Build brain Fink Wall Street Marks Rise of BlackRock Asset Managers

As president and CEO of BlackRock Inc., Larry Fink money controls that Germany's gross domestic product.

BlackRock is the world's largest asset management company, $ 3450000000000 a power that is Wall Street's biggest trading partner, scheduled to pay investment banks $ 1 billion in spending this year. Manages 1.4 trillion U.S. dollars of public pension funds in the states, including New York, New Jersey and California, and spends 240 billion U.S. dollars to central banks and sovereign wealth funds like Abu Dhabi Investment Authority.

The company serves as the U.S. Treasury Department the power to go to private sector financial expertise and managed at least $ 150 billion in toxic assets on behalf of U.S. taxpayers after 2008 rescue of American International Group Inc. and Bear Stearns Cos. While running the company is a team effort, Fink, 58, is the brain of BlackRock, and BlackRock, increasingly, is Wall Street, BusinessWeek reported in its issue of 13 December.

"There is no bank, no sovereign wealth fund, any insurance company that is as big as BlackRock," says Ralph Schlosstein, co-founder who left in 2007 and is now CEO of Evercore Partners Inc., a bank New York investment. "Today, BlackRock is one of not, the institutions most influential financial world."

In light of all this, it is surprising how few people beyond Wall Street are familiar with Larry Fink and BlackRock. Founded in 1988 as a bond trading shop, BlackRock has somehow come to the financial omnipotence, but remain outside the public eye, to escape contempt, and the acclaim so often heaped on the edge of the nation's investment class, Goldman Sachs Group Inc.

Investors do not, Traders

BlackRock Although much less compete with Goldman's asset management unit, the two companies are fundamentally different. That's because trade, investment, constitutes the largest part of the business at Goldman, and Goldman is known as a place where executives to achieve incredible wealth.

BlackRock is focused on the job less profitable to invest money for individuals and institutions such as pension plans, foundations and foundations through mutual funds, exchange-traded funds and separately managed accounts. This makes most of its money through management fees rather than taking positions for himself. On Wall Street, where suddenly boring is better, Fink is the king of new-style nerd.

However, there are two things that Goldman has, or had, that Fink and his co-founders of BlackRock - Rob Kapito, 53, Susan Wagner, 48, and Hallac Carlos, 46 - covet: a mark of prestige and a permanent place in public consciousness.

Pep Talk

In an October afternoon, the recognition is much in the minds of Fink, as he prepares to meet its 8,900 employees worldwide in one of its quarterly "State of the State" words of encouragement. The atmosphere crackles in the room of the company's seventh-floor conference in Manhattan, where an oval table and a wall of monitors showing live images of BlackRock offices worldwide, resulting in the feeling of the Board of Status of the White House. One end of the table remains empty visible until two young men in blue dress shirts sit.

"Dude," jokes one third, sitting on a bench against the wall, "you realize Larry will be sitting there? Can you handle the pressure?" The fight two other chairs.

Moments later, Fink comes with a mildly embarrassed and takes his seat.

"Good morning everyone," he says, with a single sheet of paper. "I'm here to tell you you're perfect. We have problems, like all companies do."

Talking Points

He talks with BlackRock quarterly performance ("We have increased 9 percent), the company's integration of past, a little worried about Barclays Global Investors, the UK-based fund manager BlackRock bought for 15, 2 billion U.S. dollars in 2009 ("It is clear to me that we have a company that is more cohesive than ever"), and the current share price ("I think the market is completely wrong about our population is trade ").

The rhetoric is not rising, but Fink exudes confidence. This is stirring up his audience with descriptions of the company's success and power and the need for all employees to work harder.

"We have a huge responsibility," he says. "We must not only focus on 3.4 trillion U.S. dollars of assets under management, but we are managing for - maybe it's their parents, maybe it's a school teacher or a fireman." The company is "connected with the world as we do.

Finally, Fink returns to one of his favorite themes, a theme that drives him and keeps him awake at night: the chronic underestimation of your business.

Risk management skills

"We have to continue building the brand of BlackRock," he says. "And hopefully one day his family will know what is BlackRock."

As the financial crisis became the power structure of Wall Street in his head, BlackRock offers something valuable - the ability to analyze the risks, especially the risk of bonds and the risk of mortgage bonds. The company has been collecting data on mortgages since 1994, when the market was much smaller than it is today.

Suddenly, the possession of all this information that BlackRock important beyond its size. As bankers and government officials raised the horror of hiding the toxic mortgage debt balances worldwide, BlackRock is one of the few entities that actually could understand why things are worth - and could do so without This threat poses a competitive advantage.

Backup rescue

"Experience would have been irrelevant without trust," said Terrence Keeley, a former CEO of UBS AG, BlackRock hired to analyze a portfolio of $ 22 billion of debt after the company sold. The company helped the U.S. Treasury Department and Federal Reserve to buy government-backed Bear Stearns by JPMorgan Chase & Co. and the rescue of American International Group Inc., Citigroup Inc., Fannie Mae and Freddie Mac

BlackRock was also lucky, because the asset management companies, have hardly been affected by the new regulations after the crisis that are causing the terror in boardrooms.

Although their share of mistakes made before and after the crisis - including significant losses in funds investing in real estate and mortgage-backed securities - the company has only gained power and prestige since 2007 and this year is expected by analysts to earn almost $ 2 billion in revenue $ 4,700,000,000.

Last year, Fink was one of the highest paid executives in the post-rescue Wall Street with $ 15.9 million in compensation, according to the Securities and Exchange Commission, while Goldman CEO Lloyd Blankfein, received $ 862,657, down from $ 41 million in 2008.

The acquisition of height

One way of BlackRock was so huge - flooding its closest competitors, State Street Corp and Pacific Investment Management Co. - was swallowed by other companies. In 2004 it acquired State Street Research & Management (no relation to State Street) for $ 375 million of MetLife Inc., two years later acquired s Merrill Lynch & Co., the investment unit for $ 9 billion, bringing its assets above the $ 1 trillion mark. In February, while Barclays Global digest BlackRock was presented documentation that is at stake reporting to the SEC for more than 5 percent in 1,800 companies, temporarily paralyzing electronic database of the SEC.

As it expands its reach into the stock and bond markets worldwide, the company wants to introduce its own trading platform, helping to BlackRock match purchase orders and sales to save money for customers, reducing their dependence Wall Street brokers and cutting rates sends to them each year. BlackRock has also launched a capital markets unit to help their clients to invest directly in the supply of corporate debt, which allows you to negotiate better terms.

Get Massachusetts money

"With $ 3 billion more in assets, BlackRock is safe to assume they can do," says Marc Irizarry, an analyst at Goldman Sachs in New York.

BlackRock has recently been in the headlines for the wrong reasons: On 7 December, the Massachusetts state pension fund pulled $ 1,000,000,000 of the company, citing dissatisfaction with its performance and the departure of key executives. Investors withdrew 64 billion U.S. dollars of company funds in the first half of this year, and the BlackRock shares have plunged 26 percent.

Some say that BlackRock, as Goldman Sachs before it, has too much influence over the financial system. Others suggest that his promotion is part of an inevitable reshaping of Wall Street.

World Buyers

"The balance of power has shifted to buyers in general, as opposed to sellers, and people like BlackRock, which control large funds, will be in a position of power," says Peter Solomon, former vice president of Lehman Brothers Holdings Inc. who now runs his own investment bank in New York. "What they do with that power would be worth mentioning. You see the White House to call them, and I can guarantee that they are not totally passive influence."

When BlackRock reorganize their offices earlier this year, expanding into several additional plants in East Street 52, Fink decided not to renew radically new space. "Furniture of the same, exactly the same brand," he says, gesturing around the room and chuckling. Non-renewal of $ 2 million? "No. I do not believe it."

However, the environment is almost miserable. Besides the L-shaped table sprinkled with photos of the family, there are orchids in pots, stacks of books displayed as trophies and paintings of Fink's personal collection of American folk art on the walls. He and his wife, Lori, have three children and live mostly in Manhattan, but also homes in North Salem, New York, an hour north of the city, and Aspen, Colorado.

Discounting Goldman Comparison

Situated in a beige armchair in his office, Fink is a charming appearance. Leaning forward, elbows on knees, face to react to questions cartoonishly exaggerated expressions, is less a master of the universe of a master of the water source - albeit one who discourses on unemployment rates and complexities of quantitative easing.

He brushes the comparison of Goldman Sachs. "They are in a business so different," he says. "I do not want to be in that business."

But recent history and the destinies of the two companies are inextricable. BlackRock raised $ 126 million in an initial public offering, to little fanfare in September 1999 - the same year Goldman held its own public offering $ 3,700,000,000. Eleven years later, shares of BlackRock is up to 1.110 percent, compared with an increase of 200 percent of Goldman. Fink is a welcome guest of politicians and policy makers in Washington, some of whom risk being caught a little priming Blankfein.

A little scary

"I think in some cases, people might be a little scared of us," says Fink. "Goldman Sachs is a great partner of BlackRock, and yet they compete fiercely with each other also in the management of assets. The use as a counterparty, and we do a lot of dealings." But, says , "are very different. This is what I want to be."

owned commercial banks helped rake in huge profits during the stock market boom that peaked in October 2007. Fink said BlackRock may not use its stock for anything, but co-investment with investors, a clear strategy of the United Nations, as Goldman. He says he rejects the idea of expanding the scope of BlackRock to approach an investment bank or securities firm approach.

"Wall Street on the velocity of money," says Fink. "As the velocity of money became more and more important, the relationship became less and less important, and Wall Street began to realize he could make more money for the" balance sheet "of things, became less customer-centric. "He says," I wanted to do something different, and was focused on the client. "

Lobbying legislators

One consequence of the importance of BlackRock is that as Goldman Sachs, the firm has to work to avoid the perception of arrogance. Since the enforcement of financial reform and is being developed by various regulatory agencies in Washington, BlackRock, in what seems a bold move people, including Janet Tavakoli, has pushed to be excluded from the definition of "systemic importance "hard to avoid more stringent regulatory oversight, arguing that they have no balance sheet risk.

"When you're old enough, do not pose a systemic risk. As Fannie and Freddie, their portfolios are so large, any move they make is moving the market," said Tavakoli, a structured finance consultant. "BlackRock can not be all things, and so far have escaped without even a murmur about his reputation, which now does not look too good from where I sit."

Bank of America

BlackRock has also been shown to not be ashamed to face the world's largest financial institutions to defend their territory. In October, the company was part of a group that includes Pimco and the New York Federal Reserve sent a letter to Bank of America Corp., then the largest shareholder in BlackRock, trying to force the bank to buy soured mortgages packaged by its Countrywide Financial unit by $ 47 billion in bonds. Bank of America has reduced its stake in BlackRock's 34 percent to about 7.1 percent, pushed federal regulators to improve its balance sheet. Fink refuses to discuss the demand letter, except to say that your company has an obligation to ensure that the securities purchased on behalf of BlackRock's clients are what the bank said they were.

None of the controversy surrounding the company prevented him from becoming an effective complement to the U.S. government. As the financial system creaked under the weight of toxic mortgage debt in 2007, Fink and other executives of BlackRock became regular sounding boards Timothy Geithner, then chairman of the Federal Reserve Bank of New York, and president of Federal Reserve, Ben Bernanke. Both have maintained regular contact with Fink, according to phone records by public agencies.

Getting help

BlackRock's first assignment came as the subprime mortgage collapse caused the withdrawal of a money market fund managed by the Local Government Investment Pool in Florida. BlackRock was chosen by JPMorgan, Goldman Sachs and Barclays Plc to save the bottom, separating the good assets that could not be sold, at a cost of $ 125.000.

As Bear Stearns collapsed in March 2008, JPMorgan, Jamie Dimon, CEO of BlackRock had a team of 50 analysts working through the weekend to assess the most liquid assets of Bear Stearns. At the end of the weekend, Fink Geithner called to ask him to manage $ 30 billion in bad mortgage debt that had been carved in the books of Bear Stearns before its healthy parts were sold to JP Morgan. BlackRock played a similar role with AIG, Fannie Mae and Freddie Mac

BlackRock wins rates of these assignments were announced last year after Sen. Chuck Grassley of Iowa and others expressed outrage at the lack of competition in awarding government contracts and the possibility of conflicts of interest. BlackRock is set to earn at least $ 120 million from the Federal Reserve for a period of three years.

Dual role

In July, Grassley repeated questions about the dual role of BlackRock in advising the Federal Reserve and being one of eight selected investment companies to buy assets in the framework of Public-Private Investment. In a letter to Neil Barofsky, the Special Inspector General Relief Program Troubled Assets, Grassley asked the auditor about any fact that the agency has made about possible conflicts of interest.

While BlackRock was advising the government on the value of some toxic assets, and other companies such as Pimco was buying similar securities through its investment units. The company also pointed to $ 3,800,000,000 from the Fed within Asset-Backed Securities Fund loan, or TALF. The company has paid nearly 221 million U.S. dollars of government funds. BlackRock has used the program to give its customers the opportunity to fund investment, "said Bobby Collins, a spokesman for the company. Your investment funds do not have access to information not publicly available and that it has procedures in place to the wall of their units for advice and funds, he said.

Original Idea

"If it was a quieter period, there would have been a better process? Maybe," says Fink. "We are currently in four hours made a difference. I wish people who criticize you have been there to witness what was happening at that moment." He says, "This could be part of my arrogance, but I think I could have been the only company that could have. "

BlackRock was born in 1988 in a concept that is obvious now, but it was something new at the time, risk management is essential. "I think we took an idea before people recognized that it was an important idea," says Fink. ". We fully understand what you are investing in is very important" was asked in this beam is, Fink laughs and says: ". The loss of money"

California Guy

Fink grew up in Van Nuys, California, the son of a shoe salesman and a teacher of English. He attended the University of California at Los Angeles School of Business before joining First Boston - now part of Credit Suisse Group AG - where bonds are traded in the decade of 1980. His work slicing and grouping of mortgage bonds, then selling them to investors as securities called collateralized mortgage obligations, has grown today in a market of U.S. $ 2 billion. Fink department became the most profitable at First Boston, and at 31 he became the youngest director in the company management and the youngest member of its executive committee.

His ascent ended abruptly in 1986, shortly after his 33 birthday. During the first quarter, an investment he had made had resulted in a gain of $ 100 million for the following quarter, the division lost more than $ 100 million as interest rates fell unexpectedly. Fink said that he became a pariah.

"I knew intellectually what risk they were taking, but I did not have the tools to really understand," he says. "We were delighted when we did over a hundred million dollars in the first quarter, but we hated when it lost $ 100 million." He says, "should have been fired so much money and do not understand how they were doing! Was a great lesson, at 33 years old."

Blackstone Copying

He left First Boston in a cloud less than two years later and began to Schlosstein BlackRock, a former trader at Lehman. The company began in the seat of your sponsor first year, Blackstone Group LP, BlackRock giving a line of $ 5 million credit for a 40 per cent. The mission of the fledgling company was dark but simple: to help investors understand the risks in their bond portfolios. "In April 1988, people would say, 'Managing the risk of the bonds?" We looked like we were crazy, "said Susan Wagner, who joined the company in its infancy and now is vice chairman of BlackRock." Today, that model has been validated. "

The company accumulated about $ 20 billion in assets in 1994. While business was picking up, the relationship between BlackRock and Blackstone became tense. Fink had a fight with co-founder of Blackstone, Stephen Schwarzman that year for the independence of BlackRock, resulting in the sale of BlackRock to PNC Financial Services Group Inc., of Pittsburgh, for $ 240 million.

Breakthrough GE

The real breakthrough for the company came in 1995 when General Electric Co. helped and value of having a portfolio of $ 10 billion of distressed mortgage securities, a savings of $ 1 billion for GM and the establishment of reputation BlackRock. In 2000, Fink was the opportunity to build analysis of the company in a separate business, called BlackRock Solutions. The unit features a risk management system, Aladdin and now employs over 800 people with degrees ranging from engineering to economics and mathematics and nuclear physics.

Aladdin can analyze stocks, bonds and derivatives, despite making it especially valuable is the work that can be made from mortgage-related bonds, the area Fink helped develop in the 1980's. The system classifies and assigns a value to each mortgage bonds in the portfolio of an investor based on location, zip code and dozens of other criteria, says Charles Hallac, co-founder and head of BlackRock Solutions, which represents about 5 percent of the company fees.

Aladdin power

On a computer screen green and white on your desktop, showing what customers see when they log into the system of Aladdin: BlackRock value assigned to each individual who have invested, by example the value of guarantee of scenarios as a repetition of the credit crisis of 2008, a fall of U.S. dollar or the outbreak of Asian flu pandemic. As the financial crisis worked its way through the system, Aladdin was a big reason why BlackRock was organized by governments and financial institutions around the world.

For 2008, BlackRock has started to move away from riskier bonds two years ago and went through the worst market since the Great Depression, without registering a loss, although not all of its investors fared as well. The company managed to squeeze a profit of $ 54 million in the fourth quarter of 2008, as the collapse of Lehman Brothers and ensuing market paralysis surprised Wall Street. This put the company in a good position to pounce on Barclays Global, a deal that was hatched by Fink Lt. Rob Kapito a Yankees game.

Taken errors

Goldman Sachs, meanwhile, lost $ 2.1 billion in the last three months of 2008, its first quarterly loss in history. The investment bank also accepted $ 10 billion in bailout funds from the U.S. government of that year.

BlackRock is not immune to external forces. Investors in preferred shares of closed-end funds were frozen their investments as the market exchange auctions collapsed in 2008. Some of the strategies of distressed debt, created before the market crisis, sank millions of dollars in loans that continued to lose value as markets plummeted. And despite his experience in evaluating fixed income assets, BlackRock's own long-term career in the area has been mediocre. In the three years ended September 30, the funds represent only 55 percent of the assets of BlackRock's fixed income had beaten their benchmarks.

CDO losses

"BlackRock had a bit of a setback in its bond funds in 2008 because it was a failure to anticipate that the world drew relax everything but government bonds," says Eric Jacobson, an analyst at Morningstar Inc. in Chicago background. "I think the lesson that they and many others learned is that ultimately, despite a good risk management system is the quality of asset management that will take the next step."

Critics also say that as Tavakoli dismal performance as a manager BlackRock certain collateralized debt obligations during the height of the housing bubble raises questions about whether the company should be trusted with massive amounts of government assets. According to research by Tavakoli, is several billion BlackRock together set that went bankrupt, the problems in the mortgage market are already evident, and financial institutions are struggling to keep the money train run through securitization execution agreements that were sure to fail.

"When I look at his career with CDO, I think there were serious questions seriously," he says. "They're too close to the problem to deserve getting no-bid contracts" of government.

Stuyvesant Town

"Given the magnitude of the Great Recession and the corresponding collapse in real estate markets, we are disappointed with the experience of returning to CDOs with exposure to real estate," Collins, a spokesman for BlackRock, says.

The company had about $ 9.6 billion in CDO assets at 30 September this year. Fink said he believes the government will end up making money on toxic assets AIG and Bear Stearns BlackRock managed.

In one of the most public humiliation of the company, which also lost money in Stuyvesant Town-Peter Cooper Village, an apartment complex in Manhattan acquired in 2006 by real estate unit of BlackRock and Tishman Speyer Properties LP. One of the investors in BlackRock, the California Public Employees Retirement System, lost $ 500 million offer, prompting Fink to personally apologize to the board of the pension fund of the state.

"For customers who have made mistakes, we are guilty," says Fink. "I still roe that has failed them."

"Swoosh" Recovery

Back in his office, Fink is less serious for the future of teachers and firefighters, whose cause he likes the public champion.

"I'm much more constructive than the consensus," he says, "I never felt the economy would have this form of V, I always talked about the economy Swoosh. And that is what it is. Nike is still the economy. At the end swoosh up. It's just part and Swoosh, and that's where we are. "

How far are browsing Swoosh is a matter of growing importance, and the subject of much speculation. Fink says the time is coming when not run BlackRock. He aspires to someday enter public service, if the right opportunity is presented, although not specific about what the opportunity could be. As he reflects on the future, he jumps up in search of a blue folder in your library.

"We review 360 of all leaders," he says, opening the book. "This is really intense stuff."

Start reading an anonymous comment provided by another executive of BlackRock, "Overall, I would like Larry output 96, 100, begins. Then, "I worry about Larry. I love that is client focused, but one day you will faint. On all flights worldwide, insists on taking commercial transportation. We should probably get a plane."