BlackRock, the world’s leading asset management firm, is set to unveil a series of layoffs impacting approximately 3 percent of its worldwide staff, equivalent to around 600 employees, according to sources from within the company. Internally, these job cuts are characterized as routine and are expected to be officially announced in the coming days. Last year, BlackRock implemented a similar round of layoffs based on employee performance metrics.
The impending workforce reduction comes as BlackRock experienced a rebound in its shares, registering a 6 percent increase in 2023 after a 21 percent decline in 2022. The firm witnessed a surge in new customer investments, with $187 billion flowing into its Exchange Traded Fund (ETF) business, focusing on products that track a basket of securities and trade like stocks on major exchanges.
BlackRock is awaiting approval from the Securities and Exchange Commission (SEC) for its new Bitcoin “spot” ETF, marking a historic moment as the first crypto investment product tracking the daily price of Bitcoin to be approved by securities regulators for trading on a public stock market. Approval for similar ETFs from other asset managers is also anticipated.
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The firm’s spokesman has refrained from commenting on the reported layoffs, and further details are expected to be disclosed when BlackRock announces its fourth-quarter earnings on Friday.
Potential Factors Behind Layoffs: Maturing Business and ESG Reassessment
One potential catalyst for the layoffs is BlackRock’s transition from a period of rapid growth in Assets Under Management (AUM) to a more mature phase of its business. Analysts predict a 2.46 percent year-over-year decline in earnings for the fourth quarter, reaching $8.71 per share. As of the third quarter of 2023, BlackRock managed $9 trillion in AUM, experiencing a decrease from its peak of over $10 trillion in 2022 amidst volatile financial markets.
The decline in assets coincided with BlackRock becoming a focal point of political discussions due to its embrace of Environmental Social Governance (ESG) investing. ESG directs investments toward public companies in the sustainable energy space or those adopting measures to reduce their carbon footprint and enhance corporate governance. Facing controversy, BlackRock has reportedly de-emphasized its ESG business in the U.S., with portfolio managers no longer mandated to consider ESG metrics when not using ESG funds.
ESG investments have faced challenges in 2023, with weak performance leading to declines in asset values for many “green” investment funds. Company founder and CEO Larry Fink revealed a shift away from using the term “ESG” due to political controversy.
As BlackRock contends with criticism from prominent Republicans, its ESG business in the U.S. has experienced outflows of approximately $6 billion as a form of protest. Notably absent from this criticism is former President Donald Trump, possibly influenced by BlackRock having managed a portion of his fortune in the past.
BlackRock’s Strategic Direction and Future Investments
Sources close to BlackRock indicate that the savings generated from the planned layoffs will be redirected toward expanding into growth areas such as technology investing and alternative products beyond traditional stocks and bonds.
While ESG faces challenges domestically, it remains a significant business for BlackRock’s international clients, including large sovereign wealth funds in Europe and the Middle East. Mark Wiedman, head of BlackRock’s client business, emphasized the continued demand for ESG, with the firm managing around $1 trillion in pure sustainable assets for its clients.
As BlackRock navigates workforce adjustments, the maturation of its business, and evolving investment landscapes, the company is poised to maintain its position as a global financial powerhouse.
BlackRock’s announcement of layoffs, coupled with its strategic reassessment of ESG priorities and the anticipation surrounding the approval of its Bitcoin ETF, reflects the firm’s dynamic response to evolving market conditions. As the financial giant undergoes these changes, the industry and investors alike will closely watch the impact on BlackRock’s future trajectory and its ability to navigate challenges while capitalizing on emerging opportunities.