Aladdin and the Jio BlackRock Genie

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Happy Hump Day and welcome to the 41st edition of Weekly Olio - your weekly dose of giggles, wisdom, and a sprinkle of intrigue with our tantalizing thought piece (yes, we're talking about Publisher's Parmesan here). 🤭

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Today’s Publisher’s Parmesan talks about the story of Aladdin and how it could disrupt India's asset management industry.

For context, Aladdin is an electronic system built by BlackRock Solutions, the risk management division of the largest investment management corporation, BlackRock, Inc. In 2013, it handled about $11 trillion in assets, which was about 7% of the world's financial assets, and kept track of about 30,000 investment portfolios.

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Aladdin and the Jio BlackRock Genie

BlackRock started with nothing in 1988 and now has almost $10 trillion in assets under management. They achieved this success by using their own risk management solution called Aladdin. This article tells the story of Aladdin and how it could disrupt India's asset management industry.

In 1986, Larry Fink seemed to have a promising future ahead. At just 33 years old, he had already earned legendary status on Wall Street while working at First Boston, making the investment bank nearly $1 billion through his successful trades. He even pioneered mortgage-backed securities, which would later play a significant role in the 2008 global economic downturn, and achieved the position of the bank's youngest-ever managing director.

However, the second quarter of 1986 marked a turning point for Fink at First Boston. During that period, his department incurred a loss of $100 million due to significant trading positions based on his predictions, which unfortunately turned out to be incorrect.

As a consequence, Fink's influence and role at the firm started to diminish, ultimately leading to his departure from First Boston just two years later. He attributed the $100 million mistake to the inadequacy of the computer systems and programs used at that time. This experience prompted him to prioritize the development of robust risk management tools when he established his own investment bank, BlackRock, in 1988.

One of the significant outcomes of this focus was the creation of the software called Aladdin, which proved pivotal in BlackRock's journey to becoming the world's largest asset management company. Now, Aladdin has found a new opportunity in India, as it partners with Jio Financial Services to expand its influence in the country.

So, what exactly is this Aladdin?

In 1988, Larry Fink assembled a small team of coders and created Aladdin, also known as Assets Liabilities And Debt and Derivatives Investment Network. For the initial eighteen years, Aladdin focused on analyzing vast amounts of data from the global bond market. Its exceptional ability to make accurate investment decisions led BlackRock to offer Aladdin to other Wall Street firms as well.

In 2006, BlackRock expanded into equities by acquiring the stocks-focused investment arm of Merrill Lynch, providing Aladdin with a wealth of new data to analyze. Once again, Aladdin proved its unparalleled mastery in this domain. Today, BlackRock, along with its peers Vanguard and BlackRock-owned State Street (both of which also rely on Aladdin), holds substantial stakes in major companies like Apple, Microsoft, Google, Amazon, Nvidia, and others.

Fink's unwavering confidence in Aladdin was evident when, in 2017, it was granted full control of seven funds that were previously managed by BlackRock's fund managers.

Aladdin's remarkable capabilities have even caught the attention of the US government, making BlackRock their first choice during economic crises. This was evident during the 2008 economic collapse, where BlackRock was awarded government contracts to handle distressed financial assets. Subsequently, Aladdin's success led it to be adopted by the central banks of several European countries and Japan to assist in determining the distribution of bailout packages.

The year 2020, marked by the pandemic and its impact on the US economy, once again saw BlackRock and its trusty tool, Aladdin, being called upon to navigate through the turbulent economic waters caused by Covid-19.

And, what’s the India connection in all this?

Recently, news emerged that BlackRock and Jio Financial Services (JFS) had formed a 50:50 joint venture called Jio BlackRock, with both companies investing $150 million into the venture. However, in retrospect, this partnership shouldn't have come as a complete surprise.

Reliance, the parent company of JFS, has a history of collaborating with global giants to disrupt various industries. For instance, in the energy sector, Reliance partnered with BP in a joint venture to strengthen its fuel retail network. In telecom, it partnered with Google to develop an affordable 4G smartphone, aiming to attract new subscribers.

Reliance's retail arm also recently entered into a partnership with China's Shein, signalling the latter's return to India's fast fashion market. These alliances not only bring in investment and expertise but also ensure that these global heavyweights have a vested interest in Reliance's success.

The collaboration between Jio and BlackRock follows a similar pattern. Reliance gains access to the expertise and technology of the world's leading asset management company, which is crucial as JFS is entering the industry relatively late and faces tough competition from established players.

For BlackRock, this partnership is a perfect opportunity to re-enter the Indian market. Its previous joint venture with DSP Group ended in 2018, but now, with Reliance's extensive reach across the country, BlackRock can establish a distribution network to rival its competitors. Moreover, BlackRock's acclaimed software, Aladdin, will benefit significantly from the vast amount of customer and merchant data flowing through Reliance's digital platforms, enhancing its effectiveness and ultimately driving Jio BlackRock's growth.

In a press release, BlackRock expressed its belief in India's potential, citing rising affluence, favourable demographics, and the ongoing digital transformation across various industries, which is reshaping the market in remarkable ways.

With Aladdin's capabilities in play, India's fintechs and existing asset management companies may find it challenging to compete with the Jio BlackRock venture, signalling a new era for the Indian asset management industry.

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