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BlackRock execs lay out how last year's $1.3 billion eFront deal is setting up Aladdin to crack into a massive alternative-investment opportunity
BlackRock's Aladdin is eyeing the alternative investments space as a major growth opportunity following its integration...BlackRock's Aladdin is eyeing the alternative investments space as a major growth opportunity following its integration of eFront onto its risk-management platform. Acquired in May 2019, eFront is software for the management of alternative investments. Sudhir Nair, global head of the Aladdin business, told Business Insider that asset managers are increasingly focusing on alternative investments, but struggle to analyze risks around private investments. "We think the distinction between the two is going to increasingly erode over time in terms of the need for risk transparency and efficient operating models," Nair added. Click here for more BI Prime stories. The risk-management platform widely used by investors across Wall Street is positioning itself to address a growing push into alternative investments. After completing its $1.3 billion acquisition of eFront in May 2019, BlackRock has finished integrating the alternative investment management software into the firm's crown jewel, Aladdin. The new platform, which is currently being piloted with some clients, offers transparency into both the public and private markets and speaks to the world's largest asset manager's goal of turning Aladdin into the "language of portfolios." "We think the distinction between the two is going to increasingly erode over time in terms of the need for risk transparency and efficient operating models," Sudhir Nair, global head of the Aladdin business, told Business Insider. "We're on a mission, at a very high level, to have alternatives as an asset class become less alternative through the integration work that we're doing." Read more: BlackRock is eyeing aggressive growth for its Aladdin platform, and says it could manage risk for the entire asset management industry by 2025 BlackRock is well positioned to capitalize on a rise in alts From private equity and venture capital to hedge funds and real estate, alternative investments provide a way for firms to diversify beyond stocks and bonds. When BlackRock announced its deal to buy eFront in 2019, it noted that that the $9 trillion alternative asset management industry presented a huge opportunity for risk and investment management tools. And earlier this month, Business Insider reported on an internal memo at UBS, one of the largest wealth managers in the world, that detailed a push to meet surging demand from family offices and wealthy individuals clamoring for access to private markets. However, putting capital into alternatives doesn't come without its risks. Visibility into the investment is often much more difficult compared to those made in public markets. Offering clarity about exposures across a portfolio is where Aladdin has thrived. Some of the biggest growth the platform saw was in the years following the financial crisis, as firms wanted a better sense of correlations between their various investments. And so as more money pours into alternatives, BlackRock is banking on investors looking for the same transparency they're accustom to in the public markets be made available to them for private deals. "Being able to demonstrate an ability to truly understand from a risk perspective what that allocation to alternatives entails is going to be more and more important," Nair said. "The most recent period of market volatility has really shone a spotlight on that." Read more:The machines running a huge chunk of public markets will only get smarter, and that's putting private equity and stock-pickers on a collision course Inside BlackRock's integration with eFront The marriage of Aladdin and eFront hasn't just been about integrating the latter into the former. The past year has also been about building out new capabilities thanks to the strengths of both systems, Nair said. While eFront has 20 years of experience helping firms manage alternative investments, risk tech was never a focus, he said. As a result, a combination of Aladdin's experience with risk management and eFront's deep knowledge of private-markets modeling and data provided the template for a deeper, more complete view into alternatives that neither provided on their own. "This level of depth provides clients the transparency and the capability to assess risk into private markets that we would have otherwise not been able to do today," Tarek Chouman, head of Aladdin business development and former CEO of eFront, told Business Insider. The importance of offering those insights is apparent in BlackRock's own backyard. The firm has continued to put resources towards teams chasing alternative investments. Nair said that's a huge benefit. BlackRock usage of Aladdin internally has offered great feedback on what does and doesn't work well. "We're big believers that we have to eat our own cooking," he added. "[BlackRock] is a great sandbox environment as we build new capabilities to try them out in." The benefits go beyond risk analysis Constant evolution has been a staple of Aladdin, which was first launched in 1988. In recent years, it rolled out Aladdin Studio, a set of tools that allows engineers to open up and customize the platform to their liking. The $6.5 trillion asset manager has also previously looked to hire for a role specifically focused on managing tech projects for the platform. BlackRock CEO and founder Larry Fink has previously called Aladdin, which helped the firm's technology services group generate nearly a $1 billion in revenue in 2019, a tech startup. Understanding portfolio risk isn't the only thing that's helped the platform grow. Aladdin has also made efforts to provide better connectivity between asset managers and asset services. eFront has been active in this department as well, with a large client segment base consisting of alternative asset services. Nair said those would be avenues the firm would continue to explore. "There's definitely an opportunity along the lines of what I described of building greater connectivity between asset managers and asset servicers for public markets, which Aladdin has been focused on, to do the same with private markets, leveraging eFront's existing relationships with asset servicers," Nair said. Read more: Larry Fink, CEO of the world's biggest asset manager, says BlackRock's massive Aladdin platform is really just a tech startupSEE ALSO: The machines running a huge chunk of public markets will only get smarter, and that's putting private equity and stock-pickers on a collision course SEE ALSO: UBS is rolling out the red carpet for ultra-rich people and family offices who want in on private-market deals SEE ALSO: BlackRock is eyeing aggressive growth for its Aladdin platform, and says it could manage risk for the entire asset management industry by 2025 Join the conversation about this story » NOW WATCH: Why Pikes Peak is the most dangerous racetrack in America
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