Meteoric rise of global investment firm BlackRock

BlackRock offers a range of investment products and services to institutional clients like banks as well as average investors among the public.
BlackRock offers a range of investment products and services to institutional clients like banks as well as average investors among the public.PHOTO: REUTERS

NEW YORK • BlackRock, sometimes called the most powerful company you have never heard of, has grown exponentially since its founding in 1988, especially since the 2008 financial crisis.

The company has been seen as a shadowy potential beneficiary of the French government's controversial pension system changes by critics of French President Emmanuel Macron.

The New York-based financial behemoth is often described as the world's largest asset manager - a company which oversees investments for clients. BlackRock offers a range of investment products and services to institutional clients such as banks, as well as average investors among the public.

As of the end of last September, the firm had almost US$7 trillion (S$9.5 trillion) under management and about 16,100 employees in more than 30 countries. Its success is due partly to products that are relatively cheap and easy to invest in.

BlackRock is a giant in managing retirement plans and, through the iShares family, is the largest provider of exchange traded funds - investments that are traded like stocks but which themselves contain other securities (such as bonds, commodities and other stocks). Its clients include union and industry pension funds, public institutions, sovereign wealth funds and banks.

HOW IT HAS GROWN

Founded by chief executive Larry Fink and other former colleagues from former investment bank First Boston, BlackRock was originally part of the Blackstone Group.

Blackstone sold its stake in BlackRock to Pittsburgh bank PNC in 1996 for US$240 million following disagreements between Mr Fink and Blackstone chief executive and chairman Stephen Schwarzman, who has since called the divestment his worst business decision.

BlackRock went public in October 1999 and ended that year with US$165 billion in assets. Since then, acquisitions have played a central role in its meteoric rise.

Key transactions have included a 2006 deal to take control of Merrill Lynch Investment Management for over US$9 billion, as well as a takeover of Barclays Global Investors for US$13.5 billion in 2009 as the British company was teetering during the financial crisis.

Mr Fink has said the financial crisis made possible the company-transforming Barclays deal.

BlackRock's growth is tied to its ability to attract clients through innovative investment vehicles, some of which are tied to its proprietary Aladdin platform. In 2018, the company reported US$4.3 billion in profits on US$14.2 billion in revenues.

HOW BLACKROCK MAKES MONEY

BlackRock charges fees based on a percentage of assets under management and, in some cases, performance fees. Revenues also come from commissions for trading and technology services. The company holds more than US$4 billion of its own investments.

BlackRock's growth is tied to its ability to attract clients through innovative investment vehicles, some of which are tied to its proprietary Aladdin platform.

In 2018, the company reported US$4.3 billion in profits on US$14.2 billion in revenues. About two-thirds of the firm's assets under management were in the Americas.

 
 
 
 

LARRY FINK

Although not as well known by the general public as JPMorgan Chase's Mr Jamie Dimon and some other CEOs, Mr Fink has been viewed as among the most central figures in global finance. During the 2008 financial crisis, he reportedly advised both top bank CEOs and US Treasury and Federal Reserve officials on what to do.

A 2010 Vanity Fair profile described Mr Fink as essentially "the leading manager of Washington's bailout of Wall Street", overseeing toxic assets that the government took control of during bailouts.

He has been outspoken on some important investment debates, ruing the "short-termism" of Wall Street's investment ethos in a widely distributed 2015 letter to CEOs that urged firms to emphasise long-term growth and not cave in to investor pressure for quick payoffs.

More recently, BlackRock has spoken out on the need for more forceful action on guns following mass shootings in the US, unveiling exchange-traded funds and other investment products in 2018 that exclude gun-makers and retailers.

The firm last year launched a major organisational overhaul as it runs hard to maintain its leadership in anticipation of a successor to Mr Fink, who is 67.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on January 04, 2020, with the headline 'Meteoric rise of global investment firm BlackRock'. Print Edition | Subscribe