Does the world have a new vampire squid? Ten years ago, that was how Rolling Stone magazine famously described Goldman Sachs, reflecting the way the bank was “wrapped around the face of humanity”.
For years the label stuck. Goldman’s grip on global finance, through its own commercial operations and the influence of its alumni, seemed unshakeable. But as banking has changed, so the prestige of the Wall Street giant has declined.
The reverse is true of BlackRock, the world’s biggest asset manager. Despite the coronavirus crisis, it still booked $35bn of net inflows over the three months to the end of March. And it was more than twice as profitable as Goldman.
Today BlackRock is among the top investors in almost every blue-chip company in the world. But the sway that the group holds extends far beyond its function as a vast asset manager.
Over recent years it has become one of the most vocal lobbyists of lawmakers in the US and Europe. At the same time, its regal chairman and chief executive, Larry Fink, has plugged it into the policymaking establishment, by hiring a string of former politicians and central bankers — a kind of mirror image of the Goldman model that for years has seen alumni take up top roles in the US administration and at the world’s central banks.
Mr Fink has instead hired in from such institutions. Philipp Hildebrand, who used to run Switzerland’s central bank, is a vice-chairman. George Osborne, the former UK chancellor, is a senior adviser. So is Stanley Fischer, former vice-chairman of the Federal Reserve. Friedrich Merz, the former CDU parliamentary chairman, was chairman of BlackRock Deutschland until last month, when he stepped down to focus on his ambition to head the CDU and replace Angela Merkel as chancellor.
Further underpinning BlackRock’s power base, and its crucial role in the global financial system, is its Aladdin technology platform, which connects the world’s biggest companies — from banks and rival asset managers to tech giants — into the markets for trading shares, bonds, derivatives and currencies. Tens of trillions of dollars of assets sit on this systemic platform.
Against that background, consider the growing importance — and contentiousness — of BlackRock’s consulting division. Last month, critics in the US attacked a contract BlackRock’s Financial Markets Advisory unit won with the Federal Reserve to manage billions of dollars of securities, potentially including ETFs in which BlackRock has a direct interest.
Early this month, the FMA secured a €280,000 mandate with the European Commission to advise on a project to integrate climate change into EU banking regulation. This looks odd: a leading investor in big banks and oil companies will be involved in a project that could favour those interests. Finance Watch, the Brussels-based counter-lobby group, has another qualm: BlackRock’s approach to climate change analysis is fundamentally at odds with the EU’s normal standards, which demand scrutiny of the non-financial reporting of responsible behaviour as well as financial metrics.
BlackRock insists that Mr Fink’s recent declaration that “purpose is the engine of long-term profitability” overrides this distinction. It also stresses it is the world’s leading investor in renewables. Even so, sceptics will need to see evidence quickly that BlackRock’s fine green words are translating into concrete pressure on the climate-damaging companies it invests in.
Worsening the optics of the EU mandate, the company that won it was BlackRock Investment Management, which as its name implies is the legal entity that runs the group’s core funds business in the region — but also houses FMA. BlackRock stresses there is a Chinese wall between FMA and its asset management business, though the consultancy arm is unregulated.
More telling still is the price BlackRock is being given for its work — barely half the amount the EU planned to pay, according to its procurement documentation. Getting underpaid is of no concern to BlackRock: the mandate is valuable in other ways. It burnishes the group’s green credentials. And as with any public sector advisory work, it gives the group the cachet of direct interaction with policymaking, on the back of which other more lucrative commercial mandates may well be won.
All in all, BlackRock’s power and influence today are more formidable than ever. And if Joe Biden were to oust Donald Trump from the White House in seven months’ time, Mr Fink might himself become the ultimate embodiment of that clout: he is widely seen as a favourite to be Mr Biden’s Treasury secretary.