BlackRock

BlackRock is a giant financial firm founded by Larry Fink, A company that has an effect on all our lives.

Little of history

1988 was the birth of BlackRock, an American investment management corporation based in New York City that invests on behalf of 100 of million people, public and private companies around the globe. Over the years, BlackRock happens to manage over $10 Trillion in assets thanks to its multiple acquisitions and shares interest in nearly every company you could think of.

If we take the banks that keep the financial market running, such as Goldman Sachs, J.P.Morgan, Bank of America, and Citibank. BlackRock is a key stakeholder holding the position of one of the top three shareholders of those banks.

In the media sector, BlackRock is there too. It has a large stake in Google, Apple, and Twitter. How about food? Yes, BlackRock holds stakes in Macdonalds, Chipotle, and others.

BlackRock forms a trio along with Vanguard, and StateStreet to be the largest shareholders of the vast majority of the publicly traded companies in America.

Exchange-Traded funds or ETFs

After acquiring Barclays iShares in 2006, BlackRock moves from a bond management company to an index funds provider. But what are funds providers or ETFs?

S&P500/ Nasdaq/ The Dow

You heard the news reporter saying, Nasdaq is up with 100 points. or the Dow is down by 10 points. What does that mean?

Well, in 1896. Charles Dow came up with the idea to add the closing price of 12 of the largest stocks at that time and divided the total by 12 to get the average. By collecting these stocks collectively. Charles Dow came up with what we call a stock market index that can measure the performance of a collection of stocks and therefore the overall market performance.

The Dow, Nasdaq, and S&P 500 are examples of stock market indices. Today, the S&P 500 for example is an index of the stocks of 500 publicly traded U.S. companies. The Dow consists of 30 of the largest and most successful companies in the U.S. Where these companies are handpicked by experts to represent a variety of industries.

ETFs

ETFs are getting more and more attention from investors. ETFs are baskets of securities that give exposure to a large variety of stocks rather than a specific single stock. In other words.

Let's take the example of the S&P 500 index, There are ETFs that simply consist of an algorithm that manages your money within the 500 biggest companies on the stock market. If one company in these 500 companies got bankrupted or get smaller, well the ETF or the computer will kick up that company and put in the next biggest company for you to come up with a profit. In a conclusion, the main purpose of an ETF is to give you broad exposure to the entire market with multiple varieties of industries and sectors in order to minimize risk and get a profit.

Well, in 1896. Charles Dow came up with the idea to add the closing price of 12 of the largest stocks at that time and divided the total by 12 to get the average. By collecting these stocks collectively. Charles Dow came up with what we call a stock market index that can measure the performance of a collection of stocks and therefore the overall market performance.

The Dow, Nasdaq, and S&P 500 are examples of stock market indices. Today, the S&P 500 for example is an index of the stocks of 500 publicly traded U.S. companies. The Dow consists of 30 of the largest and most successful companies in the U.S. Where these companies are handpicked by experts to represent a variety of industries.

BlackRock ETFs

As mentioned, BlackRock moves from a traditional bond management company to an ETF provider since ETFs are considered to be low-risk management assets for the reason that they provide diversification at a very low cost.

In addition, ETFs tend to be more tax-efficient and more ideal for individual investors.

These benefits made ETFs more attractive to other passive institutional investors. the most common being, pension funds. A trillion of dollars of money invested finds its way into ETFs of some sort.

Not only that, BlackRock technology adopted and used by other ETF providers made that your money is being invested by BlackRock, More about that in the next chapter.

Aladdin system

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.

Conclusion

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.