BlackRock SWOT & PESTLE Analysis

Strengths

1. Largest investment firm globally with more than $5 trillion in assets under management: BlackRock manages assets for its institutional and retail clients across a wide range of financial products. The assets under management by BlackRock clocked a whopping $.6.3 trillion as of Dec 2017. More than two-thirds of the assets managed are related to retirement and pension plans. Further, iShares which was acquired by BlackRock from Barclays is the largest global ETF provider and has grown from $385 billion at the time of acquisition to $1.3 trillion in assets under management across more than 800 ETFs. BlackRock’s reputation for best-in-class service and innovative solutions with efficient risk management techniques is its major strength and it has enabled it to attract more clients in an environment market by low yields and macroeconomic and political uncertainty

2. Strong performance in challenging environment: BlackRock’s strong performance in 2016 reflects its deep relationships with its stakeholders that it has built across the years. The company generated $202 billion of net inflows in FY16 which was historic record for the company representing 4% organic asset growth. The iShares also registered a record $140 billion of net inflows as BlackRock continued to strengthen its ETF division. BlackRock also returned $2.7 billion to its shareholders through a combination of dividends and buybacks in 2016. The company has maintained a healthy payout ratio in the range of 40-50% since

3. Aladdin – BlackRock’s investment and risk management platform driving growth: BlackRock leverages technology as a growth driver which has proven to be one of its key strengths and the recipe to success. The foundation of the company was on the very premise of providing best-in-class risk management and fiduciary practices and it has done the same with adopting the latest technology innovations. Aladdin is the company’s investment and risk management platform while iRetire platform focuses on personalized retirement solutions for individuals. BlackRock is also marketing its platform, Aladdin to other wealth management firms. In this regard UBS’s Wealth Management Americas has partnered with BlackRock to use Aladdin Risk for Wealth Management for insights in multi-asset portfolio analytics. According to CEO, Larry Fink the analytical technology platform holds the potential to account for 30% of the company’s revenue in five years, a significant growth from 7% revenue share in 2016.

4. Leveraging diversity and economies of scale: BlackRock has focused on strengthen the regional management in each of the geographies where it operates. Its serves clients in more than 100 countries with employees of more than 50 nationalities and speaking more than 100 different languages. This helps the organization adopt a global approach along with a local flavor by having a good understanding of the client’s language and culture BlackRock strives to leverage and sustain its economies of scale through internal capability development and through strategic acquisitions. The acquisition of Bank of America Global Capital Management boosted its global scale of global cash management business.  

Political

1. Political fears dampening investor sentiment: Adverse political developments globally especially over the last two years have to a certain extent decreased investor appetite in equity segment. The Brexit vote and possibility of further disintegration of EU, US and European tensions with Russia over Ukraine, unrest in Middle East and terrorism activities have added to investor anxiety, Further internal political reforms in the US such as the proposed health-care bill have added to the uncertainty and fears. Thus BlackRock’s’ business’s in the above market may be impacted.

2. Investments in Russian bonds at risk of future sanctions: Vnesheconombank (VEB), the Russian state-owned bank is under U.S. and European sanctions since 2014 and thus hasn’t been able to participate in the international debt markets. The VEB’s bonds which were issued before 2014, are out of the purview of the sanctions and offer attractive yields at around 5% as sanctions has stopped new issuances. BlackRock Inc. is a major investor in the VEB’s bonds with over $120 million in investments as of 2017. If the current sanctions are extended to all Russian debt, BlackRock may need to liquidate its holdings.

Economic

1. Fear of trade protectionist policies by US administration: Increased protectionism majorly impacts global trade with banking and financial sector bearing major brunt. Indications of implementation of trade protectionism policies under President Trump is a major concern for BlackRock, the world’s largest asset management company. This would lead to drying up of cross border investments especially from the export-driven emerging markets which are the fastest growing economies globally.

2. Infrastructure investments set to grow increasing demand for private capital: According to McKinsey estimates, investments in infrastructure globally needs to increase by a staggering $800 billion a year till 2030 to support the current rate of growth. However most state governments are not in a position to fund the investments, due to budget pressures and allocations to pension funds which need significant contributions to cover the deficits. This scenarios is true for most developed countries such as the United States and major economies in Europe while the developing and emerging economies are already stressed on budgets. Thus private funding and capital will be essential for financing the infrastructure required. BlackRock has placed itself in a strong position to by building a broad asset based and platform and can participate in federal projects which would be a promising area of growth.