Why Mighty BlackRock Bet Big On Model Investing (And It's Paying Off Now)

What's remarkable about BlackRock is the way the biggest asset management complex in history still thinks like a disruptive start-up. The ambition here goes far beyond simply crossing the $10 trillion frontier in the immediate future.

BlackRock has swung its scale behind models-based investing, in which all the work of building the portfolio is outsourced to third-party managers who set the allocations to fit client objectives and then pick the investments required to make it happen.

It's potentially a game-changing shift for one of the companies that helped promote index investing from the early days. Anyone can define an index and keep it fresh. The real hard work today is differentiating that indexed product from everyone else's.

Read between the lines and BlackRock can't exactly differentiate. It is the market. You can't really point to the iShares family (probably around $3 trillion in their own right) as any kind of disruptor these days.

BlackRock funds are now the mainstream, the status quo. That means finding new distribution channels to conquer or else accepting a ruthless race to the bottom on fees . . . and fees are already close to zero.

Getting into the models, on the other hand, offers that expanded distribution. Once you're in an outside manager's universe of favored funds, their growth translates into wider reach for you and your funds.

It's alluring. And yet there's plenty of room for this side of the business to take share from rivals. The race is to lock down that space within the models now, get on the screens of the managers.

From there, it's an easy ride. Eve Cout at BlackRock told me a little while back that the firm now runs $160 billion through its models, roughly doubling its AUM on this side year after year for five years running.

Huge. And yet I have a feeling BlackRock has only started throwing its weight around here. We'll simply have to see.


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