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Will Aladdin be a game-changer for Jio Financials?

ICICIdirect 8 Mins 09 Feb 2024

Jio Financial Services and Blackrock have agreed to form a joint venture and enter India's asset management industry. Blackrock is not new to India. Earlier, they partnered with DSP and were in the same business. In May 2018, they exited the Indian market. Now, they are back with Jio Financials as their partner under the brand - Jio Blackrock.

Blackrock brings with them Aladdin, which some believe can be a game-changer, this time around. First, let us understand the Blackrock business, then look at its Aladdin, and finally understand the association. 

Blackrock: The world's largest asset manager

Blackrock is one of the biggest investment management companies across the globe, founded in 1988. It manages a little less than $10 trillion in assets (AUM). They offer different investment options to their clients: equities, fixed income, and money market instruments. With offices in major financial centers around the world, BlackRock has a global presence. Its ability to tap into diverse markets and talent pools strengthens its position as a leader in the investment management industry.

The company is not a regular asset management company - they are known for their innovative approach to investing, often incorporating cutting-edge technology and data analytics into their investment strategies. One of their products is Aladdin, which has caused disruption in the financial space. So, let's shift focus to Aladdin now.

Aladdin: A Sophisticated Platform

Sorry if you were under the assumption until now that Aladdin is some magical tool or device that Blackrock owns. Aladdin is an Asset Liability and Debt and Derivative Investment Network. Let us look at some interesting aspects of Aladdin:

Comprehensive Platform: Aladdin is a comprehensive platform that provides tools for risk management, portfolio management, trading, and operations for institutional investors, including pension funds, insurance companies, and sovereign wealth funds. Yes, the company lends it to other companies, and many financial institutions across the globe are using it.

Risk Management: One of Aladdin's key features is its risk management capabilities. It allows users to assess and manage risk across their entire investment portfolio, helping them to understand their exposure to various market factors, such as interest rate changes, currency fluctuations, and geopolitical events. It can tell a fund manager - Hey, I believe that some stocks in the fund's portfolio will be impacted by recent policy changes by the government - you better sell them. It may also tell them which stocks to buy after the sale.

Portfolio Management: Aladdin offers portfolio management tools that enable users to construct and optimize their investment portfolios. It provides analytics and insights to help users make informed decisions about asset allocation, security selection, and risk management.

Scale: Aladdin is one of the largest and most widely used investment management platforms in the world. It is utilized by numerous institutional investors, including some of the largest asset managers, pension funds, and insurance companies globally. You want some names. Here they are: the European Central Bank, the US Federal Reserve, and others have all turned to Aladdin’s prowess when markets have been hit.

Technology: Aladdin leverages advanced technology, including machine learning and artificial intelligence, to provide users with powerful analytics and insights. It continuously evolves to incorporate new technologies and adapt to changing market conditions.

Jio Financial to benefit from Aladdin?

The two firms have come together to provide technologically enhanced accessibility to innovative and budget-friendly investment opportunities to millions of Indians. They plan to invest up to $150 million each in the 50-50 venture. With this partnership, they plan to disrupt the $500 billion Indian AMC industry.

There is a lot of expectation from Reliance and Jio Financials. They will bring a disruption similar to Telecom in the AMC business. However, the road won't be easy for the company. Unlike telecom, freebies are not allowed in the asset management business. Also, playing on pricing will not give them the edge - many new players like Navi, Bajaj, and Zerodha have come into asset management, and all have kept pricing attractive. 

At the end of the day, the customers will come to Jio Financials if they can give returns better than peers - consistently. To achieve this, Jio Financials needs highly skilled professionals, including analysts, economists, and portfolio managers. Most importantly, someone at the top who has been widely popular and has given returns in the past.

Along with the excellent team, Jio Financials may need advanced technology and data analytics that can provide asset managers with valuable insights into market trends, investor sentiment, and risk factors. Aladdin is a perfect fit here - the company can use this most powerful financial tool in the world and have an edge over competitors.

It sounds exciting, but even DSP would have had access to this tool when it had partnered with Blackrock. However, Jio (Reliance) and DSP have a different way of looking at a business. 

To sum up, it has to be the combination of the best team and tools. If Jio Financials can bring the best team that can make the most of Aladdin - they may disrupt even this sector.

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