BlackRock What is it and how does it work? The controversial investment company

BlackRock Company

If you’ve come this far, you’ve probably heard of the famous Wall Street investment company BlackRock. In this review, we will address each of the aspects that define this fund, from its history, its commercial success and its investments.

BlackRock Inc, is a company listed on the New York Stock Exchange under the symbol BLK. The firm began as a small group of Wall Street professionals led by Laurence D. Fink in 1988. The company was founded as The Blackstone Group and focused on a fixed income from its earliest beginnings.

BlackRock then developed the Blackstone Term Trust Fund, which raised $1 billion from various private investors. The arrival of this fund marked the direct ascent of BlackRock to the top in the world of institutional investments.

Following the success of the Blackstone Term fund, BlackStone adopted the BlackRock name. At that time, it had about 17,000 million dollars in assets under management, that in just four years.

The company’s initial goal was to offer asset management services to institutional clients from a risk management perspective.

The largest investment company in the world

BlackRock had pretty humble beginnings. At first, the company only had eight employees. Today the firm has grown to become the largest private equity investment and management company in the world. As of December 31, 2020, the company already had a staggering $8.68 trillion in assets under management.

BlackRock is currently a firm of more than 16,000 employees who work from 38 different countries. All this growth has been possible in just 35 years.

BlackRock founders and executives

Four of BlackRock’s eight founders remain with the company and operate as executives.

Laurence Fink, who led the firm from the start, remains BlackRock’s Chairman and CEO. Robert S. Kapito is the chairman and director of BlackRock and is responsible for overseeing the company’s key operating units. He is also a member of BlackRock’s global executive committee and chairman of the Global Operations Committee.

Barbara G. Novick serves as Vice President and a member of the company’s Global Executive Committee, Enterprise Risk Committee, and Geopolitical Risk Committee. Additionally, Novick formed BlackRock’s Global Public Policy Group in 2009. Finally, Ben Golub is an executive at the firm. Golub is chief risk officer and co-head of BlackRock’s Risk and Quantitative Research group and a member of the Global Executive Committee.

Black Rock History

In 1999 BlackRock became a public company through an initial public offering. In the IPO, its shares were initially sold at a price of USD 14 on the New York Stock Exchange.

By the end of 1999 BlackRock had experienced extraordinary growth, reaching $165 billion under management in its funds.

BlackRock has grown in two ways since then, through organic growth and through the acquisition of other companies in the market.

In August 2004, BlackRock made its first major corporate purchase, acquiring State Street Research & Management Holding. The acquisition raised BlackRock’s assets under management from $314 billion to $325 billion. The deal included the mutual fund division of State Street Research & Management Holding in 2005.

For the year 2006 BlackRock merged with Merry Lynch Investment Managers. The merger diluted BlackRock’s ownership of its own shares and gave Merry Lynch a 49.5% stake within BlackRock.

In October 2007, BlackRock acquired the fund-of-funds business of Quellos Capital Management.

BlackRock’s role in the midst of the 2008 financial crisis

In 2008, in the midst of the mortgage financial crisis, the US government contacted BlackRock for help in resolving the crisis. According to Vanity Fair, the financial establishment in Washington and Wall Street believed that BlackRock was the best option to carry out this work. The Federal Reserve, therefore, assigned BlackRock the task of supervising the debt settlement of Bear Stearns and AIG. The debt of the companies amounted to about USD 130,000 million.

The definitive rise to the world level

In 2009, BlackRock became the number 1 global fund and asset manager.

In April 2009, BlackRock acquired R3 Capital Management LLC, taking control of $1.5 billion of the fund. By June 12, 2009, Barclays sold its global investor unit BGI. This unit its exchange-traded fund business, iShares, to BlackRock for about $13.5 billion. Through the deal, Barclays was able to acquire 20% of the total ownership of BlackRock.

The 2010s

In 2010, Ralph Schlosstein, CEO of Evercore Partners and one of the founders of BlackRock, claimed that BlackRock was the most influential financial institution in the world. On April 1, 2011, due to the acquisition of Genzyme by Sanofi’s, BlackRock replaced Genzyme in the list of companies in the S&P 500 index.

By 2013, Fortune magazine had placed BlackRock on the list of the world’s 50 most admired companies, calling the company a “$4.3 trillion force,” which was the assets that were under control to date. firm administration.

In 2014, The Economist magazine, the most important financial publication in the world, pointed out that BlackRock had about 4 trillion dollars under its management, which made it the largest private financial institution in the world, surpassing the largest bank in the world. , the Commercial and Industrial Bank of China, which has assets of $3 trillion.

In May 2014, the company made one of its most attention-grabbing international investments, buying shares in the Indian company Snapdeal, an e-commerce firm based in New Delhi.

Banning a BlackRock executive in the UK

By December 2014, a BlackRock London managing director, Jonathan Paul Burrows, was banned by the British Financial Conduct Authority, FCA, for failing to conduct ethically within the City of London after it was discovered that for several For years he had avoided paying train fares, saving more than £43,000 by evading the ticket register through a slot at train stations. At the time of the decision the British financial authority, BlackRock said: “Jonathan Burrows left BlackRock earlier this year. What he has admitted to the FCA is totally contrary to our core values ​​and principles.”

Too big a company?

By the end of 2014, five years after BlackRock’s listing on the stock market, the Sovereign Wealth Fund Institute reported that 65% of BlackRock’s assets under management came from institutional clients. The SWFI report asked: Is BlackRock too big? , pointing to the impressive growth the firm had seen since its founding. In the same way, the Institute’s report indicated that asset management firms are subject to fewer regulatory obstacles than banks or brokerage houses in which financial market assets are traded.

By June 2015, BlackRock already had $4.7 trillion under management. In August 2015, BlackRock entered into a definitive agreement to acquire FutureAvisor, a digital asset management provider with estimated assets under management of nearly $600 million. Under the deal, FutureAdvisor could operate as a business within BlackRock Solutions.

In November 2015 BlackRock announced that it would close its hedge fund BlackRock Global Ascent, after the losses that the fund had reported. The Global Ascent fund had been BlackRock’s only big dedicated fund, as the company was better known or had worked more with mutual funds and exchange-traded funds. As of the date Global Ascent closed, BlackRock managed more than $51 billion in hedge funds.

Recent restructurings

In March 2017, the Financial Times announced that BlackRock had begun a process to restructure its $8 billion active investment funds, the process was led by Mark Wiseman and began after a six-month review that included evaluating the performance of funds that were actively managed. Several of the funds had been managed with quantitative investment strategies. The restructuring also saw the departure of seven fund managers from its payroll.

From 2017 to 2019

By May 2017 BlackRock increased its stake in CRH plc, a building materials firm, and the Bank of Ireland, according to an Irish newspaper. The US firm acquired shares that brought its stake to 9% in CRH and 5% in the Bank of Ireland. At the time of the investment, BlackRock was the largest participant in CRH shares.

As of April 2017, the firm’s exchange-traded fund business, iShares, had $1.4 trillion, or 26% of BlackRock’s assets under management, and was the company’s largest source of revenue.

By April 2017 as well, the company supported the inclusion of mainland Chinese stocks in the MSCI global index for the first time.

Between October and December 2018, the firm’s assets under management fell by some $468 billion, down from $6 trillion. It was the biggest decline experienced by the company between quarters since September 2011.

By 2019, BlackRock had become one of the main shareholders of Deutsche Bank, owning 4.8% of the German bank. Investments in Deutsche Bank started in 2016.

Criticism for investments in polluting companies

In May 2019, BlackRock came under heavy criticism for the environmental impact of its investments. The criticism was reported by the British newspaper The Guardian when a group of pranksters who published fake news created a report in which BlackRock’s CEO allegedly stated that he promised not to invest more in companies that were not complying with the climate agreement of Paris.

The group behind the fake news is an organization called Yes Men, which has a long history of embarrassing big companies. At the time of the Guardian report, BlackRock had assets under management of $6.5 trillion, double the UK’s annual domestic output. This impressive size has placed the company at the center of the discussion: it is the largest investor in coal worldwide, according to a report by InfluenceMap, an environmental activism group.

BlackRock is among the top 3 shareholders of the major oil companies, with the exception of the Total company. It is also in the top 10 among shareholders of seven of the ten largest coal-producing companies. With this record, it is easy to understand all the pressure that exists for BlackRock to change its business model and invest in more environmentally responsible companies. So far (date of this review April 14, 2021)  the company has given few signs of wanting to make this change.

Company in 2020

In his 2020 annual open letter, Laurence Fink announced that environmental sustainability would be a central part of his future investment strategy. This change seems not only to respond to the criticisms that had been made of the company in the past but also to show a greater interest in a situation from which no company in the world can detach itself today. BlackRock presented plans to sell 500 million dollars of its investments in coal, as reported by the US news network CBS.

Response to the coronavirus crisis during 2020

In March 2020, the Federal Reserve selected BlackRock to manage the bond purchase program in response to the coronavirus pandemic. The Fed also commissioned the company to manage other tools to overcome the crisis and the slowdown generated by the closures of the economy.

Entry into the Chinese financial market

In August 2020, BlackRock received approval from the China Securities Regulatory Commission to establish a mutual fund business. This made BlackRock the first major global fund management company to obtain China’s backing to operate in the country.

Following his investments in China, the fund manager would come under fire from hedge fund manager George Soros in an editorial letter. Soros pointed out that investing in China meant not understanding the totalitarian nature of the Chinese regime and that supporting investments from the Asian giant was equivalent to promoting the authoritarian model of government proposed by China, which represents a serious threat to Western values ​​and free society.

Following Soros’s comments, BlackRock CEO Larry Fink noted that investments in China were crucial to the achievement of financial goals by multiple individuals and institutions, such as pension plans and education funds, among others. In this regard, Fink dismissed Soros’ criticism.

The 10 trillion dollar company

In October 2021 the company reached one of its biggest milestones by becoming a company with assets under management worth at least $10 trillion. The financial news daily Financial Times did a lengthy review of the company and CEO Larry Fink, characterizing him as the 10 trillion dollar man.

BlackRock Mutual Funds Overview

As BlackRock is the world’s largest investment company, the firm offers professional multi-asset risk and exposure services. BlackRock offers 600 mutual funds, which have assets of more than $565.1 billion as of December 31, 2019. BlackRock mutual funds provide exposure to cash, commodities, stocks, fixed income, real estate, and hedge funds. multiple assets. However, these funds offer exposure to various asset classes in emerging or developing economies.

Strategies implemented by mutual funds include active investing, indexing, group savings, strategy generation, and volatile asset management.

Some notable funds that BlackRock offers include the Strategic Income Opportunities Fund, the Stock and Dividend Fund, the High Yield Bond Fund, and the Global Asset Allocation Fund.

Minimum investment in the company

BlackRock generally requires a minimum initial investment of $1,000 and charges an annual average management fee based on a ratio of capital. BlackRock’s family mutual fund has consistently delivered above-average returns for family mutual funds from other investment companies.

BlackRock returns

In 2014, BlackRock’s family mutual fund returned 4.8%, 0.5% higher than the average category of these funds. BlackRock mutual funds have delivered returns of 14.9%, 1% higher than funds in the same category from other companies operating in the same market.

Investment in BlackRock funds provides a high degree of investment security and higher returns than other companies. It’s no wonder the company has been so successful in recent years and has become an investment benchmark on Wall Street.

A Review of BlackRock Exchange Traded Funds

In addition to mutual funds, BlackRock offers exchange-traded funds, also called ETFs, which are traded on traditional stock markets. BlackRock iShares offers 385 exchange-traded funds that provide exposure to multiple assets. These assets are commodities, fixed returns, assets of multiple types, and real estate markets. The firm offers multiple strategies, such as currency hedging, fixed income assets, Core ETFs, and smart beta ETFs.

BlackRock’s iShares Currency Hedging ETF manages the effects of currency volatility.

iShares offers bond ETFs, which generally carry a low level of risk but offer a steady income. Its core strategy provides full exposure to bonds and stocks from the United States, Canada, and other parts of the world. BlackRock smart beta ETFs provide affordable investment strategies that seek to achieve higher returns than traditional indices. Under the umbrella of iShares, smart beta exchange-traded funds, are included funds that provide minimal volatility, both single-factor and multi-factor, dividend yields, fixed income and asset exposures of equal weight.

BlackRock’s largest exchange-traded fund includes the iShares Core S&P 500 ETF, iShares MSCI EAFE ETF, iShares Core US Aggregate Bond ETF, MSCI Emerging Markets ETF, and iShares Russell 2000 ETF. As of March 21, 2021, these 5 ETFs had total net assets of over $580 billion, collectively.

How does BlackRock make money?

BlackRock is the parent company of iShares, the world’s largest provider of exchange-traded funds. BlackRock reports its revenue as a single business segment. The majority of this income comes from the investment advice and management fees it charges its clients.

As indicated, the entire business of the company operates as a single business segment. This means that the company does not report income from the individual parts of its businesses. However, the company divides its income according to categories, which we list below with their respective percentages of income.

In general terms, the firm’s income comes from the following services:

The Investment Advice, Management Fees and Securities Lending segment provide the company with 78% of its revenues.

Technology services account for 7%.

Distribution fees for 7%.

Investment advisory performance fees for another 7% and advisory and other income for 1%.

How to invest in BlackRock?

BlackRock has offices and branches in many parts of the world. From their website, you can see in which countries they are operating and what kind of products they offer to customers in each country. For example, in Colombia, the company has an investment product: the managed stock fund COLCAP, which invests in shares listed on the Colombian stock exchange. The administration costs of this fund are 0.48% of the value of the capital invested.

What perception does the public have of BlackRock?

In his 2018 annual letter, company CEO Laurence Fink stated that other CEOs, referring to CEOs of S&P 500 companies, should be mindful of their impact on society.

NGOs running public opinion campaigns against the war objected to Mr. Fink’s statement. These NGOs allege that BlakRock is the world’s largest arms investor. BlackRock channels investment to weapons through its US aerospace and defense industry fund.

In the 2018 annual letter, no concrete actions were pointed out to have a more positive impact on society. The media DW indicated that it was not clear what BlackRock was going to do after the statements of its CEO. However, the letter came at a time when the Oxfam organization published a report titled “Reward work, not wealth.” Oxfam exposed its findings around inequality and how big companies deepen inequality, without doing much to remedy it.

As one of the most influential men in the world, Laurence Fink has been present on several occasions in renowned forums that seek the betterment of society. He is a regular speaker at the World Economic Forum in Davos. Fink is one of the 3000 richest people in the world, ranked #2578 (as of June 2022) with a fortune of USD 1 billion.

I reject BlackRock for its investments in weapons

As of the date of this report, BlackRock indicated that it had assets of more than 10 trillion dollars under management. 

In May 2018, anti-war and anti-gun organizations held a rally outside BlackRock’s annual shareholder meeting in Manhattan, New York. BlackRock is one of the largest shareholders in Sturm Ruger, one of the largest American companies involved in the manufacture of firearms. The protesters pointed out that the hands of BlackRock investors were stained with blood. Devin Kelly, an assailant who carried out a mass shooting that killed 26 people in November 2018 was carrying a Ruger AR-15, one of the weapons manufactured by Sturm Ruger, the assailant injured 20 more people inside a church in the United States Joined.

Criticism of BlackRock

Due to its power and the scope of its assets and activities, BlackRock has been designated the largest shadow bank in the world.

In 2020, the representatives of the US Congress, Katie Porter and Jesús “Chuy García” proposed a law aimed at curbing BlackRock or preventing it and other financial entities also known as shadow banks from having so much power.

BlackRock has also been subject to scrutiny due to its ties to the US Federal Reserve during the coronavirus pandemic and the central bank’s crisis response efforts. Critics said the company was one of the main beneficiaries of the Fed’s 2020 purchase of corporate bonds to boost the economy during the pandemic.

An overwhelming power

In November 2020, the nonprofit American Economic Liberties Project issued a report highlighting the fact that the three largest asset management firms, known as the Big Three – BlackRock, Vanguard and State Street – had assets under management. of more than 15 trillion in total, an amount that is equivalent to more than three-quarters of the Gross Domestic Product of the United States. This organization’s report has called for government authorities to develop better regulations to curb abuses and the enormous market power of financial institutions.

Within the details issued by the American Economic Liberties Project, it is highlighted that BlackRock:

It has information about 10% of the world’s corporate stocks and bonds. 

Your investments are key to meeting the key economic and social challenges of our time. For example: it manages $87 billion in shares of companies in the fossil fuel industry, and the company has opposed or abstained in the face of more than 80% of shareholder motions related to combating climate change. in the companies in which it invests between 2015 and 2019. 

The company employs a former deputy chairman of the Federal Reserve and the former head of the Swiss Central Bank, among other former government officials. It has also been known that several of the company’s executives have subsequently gone on to hold positions in government institutions. 

BlackRock’s largest exchange-traded fund for both junk and investment-grade bonds grew to the largest size in its history, following an announcement by the Federal Reserve that it might start buying ETF bonds. 

Advice to Donald Trump in 2020

BlackRock CEO Laurence Fink advised US President Donald Trump on his response to the coronavirus health and economic crisis in 2020. 

The American Economic Liberties Project also pointed out that the company’s network of connections has made this company one of the most influential. BlackRock is one of the companies that has most touched the lives of American citizens in one way or another.

BlackRock operations in the Americas

BlackRock has been operating in Latin America for almost three decades serving individuals and families who invest for their retirement, to purchase assets or for their children’s education.

Likewise, BlackRock seeks to help people in the region, regardless of their income level, achieve their financial goals.

In Latin America, the company operates through divisions such as BlackRock Latin American Investment Trust. The company’s objective is to secure long-term investment for growth primarily by investing in multiple assets within the region.

In recent years, the company has launched investment products specifically for the region, with a special emphasis on ETFs that cover the main regional stock markets and their benchmark indices. For example, the iShares BlackRock EWW ETF offers exposure to a broad set of companies in Mexico, so by investing in this ETF, investors take an immediate diversified position in Mexican stocks. This ETF seeks to track the investment results of a broad-based index composed of equities in Mexico. There are important positions in companies such as América Móvil, Walmart de México, GPO Finance Banorte, Fomento Economico Mexicano and Grupo México B.

In the Brazilian market, BlackRock is present with the EWZ ETF, aimed at investors seeking exposure to large and medium-sized companies in Brazil, with a diversified investment in 85% of Brazilian stocks. In Brazil, BlackRock takes positions in companies such as Petroleo Brasileiro Pref SA. Vale do Rio Doce SH. Petrobras, Itaú, Banco Bradesco and Ambev SA.

BlackRock in Colombia

The Colombian market is one that has drawn BlackRock’s attention in a powerful way. The strategic position of this market makes it a privileged access point to a large number of investment products in various markets. In Colombia, Diego Mora acts as General Director of the company for Colombia, Central America and Peru.

BlackRock has been present in the Colombian market since 2012 as an investment manager focused on growing client savings. In Colombia, many of these clients invest in order to obtain the necessary income for their retirement. Since 2020 and as a response to Larry Fink’s aspirations to make the company more sustainable in its investments at an international level, BlackRock has made sustainability one of its main investment standards. The objective of this approach is to make the company a benchmark in the region with quality and highly sustainable products.

In Colombia, the main reference fund is iColcap, which follows the largest Colombian stocks in the market. The fund is invested in the 20 main companies in the country and has an annual cost of 0.48%. Some of the important positions of this fund are Ecopetrol, ISA, Bancolombia, Grupo Sura and Nutresa.

BlackRock has also actively worked with national fund managers such as Valores Bancolombia. The purpose of these associations is to offer a wide range of fixed income and variable income products to satisfy the needs of Colombian and international investors. In 2021, Valores Bancolombia and BlackRock jointly launched seven specialized ETFs in the Colombian market.

Best BlackRock ETFs

BlackRock has established itself as the world’s largest asset manager because it offers many and diverse investment products. Their investment products can be easily found at many brokers and centralized open access markets. Popular BlackRock products and ETFs include the following:

The IVV ETF follows the benchmark S&P 500 index made up of the 500 largest companies in the US market. It is BlackRock’s best-known ETF.

IWN is an ETF that tracks companies in the Russell 2000 Index that exhibit value characteristics or companies that are undervalued by the market.

The IWF ETF tracks Russell 1000 index companies that exhibit momentum or high-growth characteristics. This index is made up of companies whose earnings are expected to grow above the average performance of the market.

The SOXX ETF offers exposure to companies that are in the semiconductor segment. This sector is one of the fastest growing in the world, exhibiting returns that exceed 300% in the last five years.

ACWI is an ETF that tracks a wide range of international companies from emerging and developed markets.

The IVW ETF offers exposure and access to companies in the S&P 500 index THAT exhibit growth characteristics. These are the companies that expect returns and growth above the market average.

Recent facts about BlackRock

On February 1, it was reported that the firm had bought Aperio, a company that offers index investment services to high-income clients.

In March 2021, BlackRock was heavily criticized for its hiring policies in which it gave little importance to diversity among its ranks. One of the most notorious facts is that the firm hires few employees who are black or from non-white backgrounds. The practice has made the company known as WhiteRock. Black employees at the firm have been fighting for the firm to carry out stronger workplace inclusion policies. However, the real inclusion of the black population within the company is still a great debt of the company.

In April 2021, the company announced that it had improved its profits by 16% in the first quarter of 2021. As of the date of the report, the firm indicated that it had assets under the management of 9 trillion dollars. The firm’s revenue was $4.4 billion for the period from January to March 2021. This level of revenue represented a 19% increase over the same period last year.

Corporate social responsibility

On April 13, 2021, in a major corporate policy and paradigm shift, BlackRock focused more on environmentally responsible investments. The firm launched several decarbonization funds with the Singapore government. The government’s investment arm, Temasek is looking to launch a series of massive venture capital investments. The objective of the Singapore government with these funds is to advance in the processes to decarbonize its economy.

On May 31, 2021, BlackRock made a more forceful call on BP to accelerate its plans to combat climate change. BP is in fact one of the largest oil producers in the world.

BlackRock supported shareholder calls for much faster action on the climate crisis. The American company and investments also have shares in other oil companies and have called each of them to invest in renewable energy. (Source: Recharge).

Ambiguous role against bitcoin

In 2021, BlackRock’s role in the growth of bitcoin investments was ambiguous. Towards the month of April, bitcoin reached all-time highs of $63,000. However, shortly after the price of bitcoin experienced a sharp drop. Much of the drop was attributed to comments from Elon Musk after he pointed out that Tesla would not accept bitcoin as a means of payment. After all the noise that the decision generated, there was speculation that BlackRock had spread rumors about how “green” bitcoin was. The company reportedly follows environmental concerns about cryptocurrency very closely.

But by the month of May, the CEO of BlackRock stated that the company was monitoring the evolution of crypto assets. The statements suggested that the company was considering investing in bitcoin and other cryptocurrency assets. Larry Fink also indicated that they were looking at the regulatory landscape. These statements came after the Biden government announced that it would tax bitcoin transactions of more than USD 10,000.

Although these statements are contradictory to the initial reservations of the firm about crypto assets, the final statements were more cautious. Larry Fink indicated that for now, it is too early to know if cryptocurrencies are an investment or just a speculative tool.

In the year 2020, Fink noted that bitcoin was having a bigger and bigger impact on the economy, affecting the price of the dollar.

Investments in SoftBank

On May 19, the firm announced that it would increase its investments in the famous SoftBank Group. BlackRock’s Japan division holds 5.5% ownership of SofBank through a variety of entities. But with May’s investment up 2.5%, the company becomes SoftBank’s fourth largest shareholder. SoftBank for its part has seen a very large growth in the value of its shares during the pandemic, tripling its value in 2021.

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