Laurence Fink doesn’t look like a guy who controls $3 trillion. Bespectacled and balding, he comes across more like a shoe salesman, a job he once held in his parents’ store, growing up in Van Nuys, Calif. But after college he traded his shoehorn for a career in finance, working his way up to a managing director position at First Boston. He and some friends would eventually create a new money-management shop in the late ’80s, starting with almost $1 billion in assets and turning it into a growing but unassuming fixture on Wall Street.
It still is a fixture — only now Fink’s firm is harder to miss. While most of the world was focusing on financial firms falling apart, BlackRock made a remarkable run at becoming a Wall Street powerhouse, most notably by absorbing Merrill Lynch’s asset-management business. Now it’s paying $13.5 billion to acquire Barclays Global Investors, a move that will boost BlackRock’s assets under management to $3 trillion and make it the world’s biggest creator of exchange-traded funds. Barclays’s ETF business, says Stifel Nicolaus analyst Jeffrey Hopson, should prove even more profitable than BlackRock’s mutual funds business.
In contrast to many other investment firms, BlackRock barely flinched during the financial crisis. With the recovery in the markets and the economy, the company’s shares have more than doubled from their March lows. And as nearly everyone else has been running from subprime-mortgage securities, collateralized-debt obligations and other toxic assets, BlackRock has made those assets a major part of its business. The company has contracts with the federal government to manage billions of dollars’ worth of exotic assets that proved fatal to Bear Stearns, AIG and other firms. It’s also helping the feds value the assets at troubled mortgage giants Fannie Mae and Freddie Mac.
BlackRock now faces questions about whether it’s become too powerful, juggling roles as government adviser and private money manager. “It’s hard to play multiple roles and not have a conflict of interest,” says Simon Johnson, former chief economist at the International Monetary Fund, which promotes global financial cooperation and stability. A BlackRock spokesperson says it’s not an issue and that the assertion “doesn’t have legs.” Meanwhile, the firm collected $1.7 billion in fees on all those assets in the first six months of the year, fuel for critics who complain that its investment fees are too high.
We found Fink, 57, in his modest fifth-floor office decorated with photos taken by his wife, in BlackRock’s midtown Manhattan headquarters.
Why did the government choose your firm to value banks’ toxic assets?
Because we’re qualified. We’ve done this for 15 years. During the Bear Stearns weekend [in March 2008], no one could step in as quickly as we could.
What makes BlackRock a better candidate than, say, Goldman Sachs?
The money we manage is not BlackRock’s; it’s client money. Securities firms like JPMorgan or Goldman Sachs use leverage, lend money and have proprietary trading. We’re not in that business.
Why would you want to manage the AIG and Bear Stearns toxic assets?
Depending on your view, you could say these assets are darn cheap. Because of the Lehman Brothers’ blowup and the financial crisis, many of these assets became very toxic. We’re in a healing process. Whether we think we should or should not manage those assets, we believe we’re qualified to do it.
You’re getting $42 million from taxpayers this year to manage AIG’s assets alone.
I’m not saying it’s not a lot of money, but the work we’re doing is at a lower rate than anything we’ve done.
What will the return on the government’s toxic-asset program be?
The returns will be in the high single digits or low double digits over the next 12 to 18 months.
Why are you buying Barclays Global Investors?
Exchange-traded funds represent about 8 percent of the [more than $10 trillion] mutual fund market. We’re very bullish on them. They provide lower fees, are tax-advantaged and are very transparent. If you’re interested in buying Brazil or India, you can do that in one second for only four cents or 10 cents a share by buying the index. That the individual has the ability to do that is an amazing transformation. The ETF market could double or triple from here.
BlackRock has quadrupled in size since 2006. Are you growing too fast?
We’ve doubled and doubled again. Eighty percent of Barclays Global Investors assets are index assets, so it’s not as cumbersome as when we doubled in size by acquiring Merrill Lynch Investment Managers.
What did you learn from the crash?
I was reminded that when bubbles burst, they’re always far worse than you dreamed of. So the lesson is always: Pay attention to your liquidity. One of the reasons the bubble was so large was that no one cared about liquidity.
Have investors changed?
Twenty-five years ago, the average equity-to-fixed-income mix was 60 percent to 40 percent. By 2006, portfolios were skewed to 85 percent in equities and 15 percent in cash and fixed income. People are going to go back to that 60–40 model.
Are you going to stay at BlackRock?
In doing the Barclays transaction, I committed to my employees, board and clients that I’d be here. And I don’t think my wife wants me at home.
Trackback URL for this story: http://www.smartmoney.com/tb/Jdmt.2F9Q.3D
What is a Trackback?It is a way to tell us that you have published something that references this story.
How do I send a Trackback? If you blog or mention this story on your website, you can use this Trackback URL to notify us about it. Some blogging software programs can help in sending a Trackback to us.
Click here to read more about Trackbacks.
So far in our survey 40% say #BlackRock is the most important #money #fund to have access to.Wall Street's Newest Giant?http://bit.ly/5hNNEr
hehe BlackRock and Blakroc are makin' headlines RT @SmartMoney: BlackRock, Wall Street's Newest Giant http://bit.ly/8bn5HK
RT @dfriedman16 @SmartMoney: BlackRock, Wall Street's Newest Giant http://bit.ly/8bn5HK
BlackRock, Wall Street's Newest Giant http://bit.ly/8bn5HK (via @SmartMoney)
Read Full Article »