👑 The Story of the King of Wall Street
Did you know that the world’s biggest asset manager started with a $100mn loss?
We've all heard this cliché quote: "Failure is the stepping stone to success." But Larry Fink, who is often called the King of Wall Street, proved it to be true. Here is the story of how a massive failure worth $100 million, helped create BlackRock, which now manages assets worth over $9.5 trillion!Â
BlackRock is the world's largest asset management firm. With ~16,500 employees, BlackRock currently manages the retirement funds of over 35 million Americans (which is 10% of the entire US population)! It is also one of the biggest lenders worldwide and has helped the US government boost the country's economy in times of crisis.
So, how was such a successful company born?
The Origin Story
Larry Fink, current chairman of BlackRock, started his career in the bond-trading department of First Boston in 1976. He quickly climbed the ladder of success and was on track to become the company's CEO.
But as fate would have it, Fink's department lost $100 million in 1986 when bond interest rates dropped unexpectedly. The blunder instantly made him an outcast at the firm and he eventually quit and started out on his own.
Rising From the Ashes
Fink rounded up some former colleagues from First Boston and a few others to create his own venture.
Now, all that he needed was funds to run the venture. A private equity firm, Blackstone, gave Fink and company a $5 million line of credit. But the two companies soon parted ways.
In 1999, BlackRock finally filed to go public. That was the time when dot-com companies were being favoured, so BlackRock had a not-so-great listing experience. But after the dot-com bubble burst in 2001 (a story that deserves a piece of its own), investors had become cautious and were looking for an opportunity to earn steady returns on investment. BlackRock was the perfect avenue.
Mergers and Acquisitions
Remember how acquiring all the Infinity stones gave Thanos superpowers? Mergers and acquisitions did the same thing for BlackRock.
The first major acquisition made by BlackRock was Merrill Lynch Investment Managers in 2006. It gave the company almost $1 trillion in assets and expanded BlackRock's retail and international presence.
But the firm itself possessed yet another superpower, a secret sauce.
BlackRock's Superpower
Aladdin.
Remember how Fink had to walk away from First Boston?
That failure was his life’s biggest lesson. That failure became the stepping stone of his success. Taking a cue from the debacle, he realized that it was the process that needed fixing. And so, BlackRock focused on designing a risk analytics system right from day one. This was their magic lamp: Aladdin.Â
Aladdin is an electronic platform that analyses investment risks, manages portfolios, and handles trading and other operational functions.
When tragedy struck again in 1994 in the form of a sudden spike in interest rate, investors lost $1.5 trillion globally. But BlackRock didn’t lose much. And that’s when the company realized that it was sitting on a gold mine.
1999 onwards, the company began selling Aladdin to other firms as well.
Cut to 2021, Aladdin now manages assets worth over $21 trillion for countless clients, including Apple and Microsoft, and even direct competitors like Vanguard. It is the largest asset manager in the world.
And this has made some powerful people very nervous.
Why? Well, it is always risky to have one major player handle so much of the world's finances. If everybody is using Aladdin to manage risks, they are betting on the same kind of investments. And if ever there are any blind spots in Aladdin's vision, the whole world will pay the price.
Another reason to get people jittery is that BlackRock has reached most corporate boardrooms in the US. BlackRock, Vanguard and State Street together cast around 25% votes in the corporate meetings of S&P 500 companies. This allows them to shape the policies and workings of many major companies.
While we talk about breaking up Facebook and other social media giants, shouldn’t BlackRock face similar scrutiny? Or is it too big to bow? Food for thought?
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