The world's largest fund manager just sent a message to investors everywhere (BLK)

BlackRock, the world's largest investor, just shook up its business, slashing fees on some funds and saying it will increasingly turn to computing power to drive investing decisions.

In doing so, the fund manager is tapping into several major trends in the professional stock-picking business as investors come under pressure to justify their fees and technology increasingly helps drive decision-making.

Among the shifts that the $5.1 trillion investor announced late Tuesday were:

it says

Bye bye, big fees

Active managers — portfolio managers who research and choose investments — have been under pressure to cut their fees in large part because of the rise of passive investing, which entails doing nothing more than tracking a market index.

Stock pickers who have track records of beating the market over the long term are holding out, but with this move, BlackRock is giving in to market forces, Credit Suisse said in a research note:

"These changes reflect a lower confidence in the ability of human stock-picking in large-cap US equities, and also signal that the value proposition for US active equity funds with mgmt fees of 50-80bps (total fees higher) may need to be adjusted lower to compete effectively with low-cost passive options in the retail channel."

Credit Suisse says BlackRock now has less confidence in a business move it made five years ago. In 2012, BlackRock replaced about 80% of its investment staff, "hiring top-performing active equity managers from competing firms with strong track records," the bank's analysts wrote.

People like John Bogle, the founder of the passive-investment behemoth Vanguard, have long criticized active managers on these issues. Bogle told Business Insider earlier this year that active managers were likely to lose against passive funds.

"We're paying people to beat the market when they aren't doing it, and when you think about it, that doesn't make sense," Bogle said.

Data and quants

BlackRock's said last year that it hoped data would help its ailing stock-picking unit. On Tuesday, it said it was planning to integrate the data it collects globally and share it with every active-investment team.

It's also planning to roll out nine new mutual funds managed by its quant investment team. Those strategies rely on algorithms rather than fundamental, human-led stock-picking to beat markets.

Active managers across the board have been trying to tap into the best data scientists and get their hands on the latest, most differentiated data to improve their chances of beating markets and competitors. Hedge funds, in particular, have been tapping into so-called alternative data — data that comes from the apps we use, the online shops we buy from, and the GPS tracking within our smartphones. This info helps investors figure out where to put their money and can give insight into how stocks will perform, which companies will continue to rake in cash, and which ones are likely to flop.

Dan Loeb, one of the hedge fund industry's most famous stock-pickers, touched on this trend in a recent investor letter, too. Loeb said that parsing enormous data sets was "increasingly important to remain competitive while investing in single-name equities."

The world's largest fund manager just sent a message to investors everywhere (BLK)

Bye bye, big fees

Data and quants

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