One of the world’s largest asset managers, BlackRock, has agreed to put an end to its global analyst survey program after the firm was accused of releasing non-public information to Wall Street early.
The agreement was reached last week following an investigation by New York Attorney General Eric Schneiderman into the premature release of Wall Street analyst sentiment.
BlackRock’s Analyst Survey Program asked a number of top analysts at brokerage firms around the world a series of questions about the companies they were covering.
Though BlackRock maintains that it served to quantify publically available insights, Schneiderman found enough evidence to suggest that the nature of the program meant it could capture ‘non-public analyst sentiment that could be used to trade ahead of the market reaction to upcoming analyst reports’, according to the agreement.
Surveys of US companies, for example, asked analysts to answer questions on a scale of 1 to 9, before their responses were aggregated and converted into quantitative forecasts. BlackRock reportedly collects hundreds of thousands of responses on a quarterly or monthly basis.
When the program was started, Scientific Active Equities – a quantitative investment group within BGI and later BlackRock – said that the responses could be used to predict upcoming revisions to analysts’ forecasts, and relied on a ‘willingness to really give us advance information’, according to Schneiderman’s investigation.
It was also suggested that surveys were sent out at times which made them susceptible to picking up advance information. The agreement between Schneiderman and BlackRock reveals that ‘targeted survey waves’ were sent out just before covered companies’ ‘heavy earnings’ seasons.
However, an agreement was reached in advance of BlackRock being accused of any wrongdoing.
‘BlackRock deserves credit for recognizing the need for reform when it comes to the dissemination of information that can move markets,’ writes Schneiderman in a press statement. ‘[The agreement] is a major step forward in restoring fairness in our financial markets and ensuring a level playing field for all investors.’
The asset management firm also agreed to pay $400,000 of costs for the investigation, avoiding a fine or penalty fee, and to cooperate with authorities during any further inquiries.
Later this week, BlackRock reported a 24 percent jump in quarterly earnings per share for its equity fund investors, beating analysts forecasts of 11 per cent growth by some distance. BlackRock’s assets under management, too, ended the year $4.3 tn, up from $4 tn in the third quarter of 2013.
Larry Fink, BlackRock’s chief executive, says that 2014 has begun with institutional investors putting money into bonds following a surge in the value of their equity holdings. ‘People need to be in fixed income’, he adds. ‘As rates go higher, insurance companies are more aggressive in buying. So you are going to see a lot of movement within fixed income.’
