophisticated analytics.
BlackRock CIO Tom Fortin supervises the Aladdin development team of about 200 people, who work on everything from portfolio management tools to pre-operational and performance measurements. A separate technology infrastructure team is responsible for "everything with a plug and for maintaining the giant compute farm that allows BlackRock to monitor, process, and quality-control the models we use every day," says Fortin, noting that BlackRock manages several data centers on the East Coast.
Although BlackRock is the largest user of Aladdin, more than 100 large organizations also use the platform, as well as related advisory services. "We offer Aladdin as a service," Fortin says, "so we manage the hardware, the database, the communication services, and the data centers." Today, Goldstein says, BlackRock Solutions employs 1,000 people and is the largest securities and portfolio analytics company in the world. (Click here for a longer version of this story).