Is BlackRock Inc Stock Halal To Invest In?

Report Published as on 2nd August 2024

We have conducted a comprehensive review on BlackRock Inc. from a Shariah point of view and analyzed its sources of income to know whether they are complying with Shariah principles.

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. The company is also actively involved in sustainable investing, with a strong emphasis on environmental, social, and governance (ESG) factors. 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:

• Total Investment Advisory, Administration Fees, and Securities Lending Revenue — Fees earned from managing assets, administrative services, and securities lending. Shariah Compliance: depends on the nature of the assets managed and the securities lent. Advisory and administration fees on Shariah-compliant portfolios can be compliant, but securities lending often involves interest (Riba) and non-compliant securities, which is problematic.
• Investment Advisory Performance Fees — Earned when managed portfolios exceed performance benchmarks. Shariah Compliance: permissible only if the underlying investments are Shariah-compliant; if the portfolios include non-compliant investments, the performance fees are also non-compliant.
• Technology Services Revenue — Earned through the Aladdin platform (risk and portfolio analytics). Shariah Compliance: generally compliant as the technology is neutral, but compliance can depend on whether clients apply it to non-compliant instruments or activities.
• Distribution Fees — Earned from marketing and selling investment products such as mutual funds and ETFs. Shariah Compliance: compliant if the products distributed are Shariah-compliant; fees from distributing non-compliant products are not compliant.
• Advisory and Other Revenue — Various consulting and advisory services (financial planning, asset allocation). Shariah Compliance: generally compliant if it does not involve advising on or facilitating investments in non-permissible sectors or activities.

Tricky Areas From a Shariah Perspective

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

• Securities Lending: BlackRock earns revenue from temporarily lending out securities, which often involves earning interest — not permissible in Shariah. Even when the underlying assets are compliant, the interest component is a significant compliance issue.
• Investment Advisory and Administration Fees: Generally compliant, but concern arises with the types of investments managed. If the portfolios include non-compliant sectors (alcohol, gambling, pork, or interest-based conventional finance), the associated fees could be non-compliant.
• Performance Fees: Contingent on portfolio performance. The challenge is ensuring the portfolios adhere to Shariah principles; fees derived from gains in non-compliant investments would be non-compliant.
• Technology Services Revenue: The Aladdin platform supports risk management and portfolio construction. While the technology itself is neutral, its use in managing non-compliant investments or facilitating non-permissible activities can raise compliance concerns.
• Distribution Fees: Tied to the distribution of investment products such as mutual funds and ETFs. The issue is whether the products are screened for Shariah compliance; if they include interest-bearing instruments or prohibited sectors, the distribution fees may also be affected.
• Advisory and Other Revenue: BlackRock’s advisory services cover a wide range of financial advice, including strategies that may involve non-compliant investments. The diversity of these services makes full Shariah adherence challenging, especially around 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 millions of USD.

Conclusion