BlackRock Inc. is in discussions to invest in financial technology company Capital Preferences Ltd. to help bolster its focus on retail investors, according to two people with knowledge of the matter.
Capital Preferences gathers data to help wealth managers understand the risk tolerance and preferences of clients, allowing firms to create portfolios suited to investors’ needs. The talks, which are preliminary, include determining ways of incorporating the company’s software into BlackRock’s existing technology offerings, said one of the people, who asked not to be identified because the information is private.
The world’s largest asset manager is investing in technology in part to diversify revenue as investor money flows into cheaper passive strategies. BlackRock is also using technology to indirectly expand its reach to retail investors, who are typically charged higher fees than institutions.
Bernard Del Rey, co-founder of the Capital Preferences, declined to comment. Ed Sweeney, a spokesman for BlackRock, didn’t immediately return a call and email for comment.
BlackRock, which manages $5.7 trillion in assets, has made several strategic investments in startups in recent years with the aim to eventually acquire some, said people with knowledge of the matter. It owns robo firm FutureAdvisor and has participated in a funding round for iCapital Network, an online marketplace that offers ultra-wealthy investors and their financial advisers alternative investments.
In June, BlackRock, led by Laurence D. Fink, agreed to buy financial tech company Cachematrix and took a minority stake in Scalable, a European robo-adviser.
Fink told Bloomberg News in April he hopes technology will account for 30 percent of revenue in the next five years up from 7 percent. BlackRock is counting on its risk management system, known as Aladdin, to help push it toward that goal.
BlackRock could incorporate Capital Preferences’ software into Aladdin or FutureAdvisor, one of the people said. The money manager, which has historically sold Aladdin to institutions, has recently made a push to distribute it to wealth managers that advise individuals.
While BlackRock doesn’t directly sell products to retail investors, it’s using technology to build relationships with financial advisers. Capital Preferences software is another tool that wealth managers can use to understand their clients. The technology tracks how investors make investment decisions in various scenarios to help determine their risk tolerance.
Del Rey teamed up with Shachar Kariv, a professor of economics at University of California, Berkeley, to start Capital Preferences in July 2014. The firm was named one of the top 12 global fintech innovators in 2015 by UBS AG, according to Capital Preferences’ website.