BlackRock. The biggest money manager that ever walked the planet. They look after money for sovereign wealth funds, pensioners as well as us ordinary lot. Not only this, but BlackRock is also the largest shareholder in practically every single major American company.
And if you think that isn’t enough, BlackRock is also one of the biggest lenders out there. And they aren’t even a bank! Their size: $9.5tn in assets. Trillions, folks. Trillions.
But it wasn’t always like this. And passive investing wasn’t always as hot as it is today.
The man behind it all
Larry Fink is the genius mind behind BlackRock’s success. He founded a modest bond investment house a little over three decades ago and has since built an empire the likes of which Wall Street, and the world, has never seen before.
But his background was not one of privilege and entitlement. He was born into a hard-working Jewish family in the 50s, in a place called Van Nuys, a run-of-the-mill area in LA. His father owned a shoe shop and his mother was an English professor.
Larry enrolled on a political theory degree at UCLA and it wasn’t until his senior year when he signed up for some business classes that he got hooked to real estate. After completing his MBA he hopped off to Wall Street, to make some buck and where better to turn to than investment banking!
Climbing to the top
Larry had his eye on Goldman Sachs but when he was in his final-round interview that’s when he messed it up. What a blessing in disguise! After that interview, Larry ended up at First Boston where he was placed into the bond-trading department.
It was on this team where he learned the bread and butter of real estate including MBS (mortgage-backed securities) – the loans that eventually brought the financial system, to its knees in ’08.
First Boston was the sort of place that didn’t care who you were, or where you came from, as long as you made them money. And Fink did just that. At the ripe old age of 26 he was already running the department and when he was 31 he was the most junior person on its management committee.
The way he was heading, Larry was on track to become CEO. Then came 1986. That was the year when Larry’s desk lost an eye-watering $100m when interest rates fell out of the blue and his team’s hedges (tools to reduce risk and exposure) didn’t hold up.
Rising from the ashes
Larry soon met his friend Ralph Schlosstein on a flight from Washington to New York. Over dinner, they schmoozed about how unhappy they both were in their jobs and their burning desire to start something new. Something they could call their own. Their plan: to start a company (BlackRock) that would model financial securities, put them in a portfolio and analyse the risks. And that was the conception of the would-be trillion dollar empire.
Larry quit his job at First Boston but he invited a few from his ex-firm to join him on this adventure. Among them was a maths wizard (Ben Golub), First Boston top-notch bond analysts (Keith Anderson) and a smart mortgage bond specialist (Susan Wagner). The dream team was formed.
BlackRock’s IPO on 1 October 1999 was not a success. Quite the opposite. It went public at a little under $900m which was much lower than was expected. For a founder listing their company, IPOs are exciting moments. But BlackRock’s IPO was different. Larry Fink, founder and CEO, was even tempted to scrap the entire thing. But of course, the investment bank managing the IPO (Merill Lynch) refused to hear anything of the sort.
The deal of the century
Fast-forward almost a decade and BlackRock undertook the biggest deal in asset management history: the purchase of Barclays Global Investors for a whopping $13.5bn. With all the fancy IPOs these days, scooping billion-dollar price tags, we might think that BlackRock paid a ‘normal’ figure for the investment management business but it was over 20 years ago and that was an awful lot of money.
Back in the day, trading costs were astronomical and passive investing was a way to outperform. Larry Fink had sniffed around ETFs long before Barclays had them. But he waited for the right opportunity. Then came ’08 and one year later he pounced and bought Barclays Capital. Larry saw where the world was heading before others.
This acquisition changed the world of passive investing forever and Larry was the King. Yet it took a whole lotta time for passive investing to become to life. Since everyone wants to be the best, who would wanna waste their time being well, plain old average?
Being average is cool
The human condition is to want to be a little better each day and someday become The Best. So this whole passive thing didn’t quite sit well with our egos. Passive investing is, after all, the average of market returns. Not trying to outperform anyone. Just a plain old tracker. But, that’s where the beauty lies.
Being passive in the markets and being just lazy in general when it comes to investing will actually make you a better investor! Too many folk end up buying/selling all the time when in reality, had they simply forgotten about their investment they would be sitting on a fortune.
Do you want it badly enough?
Today, BlackRock’s profit margins outshine those of Apple or Google whose market cap is $126bn, beating their closest competitors. Their power is enormous.
Greatness comes through sacrifice. Nothing worthwhile ever comes easily so ask yourself, what are you willing to give up? That should give you the clue as to whether you want it badly enough.
The hardest part is starting.
We can all find a million reasons (or more) why we should delay our personal projects and sink back into our cushy lives but sacrifice brings greatness.
So, take that leap of faith. We all get comfortable in our lives but sometimes a change and to become uncomfortable is exactly what we need.
The key is to align what we want with what is best for us.
If there’s one single lesson that you should take away from the rise of Larry Fink, and that of BlackRock, it’s that everyone starts somewhere.
People may think your ideas are crazy, that it’ll never work but the secret ingredient is to have conviction in your idea and in yourself.
Believe in yourself and you’re already half way there.
Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.
Knead Your Dough 