Source: Mansa Finance
Edited by: lenaxin, ChainCatcher
BlackRock's capital tentacles have penetrated over 3,000 listed companies globally, from Apple and Xiaomi to BYD and Meituan, with its shareholder list covering core sectors like internet, new energy, and consumption. When we use food delivery apps or purchase funds, this financial giant managing $11.5 trillion in assets is quietly reconstructing the modern economic order.
BlackRock's rise began with the 2008 financial crisis. At that time, Bear Stearns fell into a liquidity crisis due to 750,000 derivative contracts (ABS, MBS, CDO, etc.), and the Federal Reserve urgently entrusted BlackRock to evaluate and dispose of its toxic assets. Founder Larry Fink, leveraging the Aladdin system (risk analysis algorithm platform), led the liquidation of institutions like Bear Stearns, AIG, and Citigroup, and monitored Fannie Mae's $5 trillion balance sheet. In the following decade, BlackRock built a capital network spanning over 100 countries through strategies like acquiring Barclays Asset Management and leading ETF market expansion.
To truly understand BlackRock's rise, we need to go back to the early experiences of its founder, Larry Fink. Fink's story is full of drama, from a genius financial innovator to falling to the bottom after a failure, and then rising again to ultimately build BlackRock, a financial giant - his journey is a brilliant financial epic.
From Genius to Failure - Early Experiences of BlackRock's Founder Larry Fink
Post-War Baby Boom and Real Estate Prosperity
"After World War II, a large number of soldiers returned to America, with nearly 80 million babies born in twenty years, accounting for one-third of the total US population. The baby boomer generation's enthusiasm for investing in stocks and real estate, and advance consumption, caused the US personal savings rate to drop to 0-1% annually at its lowest."
Rewinding to the 70s, the post-war baby boomer generation gradually entered the over-25 age group, triggering an unprecedented real estate boom. In the initial mortgage market, banks would enter a long repayment cycle after lending. Banks' ability to re-lend was limited by borrowers' repayment situations. This naive operating mechanism was far from meeting the rapidly growing loan demand.
Invention and Impact of MBS (Mortgage-Backed Securities)
Lewis Ranieri, vice chairman of the famous Wall Street investment bank Solomon Brothers, designed a groundbreaking product. He packaged thousands of mortgage loan rights from banks together and sold them in small chunks to investors, meaning banks could quickly recover funds and use them for new loans.
The result was a dramatic expansion of banks' lending capacity, and this product immediately attracted long-term capital investments from insurance companies, pension funds, etc., significantly lowering mortgage rates. It solved financing and investment needs on both sides - this is the so-called MBS (Mortgage Backed Securities), though MBS was still not refined, like indiscriminately cutting a BTC and equally dividing cash flow, unable to meet investors' differentiated needs.
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When Fink first graduated from UCLA, he initially applied to Goldman Sachs, but was rejected in the final round of interviews. First Boston accepted him at a time when he most desired an opportunity, and First Boston taught him the most realistic lesson on Wall Street. Almost all media later reported this event arbitrarily, saying: "Fink failed due to a wrong bet on interest rate increases." However, a colleague who had worked with Fink at First Boston later pointed out the key issue. Although Fink's team had established a risk management system at the time, calculating risks with 1980s computer technology was like using an abacus to calculate big data.
The Birth of the Aladdin System and BlackRock's Rise
BlackRock's Establishment
In 1988, just days after leaving First Boston, Fink organized an elite group to discuss a new venture at his home. His goal was to build an unprecedented powerful risk management system, as he would never allow himself to fall into a situation where risks could not be assessed again.
In this elite group personally selected by Fink, there were four of his colleagues from First Boston. Robert Kapito had always been Fink's loyal comrade; Barbara Novick was a formidable portfolio manager; Bennett Golub was a mathematical genius; Keith Anderson was a top securities analyst. Additionally, Fink recruited his good friend Ralph Schlosstein from Lehman, who had been a domestic policy advisor to President Carter, and Schlosstein brought Susan Wagner, who had been the deputy director of Lehman's mortgage department. Finally, Hugh Frater, executive vice president of Pittsburgh National Bank, also joined. These eight people were later recognized as BlackRock's eight co-founders.
At the time, what they needed most was start-up capital, so Fink called Stephen Schwarzman of Blackstone Group. Blackstone was a private equity firm founded by former U.S. Secretary of Commerce (and former Lehman CEO) Peterson and his partner Schwarzman. In 1988, it was an era of frequent corporate mergers, with Blackstone primarily focused on leveraged buyouts. However, opportunities for leveraged buyouts were not always available. Therefore, Blackstone was also seeking diversification, and Schwarzman was very interested in Fink's team. But Fink's $100 million loss at First Boston was well-known. Schwarzman had to call his friend Bruce Wasserstein, head of First Boston's M&A business, for advice. Wasserstein told Schwarzman, "To this day, Larry Fink is still the most talented person on Wall Street."
Schwarzman immediately issued Fink a $5 million credit line and $150,000 in start-up funds, thus establishing a department called Blackstone Financial Management Group under the Blackstone Group. Fink's team and Blackstone each held 50% stake. Initially, they didn't even have a separate workspace and could only rent a small space in Bear Stearns' trading hall. However, developments far exceeded expectations, and Fink's team quickly repaid all loans and expanded their fund management scale to $2.7 billion within a year.
The Federal Reserve held an emergency meeting, and at 9 am that morning, it authorized an unprecedented plan for the New York Federal Reserve Bank to provide a special loan of $30 billion to JPMorgan Chase to directly acquire and custody Bear Stearns.
JPMorgan Chase proposed an acquisition offer of $2 per share, which almost caused an immediate uprising by Bear Stearns' board of directors. It's worth noting that Bear Stearns' stock price had reached $159 in 2007. A $2 price was an insult to this 85-year-old prestigious firm, and JPMorgan Chase had their own concerns. It was said that Bear Stearns held a large number of "low-liquidity mortgage-related assets". In JPMorgan Chase's view, these "low-liquidity mortgage-related assets" were essentially bombs.
The parties quickly realized that this acquisition was extremely complex, with two urgent issues to resolve. The first was valuation, and the second was toxic asset stripping. All of Wall Street knew who to call. New York Federal Reserve Bank President Geithner found Larry Fink and, with the authorization of the New York Fed, BlackRock entered Bear Stearns to conduct a comprehensive liquidation.
Twenty years ago, they had already worked here, renting offices in Bear Stearns' trading hall. At this point in the story, you'll find it very dramatic. You should know that Larry Fink, who appeared center stage like a fire chief, was an absolute godfather in the mortgage-backed securities field and was one of the primary instigators of the subprime crisis.
With BlackRock's assistance, JPMorgan Chase completed the acquisition of Bear Stearns at approximately $10 per share, and the renowned Bear Stearns name was declared extinct. BlackRock's name became increasingly prominent. The three major US rating agencies - S&P, Moody's, and Fitch - had previously granted AAA ratings to over 90% of subprime mortgage securities, and their reputation was ruined during the subprime crisis. It could be said that the entire US financial market's valuation system had completely collapsed, and BlackRock, with its powerful analytical system, became an irreplaceable executor in the US bailout plan.
Bear Stearns, AIG, and the Federal Reserve's Bailout Actions
In September 2008, the Federal Reserve began another, more severe bailout plan. The largest US insurance company, AIG, had seen its stock price drop by 79% in the first three quarters, primarily due to the imminent collapse of the $527 billion credit default swaps it had issued. Credit default swaps (CDS) are essentially insurance policies where CDS would pay if a bond defaults, but the problem was that purchasing CDS did not require bond contract ownership. This was like a large group of people without cars buying unlimited car insurance, where an insurance company might have to pay $1 million for a $100,000 car.
CDS was turned into a betting tool by market gamblers. At the time, the subprime mortgage bond scale was about $7 trillion, but the CDS guaranteeing these bonds actually reached tens of trillions. The US GDP at that time was not even $13 trillion. The Federal Reserve quickly discovered that if Bear Stearns' problem was a bomb, AIG's problem was a nuclear bomb.
The Federal Reserve had to authorize $85 billion to emergency acquire 79% of AIG's stock. In a sense, this turned AIG into a state-owned enterprise, and BlackRock once again received special authorization to conduct a comprehensive valuation and liquidation, becoming the Federal Reserve's executive director.
Through multiple efforts, the crisis was ultimately contained. During the subprime crisis, BlackRock was also authorized by the Federal Reserve to handle Citibank's bailout and manage the balance sheets of two housing agencies totaling $5 trillion. Larry Fink was recognized as the new Wall Street king, establishing close connections with US Treasury Secretary Paulson and New York Federal Reserve President Geithner.
Geithner later replaced Paulson as the new Treasury Secretary, and Larry Fink was jokingly referred to as the "underground Treasury Secretary". BlackRock transformed from a relatively pure financial enterprise to something between government and business.
The Birth of a Global Capital Giant
Acquiring Barclays Asset Management and Dominating the ETF Market
In 2009, BlackRock encountered another major opportunity. The British investment bank Barclays Group, facing operational difficulties, had reached an agreement with private equity firm CVC to sell its iShares fund business. This deal was already in place but included a 45-day bidding clause. BlackRock lobbied Barclays, saying, "Instead of selling iShares separately, why not merge Barclays' entire asset management business with BlackRock?"
Ultimately, BlackRock acquired Barclays Asset Management for $13.5 billion. This transaction was considered the most strategically significant merger in BlackRock's history because iShares, under Barclays Asset Management, was the world's largest issuer of exchange-traded funds at the time.
Exchange-traded funds have a more concise term: ETF. Since the internet bubble burst, passive investment concepts have accelerated in popularity, and global ETF scale gradually broke through $15 trillion. Acquiring iShares allowed BlackRock to momentarily occupy 40% of the US ETF market. The massive capital volume necessitated broad asset allocation to diversify risk.
On one side was active investment, and on the other was passive tracking through ETFs and index funds, which required holding the entire or majority of sector or index component stocks. Therefore, BlackRock has widespread shareholdings in global large-listed companies, with most clients being pension funds and sovereign wealth funds.
BlackRock's Influence in Corporate Governance
Although theoretically BlackRock merely manages assets for clients, in practice, it possesses extremely powerful influence. For example, in Microsoft and Apple shareholder meetings, BlackRock has repeatedly exercised voting rights and participated in major decision-making. By analyzing companies representing 90% of US listed companies' total market value, you'll find that the three giants - BlackRock, Vanguard, and State Street - are either the first or second largest shareholders in these enterprises, with a total market value of approximately $45 trillion, far exceeding US GDP.
This highly concentrated equity phenomenon is unprecedented in global economic history. Moreover, asset management companies like Vanguard are also renting BlackRock's Aladdin system, so the assets managed by the Aladdin system are actually more than ten trillion dollars more than BlackRock's managed assets.
The Lamp Holder of Capital Order
In 2020, during another market crisis, the Federal Reserve expanded its balance sheet by $3 trillion for bailout, and BlackRock once again served as the Federal Reserve's exclusive steward, taking over the corporate bond purchase program. Multiple BlackRock executives left to join the US Treasury and Federal Reserve, while Treasury and Federal Reserve officials subsequently joined BlackRock - this "revolving door" phenomenon of frequent personnel flow between government and business sparked strong public doubt. A BlackRock employee once commented, "Although I don't like Larry Fink, if he left BlackRock, it would be like Ferguson leaving Manchester United". Now, BlackRock's asset management scale has exceeded $11.5 trillion. Larry Fink's navigation between government and business makes Wall Street wary, and this dual role confirms his profound understanding of the industry.
True financial power is not in the trading hall, but in mastering the essence of risk. When technology, capital, and power play a triple concerto, BlackRock has transformed from an asset manager to the lamp holder of capital order.
