From shoe trader to world’s largest wealth manager, the story of the rise of the Wall Street emperor

On April 16, 2009, Rob Capito went to the newly built Yankee Stadium, where New York Pride was in competition with the Cleveland Indians. The economy was in disarray after the US mortgage crisis rocked the global financial system, and many Wall Street dwellers were in dire need of a lead, but the bald former bond trader was not in grandstand to watch a baseball game.

Got it was in secret mission that would not only change the fortunes of his employer, BlackRock Investment Group, but … The face of the financial sector will change. At the game was the CEO of Barclays Capital, Bob Diamond and Capito needed an urgent and confidential conversation with his old friend, who prompted him to buy a ticket to the game.

Barclays had acquired the US shares of Lehman Brothers when the investment bank went bankrupt in 2008, but the deal quickly became a heavy burden that pulled the British bank back as well. In early 2009, Barclays was struggling to raise money and avoid a British government bailout. This means that it has been open to the sale of some asset, including its flagship wealth management arm, Barclays Global Investors. She was even ready to sell it in stages.

In early April, Barclays accepted an offer of $ 4.2 billion from CVC, a private London-based equity affiliated with BGI Group.shop The 45-day period, which allowed Barclays to talk to other people who might be interested in bypassing CVC’s offer, gave BlackRock the opportunity, but had to take it. quickly.

Yankees versus Cleveland

That night the Yankees lost to Cleveland, but Capito lost the entire game. He rushed to the Barclays house, knocked on the door and asked Diamond to come out and chat.

Instead of selling iShares to CVC, the parties agreed to sell all of BGI to BlackRock, according to Capito, for a large sum of money and stock in the combined company. In this way, Barclays will get the capital it needs to avoid a bailout and will still have a stake in its wealth management arm through a large stake in BlackRock itself, via a stock exchange.

Diamond had already gotten board approval to take in considered the sale of the entire company and believed that BlackRock was a natural buyer. He agreed to take his boss John Farley to visit Capito and BlackRock CEO Larry Fink the next day. Two months later, the deal – worth $ 13.5 billion at the time – was signed and announced to the world.

From shoe trader to world’s largest wealth manager, the story of the rise of the Wall Street emperor

black rock

Despite some initial difficulties, it proved to be a huge success. BlackRock has become the largest wealth manager on the planet, investing money for everyone from retirees to wealthy oligarchs and sovereign wealth funds. Today it is one of the largest shareholders of nearly all major American companies, and even very few internationally. It is also one of the largest lenders to businesses and governments in Worldwide. Its Aladdin technology platform provides the backbone for segments of the global investment industry.

By the end of June of quest’year, BlackRock was managing a whopping $ 9.5 trillion in assets, and assuming its recent pace of growth, BlackRock could reveal in its October 13 third quarter results that the number has crossed the $ 10 trillion mark.

This asset size is comparable to the entire global hedge fund industry private equity and venture capital combined.

Today Larry is the undisputed king of Wall Street. Having created a small bond house just three decades ago, he transformed it in a vast financial empire never seen before. However, the force came with increasing control. BlackRock has become a source of criticism from both left and right.

Gentlemen of Wall Street

Even some Wall Street moguls are quietly expressing concern about its size. BlackRock has recently sparked controversy in China, with George Soros accusing the company of making a “tragic mistake” by pumping investor money into the country even as President Xi Jinping’s Communist Party has taken control of the economy.

Fink’s father owned a shoe shop while his mother was an English professor at Northridge University in California. Even though Larry wasn’t doing as well academically as his older brother, he had to help out in his father’s shop – a job his more talented brother was exonerated from.

He completed his studies and received his MBA from the University of California, Los Angeles School of Business. Like many illustrious young people of the time who have no clear idea of ​​what they want to do except to make money, Fink goes to Wall Street, long-haired and wearing a turquoise bracelet given to him by his high school girlfriend and future wife, Laurie.

He received several offers from top investment banks, but to his dismay he missed the final interview with Goldman Sachs. “I was devastated,” Fink told me, “but I ended up being a blessing of grace.” Instead, he went to First Boston, another company with pristine assets, where he started his business in 1976. He was assigned to the bond trading division and, given his knowledge of the real estate industry, traded primarily in securities backed by mortgage.

Fink became the youngest CEO in First Boston’s history. At the age of just 31, he became the youngest member of the steering committee.

The sky seemed to be the limit. But then the sky fell apart. “Me and my team we felt like rock stars, “Fink said.” Management loved us. I was on the right track to become the CEO of the company. “

And in 1986, Fink’s office suddenly lost about $ 100 million when interest rates unexpectedly dropped and the hedging his team had put in act to protect themselves from such a scenario vanished. Despite the money Fink made at First Boston in the previous decade, he went from CEO to outcast, eventually stepping down in early 1988.

However, the lessons of this humiliation proved invaluable. A few years earlier, Fink had befriended Ralph Schlossstein, an investment banker at Shearson Lehman Hutton.

Both were early risers and often called around 6.30am to talk about the financial markets before the morning noise started.

Schlossstein was a Treasury official in the Carter administration before heading to Wall Street, but mostly they talked about dissatisfaction with his job and a thirst for starting something new. And they began to draw up plans for a company that would formulate the titles, collect them in a portfolio, and better analyze all the risks they contained.

Today, BlackRoot’s profit margins are more consistent than those of Apple or Google, its rating in purse is about $ 126 billion and a few days after he formally resigned from First Boston, Fink invited a select group to his home to discuss the new venture.

From First Boston came Capito, Fink’s right-hand man at the mortgage counter. Barbara Novick, product manager in wallet; Ben Golub, the mathematical therapist who designed many of the bank’s risk management tools; Keith Anderson is a bond analyst senior at First Boston.

From Cherson Lehmann, Schlossstein brought Susan Wagner and, later, Hugh Frater, two of the most brilliant mortgage trustees. Together, they decided to start a new bond investment company based on modern technology and safer risk management.

While they still needed the money to launch it, Fink reached out to Steve Schwarzman and Pete Peterson, two former Lehman bankers whose company, Blackstone, was about to become a rising star in the business. private equity.

Blackstone agreed to host the new project in its offices and finance it with a $ 5 million loan, in exchange of a 50% share. Given Blackstone’s emerging brand, Fink and Schlossstein decided to link their journey with it, naming their new company Blackstone Financial Management (BFM).

BFM got off to a good start and during its first six years the company managed approximately $ 23 billion and its eight founding partners were joined by approximately 150 employees.

Barclays

Barclays

However, the company was heading for a dramatic break with Blackstone. Fink had attracted several new hires by offering tranches of shares, which gradually weakened Blackstone’s ownership and angered Schwarzman. Fink eventually decided that BFM and Blackstone had to divorce.

The company name passed to BlackRock, after they appealed to Schwarzman and Peterson, noting that Morgan Stanley’s 1930s split from JPMorgan had polished both companies. Peterson and Schwarzman were blown away by the idea of ​​BlackRock in honor of Blackstone and have blessed the new name.

In 1994, Blackstone finally sold his stake in BlackRock for $ 240 million to PNC Bank of Pittsburgh, which combined all of its money management operations in BlackRock and eventually listed it in bag.

900 million dollars

Although it was only valued at $ 900 million at the time of the October 1999 offer, as Fink was considering canceling his subscription once the stock market bubble burst online, BlackRock’s bond-oriented business shone brighter, attracting investors in seeks stability and constant returns. This means that he can now use his own stock as a currency to buy in competitors and grow through acquisitions rather than just knocking on customers’ doors or creating new ones team from zero.

The first deal came in the summer of 2004, when BlackRock bought State Street Research, a CFO owned by insurer MetLife, for $ 375 million. But the first real turnaround came a few years later. In 2006, well-connected Fink learned that Merrill Lynch’s new CEO Stan O’Neill was open to selling the investment bank’s sprawling money management arm.

Together, the investment managers of BlackRock and Merrill Lynch have built a giant with nearly $ 1 trillion worth of asset in management. But the 2009 deal to acquire Barclays Global Investors, and the explosive growth that followed, propelled Fink to the top of Wall Street. As of mid-2021, the iShares unit alone was managing more than $ 3 trillion.

BlackRock, Vanguard and SeaStreet are the world’s largest issuers of passive management or index funds. Harvard Law School researcher Lucien Bibchuk said in a 2019 research paper titled “The Ghost of the Three Giants” that the trio’s combined average odds in the 500 largest listed U.S. companies went from about 5% in 1998 to over 20%, predicting that their share will rise to 41 % in the next two decades.

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