by Barbara Vintcent

BlackRock

BlackRock is a global leader in investment management, risk management and advisory services for institutional and retail clients. Barbara Vintcent, Managing Director shares her expertise and industry insights.

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Please tell us about BlackRock and why your service and product offerings have a competitive edge in the marketplace?

As at the end of March 2017, BlackRock’s assets under management was US$5.4-trillion. BlackRock helps clients around the world meet their goals and overcome challenges with a range of products that include separate accounts, mutual funds, iShares® (exchange-traded funds) and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®. We have approximately 13 000 employees in more than 30 countries and a major presence in global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa.

What inspired BlackRock to set up shop in South Africa?

BlackRock has had a client base in South Africa for more than 20 years and through its index business and active natural resources, Emerging Markets Equity & Debt and Global Equity & Bond teams, it has been investing in South African companies for decades.

During 2016, BlackRock received approval to register a set of offshore funds (35 funds comprising iShares and mutual funds) in South Africa. The funds are available for both retail as well as individual investors in South Africa, and this is evidence of our commitment to the South African market.

How has your international footprint been received by local financial advisors?

The South African ETF market, for example, is dominated by ETFs mainly on South African Equity Indices. Local investors are seeking but struggling to add cost-effective international equity and bond exposures to their investments. We offer a complete set of solutions across asset classes and geographies, extensive market intelligence and industry-leading risk management and analytic capabilities we aim to offer to South African investors.

How have you employed technology to gain advantage for financial advisors and your clients?

Technology is a key component of asset management, integral to many aspects of the investment process including trading, risk management, operations and client service. Given today’s information-rich environment and the importance of technology in accessing markets, every organisation that manages assets–whether it’s an asset management company or an asset owner who manages its assets internally–uses technology as part of its investment process.

References to investment management technology often conjure up images of “super-computers” telling investors what to buy or sell. In reality, while risk analytics and decision support tools are part of the suite of systems that asset managers and asset owners use, a core function of asset management technology is to support a massive exercise in data management and information processing.

Asset managers require systems to facilitate the maintenance of data and the flow of information between multiple functions within the manager, as well as to other entities involved in the investment process, such as trading counterparties and custodians. Technology provides the unseen “plumbing” that ensures information flows smoothly throughout the ecosystem. In addition, the landscape for investment management technology is highly competitive, with many competitors and low barriers to entry for new vendors.

A robust asset management process requires both experienced professionals and technology. The use of proven investment and risk management systems provides significant benefits to the financial system. Integrated investment technology enhances the quality of large volumes of data, supports consistent investment workflows and enables timely communications with both internal functions and external parties. Technology can facilitate better risk management and decision-making.

What are some of BlackRock’s key financial products and offerings that you believe could be of particular interest to (South African) financial advisors in 2017?

The range of funds we chose to register was the result of thorough consultation with our existing and prospective investors who are looking to diversify their offshore investments into indexed strategies. These strategies have continued to grow in popularity among South African investors and we believe that our funds provide investors with a greater choice for implementing their investment views.

We have seen that local investors have struggled to add cost-effective international equity and bond exposures to their investment portfolios. We have a wide offering spanning across asset classes and geographies, and we have extensive market intelligence and industry-leading risk management and analytic capabilities, which we believe would be of great benefit to South African investors.

What are some of the trends you are seeing in the global economy and how does this affect the strategies you discuss with your clients?

Over the past few years, the global asset management industry has seen a significant rise in indexation. We believe this can largely be ascribed to changes in the regulatory environment worldwide, aimed at making the investment industry more transparent, especially for retail investors.

This can be seen with the US’ introduction of its Department of Labour’s fiduciary rule, MiFID (Markets in Financial Instruments Directive) in Europe and Retail Distribution Review (RDR) in the UK. These same trends are playing out in South Africa as well, with the introduction of our RDR regulation.

Globally, there is much more focus on a lowering of costs for the end investor, and this has resulted in a shift toward passive investing.

We believe the debate has now shifted away from pure ‘active versus passive’ to finding ways in which indexed funds and strategies can be part of a balanced retirement portfolio.

In addition, as indexation has grown over the years, so has the specialisation of these funds. We believe smart beta lies somewhere between actively managed and indexed strategies. These funds typically focus on the true drivers of returns, and aim to look holistically at alpha and beta, active and passive, liquid and illiquid investments, and finding a way for these to cohesively fit together. We believe the disciplined, rules-based approach of smart beta strategies has aided its growth significantly, in that this provides an element of greater transparency for investors.

For example, in South Africa, we offer a range of minimum-volatility funds as part of our smart beta strategies.

The world economy is in a period of significant uncertainty: there has been a marked slowdown in China, uncertainty over the US interest rate cycle, divergent central bank policies around the world, exacerbated by unexpected political events globally. All of these factors have made markets jittery and investors sit on the sideline and the BlackRock Investment Institute believes that we will remain in a low-return environment for the foreseeable future.

For investors, this means that true active strategies should outperform in periods of volatility, while smart-beta strategies could offer low-cost transparent rules-based alternative options to underperforming managers. We believe index strategies will continue to gain favour in areas where it achieves yield at a low cost.

What are some of the key opportunities you have seen in the local and global market?

Along with the global shift in regulation towards increased transparency, there has also been much more focus on a lowering of costs for the end investor.

This is done so that investors can understand more clearly what they are paying for, e.g. the advice component in the fee structure.

We support this move to cleaner pricing and fee transparency for investors, which should encourage easier product comparison.

At BlackRock, we encourage investors not to just focus on the headline Total Expense Ratio (TER), but the Total Cost of Ownership, which also takes into account the tracking, spreads and taxation, in addition to considering the structure of the products.

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