A few months ago, an aggressive US pressure group called the Campaign for Accountability declared that it had a new target: the Wall Street behemoth BlackRock. Quickly, the American press picked up on this campaign against excessive corporate power. Soon we were reading about how BlackRock, like Goldman Sachs before it, ‘rules the world’.
Despite BlackRock’s supposed omni-potence, it is relatively unknown in Britain. It might be the biggest private manager of assets in the world but, in political terms, the company has existed in relative obscurity. That is, until last year, when it handed George Osborne a £650,000 contract for giving ‘advice’ one day a week.
In recent months, the firm’s political profile has been rising. When the former German MP Friedrich Merz suddenly re-emerged into German politics as a possible successor to Angela Merkel, BlackRock’s name appeared again: Mr Merz is the chairman of its growing German business.
Long before BlackRock spread its tentacles into politics, however, it was upending Wall Street’s hierarchy and changing the way people invest. In the late 1980s, BlackRock was spun out of the US private equity firm Blackstone. It began life as a small outfit offering a new way to manage risk and invest in bonds. Within months, under the leadership of its co-founder and chief executive Larry Fink, its approach caught on and the company began to grow.
By the time the financial crisis hit in 2008, BlackRock was already a substantial player in the world of asset management — investing money on behalf of regular savers, insurers and pension funds. While the crisis proved devastating for so many banks, it provided BlackRock with an opportunity.
Barclays, keen to raise cash to rebuild its investment bank, put its asset management arm up for sale and BlackRock beat rivals to snap up the business for $13.5 billion. Ten years later, it is clear who made the right bet. While Barclays has struggled and shrunk, BlackRock has become a giant in a league of its own, managing $6.3 trillion for investors in 100 countries.
With success has come greater scrutiny. In the immediate aftermath of the crisis, politicians and regulators turned their fire on banks, blaming them for the financial meltdown and whacking them with thousands of pages of regulations. The regulatory orgy forced banks to change their business models to survive, but it didn’t stop there.
Soon, authorities began to set their sights on financial markets in general and all of the big players within them. BlackRock, as the biggest, has naturally come under scrutiny. Regulators have even coined a contentious new term to describe the industry’s role: ‘shadow banking.’
As it grew, BlackRock expanded its lobbying operations, especially in Washington DC and Brussels. Its ranks have swelled with employees who have regulatory or political experience. According to the Campaign for Accountability, the firm has hired at least 84 former US government officials since 2004. Since the crisis, the company has had 400 meetings or calls with senior US officials and more than 50 with senior UK officials, including presidents and prime ministers, the campaign group claims (BlackRock declined to comment on these figures).
‘BlackRock is petrified that regulators will turn the screws on them the same way they did with the banks, so they want to pre-empt that,’ said Octavio Marenzi, founder of Opimas, a financial consultancy.
BlackRock’s political hires include Hillary Clinton’s former chief of staff, Cheryl Mills; the former chairman of Switzerland’s central bank, Philipp Hildebrand; a former senior adviser to Jacques Chirac, Jean-François Cirelli; and George Osborne’s former chief of staff, Rupert Harrison. Many of its government hires are there for their expertise, not just their connections: Mr Harrison, for example, is not a lobbyist but analyses markets and co-manages an investment fund.
But the presence of so many formerly powerful policy figures has furthered the impression that Fink harbours political ambitions. He has been vocal on corporate governance issues like boardroom diversity and was talked about as a potential treasury secretary in a Hillary Clinton presidency.
BlackRock says that it recruits staff from ‘a very broad set of backgrounds’ who can offer its clients ‘a unique and valuable perspective’. And in many ways, the company’s activities should not be controversial. It is essentially a boring business whose success stems from developing a risk-management technology superior to that of its rivals. Its other major source of growth — the expansion of its ‘passive’ funds, in which portfolios simply track indices like the FTSE 100 rather than choosing which stocks to buy —has done investors a favour by slashing fees dramatically and driving many of its fat and expensive rivals to the wall. Through our pension funds, we all benefit from this trend.
The company’s ruthlessly efficient culture has helped to transform the industry. Investment management was once considered a stuffy, sleepy backwater of old duffers and oak panelling. It has now become slick, technologically advanced and highly corporate. BlackRock employees tend to possess the same CGI-quality neatness as the most square-jawed investment banker, but unlike the City’s old masters of the universe, they also exude an almost-tedious air of straight-laced conservatism that is probably more in tune with modern times.
Size breeds suspicion, however, and whatever BlackRock does now, it cannot escape political scrutiny. BlackRock is on its way to becoming the next corporate bogeyman of the age, both as a proxy for the power of financial markets and because it has become a well-paid, glamorous sanctuary for dormant politicians. Its lobbyists’ wage bill is only likely to increase.
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