By Trevor Hunnicutt
NEW YORK (Reuters) – Two high-level quantitative researchers have left BlackRock Inc <BLK.N> as the world’s largest asset manager embarks on an ambitious effort to engineer a high-tech revolution within its stockpicking business.
Michael Lemmon, a former University of Utah finance professor and a senior researcher within BlackRock’s quantitative Scientific Active Equity unit, left for Citadel LLC, a spokeswoman for Ken Griffin’s hedge fund confirmed.
Paddy McCrudden, a former Australia-based portfolio manager and mathematician who was most recently a senior strategist for BlackRock’s quant unit in New York, also left the company, BlackRock confirmed.
Both former employees hold PhDs and were managing directors at BlackRock. Both declined to comment.
A BlackRock spokeswoman confirmed the departures but declined to comment further.
In March, BlackRock announced a major overhaul of its actively managed equities business, cutting jobs, dropping fees and relying more on computers to help pick stocks.
The move handed over more assets and prominence to BlackRock’s high-performing Scientific Active Equity group, based primarily in San Francisco, that uses rigorous quantitative analysis of data to generate investment ideas. The project also dramatically increases the budget for a team focused on data analysis.
The strategy, internally code-named “Monarch,” is designed to jumpstart BlackRock’s stock funds business, which has delivered mixed performance overall.
Over five years, 90 percent of assets run by the Scientific team were beating their benchmark, according to data BlackRock reported to shareholders at the end of March. That compares to 49 percent of assets run by BlackRock’s traditionalist “Fundamental” team. BlackRock will update those figures on July 17 when it reports second-quarter earnings.
The asset management business is being reordered by a move from funds in which managers pick promising individual stocks to lower-cost index funds that own the entire market.
Lemmon co-authored a “Financial Analysts Journal” article last year that argued that asset managers that charge high fees and struggle to justify their value face “extinction” as they compete both with fairly simple quant portfolios and highly sophisticated investors.
BlackRock is a major provider of index funds through its iShares business and has seen its stock market value swell to record levels even as many of its competitors languish.
BlackRock managed $5.4 trillion on March 31, with $286 billion in active equities. In all, actively managed funds represent nearly a third of BlackRock’s assets but an outsized near-50 percent of its fees.
(Reporting by Trevor Hunnicutt; Editing by Jennifer Ablan and Frances Kerry)