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BlackRock COO Rob Goldstein On a large flat-screen monitor perched in front of a framed orange-and-blue Warhol print of Teddy Roosevelt as a Rough Rider, BlackRock’s chief operating officer, Rob Goldstein, is looking over the entirety of the financial firm’s $6 trillion in global assets–135 teams with positions in hundreds of markets in 30 countries. He is using software that he’s been perfecting for the 23 years he has spent at the company. A simple gray column on the left reveals BlackRock’s activity on this quiet pre-Thanksgiving day: There are some 25,000 trade orders in the market, 77,000 trades and thousands of collateral calls. A wider view colorfully identifies the specific portfolio managers and traders initiating the moves.
The program is called Aladdin, shortened from the wonky Asset Liability and Debt and Derivative Investment Network, and it can expand and contract like an accordion, from a holistic view of firm-wide risk down to a single trade in a split second. It is the reason Goldstein, 44, is a favorite to run BlackRock one day, despite the fact that he has never placed a trade or made a market call during his tenure. His ascendance at the financial giant speaks volumes about the state of asset management today–a business dominated by the explosive growth of passive index funds all racing to the bottom on fees. “The ability to have a dashboard for running a firm like BlackRock that’s as simple as the dashboard in a car is a remarkable feat,” Goldstein confidently states. “One system, one database, one set of models. I know the vast majority of people don’t have this.” But what’s on the screen in Goldstein’s office is only a glimpse of what Aladdin can do.
Rick Rieder, CIO of BlackRock’s $1.7 trillion fixed-income business, uses it to track and analyze the risks embedded in his thousands of complex holdings. He loads his $31 billion Strategic Income Opportunities Fund to show how the portfolio will react to different market environments. A scenario called “Eurozone Breakup” will cost Strategic Income 79 basis points of performance relative to Rieder’s targets, Aladdin calculates, displaying asset-by-asset and risk-by-risk where the impact is acute. “China Credit Crunch” would be twice as painful.
Strategic Income’s biggest potential risk? “Spring 2013,” a repeat of the taper tantrum, when the Federal Reserve signaled it would unwind its stimulus efforts, causing bond yields to surge. “If I buy an asset, I know exactly what it’s going to do to the rest of the portfolio,” Rieder says. When North Korea fired missiles over Japan this fall, he used Aladdin to check whether he was overexposed to the market and saw he would need to buy about $400 million of Treasuries to manage the risk.
“Aladdin is like oxygen. Without it we wouldn’t be able to function,” says Anthony Malloy, CEO of $238 billion (assets) New York Life Investors, one of hundreds of firms outside of BlackRock paying fees to use Aladdin. Daniel Pinto, CEO of JPMorgan’s investment bank, adds, “It allows our clients to trade across asset classes, conduct sophisticated risk analytics and oversee their portfolios in a very integrated data environment.” It’s no accident that a piece of software may be the single most important differentiator for BlackRock. From the firm’s modest beginnings as a bond manager in 1988, CEO and cofounder put data analysis and risk technology at the forefront, instead of treating it as second fiddle to portfolio managers and traders. “The roots of the organization were founded on the concept of risk management and technology,” says Fink. In an era of disruption, BlackRock is reporting record operating margins, and its stock is the best performer on Wall Street, returning on average 23% per year since its IPO in 1999.
Raised in the Canarsie neighborhood of Brooklyn, Goldstein graduated from high school at 16, opting for less expensive SUNY Binghamton over offers from private colleges because his father had promised him a new car. A nerdy Grateful Deadhead, he joined relatively small BlackRock in 1994 at age 20.
His small team valued mortgages, producing computer-crunched internal risk reports, called “green packages” for the paper they were printed on. He hoped his back-office job would be a springboard to a more glamorous and lucrative post as a bond salesman.