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BlackRock's Analytics Pay Off in More Ways Than One

BlackRock's analytics and pricing models are so well respected that the firm made a business of them. Now the federal government is one of its top customers.

Adds Fortin, "We offer Aladdin as a service, so we manage the hardware, the database, the communication services and the data centers." While the compute farm is a shared resource, he notes, each client has its own unique database and technology to ensure confidentiality of client information.

BlackRock Solutions generated $116 million in revenue in the second quarter of 2009 (compared to $100 million in Q2 2008). In turn, the money manager can plow those profits into maintaining the models. "The commercialization of those tools allowed us to continue to invest and build out the tools that our clients and BlackRock needed," says Fortin, adding, "It's the combination of the technology and the human capital investment in people who understand the data and the models that has made us unique."

As Fortin suggests, one of BlackRock's strengths is its analytics group, which includes more than 200 risk analysts. Woo Kwong and Jody Kochansky run the analytics group, which performs the modeling and quality control and helps explain to clients how the models' analytics work -- both the strengths and weaknesses, according to Goldstein, who started in the analyst program in 1994. In addition BlackRock hires a quantitative modeling group to analyze how the securities will perform in volatile markets.

Recognizing their value, BlackRock works hard to recruit, train and retain top analysts. "BlackRock has a strong recruiting philosophy," says Goldstein. "We hire an analyst class with the goal of [putting them through a] training program." Analysts in training learn analytics quality control -- how to determine which data is important and why, and the quality of the data.

BlackRock has built up a massive technology infrastructure to support all the analytics. But models and analytics are just one part of Aladdin -- it also includes the infrastructure that's needed to manage orders, capture trades, run compliance checks and manage trade settlement.

An O.S. for Asset Managers

"Aladdin is like an operating system for asset managers," says Fortin, who supervises the Aladdin development team of about 200 people who work on everything from portfolio management tools to pre-operational and performance measurements. A separate technology infrastructure team is responsible for "everything with a plug and for maintaining the giant compute farm that allows BlackRock to monitor, process and quality-control the models we use every day," he explains, noting that BlackRock manages its own computer farms, including more than 3,000 processors. The firm has several data centers on the East Coast with disaster recovery and hot standby.

But, "Equally as important to the technology and models is having the capability to quickly process the data," Goldstein points out. "Many of these portfolios have tens of billions of dollars invested in them, with tens of thousands or hundreds of thousands of line items, so processing that information quickly and accurately is crucial." According to Fortin, BlackRock realized that mass parallelization of these calculations -- which can take hours -- would greatly increase their speed, so it developed cloud-like computing capabilities to support this.

Clean data also is critical to the analytics process, and that's one of the reasons that BlackRock insists on maintaining Aladdin as one central platform for portfolio holdings, Fortin adds. "It's hard to get data clean," he says. "The notion of having it clean in 17 places" is impossible.

With a central system such as Aladdin, if trade operations fixes an error, the portfolio manager benefits, and vice versa, Fortin continues. "The more eyes on a piece of data, the cleaner it gets," he says, noting that BlackRock employs an overnight quality control process in which a large team examines all the exceptions across the millions of securities valued every day. This way, Fortin explains, the portfolio manager doesn't spend three hours wondering if the portfolio values are correct. "To us the quality control component of the analytics is just as important as the people building the models, analyzing the models and loading the data," he says.

With the acquisition of Barclays Global Investors, perhaps BlackRock's most important project will be to integrate BGI's technology with Aladdin. According to Goldstein, BlackRock will tap BGI's expertise to build the platform's equity and equity-trading functionality. "We're very excited to incorporate that intellectual capital into BlackRock and Aladdin," says Fortin.

BlackRock also will tap BGI's automated trading and transaction cost analysis technology. "We think in 2010 it will give us an opportunity to do more with trading analytics in addition to securities analytics," says Goldstein, who notes that the company is constantly developing new offerings to meet money managers' insatiable appetite for analytics. In fact it currently has analytics initiatives ongoing with commercial mortgages, mortgages outside the U.S., inflation bonds, mortgages with existing prepayment and credit models.

"You can never deliver too many analytics for portfolio managers and traders," says Goldstein, who compares it to painting the George Washington Bridge. "Once you're done, you need to start again."

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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