BlackRock not only made a name through its index funds but also developed a central nervous system that is the backbone of the asset management system. This is Aladdin or (Asset, Liability and Debt and Derivative Investment Network).
Aladdin is a portfolio management operating system that inhabits multiple data centers, and warehouses filled with servers. It is used by nearly 13000 BlackRock employees and thousands more people at the company’s clients who pay for the analysis the system provides.
More specifically Aladdin is a risk management platform that runs 24/7, with every scenario of a risk on a portfolio with an insane accuracy. Aladdin became so sophisticated that BlackRock saw the opportunity to start making money from making available the platform to multiple asset managers, institutional investors and corporates, and even governments.
The list of companies that use Aladdin is vast, with over 240 clients, including Google, Apple, and Microsoft that use it for their corporate treasury management. A $1.5tn Japanese pension fund is also a client as well as StateStreet, Vanguard. Yes, You guessed it right, BlackRock’s biggest competitors are paying to use BlackRock’s own system and in the process giving BlackRock REMs access to data about their portfolios. Data that helps BlackRock to refine Aladdin and better model risk.
Saying that Aladdin is an asset management system is an understatement, Back in 2020. It was reported that $21 Trillion sits on the platform. That would have been higher than the entire GDP of the United State.
Here is a funny comparison, Take everyone’s bank account cash on the entire planet and replace them all on a pile, That cash would be worth only $5 Trillion. That means that Aladdin has grown into a system that is responsible for 4 times the value of all money in the world.
Aladdin doesn’t make investment decisions but its risk models inform the risks about decisions, making a sort of investments.
Too big to fail?
Could Aladdin give a false sense of security to the large investors and institutions who rely on it, this was questioned by many economists who gave the argument that the BlackRock system is a computer model after all which can rely on erroneous or false readings.
You see, the BlackRock Aladdin system was an instrumental player in the bailout and deals that took place around the time of the 2009 financial crisis. Aladdin was a key advisor to other banks and the government itself to overcome the 2009 financial crisis.
Financial. Market Advisory (FMA)
BlackRock also provided advisory services since the financial crisis in 2009, when the U.S. government made extensive use of BlackRock’s expertises and services to clean the mess that occurred due to the Lehman Brothers crisis through a government program a name TARP (Troubled Asset Relief Program). TARP was a government program that purchase toxic assets from financial institutions to bail out their capital.
BlackRock often sits on both sides of the meeting table, advising the government and managing banks they already own.
Contribute to Society or Lose our Support
You see BlackRock, Vanguard, and StateStreet, the three giant asset managers holds shares in 40% of all publicly-traded company in the United State of America. Usually not only that they own shares but also they get a board representation. This means these board members can have much more of a say in a company’s strategic objectives.
Given the fact that BlackRock is investing in the best interest of its clients, BlackRock CEO Larry Fink wrote a letter in 2018 to some of the largest U.S. companies’ CEOs, Informing them about BlackRock’s new mood for investing based on Environmental Society and government principles or ESG for short.
ESG (Environmental Society and governance)
The main mo behind Larry Fink’s investing methodology is that companies should no longer be graded on the revenue they make but also on how they impact society. This was a big deal since, you have one of the most powerful investors on Wall street saying that it would be using ESG criteria to grade companies, from their climate change record to diversity on their boards.
With the ESG criteria and board representation in major large companies, BlackRock has set a new benchmark for corporate power.
The ocean of capital gives BlackRock an immense impact on the financial system, given the fact that it is the owner and operator of the most important assets management platform. BlackRock turns out to have a new mission that is to shape the way corporates run using its ESG mandate.