Even shadows play a role in Blackrock’s new algorithms. Source: Shutterstock

BlackRock casts shadow on its competitors with big data

THE world’s most significant shadow bank, BlackRock Investment is using big data from a variety of sources and what it terms ‘nowcasting’ to create a proprietary economic indicator called the BlackRock Macro GPS. According to the company, the tool is designed to show where the “12-month forward consensus gross domestic product […] forecasts may stand in three months’ time.”

The ‘GPS’ pulls in a range of the usual macro & micro economic indicators, including business monitoring, employment rates, and data drawn from the profligate surveys of managers that often pass as business intelligence.

However, an internal BlackRock unit, the Scientific Active Equity team also supply information to the GPS from pools of big data to help the accuracy of the three-month predictions for overall economic health, which are published on the basis of single countries or economic groups, such as the G7.

Consumer behavior is weighed via examination of search terms, and similarly, the financial and mainstream press is combed for inflation chatter and overall sentiment.

Companies’ job postings and other employment opportunities published on the web are trawled as good indicators of economic virility: companies feeling positive about the future and in expansion phases employ more staff, after all. And like employment rates, when economies boom, people need to move around more. Thus, traffic patterns from (close to) real-time images also prove clear indicators – the name of the game is for BlackRock’s investors, overall, is to get a jump on the opposition.

The power of speech-to-text technologies in recent years has seen an upwards shift, not least through the use of algorithms which can adapt to different specialisms like medicine or finance. BlackRock uses such methods to examine the language patterns of corporate managers’ conference calls and conversations. Use of the past tense is interpreted as negative, the future tense weighs positively, for instance.

Steno-captioning and transcription software is nothing new, of course, and in the wider business and journalism communities, a decent portion of what’s readable on the Internet will have been transcribed from speech by software. BlackRock’s use of the technology in this way helps differentiate its offerings in a crowded market full of predictions, by aggregating large quantities of sentiment from different sources.

The company’s Investment Institute head, Jean Boivin said in an interview with Business Insider that BlackRock will draw details from satellite imagery of construction projects, in China for instance. By measuring the size and abundance of shadows as new development projects progress, economic clues can be gleaned which may not be publically available via official statistics.

The findings drawn from big data are overlaid onto, and also inform, the more usual academic and scientific studies of economic trends. The GPS’s findings are currently available for Japan and Australia (amongst others such as the US), but the company plans on expanding its coverage, especially into powerful emerging markets like China.

As the world’s largest non-regulated (by established banking standards) financial institution, BlackRock’s own activities will have at least some influence on economic matters on occasion. One would hope that these too are taken into consideration when results are formulated.