Is BlackRock Inc Stock Halal to Invest? Facts You Should Know

Report Published as on 2nd August 2024

BlackRock Inc. is one of the world’s leading investment management firms, headquartered in New York City. Founded in 1988, the company has grown to manage a vast array of assets, with a focus on providing a wide range of investment solutions for institutions, financial professionals, and individual investors. BlackRock offers services in various asset classes, including equities, fixed income, real estate, and commodities, and is known for its pioneering work in the development of exchange-traded funds (ETFs) through its iShares brand. The firm’s extensive research and analysis capabilities, coupled with its commitment to technology and data-driven decision-making, have solidified its position as a key player in the global financial markets.

BlackRock’s activities extend beyond traditional asset management, encompassing a robust advisory and risk management division. Through its Aladdin platform, BlackRock provides sophisticated analytics and risk management tools to institutional clients, helping them navigate complex market environments and optimize investment strategies. The company is also actively involved in sustainable investing, with a strong emphasis on environmental, social, and governance (ESG) factors. This focus is reflected in their investment strategies and the promotion of sustainable practices within the industry. BlackRock’s global presence and diverse range of services enable it to cater to a broad client base, including pension funds, sovereign wealth funds, and retail investors, making it a significant influencer in the financial services sector.

Let’s have a look at the operating segments from which the company derives its revenue and apply the Shariah screens to them:

Segment Breakup: (In millions of USD)

 For the year ended 31ST December 2023

Segment Breakup

When evaluating BlackRock Inc.’s revenue segments from a Shariah compliance perspective, it is essential to assess the nature of the activities and whether they align with Islamic finance principles. Below is an explanation of each revenue segment and its relevance to Shariah compliance:

1. Total Investment Advisory, Administration Fees, and Securities Lending Revenue

Description: This revenue segment includes fees earned from managing assets on behalf of clients, providing administrative services, and revenues from securities lending activities. Investment advisory and administration fees are typically based on the assets under management (AUM) and are charged as a percentage of the AUM. Securities lending involves lending securities to other institutions in exchange for a fee, often with collateral provided by the borrower.

Shariah Compliance: The compliance of this revenue segment depends on the nature of the assets managed and the securities involved in lending activities. If BlackRock manages Shariah-compliant portfolios, which exclude non-permissible activities such as interest-based financial services, alcohol, gambling, and pork-related products, then the advisory and administration fees can be considered compliant. However, securities lending can pose compliance issues if the securities involved are not Shariah-compliant or if the lending structure involves interest (Riba), which is prohibited in Islamic finance.

2. Investment Advisory Performance Fees

Description: Performance fees are earned by BlackRock when the investment portfolios they manage exceed certain performance benchmarks. These fees are typically calculated as a percentage of the portfolio’s outperformance relative to a predefined benchmark.

Shariah Compliance: The permissibility of performance fees hinges on the compliance of the underlying investments. If the portfolios are Shariah-compliant, then the performance fees associated with managing these assets are also compliant. However, if the portfolios include non-compliant investments, the associated performance fees may also be considered non-compliant.

3. Technology Services Revenue

Description: BlackRock generates technology services revenue through its Aladdin platform, which provides risk management, portfolio management, and financial analytics services. These services are offered to institutional investors, including other asset managers and financial institutions.

Shariah Compliance: The technology services provided by BlackRock are generally considered compliant from a Shariah perspective, as they do not inherently involve non-permissible activities. However, the compliance may be contingent on how these services are used by clients, particularly if they are applied to non-compliant financial instruments or activities.

4. Distribution Fees

Description: Distribution fees are earned from the marketing and sale of investment products, such as mutual funds and ETFs. These fees are typically charged to investors or fund managers as compensation for distributing the financial products.

Shariah Compliance: The compliance of distribution fees is tied to the nature of the financial products being distributed. If BlackRock distributes Shariah-compliant investment products, such as funds that exclude interest-bearing instruments and stocks involved in non-permissible activities, then the distribution fees are compliant. Conversely, fees from distributing non-compliant products would not be Shariah-compliant.

5. Advisory and Other Revenue

Description: This category encompasses various consulting and advisory services provided by BlackRock, which may include financial planning, asset allocation advice, and other related services.

Shariah Compliance: Advisory services are generally Shariah-compliant if they do not involve advising on or facilitating investments in non-permissible sectors or activities. The compliance status will depend on the specific nature of the advisory services and the underlying assets or activities they support.

Tricky Areas From Shariah Perspective

When assessing BlackRock Inc.’s operations from a Shariah compliance perspective, there are several “tricky areas” to consider:

1. Securities Lending: BlackRock generates revenue from securities lending, where it temporarily loans out securities to borrowers. This activity often involves earning interest, which is not permissible in Shariah law. While the underlying assets may be Shariah-compliant, the interest component poses a significant compliance issue.
2. Investment Advisory and Administration Fees: While these fees are generally compliant, concern arises with the types of investments managed. If BlackRock manages portfolios that include non-compliant sectors such as alcohol, gambling, pork, or conventional financial services (interest-based), the associated fees could also be deemed non-compliant.
3. Performance Fees: These are contingent on the performance of investment portfolios. The challenge lies in ensuring that the portfolios themselves adhere to Shariah principles. If performance fees are derived from gains in non-compliant investments, they would be considered non-compliant.
4. Technology Services Revenue: BlackRock provides technology solutions like the Aladdin platform, which supports risk management and portfolio construction. While the technology itself is neutral, its use in managing non-compliant investments or facilitating non-permissible financial activities can raise compliance concerns.
5. Distribution Fees: These fees are tied to the distribution of investment products, such as mutual funds and ETFs. The compliance issue here revolves around whether the products are screened for Shariah compliance. If they include non-compliant elements, like interest-bearing instruments or stocks in prohibited sectors, the distribution fees may also be affected.
6. Advisory and Other Revenue: BlackRock’s advisory services encompass a wide range of financial advice, including strategies that may involve non-compliant investments. The complexity and diversity of these services make it challenging to ensure full adherence to Shariah principles, especially when the advice touches on areas like conventional finance, insurance, or derivatives.
7. Securities Lending: BlackRock generates revenue from securities lending, where it temporarily loans out securities to borrowers. This activity often involves earning interest, which is not permissible in Shariah law. While the underlying assets may be Shariah-compliant, the interest component poses a significant compliance issue.
8. Investment Advisory and Administration Fees: While these fees are generally compliant, the concern arises with the types of investments managed. If BlackRock manages portfolios that include non-compliant sectors such as alcohol, gambling, pork, or conventional financial services (interest-based), the associated fees could also be deemed non-compliant.
9. Performance Fees: These are contingent on the performance of investment portfolios. The challenge lies in ensuring that the portfolios themselves adhere to Shariah principles. If performance fees are derived from gains in non-compliant investments, they would be considered non-compliant.
10. Technology Services Revenue: BlackRock provides technology solutions like the Aladdin platform, which supports risk management and portfolio construction. While the technology itself is neutral, its use in managing non-compliant investments or facilitating non-permissible financial activities can raise compliance concerns.
11. Distribution Fees: These fees are tied to the distribution of investment products, such as mutual funds and ETFs. The compliance issue here revolves around whether the products are screened for Shariah compliance. If they include non-compliant elements, like interest-bearing instruments or stocks in prohibited sectors, the distribution fees may also be affected.
12. Advisory and Other Revenue: BlackRock’s advisory services encompass a wide range of financial advice, including strategies that may involve non-compliant investments. The complexity and diversity of these services make it challenging to ensure full adherence to Shariah principles, especially when the advice touches on areas like conventional finance, insurance, or derivatives.

The company does not have any non-operating income.

Sector Compliance Calculation:

Dividend Purification Calculation:

Financial Ratio Screen:

 (All figures in Lakhs of INR for the Year ended 31^st March 2023)

Source: All the above information is based on the website of the company and the latest Annual Report for the period ended 31^th March 2023.

Conclusion

Given the above information, we at Islamicly believe that Black Rock INC is Shariah Not Compliant company as per the Shariah screening criteria.