The next few years present another test for BlackRock's investment culture.
It's no secret that BlackRock
Mergers and acquisitions in asset management frequently lead to disappointing results for investors, thanks to cultural differences among organizations, operational challenges, personnel turnover, or a combination of those and other unforeseen factors. Given BlackRock's recent growth spurt and the challenges that may lie ahead, there's no guarantee that it will consistently or uniformly produce better results for mutual fund investors.
Points in BlackRock's Favor
There are several factors that increase the likelihood of investors' success. BlackRock executives are seasoned business builders and have proved thoughtful in their approach to acquisitions. They typically move quickly and decisively, which can ease the friction of combining varying investment organizations under one roof. They've also maintained a high degree of control at the corporate level, which sharply reduces the chance of the wholesale shifts in investment policy or attempted makeovers that caused many other asset-management firms to stumble over the years. In addition, BlackRock remains almost exclusively an asset manager. That last point sets BlackRock apart from some other large firms in which an asset-management operation may be forced to compete with a company's other business units (such as broker/dealer operations, record keeping, proprietary trading, or investment banking) for time, support, or resources.
Furthermore, BlackRock has shown a consistent ability and willingness to invest heavily in its investment personnel and risk-management resources. All BlackRock portfolio managers globally use the firm's formidable BlackRock Solutions portfolio-monitoring and risk-management technology platform. This common system eases some of the technological and operational challenges of its acquisitions. For instance, the former MLIM managers who came onboard in 2006 now use BRS to monitor their portfolios, and BGI was a BRS client for years before 2009's transaction. BlackRock also boasts a deep team of risk-management personnel with an independent reporting structure, which reinforces the firm's established philosophy regarding risk and risk management. Those resources are no panacea, but they help support the various teams that have become part of BlackRock over the years, and they help establish an environment conducive to consistent, repeatable investment success.
BlackRock also continues to take steps to improve the stability and quality of its portfolio management teams. In some cases, that has meant leaving well enough alone, as it did with its current municipal-bond team and the crew backing BlackRock Global Allocation
In other cases, BlackRock has consolidated or made management changes at less impressive funds, including BlackRock Fundamental Growth
That's not to say BlackRock hasn't hit some big bumps along the way. Its taxable fixed-income group, long the heart of the firm, has seen the departure of several senior investment professionals in recent years, including Keith Anderson, co-founder and former chief investment officer for fixed income, as well as several other portfolio managers. Fellow BlackRock veteran Scott Amero, who had more recently filled the global chief investment officer for fixed-income chair, is slated to leave in 2010's second half. The taxable fixed-income group reorganized in early 2009 to provide more separation between portfolio management and other duties and to provide greater incentives to the group's analyst team. BlackRock alum Curtis Arledge returned to the fold from Wachovia in late 2008 and has since become the fixed-income CIO, serving alongside deputy CIOs Rick Reider (who joined BlackRock in 2009 via R3 Capital Partners) and BlackRock veteran Scott Thiel. Arledge and longtime portfolio manager Matthew Marra are now charged with direct oversight of BlackRock's taxable fixed-income mutual funds. The reorganization ought to provide clearer accountability for the funds' performance, yet it remains to be seen if the group's investment philosophy and process will remain as cohesive as it had been in the past.
BlackRock's reputation for risk management also took a few lumps during 2007-09's market turmoil. For instance, significant bets on nongovernment commercial mortgage-backed securities and financial firms' debt stung most of the firm's taxable fixed-income mutual fund lineup, including funds such as BlackRock Government Income