Laurence Fink thinks big.
In 2009 the CEO of BlackRock engineered the largest deal ever in asset management — the $15.2 billion acquisition of San Francisco–based Barclays Global Investors from Barclays. What’s more, his firm underwrote the deal at a time when few others had the capital to pull it off. One trillion dollars in assets used to be the mark of a giant in asset management, but the financial behemoth Fink created has a whopping $3.4 trillion, dwarfing other big players such as Fidelity Investments, Vanguard Group and Capital Research & Management, sponsor of the American Funds family.
The deal so far is being praised by competitors and consultants alike for bringing together an active management giant — the vast majority of BlackRock’s portfolios are based on stock picking — with an index specialist, including the phenomenal exchange-traded fund brand, iShares.
Indeed, in 2009, iShares increased its ETF market share to more than one half of all U.S.-based ETF assets. “More clients are looking for comprehensive relationships with their investment managers, and we wanted a complete profile of alpha and beta,” says Fink, 57. “We were not in the market to do another deal, but if there was one company that we really respected, it was BGI.” Fink adds that the BGI deal was not driven by the need for heft: “Scale presents advantages, whether for trading platforms or having a global enterprise, but I would never do a transaction just for the scale advantage.”
Fink’s more transformational deal came earlier, with the purchase of Merrill Lynch Investment Managers in 2006, which gave MLIM’s parent, Merrill Lynch, a big stake in BlackRock. Fink’s firm also bought State Street Research & Management, in 2005, its first foray into equities.
Fink has another hidden weapon within the world’s largest asset manager: BlackRock Solutions, the front-, middle- and back-office investment management system that the firm built to analyze the risk and track the complex securities in its own portfolios. The system, Aladdin, now has 179 clients and $9 trillion. BlackRock Solutions also includes BlackRock’s advisory business and has been at the center of the firm’s work evaluating the risk of ailing portfolios from American International Group, Bear, Stearns & Co. and UBS.
Fink co-founded BlackRock in 1988 as a fixed-income specialty firm, after having been a pioneer earlier that decade at First Boston Corp. in the mortgage securitization market. BlackRock later became virtually synonymous with bonds. But Fink’s legacy may date back to what drove him to start the firm in the first place: the desire to bring the expertise of sell-side firms to the buy side. “The whole idea was to have our own risk management systems so we didn’t need to rely on the sell side,” he says.
Perhaps the financial crisis would have unfolded a bit differently if clients of some of the creators of such products as synthetic collateralized debt obligations developed their own risk models rather than relying on their market makers’.
