Aladdin (BlackRock)

Aladdin (Asset, Liability and Debt and Derivative Investment Network) is an electronic system built by BlackRock Solutions, the risk management division of the largest investment management corporation, BlackRock, Inc. In 2013, it handled about $11 trillion in assets (including BlackRock's $4.1 trillion assets), which was about 7% of the world's financial assets, and kept track of about 30,000 investment portfolios. As of 2020, Aladdin managed $21.6 trillion in assets.

Senior Managing Director Sudhir Nair is the current Global Head of BlackRock's Aladdin program.

Use case

One of BlackRock's four data centers where Aladdin is operated is located in Wenatchee, Washington state. The network in Wenatchee consists of around 6000 computers. The software uses these computers to analyze global economic data, stock market prices and numerous other economic factors. For example, sudden changes in government, weather conditions or possible disasters are also taken into account when evaluating portfolios. Aladdin is the analysis system used by BlackRock to evaluate individual investments. Its purpose is to help with risk management and it is not making trades. Aladdin is based on a pool of historical data that uses Monte Carlo simulation to select large, randomly generated samples from the very large number of possible future scenarios. This generates a statistical picture of different scenarios for equities and bonds under different future conditions. A portfolio can also be subjected to a stress test. For example, the impact of a global pandemic or a Lehman Brothers type of insolvency crisis on a portfolio of assets can be simulated in this way. Clients using Aladdin include CalPERS (California Public Employees' Retirement System) with assets of US$260 billion, Deutsche Bank with around €900 billion and Prudential plc with around US$700 billion. The Bank of Israel has also used Aladdin since 2019.

History

Aladdin began in 1988 on a single workstation from Sun Microsystems. Purchased by Charles Hallac (1964-2015), this workstation stood between a refrigerator and a coffee machine in the company's one-room office at the time. Hallac is regarded as the initial architect of Aladdin. The first mathematical models for Aladdin were developed by Hallac and Benett W. Golub. Among other things, these were models for mortgage securities ( collateralized mortgage obligations, CMOs), which were a new financial product at the time. Aladdin's first major deployment was in 1994 for an order from General Electric (GE). BlackRock was asked to analyze the problematic mortgage portfolio of the investment bank Kidder, Peabody & Co, which had been a GE subsidiary since 1986. At the time, the portfolio was considered one of the most complex in the world. With the help of Aladdin, BlackRock was able to complete this order without any problems and Kidder, Peabody & Co was sold to Paine Webber in the same year. Golub and other BlackRock employees realized that the analyses and models originally created using Aladdin for their own purposes were also of interest to clients. A new business division was created and in 2000 the use of Aladdin was officially offered to clients.

Due to the 2008 financial crisis, risk management became a focal point for financial investments. Very few asset managers had the appropriate personnel and expertise for this. BlackRock's offer to use Aladdin's analysis tools and databases for risk assessment met market demand and brought BlackRock a very broad customer base. The 2008 financial crisis and Aladdin played a significant role in BlackRock's dominant market position today. The US government also placed its trust in Aladdin's risk management during the 2008 financial crisis and handed over " toxic assets" worth US$ 130 billion to the financial services provider for management. These "junk securities" came from the government and the US Federal Reserve, from the liquidation of Bear Stearns and American International Group. During the 2008 financial crisis, BlackRock was allowed to value the balance sheet items of the now nationalized mortgage banks Fannie Mae and Freddie Mac

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