The encyclopedia · Finance & Accounting · Product decision · 1988–2013
BlackRock turned its risk system Aladdin into a business it sells to rivals
Aladdin, built to run BlackRock's own portfolios, became a platform serving asset managers, banks and insurers — and a revenue line.
BlackRock
The solution
BlackRock was founded in 1988 by Larry Fink and seven partners with a fixed-income pedigree and a discipline: manage risk as rigorously as return. That discipline was encoded in software — Aladdin — which became the firm's central platform for portfolio management, risk analytics and operations.
The unusual move was to sell the internal system. BlackRock began offering Aladdin's technology to other institutional investors, and today asset managers, banks, insurers and pension funds can run their whole portfolios on the same data language and risk engine that BlackRock itself uses. The firm describes itself as both user and provider.
The platform compounded BlackRock's scale: assets under management grew from $1.2 billion at founding to $4,324 billion in 2013, a 57% annual growth rate, powered by acquisitions and by a technology business whose customers were the industry it competed in. Aladdin turned BlackRock's risk culture into a product and its customers into a network.
Why it worked
- Aladdin embedded BlackRock's risk discipline in a reusable platform
- Selling it to rivals monetized years of internal R&D
- Industry-wide use made Aladdin a shared standard for portfolio risk
- Scale funded constant platform investment and acquisitions
What can be applied
An internal tool that gives you an information edge can become a product: when the same data and models run your rivals' portfolios, your platform becomes the industry standard.
Aftermath
The 2009 acquisition of Barclays Global Investors made BlackRock the ETF leader through iShares, and Aladdin remained the backbone of its model as both the world's largest asset manager and a technology provider to the industry it manages money alongside.
Sources
- Business Models of Global Investment Management Companies: BlackRock, Vanguard Group, and Charles Schwab
- The BlackRock Story (BlackRock History)
- Aladdin by BlackRock
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