We recently had the opportunity to chat with Sudhir Nair, Senior Managing Director and Global Head of the Aladdin Business within BlackRock Solutions. In our conversation, we explored BlackRock's evolving solutions strategy, operating model consolidation driven by M&A, the eFront® acquisition, and more.
Sudhir: Technology within the broader financial services industry remains highly fractured, inconsistent, and not always ‘fit for purpose’. In many cases, there are too many legacy systems and outdated business processes. And ultimately, it can have severe impacts on the end investor.
We are seeing that both asset managers and asset owners have an increased appetite to undertake large technology transformation projects. If anything, the pandemic has accelerated this phenomenon as organizations focus on tech projects that will help reshape their businesses for the future.
We built the Aladdin® platform to allow clients to seamlessly manage their whole portfolio across asset classes with critical front-, middle-, and back-office functions all on a single tech stack. Early on, we recognized that you need to start with good data to provide actionable risk analytics. And having good data across asset classes requires capturing everything that affects positions, from trades and cash movements to corporate actions, etc. in a single, integrated investment book of record (IBOR).
The Aladdin platform has served as BlackRock’s end-to-end IBOR since 1990 and clients like Freddie Mac first adopted our IBOR capabilities in the year 2000 as a part of their Aladdin platform investment.
Today, we continue to redefine “end-to-end” in close partnership with our Aladdin community. Our more recent enhancements are anchored in providing clients with accounting capabilities inclusive of both IBOR and an Accounting Book of Record (ABOR).
Sudhir: Asset managers are looking to differentiate themselves; as such, business models are becoming more diverse. This means that platforms like Aladdin must be highly flexible and scalable to support a multitude of operating models and unique outcomes. A “one size fits all” approach simply will not work.
We are bringing the scale and capabilities of the Aladdin platform to all asset managers, while “opening” it up to provide their operating models with more flexibility and optionality. We have also built deep integrations with ecosystem partners, such as custodial banks, fund accountants, and broker-dealers, who can work with our clients directly in their Aladdin environments to provide a more seamless experience.
Aladdin® Provider is a prime example of how we’re doing this. It was launched in 2015 to connect asset servicers with the Aladdin community, leveraging Aladdin as a standard “pipe” for sharing information.
Asset servicers can conduct middle-office operations for their clients—replacing onerous interface-driven workflows. This includes all processes from trade confirmation to post-settlement reconciliations, which has led to increased efficiency for BlackRock, for our Aladdin clients, and asset servicers. At BlackRock alone, we saw a 90% reduction in email and phone traffic with asset servicers, and an 80% reduction in NAV errors. This dramatically reduced our costs and operating risk. Asset servicers also benefit from the efficiency gains and the ability to better engage with and serve their clients who also use the Aladdin platform.
And finally, we are investing heavily in areas that we believe will greatly impact the future of investing. Sustainability is one major example—where we launched Aladdin® Climate to help investors bring together advanced climate science research with portfolio risk analytics and modeling. We’re also supporting clients with ESG more broadly. Over the past year we have added over 2,000 new ESG-related data elements that support public and private markets investing from leading data providers. We believe that in the coming years, the global focus on sustainability will have a profound impact on how portfolios and the investment management process are managed.
Sudhir: It’s a good question—many of our clients have had and will continue to have M&A in their strategies. Fragmented ecosystems, complex technology infrastructures, disparate data models, and redundant functions or technology are common challenges when acquiring and/or merging with another company.
BlackRock works closely to understand our clients’ objectives, review current business processes, and map out how we can help. Our clients have access to—and can build on top of—Aladdin workflows to customize solutions and processes to meet their unique needs.
In fact, we engineered Aladdin to serve as BlackRock’s backbone and operating system across asset classes and the most critical functions of the investment process. It provided our firm with a common technology stack and common language in our acquisitions of both Merrill Lynch investment Management in 2006 and Barclays Global Investors in 2009. In both instances, the flexibility of our platform supported BlackRock as a firm through critical phases of growth, which were spurred by M&A.
Sudhir: The simple answer is yes. The acceleration of portfolio allocations into private markets is changing the way portfolios are built and managed. Once considered a ‘nice to have,’ the ability to support public and private assets on a single platform is becoming table stakes. More than 24 clients have embraced our whole portfolio solution, and our pipeline of potential new clients remains strong.
Many of these organizations managed their public and private assets in silos using multiple systems, processes, and data—creating significant inefficiencies. Having a single source of data, for both private and public markets, enables a seamless production of portfolio-wide insights and performance metrics. Using a true whole portfolio solution to bring together the operational workflows for public and private assets fuels an organizational transformation because it succeeds in unifying the teams managing different asset classes.
Sudhir: Insurers have long been a core client segment for Aladdin. We have delivered solutions tailored to address the unique needs of insurers for over 20 years, and today, insurers represent one of our largest client segments.
Many of our discussions with insurers are centered around their desire to drive data and operational consistency across investment functions and modernize their technology stack. At a high level, they are looking to reduce IT complexity, integrate siloed legacy systems and data, and embrace Cloud & APIs to enable better connectivity internally and with their external partners. As insurers increase allocations to alternative assets and private credit, they are looking for solutions that integrate private and public assets. Finally, with the evolution in risk management and regulation, insurers require speed and agility in scenario forecasting.
We are well-positioned to meet these needs. As I touched on earlier, Aladdin is a whole portfolio solution that supports the end-to-end investment process—including integrated accounting—across asset classes. Having a single platform and data model within a client organization greatly simplifies and modernizes the tech ecosystem, while promoting operational excellence. We deliver a holistic credit analytics and reporting suite that includes Current Expected Credit Loss (CECL) calculations.
Aladdin also helps insurers adapt and respond quickly to shifting regulatory environments with advanced risk-based capital optimization and reporting and stress testing. Our recent investment in Strategic Asset Allocation (SAA) and Asset/Liability Management (ALM) for insurers will further enhance workflows for the front office and for risk management.
Sudhir: It’s true that our clients and investors more broadly are experiencing market and regulatory environments that are all unprecedented in complexity.
But they are not unsolvable.
The amount and breadth of data relevant to the investment process is increasing at a rapid pace. An investor’s ability to analyze this data and turn it into insights can be a key driver of differentiation. But sourcing, cleansing, and making disparate data “speak the same language” is hard and can be extremely labor intensive.
Meanwhile, the demographic of the people using this data is changing—and getting increasingly more technical. There has been an explosion in the number of employees at asset managers—including BlackRock—who have coding skills. They want to interact with technology in a more programmatic way to innovate and differentiate. These “citizen developers” can of course be engineers, but many more of them are traders, portfolio managers, compliance officers, and operations professionals. Organizations are increasingly seeing the importance of enabling these citizen developers to innovate—not as a “shadow IT” organization, but as an integrated part of the investment process with proper governance and controls in place.
We aim to deliver technology solutions that help bring together traditional investment data with the increasingly large amounts of “non-investment” data in a way that makes it easy for a client to generate valuable analytics and insights. This was the core push behind the launch of our data and developer platform, Aladdin® Studio, and our partnership with Snowflake—allowing our clients to combine their investment data on Aladdin with their data from outside of Aladdin.
We’ve seen strong adoption of Aladdin Studio both at BlackRock and across our client base. Today, in addition to the large number of engineers dedicated to Aladdin, over 2,000 citizen developers are actively using Aladdin Studio to build customized tooling. And finally, as we think about scale, a big focus has been our strategic partnership with Microsoft to migrate the Aladdin infrastructure to the Microsoft Azure cloud platform—a venture we believe will really enhance the Aladdin client experience.
For more information on what other solutions providers are doing in this space, read our Solutions Market Perspective Series.