Dhe man wears boring suits and rimless glasses that his optician should have advised against. He is neither particularly original nor particularly inspiring; by profession he is an asset manager. You can’t tell from the fact that the man, born in Los Angeles in 1952, now commands $ 10 trillion in fixed assets. Understatement is part of his self-marketing. And the camouflage of his power.
Laurence “Larry” Fink is the name of this man. His company is called BlackRock, the world’s largest asset manager, who invests money for retirees, oligarchs and students, for sovereign wealth funds and small savers. In Germany, BlackRock became known outside the financial sector because the CDU politician Friedrich Merz worked for Fink for a while as a lobbyist. But that’s just by the way.
Fink is a revolutionary. It is thanks to him and his industry that stock saving has become attractive to everyone. It’s pretty simple too, all you need is a computer and an online financial platform. It is also cheap. I know what I’m talking about. For years my bank had sold me complicated funds that secured a wage and a living for many bank employees, while I was left with nothing.
It doesn’t work without toughness
Fink and his colleagues do not claim to beat the market with ingenious ideas. As boring as Fink looks, his trick is boring: His funds (also known as ETFs) track stock market indices (Dax, Euro Stoxx, Dow Jones). And not even that idea came from Larry Fink himself. It goes back to the economist Eugene Fama and his theory of “efficient markets”, according to which even the smartest cannot beat the market.
When the former head of the US Federal Reserve, Paul Volcker, scoffed in 2008 that the only recent innovation in the financial industry was the invention of the ATM, he must have overlooked the index funds, which had their origins as far back as the 1970s but did not see their breakthrough until after the turn of the millennium . Contrary to what many think, capitalism is not there for the capitalists, but for the poor whom it makes rich. The index funds prove it. With a savings plan of 100 euros a month, assets of almost 100,000 euros could be built up in thirty years.
Given the many films about heroes and villains on Wall Street, it is surprising that Larry Fink’s life has not been made into a film long ago. Now there is at least a partial biography of Fink in a book by Financial Times journalist Robin Wigglesworth that will be published these days (“Trillions. How a Band of Wall Street Renegades Invented the Index Fund and Changed Finance Forever”). Fink’s life proves that success cannot be planned. But that a few things make success easier, maybe even make it more probable: failure can’t hurt. Faithful friends are helpful. The right moment needs to be seized. Financial crises are opportunities to get rich. And: It doesn’t work without toughness against yourself and others.
Responsible for a hundred million dollar loss
Fink grew up near Los Angeles. His father had a shoe shop (the success story of the children of shoe sellers has yet to be written) and his mother was an English teacher. He studied political science; he was hardly interested in economics. Because he enjoyed money, he applied to Wall Street, but was turned down by Goldman Sachs. “A blessing to me,” he told Robin Wigglesworth. Instead, he started his career in 1976 in the bond business of the investment bank First Boston, where he quickly became a star. Here he met Robert Kapito, who has remained loyal to him as his right-hand man to this day. Kapito is the man for the rough, Fink is the supple.
Ten years later, in 1986, Fink was responsible for a hundred million dollar loss at First Boston for failing to hedge against the sudden drop in interest rates. The candidate for chairmanship became an outcast. He was fired from being thrown out. The defeat spurred his ambition: in Stephen Schwarzman, the owner of the private equity firm Blackstone, he found a generous financier with whom he later fell out – but because of Blackstone’s good name, he christened his own fund company BlackRock (and thus responsible that’s why I mixed up the two companies for a while). In the middle of the financial crisis in 2009, Fink and his buddy Kapito were able to buy their ETF division (called: iShares) from Barclays Bank, which was in dire straits. From then on, the business with “passive” index funds became a sure-fire success. In mid-2021, BlackRock’s iShares division alone had assets of $ 3 trillion.
A case for the antitrust authorities!
The Hollywood narrative demands that the rise of the hero be followed by the deep fall. Nothing of that can be seen yet. There are estimates that index funds will soon hold half of the stocks in the top 500 American companies. An accumulation of economic power that is possibly more dangerous than the constantly publicly discussed power of Google, Amazon or Facebook. Paradoxically, BlackRock’s danger could lie precisely in the company’s passivity. If, roughly speaking, both “my” company and that of my competitor Fink are owned, the drive to compete wanes. It is enough to be on good terms with Fink.
A case for the antitrust authorities! “Secret socialism”, a Wall Street banker scoffed a few years ago: A completely passive economy is worse than a centrally planned economy because it overrides entrepreneurial initiative and the appetite for risk. Whether in the end total capitalism will overturn in its abolition? Dialecticians from the school of Hegel and Marx would have enjoyed it.