BlackRock, the world’s largest asset manager with a colossal $7.43 trillion under management, has decided to run its widely used investment management and operations platform “Aladdin” from Microsoft’s cloud, in a landmark decision.
BlackRock is both a user and provider of Aladdin to institutional investors.
Aladdin, short for “Asset Liability and Debt and Derivative Investment Network” is used internally for insight into everything from firm-wide exposure to emerging risk, via the split second impact of a single trade. It is used to monitor trillions in assets. Customers include asset managers, pension funds, insurers and corporate treasurers.
The tool combines risk analytics with portfolio management, trading and operations tools on a single, unified platform; now all to be based on Azure, which runs from 52 Microsoft “regions” or sets of data centres; available from 140 countries.
The shift will give BlackRock “greater computing scale” and let it build fresh services, the asset manager said said, by tapping Microsoft Azure’s “network of global data centers and capabilities to meet the localized needs of Aladdin clients”
In a canned statement, BlackRock CEO Rob Goldstein said: “As both a user and a provider of Aladdin, this decision reflects BlackRock’s ongoing commitment to continuous innovation and scalable operating solutions.”
Pressure from customers (and rivals) to deliver flexible, easy to use technology as-a-service with low latency, amid a period of consolidation, fee compression and technological transformation across capital markets, is a large part of the answer.
As BlackRock’s own Chairman Larry Fink noted in his annual letter to shareholders on March 31, a shift away from commission-based models to fee-based advisory is transforming the market; with both institutions and retail investors demanding more transparency, better services and more accessible technology.
“This is a good thing for more people, because it makes it easier for them to invest and benefit from the growth of capital markets,” Fink said.
He added: “But it will also fundamentally change the distribution landscape for years to come… [wealth managers want] investment solutions and risk management and portfolio construction technology that can help them build portfolios at scale for their own clients. In a fee-based advisory world, technology that simplifies portfolio construction and risk management is more important than ever before.”
Being able to augment Aladdin’s capabilities with some of the huge suite of tools and services that hyperscale cloud infrastructure offers gives flexibility, reduces CapEx risk, and bulks out BlackRock’s network of data centres. (Though customers may be hoping Microsoft itself can rapidly build up its own data centre capacity, which has been stretched by the demands placed on it from the surge to remote work).
The move came a day after Computer Business Review spoke with Joshua Walsky, the Chief Technology Officer (CTO) of Broadway Technology, a financial trading solutions and consulting services for top-tier global banks and hedge funds.
Although the conversation came ahead of (and was unrelated to) BlackRock’s announcement, Walsky’s comments set the scene for it nicely.
He told us: “Throughout the early 2000s, banks [and others in the capital markets] were effectively building software companies in-house and hiring software developers; that was largely due to the fact that trading became heavily automated.
“There was substantial margin that could be gained from building their own software, and an inability to buy the kind of enterprise software that was needed.
“Prior to probably 2010, they saw software as the representation of their business; as the representation of their IP. There was no way to actually keep the intelligence of your business without owning all of the software. It was like needing to build an entire art gallery because you wanted to see your art collection. That’s changed.”
As Walsky notes, that’s not where the margin is now, nor the IP, while cloud providers and capital markets-focussed technology vendors are now capable of offering hugely integrated, high speed and secure offerings that asset managers, banks or others can buy into, freeing up their focus on building trading strategies, etc.
The COVID-19 pandemic has driven home aspects of that change, Walsky noted, with banks having to face the challenge of managing getting staff to their data centres and infrastructure. As he notes: “Software and technology firms [by comparison] have been leveraging distributed workforces and data centres for a very long time…”
“Enhancing Client Experience”
“By bringing Aladdin to the cloud, Microsoft will support BlackRock in further enhancing its client experience while also enabling continuous innovation in the financial services industry,” said Judson Althoff, executive VP of Microsoft’s Worldwide Commercial Business. “Together, we will empower an ecosystem of financial services customers running their most critical workloads in the cloud.”
There’s no doubt about it: landing a contract to host a critical tool for the world’s largest asset manager is a coup for Microsoft and a statement of intent by BlackRock.
As Larry Fink noted in his recent letter to shareholders: “The [COVID-19] outbreak has not simply pressured financial markets and near-term growth: it has sparked a reevaluation of many assumptions about the global economy, such as our infatuation with just-in-time supply chains or our reliance on international air travel.
“Even more profoundly, people worldwide are fundamentally rethinking the way we work, shop, travel and gather. When we exit this crisis, the world will be different. Investors’ psychology will change. Business will change. Consumption will change. And we will be more deeply reliant on our families and each other to stay safe.”