BlackRock Looks To Human Fund Managers

BlackRock is overhauling its flagship quantitative hedge fund as it prepares to challenge some of the industry’s most powerful multi-manager groups. The world’s largest asset manager is adding human stockpickers to its Systematic Total Alpha fund, known as STA, in a shift that reflects the broader evolution of hedge funds that blend quantitative and discretionary strategies.

STA, which launched in June 2022, has operated primarily as a mathematical and data-driven fund. It is now expanding its investment toolkit by drawing on portfolio managers from across BlackRock’s existing hedge fund operations. The aim is to smooth returns in periods when its core quantitative models are out of favour and to bring the fund closer to the structure used by firms such as DE Shaw, Citadel and Millennium.

The move follows internal discussions about how to build scale and stability in a strategy that remains small relative to its largest peers. STA had seven billion dollars of capital to invest at the end of October, up from five billion dollars in August. That growth has come as the fund reached the three-year trading record required by many institutional allocators. Even so, it remains far below the size of the top multi-strategy platforms, which manage tens of billions of dollars and have the financial capacity to recruit and retain high-earning traders.

Between its launch and the end of October, STA delivered an annualised net return of fourteen per cent. This performance has helped the fund attract new commitments, but BlackRock’s challenge will be to maintain those returns over a longer period while expanding capacity. Several allocators note that the coming three years will be a more telling test of the strategy’s durability.

STA forms part of BlackRock’s wider hedge fund business, which oversees about ninety billion dollars in client assets. The group has been investing heavily in its alternatives arm and last year acquired HPS, a large private credit manager, for twelve billion dollars. The company sees alternatives as a central driver of future growth at a time when traditional asset management fees face pressure and investors are allocating more capital to higher-return strategies.

The decision to introduce discretionary stockpickers is also a recognition of how the hedge fund industry has changed. Multi-manager platforms have grown rapidly by combining quantitative research, fundamental stockpicking, macro trading and relative-value strategies within a single risk framework. This model has reduced reliance on individual star managers and allowed the largest firms to offer traders a competitive environment with significant resources.

BlackRock does not plan to hire externally for STA’s new discretionary component. Instead, it will redeploy portfolio managers already working within its hedge fund division. These managers will focus on specific sectors and operate alongside the quant team, with the intention of stabilising returns during periods when systematic signals underperform. The approach mirrors the path taken by DE Shaw, which started as a purely quantitative shop but later expanded into human-driven strategies. Today, more than half of DE Shaw’s hedge fund assets are managed by discretionary teams.

BlackRock’s best-known stockpicker is Alister Hibbert, who, alongside Michael Constantis, manages a ten and a half billion dollar hedge fund within the firm. While Hibbert is not expected to join STA, his presence highlights the depth of portfolio management talent BlackRock can draw upon. Insiders say the firm intends to build a structure where multiple PMs contribute smaller, low-correlated books that reduce the programme’s volatility.

One obstacle BlackRock must overcome is fee structure. STA operates with a variation of the traditional two and twenty model, charging a management fee of around one and a half to two per cent and twenty per cent of performance. This contrasts with the cost-pass-through system used by large multi-manager funds. Those firms often waive management fees and pass all operating expenses, including compensation, data and technology, directly to investors. That model has allowed them to pay significantly higher packages to star traders and quants.

DE Shaw does not use pass-through fees but charges a management fee as high as three and a half per cent and up to forty per cent of profits. These economics have helped the biggest firms increase their firepower. Millennium manages eighty-one billion dollars, while DE Shaw and Citadel manage seventy billion and sixty-nine billion dollars respectively. BlackRock’s smaller capital base within STA makes it harder to match the compensation levels offered by its rivals.

The firm’s expansion plans for STA come at a time of intense competition for quantitative researchers, data scientists and experienced stockpickers. Talent costs have risen sharply as multi-manager platforms recruit aggressively and as performance dispersion widens across the industry. Several allocators say BlackRock’s brand and scale give it an advantage, but its fee model may remain a constraint.

BlackRock declined to comment on the changes. Investors familiar with STA say the fund’s expansion is intended to position it for the next stage of growth rather than signal a structural shift away from quantitative strategies. They expect the fund to continue relying heavily on its model-driven core, with discretionary inputs serving as a complement.

For BlackRock, the question is whether this hybrid approach can close the gap with the leading multi-strategy platforms. The group has the global reach and balance sheet to support the build-out, but it must demonstrate that STA can deliver consistent returns while managing a more complex investment structure. If successful, the strategy could help BlackRock capture a larger share of the fast-growing alternatives market.