The Leader who shaped today’s Investment Management Landscape
Laurence (‘Larry’) Fink is possibly one of the most important men in finance since the early 2000s. It is no wonder to watch him being regularly interviewed on the television (often on CNBC). Tall, balding, and bespectacled- pontificating about interest rates, the dollar, bond yields, and financial regulatory reform- he speaks softly, in a tone that is authoritative and bland, which is nothing like the man off the air.
Larry Fink is a highly renowned finance executive who’s known for his extensive knowledge and business acumen in finance and investment management. Among the men who run Wall Street, it would be hard to find anyone who is not at least a bit in awe of Fink.
Founded in 1988 with seven other partners, he built BlackRock Inc. from nothing to the world’s largest manager of people’s trusted money. With a whopping US $8.68 trillion assets under management (AUM) reported as of the end of 2020, BlackRock is the world’s largest asset management firm. Larry Fink is the Founder, Chairman and CEO of BlackRock Inc.
Today, BlackRock is a global leader in investment and financial technology solutions, with a purpose to help more and more people experience financial well-being. Thanks to Fink’s ambitious and visionary leadership!
Fink has been named one of the ‘World’s Greatest Leaders’ by Fortune, and Barron’s has named him one of the ‘World’s Best CEOs’ for 14 consecutive years.
Sounds fascinating, isn’t it? Let’s find out more about him!
Early life and Career
Larry Fink was born on November 2, 1952 in Los Angeles, California, USA. He grew up in a Jewish family where mother was an English professor and his father a shoe store owner.
After high school, Fink earned a BA in political sciences (1970-74) from University of California, Los Angeles (UCLA) and then went on to complete MBA (with specialization in Real Estate) (1974-76) from UCLA Anderson School of Management.
Larry was 23-year-old when he started his career in 1976 at a New York based investment bank named ‘The First Boston Corporation’ (later acquired by Credit Suisse in 1990). Peppered with offers from the top investment banks, he chose First Boston, where he was put to work trading bonds, which, at the time, was a sleepy backwater. Within three years, he was put in charge of what was then a virtually unknown business, structuring and trading mortgage-backed securities. Fink was instrumental in creation and evolution of mortgage-backed securities market in the US.
Over time, Fink added, by some estimates, about $1 billion to First Boston’s bottom line. He structured some of its landmark deals, including the 1986 $4.6 billion securitization of GMAC auto loans. And he was rewarded with money and status. The ultimate insider, he became the youngest managing director in First Boston’s history and, at 31, the youngest member of its management committee. Many believed that he would eventually run the firm.
Then, in the second quarter of 1986, his department lost $100 million. His traders had taken a huge position in the market based on Fink’s prediction that interest rates would rise. When rates suddenly dropped, not only were those trades wiped out but so were the hedges designed to offset them.
He now says he lost money at First Boston because no one really understood the risks involved. The computer systems were inadequate, and so were the programs that measured the impact of key variables such as changes in interest rates. “We built this giant machine, and it was making a lot of money—until it didn’t,” Fink says. “We didn’t know why we were making so much money. We didn’t have the risk tools to understand that risk. It’s what I tell everybody today: you should analyze your portfolio just as much when you are making money, because you could be taking on too much risk.”
Fink vowed never again to be in a position where he did not fully understand the risks he was taking in the market. So he decided to build a company that would not only invest money for clients but offer them sophisticated risk management too.
The Advent and Growth of BlackRock Inc.
In 1988, along with seven other partner, Larry Fink co-founded ‘BlackRock’ under ‘The Blackstone Group’. He also became its director and CEO. Among the other partners included Stephen Schwarzman, the present CEO of The Blackstone Group.
By 1993, Fink’s group had more than $20 billion under management. But the following year, Fink split from Blackstone, the loser in a fight with Schwarzman over the unit’s share of Blackstone’s equity, which insiders say was more fundamentally a struggle for control between two of Wall Street’s strongest personalities. In a move that Schwarzman would come to regret, given how immensely profitable the newly independent BlackRock would become, he sold Blackstone’s 32 percent share in Fink’s unit to PNC, a Pittsburgh bank, which paid a mere $240 million for the entire company.
During the next 15 years, BlackRock would grow at a staggering rate. It made its IPO on the NYSE on October 1st, 1999 for $14 a share. By the end of that year, the firm had $165 billion in assets under management due to its strengthening relationships with global institutions.
Although it began as a bond-investment company, along the way BlackRock extended its reach—into equities, hedge funds, real-estate investments, and exchange-traded funds—and merged its various interests with deft coordination.
After the purchase of Barclays Global Investors, BlackRock under Fink’s leadership became the biggest financial investment and management firm in the world.
But while its size was impressive, what would distinguish BlackRock was its state-of-the-art system for evaluating and managing risk. With 5,000 computers running 24 hours a day, overseen by a team of engineers, mathematicians, analysts, and programmers, BlackRock’s “computer farm” could monitor millions of daily trades and scrutinize every single security in its clients’ investment portfolios to see how they would be affected by even the most minor changes in the economy. Churning through 200 million calculations each week, its computers could simulate every imaginable shift in interest rates, every conceivable change in the financial markets, and stress-test the performance of hundreds of thousands of securities in numerous global-crisis scenarios.
Known as Aladdin, the system was effectively a multi-billion-dollar computerized worrywart, searching the markets for anything that could go wrong. And it would become the foundation for a second business that would expand BlackRock’s reach beyond asset management, into the business of advising clients for whom things had gone wrong. Officially formed in 2000, the BlackRock Solutions division now has large client base, the best known of which happens to be the U.S. government.
For the year ended 31 December 2020, BlackRock reported total revenue of $16.21 billion of which 78% is from investment advisory, admin fees and securities lending; and 7% each from technology services (including from Aladdin), performance fees and distribution fees.
Role played in 2008 Financial Crisis
In March 2008, during the frantic weekend when Bear Stearns crumbled, he was on everybody’s speed dial. On the Saturday morning that JP Morgan called its top executives in to the office to consider buying the moribund investment bank, Jamie Dimon hired BlackRock to value Bear Stearns’s assets. The next morning, after Dimon had decided he couldn’t buy Bear Stearns without government support, Geithner, then chairman of the New York Fed, called Fink personally for help in managing the $30 billion of toxic assets that the Fed took over. In June, after a call from Fink, AIG.’s new CEO, Robert Willumstad, hired BlackRock to evaluate the ailing insurer’s $77 billion credit-default-swap portfolio. During the next 10 weeks, he would be on the phone to government officials several times a day—logging at least 21 calls with Geithner alone.
At the height of the disaster, when the American economy was on the brink, it was to Fink that Wall Street’s CEOs—including JP Morgan Chase’s Jamie Dimon, Morgan Stanley’s John Mack, and AIG’s Robert Willumstad—turned for help and counsel.
As did the U.S. Treasury and the Federal Reserve Bank of New York, whose top officials turned to Fink for advice on the financial markets and assistance on the $30 billion financing of the sale of Bear Stearns to JP Morgan, the $180 billion bailout of AIG, the $45 billion rescue of Citigroup, and those of Fannie Mae and Freddie Mac at around $112 billion.
Larry Fink was “in the traffic”—having long-standing relationships with all the players involved. In a crisis of the magnitude of the 2008 meltdown, there were so many players who helped to create the mess—from banks and regulators to mortgage brokers and homeowners—but only a few with the ability to help clean it up. Fink’s BlackRock got most of the government contracts to help clean up the financial system during this time.
Vision of Sustainability and Social Cause
Larry Fink, with his able leadership, is advocating the investment philosophy at BlackRock with Sustainability as a New Standard for Investing. ESG Investing is becoming widely popular in today’s investment decisions by most of the large financial companies around the world.
In his 2018 annual open letter to CEOs, he called for corporations to play an active role in improving the environment, working to better their communities, and increasing the diversity of their workforces. This has been taken as evidence of a move by BlackRock, one of the largest public investors, to proactively enforce these targets.
In his 2019 annual open letter, Fink said that companies and their CEOs must step into a leadership vacuum to tackle social and political issues when governments fail to address these issues.
In his 2020 annual open letter, Fink announced environmental sustainability as core goal for BlackRock’s future investment decisions. In this letter, he explained how climate will become a driver in economics, affecting all aspects of the economy. He also divested in a separate letter (to investors) that BlackRock will be cutting ties with previous investments involving thermal coal and other investments that have a large environmental risk.
Achievements and Community involvement
Fink serves as a member of the board of trustees of New York University (NYU) and the World Economic Forum (WEF) and is co-chairman of the NYU Langone Medical Center board of trustees. In addition, he serves on the boards of the Museum of Modern Art. He also serves on the advisory board of the Tsinghua University School of Economics and Management in Beijing and on the executive committee of the Partnership for New York City.
He received the Golden Plate Award of the American Academy of Achievement in 2007 and Americas Society Gold Medal in 2015.
He also received the UCLA Medal in 2016 and Charles Schwab Financial Innovation Award in 2019.
My Thoughts
As a financial enthusiast wanting to make a career in the field of finance and investment management, I was simply amazed when I first read about Larry Fink. I bet anyone in my place would. This article will hopefully give you some insights into his life and prosperous career. His leadership is truly inspirational and praiseworthy!
For all those who want to know more about his leadership of BlackRock, I urge you to read his letters to shareholders in the BlackRock website here- Letter to Shareholders 2020
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