Over the past decade, BlackRock has grown into one of the most powerful and influential financial firms on the planet. From 2007 to 2017, the company’s assets under management (AUM) grew from $1.35 trillion(see P. 4)1 to $6.28 trillion (see P. 28)2 — today equaling more than 30 percent of America’s $19.9 trillion GDP.
The company’s Aladdin risk management platform, described by some as the “Amazon of Wall Street” and used by over 200 financial firms, pension funds and government entities, tracks $18 trillion in assets globally — equal to more than 13% of the world’s Gross Domestic Product (PPP).
Aladdin’s reach is unparalleled: The Federal Reserve and the Treasury Department, for instance, used BlackRock’s proprietary platform during the financial crisis to dispose of toxic assets. Aladdin was also employed by the central banks of during the European debt crisis; it is used by governments and by BlackRock’s competitors to monitor their own assets; and it is utilized by massive government pension funds like the $300 billion CalPERS.3
BlackRock’s extraordinary growth can be tied in many ways to the success of its BlackRock Solutions division. Described by one analyst as the “CIA of BlackRock”, the division along with its Financial Markets Advisory (FMA) unit – which grew out of its work for the U.S. government during the 2008 financial crisis – are the financial triage specialists that are called in by institutional investors, governments, and central banks when they need expert advice.
In practice that has often meant valuing and disposing of portfolios of real estate assets or bad loans. For example, the company was hired by the Fed to dispose of the assets of Bear Stearns and AIG during the financial crisis.
The company’s deep Rolodex and access to government officials has helped it secure lucrative government contracts – often without competitive bidding. BlackRock officials have met with top government leaders in the U.S. and around the world on hundreds of occasions since the financial crisis of 2008 and often seem to be on speed dial when governments need financial advice or face financial crises (See: BlackRock’s “Access and Influence” Business Model).
BlackRock’s access to government allows it to exercise its influence in other significant ways as well. BlackRock successfully lobbied the Fed to manage a public private investment program for distressed bank assets; it worked with Canadian officials to persuade BlackRock clients to invest in Canadian infrastructure projects; and it has advised central banks in Greece and Ireland on bank loss forecasts. Each of the assignments raised troubling conflict of interest questions about whether the company was leveraging its unique access and influence with government to pad its bottom line.
The unique relationships with government decision makers have also helped its asset management business secure contracts to oversee some of the largest public pensions in the world. It manages more than $336 billion in assets of the federal government’s thrift savings plan. It manages billions more in state public employee pensions and even the large pension funds of international public employees like the Japan Federation of National Public Service Personnel.
It has become so ubiquitous that a recent survey of European pension managers concluded that 70 percent list BlackRock when asked to suggest specific companies they would most likely hire.
More recently, the company has also taken an increasingly activist role in its investment decisions, urging CEO’s of the companies it invests in to consider the societal implications of their environmental, social, and governance (ESG) business decisions. BlackRock has used this criteria to put gun manufacturers on notice, and worked closely with environmental groups to lobby pension officials to divest from fossil fuels and invest in BlackRock funds instead.
At the same time, the company has drawn increased scrutiny for potential conflicts of interest between its role as a government adviser on the one hand and its role as a private money manager on the other. The record shows significant evidence that despite the company’s repeated assurances of a “Chinese Wall” between its advisory and asset management businesses, the wall is far more porous than is publicly appreciated.(See: BlackRock’s Leaky Chinese Wall).
The company’s marketing materials often boast of its “access” to government decision makers to benefit its clients, but BlackRock employees often appear to move freely between sensitive positions as advisors to governments and central banks and as executives of BlackRock’s business that manages assets for clients.
And while BlackRock faces conflict of interest questions on the one hand, others have raised questions about its business ethics. The company has faced numerous fines and investigations for conflicts of interest, thwarting employees’ whistleblower rights, providing misleading data to regulators, and compromising federal contracting rules to win business.
In another case, Philipp Hildebrand, the senior executive overseeing BlackRock’s highly sensitive work advising governments and central banks, was forced to resign as the head of the Swiss National Bank over a currency trading scandal involving his wife, which he may have sanctioned, less than a year before joining BlackRock. Before taking over the work advising governments and central banks, Hildebrand directed the company’s division advising institutional investors, running straight through the Chinese Wall. (See: BlackRock’s Leaky Chinese Wall)