The Story of BlackRock
By: Abhijay Bhosale
Very few people know about BlackRock. In simple terms, it's an investment management company. It exists to make money. And guess what? They're the biggest one out there. Well, how big? 10. Trillion. Dollars. They have over 10 trillion dollars (that's $10,000,000,000,000) in assets in a a wide variety of fields. The whole ordeal can be narrowed down to three things. The Mastermind, The Masterplan, and The Master's Servant.
The Mastermind: Larry Fink
Larry Fink is the man behind all of this. Though he owns BlackRock with 6 other people, he definitely is the face of BlackRock and defaulted to as the CEO. Born in 1952, he grew up in a rather insignificant town called Van Nuys in California. Although his family wasn't explicitly said to be poor, his family's income came from a shoe shop Fink's dad owned. After pursuing a Bachelor's Degree in political Science at University of California, Los Angeles (UCLA), he decided to try his luck in the chaotic world of Wall Street. And he succeeded. His Political Science degree gave him an edge over everyone in the stock trading business. He became the shuttle between the United States government and Wall Street, which raised his reputation so high he deals from all the major investment firms. He eventually chose to work with First Boston, where he quickly rose the ranks and led the company to $1 billion in assets. He also created some other notable things like... debt securitization. Here's basically how it works. So say a bank lent some money to a person who is trusted to pay back the debt. The person will most likely pay back over a few years, maybe even a few decades. But now let's say that the bank wants the money now, say to invest in the housing market. The bank would sell the "debt" to an investor for the money the debt is worth, then when the person to made the loan pays it back to the bank, the bank gives the money to the person it sold the debt to. Little hard to understand, but it made sense. Until it went downhill. Remember the 2008 financial collapse? It happened because of debt securitization. You would think that Larry Fink would be done. Finished. The banks can blame it on him, maybe a few lawsuits can be followed, but then the ultimate plot twist comes. The US government hires him to clean up the mess. But let's go back. 2008 is pretty far into the future, so let's go back to when Larry Fink just discovered debt. His career at First Boston ended. Allegedly, through a missed phone call, he cost the company 100 million dollars (though it's more widely said he miscalculated interest rates). He wasn't fired, but rather forced from the company because of his dwindling reputation. He went on to co-found a company called Blackstone, and after a few differences with the cofounder, Fink left the company and made his own BlackRock. A man who started with nothing, made a new life, lost it, and through some miracle created the biggest investment firm in the world. His Masterplan.
The Masterplan: BlackRock
The best way to say it is like this: BlackRock owns everything. They have stocks in businesses everywhere. Amazon, Verizon, Ford, and so many more businesses. But, admittedly, if you did a bit of digging, you'd find a company called Vanguard Group being top shareholder, but you know what's interesting? BlackRock owns 14.78% of Vanguard stocks. And even then, BlackRock's portfolio beat's Vanguard's portfolio by a little over 1.9 trillion. Just picture it. There's 40 trillion USD in circulation in the world. The company has 25% of the world USD economy. It has more assets than the GDP of all countries, just China and the US beating it. It could buy Japan, Germany, and Brazil all at once with few 100 billion to spare. It's also equivalent to half the US's GDP. And the company is also one that keeps businesses happy too. It has something called circular ownership, where BlackRock owns a portion of a company and then the company in turn own a share of BlackRock. If BlackRock ever goes bankrupt, all those 10 trillion dollars worth of money will just be completely wiped out. It's too big to fail, and it also integrates itself with too big to fail companies. That means federal bailouts are nearly a given in times of strife, and when its investments grow, so do they. The company also manages risk and investments of its clients. It's not just a make-money scheme as a whole, there's also the fact that BlackRock brings something to the table. The thing is, BlackRock advisors tell companies to turn to BlackRock. So when deals are being made, BlackRock has people on both sides of the company. And this has happened with so many companies, some sources say that BlackRock actually streamlines 21 trillion dollars. That's enough to buy the United States of America. Of course, they don't have access to it, just monitor it, but they still see all of that happening. But for the amount of clients BlackRock hols, it's clear the company isn't all just people doing to work. BlackRock also has a software that deals with all of this. The name? Aladdin. The Master's Servant.
The Master's Servant: Aladdin
Aladdin's a software that basically projects risks and makes its client's portfolios have full risk analysis. But the best part? It's an AI. When BlackRock was founded, they made Aladdin within the first year of their business. It was originally used as simply risk assessment for BlackRock, but as the years went on, it learnt more and more to make a near-perfect tool. This went on for 10 years, but around 1999, Larry Fink decided to update Aladdin to not only manage BlackRock's assets, but client's portfolios too. It also goes to their competition, like Deutsche Asset Management. Numerous features like climate-related risk that helps users find out if climate change can change the course of their stocks are also built in. It's integrated with almost every major bank and even the US Federal Reserve. Speaking of which, president Joe Biden recently gave the position for the head of the national economic council to a BlackRock executive. Aladdin is still in its early stages though. It has a lot of room for improvement and can definitely make more strides. It's taken over the field in extremely big ways, to the point of people arguing Aladdin is a must for new companies trying to compete in the sector.
Another thing to mention is eFront. BlackRock acquired it and had a constant flow of information on a global view coming in. And one of those things was real estate. BlackRock and other funds bought a lot of single family homes based on Aladdin's data, and you want to know what happened. The housing market's price for single family home increased 20%.
Aladdin is that "world domination" robot you've been hearing about. It controls assets everywhere. It's the backbone of analytics for most companies, and it's already proven its worth. BlackRock laid off many of its analytics employees in exchange for Aladdin, and the robot is all theirs. This is the classic supervillain-like fashion. Start of with a promising future, ruin it, and decide to go back again. Slowly take control, develop a robot... it seems like something straight out of a movie. But this is the real world. And it's not a futuristic projection. It's what happening now.
Thank's for all the support all of you have given me. Making these blogs take time and I genuinely appreciate taking the time to read this. Thank you to everyone.
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