BlackRock is a titan of investing, unparalleled in its scale and influence as a money manager. It has avoided the same scrutiny as Wall Street banking giants, even if just by the Federal Reserve, that came out of the global financial crisis as villainized and more supervised.
But the idea that it has escaped the close eye from regulatory bodies in the US or abroad is flawed, BlackRock Chief Executive Larry Fink said Thursday as he defended his firm's place in the industry on a call with analysts.
"It does feel like after being pretty quiet and dormant for a bunch of years, we are starting to see more talk about re-looking at asset managers for their systemic risk and everything," analyst Robert Lee from boutique investment bank Keefe, Bruyette, & Woods asked. "So maybe your take on where you see that kind of chatter picking up? Is it more in Europe, or here?"
"Great question," Fink responded.
"The concept that the asset management industry is not regulated — that must be coming from bankers. We're not a bank," he said on the earnings call.
Fink appreciates that regulators are focused on well-functioning capital markets "to build a more resilient economy," and said his firm has "encouraged" that regulation worldwide.
He emphasized that BlackRock's massive scale relative to global capital markets, around 2%, has not changed meaningfully since 2009.
The firm is the largest money manager in the world, reporting on Thursday $8.7 trillion in assets under management. It also has a mammoth tech platform, Aladdin, used by virtually the entire investment industry to rebalance portfolios and spot possible risks.
The New York-based firm has enjoyed a rise to the top of its industry as big banks have struggled in some areas, like trading, after post-financial crisis financial regulation limited those activities that once produced juicy profits.
BlackRock is now the largest provider of exchange-traded funds in the world, according to Morningstar, a chunk of which is tied to tracking bond markets' performance (though stock market-tracking products are still far more popular among the firm's products). Its fixed income-linked products were part of the scrutiny it drew last year when BlackRock's Financial Markets Advisory business got what was reportedly a no-bid contract with the Federal Reserve to handle its bond-buying program to help cushion the pandemic's blow to the US economy.
Fink took a similarly defensive tone on the firm's third-quarter earnings call last October when challenged about the largesse of his company, which he cofounded 33 years ago.
"A lot of investors have been groveling that the Fed purchasing ETFs and in particular noninvestment-grade ETFs, hence, some sort of bailout for BlackRock in the ETF industry more broadly. What is your reaction to that?" analyst Patrick Davitt with Autonomous Research asked.
"I object to your — the way you framed it as a bailout. I don't even know where you're coming from with that question. I think it's insulting," he said, according to a transcript from the investment research provider Sentieo.
As a sprawling company with record assets under management, it is scaling new heights as President-elect Joe Biden's administration is expected to take a stricter stance on financial services industry regulation than its predecessors.
Biden is expected to tap Gary Gensler, the former chair of the Commodity Futures Trading Commission who is known as a stringent regulator, to head up the Securities and Exchange Commission, Reuters reported this week, citing unnamed sources.
"I would say the one myth about asset managers — the asset management industry is highly regulated already," Fink said, noting his firm is regulated in the US by the Securities and Exchange Commission, the Office of the Comptroller of the Currency because it operates a trust bank, the Commodity Futures Trading Commission, and Finra.
"Overseas, we're regulated across the board. We are not a bank, and that's why we are not regulated by one regulator, the Federal Reserve. But we're regulated by almost any other organization and regulator," he said.
With the incoming US administration, BlackRock has been dubbed a new posterchild for the revolving door between policy and finance, or the new Goldman Sachs in government. While previous administrations have been filled with former Goldman executives, Biden's administration has selected several former BlackRock leaders for senior roles.
Brian Deese, the firm's global head of sustainability investing who previously worked in the Obama administration and helped craft the Paris Climate Agreement, will join the administration as head of the National Economic Council.
A former chief of staff to Fink, Adewale "Wally" Adeyemo, will serve as a top official at the Treasury Department, and Michael Pyle, BlackRock's global chief investment strategist who had worked in the Obama administration before joining the firm, is going to be chief economic advisor to Vice President-elect Kamala Harris.
It was rumored that Fink himself would enter politics, but he has downplayed that notion.