BlackRock is an obscure name for most people outside the finance world. Still, it has quickly risen without raising much attention to become the company dubbed by many as one that owns the world, overtaking the likes of Vanguard. However, some of its methods and conflicts of interest have been noticed and have questioned where the company stands on major issues and its true intentions. This article dives deep into the history of BlackRock’s climb to the top of the asset management food chain while exploring the controversial decisions it has made along the way.
A Brief History of BlackRock:
BlackRock was founded in 1988 with Larry Fink as its current CEO and one of its original founders. The company went public in 1999 with $165 billion in assets under management, equivalent to about $296 billion today. On the surface, BlackRock is a regular asset management firm, managing over $10 trillion in assets for its clients consisting of pension funds, insurance companies, and ordinary people investing in its index funds and ETFs. This is a significant feat, but BlackRock is the Jack-Of-many trades. As an asset manager, BlackRock works as an advisor, auditor, investor, analyst, risk manager, and activist. Let’s take a look at the many hats BlackRock wears.
BlackRock the Auditor and Advisor:
The conglomerate is an advisor and auditor hired by major institutions and governments.
BlackRock and its CEO, Larry Fink, were the first to package mortgages and popularize mortgage-backed securities. However, despite the apparent conflict of interest, the United States relied on Blackrock during the 2008 financial crisis, where it advised the US treasury and oversaw the bailout of financial institutions. So, BlackRock was tasked with cleaning the mess created by the product it helped popularize. In addition, BlackRock was assisting in selling and pricing the assets of the collapsed AIG and Bear Stearns while at the same time advising its private clients who were also buying similar assets (Goldstein, 2020).
Nonetheless, during the Covid pandemic, the U.S. turned to BlackRock again to help stabilize the bond market through multiple initiatives, including purchasing ETFs holding a stake in investment-grade bonds. This was another major conflict of interest as BlackRock sells the same type of ETFs (Smialek, 2021).
Besides the U.S., the asset manager has been more aggressive in acquiring contracts in other countries to increase its influence, including its deal with the EU to advise banks on environmental rules. This brought upon significant conflicts of interest when considering that BlackRock is the largest investor in fossil fuels and is an imperative shareholder of banks the company is advising on social and governance regulations. Regardless, the company was awarded the contract. (Jolly, 2020) However, the conflict of interest could be noticed this time, leading to a significant backlash. Although it was too late, the European Ombudsman stepped in. He established that the European Commission needed to adequately evaluate the conflict of interest leading to new regulations being implemented (Jolly, 2021).
These efforts gave BlackRock an edge over its competitors. They allowed it to establish favourable relationships with the world's leading nations while strengthening its position and increasing its access to sensitive and important data and information.
BlackRock the Investor:
BlackRock’s relationship with governments extends beyond just advising them, as it always looks for new investment opportunities. To this effect, BlackRock was allowed access to China’s MF industry (Shen & Galbraith, 2021). in 2021, The asset manager set up its first mutual fund in China after raising $1.03 billion (Chandler & Gordon, 2021). Furthermore, BlackRock launched its China A Opportunity fund, which invested in HIKVison, a surveillance technology manufacturer (BlackRock, 2019). The company was blacklisted by the US and was among the Chinese companies added to the entity list in 2019 over its human rights abuses (Lecher, 2019). These investments raised many questions regarding BlackRock’s business decisions and double standards when promoting sustainable and social investing.
BlackRock the Analyst:
Aladdin is BlackRock's crowning achievement. Launched in 1999, Aladdin, a supercomputer, is a management software that receives sensitive information from its clients and performs risk analysis. Consequently, BlackRock has insights and indirectly oversees the management of an additional $21 trillion in financial assets (Ungarino, 2022). The Advanced system remains one of the company’s main focuses as it continues developing and strengthening. One example is its investment in Clarity AI, an evaluation and assessment technology platform and the integration of its capabilities into BlackRock (Kerencheva, 2022).
BlackRock the Activist:
Despite the controversies, BlackRock has been trying to paint itself as a powerful force in sustainable investment. Its CEO says businesses need to contribute to society to receive their backing to support the ESG system (Sorkin, 2018). To this effect, investors steered away from companies with low ESG scores, leaving companies with no choice but to adopt the ESG system. The world will likely follow if the most prominent investment firm is not investing in those companies. Nonetheless, BlackRock is still effectively the largest investor in oil companies raising some questions about its real intention behind this shift.
With BlackRock having a hand in almost every industry and influencing the investing decisions of billions of people, will the company continue to be able to play by a different set of rules, or will its continued controversies shine a light on its actions that can no longer be ignored?
BlackRock. (2019). Certified Shareholder Report of Registered Management Investment Companies. https://www.sec.gov/Archives/edgar/data/844779/000119312520001166/d806194dncsr.htm
BlackRock. (n.d.). History. Retrieved February 6, 2023, from https://www.blackrock.com/corporate/about-us/blackrock-history
Chandler, C., & Gordon, N. (2021, September 9). Blackrock is 'blundering' in China-all the way to the bank. Fortune. Retrieved February 14, 2023, from https://fortune.com/2021/09/09/blackrock-china-mutual-fund-investment-soros-mistake/
Goldstein, M. (2020, March 25). The Fed asks for Blackrock's help in an echo of 2008. The New York Times. Retrieved February 6, 2023, from https://www.nytimes.com/2020/03/25/business/blackrock-federal-reserve.html
Jolly, J. (2020, April 12). Blackrock to advise EU on Environmental Rules for Banks. The Guardian. Retrieved February 6, 2023, from https://www.theguardian.com/business/2020/apr/12/blackrock-eu-environmental-rules-for-banks
Jolly, J. (2021, April 19). Eu 'reflecting' on conflict of interest rules after Blackrock controversy. The Guardian. Retrieved February 6, 2023, from https://www.theguardian.com/world/2021/apr/19/eu-reflecting-conflict-of-interest-rules-blackrock-controversy
Kerencheva, E. (2022, June 1). Blackrock partners with clarity AI to offer Aladdin users data for SFDR reporting. ESG Today. Retrieved February 6, 2023, from https://www.esgtoday.com/blackrock-partners-with-clarity-ai-to-offer-aladdin-users-data-for-sfdr-reporting/
Lecher, C. (2019, October 7). US blacklists Chinese surveillance companies over human rights abuses. The Verge. Retrieved February 14, 2023, from https://www.theverge.com/2019/10/7/20903660/us-blacklist-china-surveillance-companies
Shen, S., & Galbraith, A. (2021, June 11). Blackrock becomes first to operate wholly owned China Mutual Fund Biz. Reuters. Retrieved February 6, 2023, from https://www.reuters.com/business/finance/blackrock-wins-chinese-regulatory-approval-onshore-mutual-fund-business-2021-06-11/
Smialek, J. (2021, June 24). Top U.S. officials consulted with BlackRock as markets melted down. The New York Times. Retrieved February 6, 2023, from https://www.nytimes.com/2021/06/24/business/economy/fed-blackrock-pandemic-crisis.html
Sorkin, A. R. (2018, January 16). Blackrock's message: Contribute to society, or risk losing our support. The New York Times. Retrieved February 6, 2023, from https://www.nytimes.com/2018/01/15/business/dealbook/blackrock-laurence-fink-letter.html
Ungarino, R. (2022, March 10). Here are 9 fascinating facts to know about blackrock, the world's largest asset manager. Business Insider. Retrieved February 6, 2023, from https://www.businessinsider.com/what-to-know-about-blackrock-larry-fink-biden-cabinet-facts-2020-12
