BlackRock has been accused of everything from running the world to commercializing Pride Month

But what is BlackRock, and how powerful is it? Are its executives pushing agendas, or are they just doing their job: Making money?

BlackRock is the world’s largest asset manager with $10T in assets under management – more than the GDP of every country besides the US and China

That money comes from pension funds for public employees like teachers, private sector 401(k)s, central bank savings, and others who trust BlackRock to invest their money for them

BlackRock, in turn, takes a management fee, a cut of the gained profits, or both

BlackRock was founded by California-born Larry Fink in 1988, but its current form owes a great deal to 2008, when the US fell into a housing crisis and financial giants like AIG and Bear Stearns failed

To prevent a broader collapse, the US government bought those companies and injected them with cash, saving their assets and protecting their clients

But the government needed expert help to figure out what to do with its new properties. Through a confidential process, it awarded BlackRock a contract to stabilize the banking sector

It did so without taking competing bids – a process the government defended as necessary to prevent a looming collapse

Former Treasury Secretary Timothy Geithner explained, “[BlackRock] comes with a world-class reputation...We thought the interest of the American taxpayer would be best served by having them there on our side as we made those consequential judgments”

BlackRock needed to advise the US on what to do with the failing assets the US had acquired

Armed with an inside look at the situation, BlackRock decided to sell many assets to itself. Others, like Lehman Brothers and Bear Stearns, it sold to financial institutions

That process made BlackRock the most important financial advisor to the US government and Larry Fink a linchpin between Wall Street and Washington

The reason BlackRock was so well positioned to advise Wall Street dates to 1986, when Fink lost his job at First Boston bank after an incorrect bet on how markets would react to interest rate movements cost his company $100M

That experience inspired Fink to create Aladdin (The Asset, Liability, and Debt Derivative Investment Network), which he launched in tandem with BlackRock in 1988

Aladdin was an AI software to which BlackRock fed data about every bond price and trade in the global bond market

The information quickly made Aladdin the leading bond analysis software, and in 2000, BlackRock began selling asset managers access to it

Financial firms around the world were soon using Aladdin to decide which bonds to buy or sell – giving BlackRock even more insights

In 2006, BlackRock acquired Merrill Lynch Investment Management and began feeding Aladdin information on stocks, so it could advise on risks and opportunities related to those

Then after BlackRock and Aladdin helped the US government manage the Great Recession, the US Federal Reserve and several European banks began relying on Aladdin to advise them on how to invest the money they printed

Aladdin gave them the same answer it gave BlackRock: Buy bank bonds

Countries did so by the trillions, pushing up the value of BlackRock’s already massive bond holdings and giving the company vast information about various government finances

In 2019, BlackRock paid $1.3B to buy eFront, which collected data on alternative asset classes, including private real estate. Aladdin then began guiding BlackRock’s and other asset managers’ real estate purchases

Aladdin now advises on portfolios worth $20T+ – around the size of the US economy – including both BlackRock’s and other company’s assets

It helps financial institutions know exactly what they are holding and tells them about risks, enabling them to pick investments

The global financial system’s dependence on Aladdin has raised concerns about groupthink, the hollowing out of internal analysis operations, and faulty algorithms

But BlackRock says the software helps investors test their own strategies, rather than push all investors toward the same

Aladdin is now a foundational part of the global economy. In the words of New York Life Investments CEO Anthony Mallow, “Aladdin is like oxygen, without it we wouldn't be able to function”

That has given BlackRock huge power and responsibility

What does it do with that? Tomorrow’s installment will cover that

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