The Rise of BlackRock: How the $11.5 Trillion Asset Management King Was Forged
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The Rise of BlackRock: How the $11.5 Trillion Asset Management King Was Forged
One BlackRock, half the history of finance.
Navigating Web3 tides with focused insightsSource: Mansa Finance
Edited by: lenaxin, ChainCatcher
BlackRock's capital tentacles have reached over 3,000 listed companies worldwide—from Apple and Xiaomi to BYD and Meituan—spanning core sectors such as internet, new energy, and consumer industries. Every time we use a food delivery app or purchase a fund, this financial giant managing $11.5 trillion in assets is quietly reshaping the modern economic order.
BlackRock’s rise began during the 2008 financial crisis. At that time, Bear Stearns faced a liquidity crisis due to 750,000 derivative contracts (ABS, MBS, CDO, etc.), prompting the Federal Reserve to urgently commission BlackRock to assess and dispose of its toxic assets. Founder Larry Fink, leveraging the Aladdin system—a risk analytics algorithm platform—led the liquidation of Bear Stearns, AIG, Citigroup, and other institutions, while monitoring Fannie Mae’s $5 trillion balance sheet. Over the next decade, through strategic acquisitions like Barclays Global Investors and leading the expansion of the ETF market, BlackRock built a capital network spanning more than 100 countries.
To truly understand BlackRock’s ascent, we must return to the early career of its founder, Larry Fink. His story is filled with drama—from being hailed as a financial prodigy, to falling from grace after a major failure, then rising again to build BlackRock into a financial empire. His journey reads like an epic saga of modern finance.
From Prodigy to Failure—The Early Career of BlackRock Founder Larry Fink
American Post-War Baby Boom and Real Estate Boom
"After WWII, millions of soldiers returned home. Over two decades, nearly 80 million babies were born—accounting for one-third of the U.S. population. This baby boom generation favored stock and real estate investments and early consumption, driving personal savings rates down to as low as 0–1% annually."
Fast forward to the 1970s: the post-war baby boomers were entering their mid-20s and above, triggering an unprecedented housing boom. In the early mortgage market, banks lent money and then entered long repayment cycles. Their ability to re-lend was constrained by borrowers' repayment speed. This basic mechanism was far too limited to meet rapidly growing loan demand.
The Invention and Impact of MBS (Mortgage-Backed Securities)
Lewis Ranieri, vice chairman at Wall Street powerhouse Salomon Brothers, designed an innovative product. He bundled together thousands of mortgages held by banks and sliced them into smaller portions to sell to investors. This allowed banks to quickly recoup capital and issue new loans.
The result? Banks’ lending capacity exploded. The product immediately attracted long-term capital from insurers and pension funds, significantly lowering mortgage interest rates. It solved funding needs on both ends—the originator and the investor. This was the birth of MBS (Mortgage-Backed Securities), also known as mortgage-supported bonds. However, MBS still lacked sophistication. Its model—akin to slicing a pie uniformly and equally distributing cash flows—was like a one-pot stew, unable to meet investors’ diverse needs.
The Design and Risks of CMO (Collateralized Mortgage Obligations)
In the 1980s, First Boston saw the emergence of a young talent even more creative than Ranieri: Larry Fink. If MBS was an undifferentiated pie, Fink added a refinement—he sliced the pie into four layers. When repayments occurred, principal would be paid first to Class A bondholders, then Class B, then Class C. Most imaginatively, the fourth layer wasn’t labeled D, but Z (Z-Bond). Until the first three tranches were fully repaid, the Z-Bond received no interest payments—only accruals, with interest added to principal and compounded over time.
Only after all senior tranches were cleared would the Z-Bond begin receiving payouts. Risk and return were now linked across tiers A to Z. This product, which segmented repayment schedules to meet different investor preferences, became known as CMO (Collateralized Mortgage Obligations).
You could say Ranieri opened Pandora’s box—but Fink opened another box within it. Neither Ranieri nor Fink could foresee the seismic impact these products would have on global financial history. At the time, the financial world viewed them as strokes of genius. At age 31, Fink became the youngest partner ever at First Boston, one of the world’s top investment banks. He led a team nicknamed "Little Israel," composed largely of Jewish professionals. A business magazine ranked him first among Wall Street’s five leading young financiers. The CMO was instantly embraced by the market, generating massive profits for First Boston. Everyone believed Fink would soon become the firm’s CEO. But just as he neared the peak, disaster struck.
Black Monday and the $100 Million Lesson
Both MBS and CMO suffered from a critical flaw: when interest rates rose sharply, repayment periods lengthened, locking up investments and causing investors to miss out on higher-yielding opportunities. When rates fell sharply, prepayment waves cut off cash flows prematurely. Whether rates rose or fell, investors faced negative consequences. This double-bind phenomenon is known as negative convexity—and the Z-Bond amplified it further. With its long duration, the Z-Bond was extremely sensitive to rate changes. From 1984 to 1986, the Federal Reserve slashed rates continuously, cutting 563 basis points over two years—the largest decline in forty years. Borrowers rushed to refinance into lower-rate mortgages, creating an unprecedented wave of prepayments.
Fink’s team had accumulated a large inventory of unsold Z-Bonds—like a ticking time bomb. These bonds were originally priced around $150, but after revaluation, they were worth only $105. The loss was severe enough to cripple First Boston’s entire mortgage securities division.
Worse still, Fink’s team had hedged its risk by shorting long-term Treasury bonds. Then, on October 19, 1987—infamously known as “Black Monday”—the stock market crashed. The Dow Jones Industrial Average plunged 22.6% in a single day. As investors fled to safe-haven Treasuries, bond prices surged 10% in hours. Hit by this dual shock, First Boston ultimately lost $100 million. Once hailed by the media as having “only the sky as his limit,” Fink now saw his sky collapse. Colleagues stopped speaking to him; the firm excluded him from key decisions. This quiet form of exile eventually forced Fink to resign.
Larry Fink’s Rise and Fall at First Boston
Fink thrived under the spotlight and understood that Wall Street valued success far more than humility. This very public humiliation left a lifelong mark. In fact, part of Fink’s drive to push CMOs stemmed from his desire to make First Boston the dominant player in mortgage-backed securities—a direct rivalry with Ranieri and Salomon Brothers.
Fink had initially applied to Goldman Sachs after graduating from UCLA but was rejected in the final round. First Boston gave him his break when he needed it most—and also delivered his harshest lesson about Wall Street reality. Nearly every media report later simplistically claimed, “Fink failed because he bet wrongly on rising interest rates.” But a colleague who worked alongside Fink at First Boston later pointed to the real issue: although Fink’s team had built a risk management system, computing risk with 1980s-era technology was like using an abacus to process big data.
The Birth of Aladdin and the Rise of BlackRock
The Founding of BlackRock
In 1988, just days after leaving First Boston, Fink gathered an elite group at his home to discuss a new venture. His goal: to build an unprecedentedly powerful risk management system—because he vowed never again to find himself in a situation where he couldn’t properly assess risk.
This handpicked team included four of Fink’s former colleagues from First Boston: Robert Kapito, Fink’s loyal ally; Barbara Novick, a sharp portfolio manager; Bennett Golub, a math genius; and Keith Anderson, a top-tier securities analyst. Fink also recruited his friend Ralph Schlosstein from Lehman Brothers—formerly domestic policy advisor to President Carter. Schlosstein brought along Susan Wagner, former deputy head of Lehman’s mortgage department. Finally, Hugh Frater, executive VP at Pittsburgh National Bank, joined the group. These eight individuals became the recognized co-founders of BlackRock.
What they needed most was seed capital. Fink called Steve Schwarzman at Blackstone Group. Blackstone, a private equity firm founded by former U.S. Commerce Secretary Peter Peterson and his protégé Schwarzman, was riding high amid the merger-and-acquisition boom of 1988. While leveraged buyouts were its main business, opportunities weren't constant—so Blackstone sought diversification. Schwarzman was intrigued by Fink’s team, but everyone knew Fink had lost $100 million at First Boston. So Schwarzman called his friend Bruce Wasserstein, head of M&A at First Boston, for advice. Wasserstein replied: “To this day, Larry Fink remains the most talented person on Wall Street.”
Schwarzman immediately issued Fink a $5 million credit line and $150,000 in seed funding. Thus, a new division named Blackstone Financial Management was established under Blackstone. Fink’s team and Blackstone each held 50% ownership. Initially, they didn’t even have their own office space—renting a small corner in Bear Stearns’ trading floor. Yet growth far exceeded expectations: Fink’s team repaid all debts shortly after launch and expanded their asset base to $2.7 billion within a year.
Developing the Aladdin System
The key to their rapid rise was a computer system they developed—one later named “Asset, Liability, and Debt & Derivative Investment Network.” Its five core functions formed the acronym Aladdin, evoking the mythical lamp from *One Thousand and One Nights*, symbolizing how the system could grant investors wisdom and insight.
The first version was coded on a $20,000 workstation, squeezed between a refrigerator and coffee machine in the office. This system, replacing traders’ intuition with advanced data models for risk management, was clearly ahead of its time. Fink’s success was like hitting the jackpot for Schwarzman. But their partnership soon soured.
Splitting from Blackstone Group
As the business grew rapidly, Fink hired more talent and insisted on granting equity to new employees. This diluted Blackstone’s stake from 50% down to 35%. Schwarzman told Fink that Blackstone couldn’t keep giving up shares indefinitely. Ultimately, in 1994, Blackstone sold its stake to Pittsburgh National Bank for $240 million, with Schwarzman personally pocketing $25 million—just as he was going through a divorce from his wife Ellen.
Businessweek quipped: “Schwarzman’s proceeds were just enough to cover his alimony payment to Ellen.” Years later, Schwarzman reflected on the split—not as a $25 million gain, but a $4 billion loss. In hindsight, he felt he had no choice. Looking back, Fink’s dilution of Blackstone’s ownership appears almost deliberate.
The Origin of the Name “BlackRock”
After splitting from Blackstone, Fink’s team needed a new name. Schwarzman asked Fink to avoid using “black” or “stone.” But Fink offered a humorous proposal: “J.P. Morgan and Morgan Stanley evolved beautifully after their split—I’d like to use ‘Blackrock’ as a tribute to Blackstone.” Amused, Schwarzman agreed. And so, the name BlackRock was born.
Thereafter, BlackRock’s assets under management climbed steadily, reaching $165 billion by the late 1990s. Their risk control system became increasingly indispensable to major financial institutions.
BlackRock’s Rapid Expansion and Technological Edge
In 1999, BlackRock went public on the NYSE. The influx of capital enabled aggressive acquisitions—marking the transition from a regional asset manager to a global titan.
In 2006, a pivotal event unfolded on Wall Street: Merrill Lynch CEO Stan O’Neal decided to sell the firm’s massive asset management division. Larry Fink instantly recognized a once-in-a-lifetime opportunity. He invited O’Neal to breakfast at an Upper East Side restaurant. After just 15 minutes of conversation, they sketched the merger framework on a menu. Through a share swap, BlackRock merged with Merrill Lynch Asset Management. The new entity kept the name BlackRock—and its assets under management instantly surged to nearly $1 trillion.
One major reason for BlackRock’s incredible growth in its first 20 years was solving information asymmetry between buyers and sellers in investing. Traditionally, buy-side firms relied entirely on sell-side marketing—investment bankers, analysts, and traders from the sell side monopolized core capabilities like asset pricing. It was like buying vegetables at a market—you can’t possibly know more than the vendor. But with Aladdin, BlackRock empowered clients to manage investments, enabling them to judge the quality and value of an asset better than the seller themselves.
The Savior During Financial Crisis
BlackRock’s Pivotal Role in the 2008 Financial Crisis
In spring 2008, the U.S. stood at the most dangerous point of its worst economic crisis since the 1930s. Bear Stearns, the nation’s fifth-largest investment bank, was collapsing and filed for bankruptcy. With counterparties across the globe, its failure risked triggering systemic collapse.
The Federal Reserve held an emergency meeting and by 9 a.m. that day, approved an unprecedented plan: authorizing the New York Fed to lend JPMorgan Chase $30 billion to facilitate its acquisition of Bear Stearns.
JPMorgan offered $2 per share—a price that nearly provoked a mutiny from Bear Stearns’ board. Just a year earlier, Bear Stearns’ stock traded at $159. For an 85-year-old Wall Street institution, $2 was an insult. But JPMorgan had valid concerns: Bear Stearns reportedly held vast amounts of “illiquid mortgage-related assets.” To JPMorgan, these were nothing short of bombs.
All parties quickly realized the deal was highly complex, with two urgent issues: valuation and toxic asset separation. There was only one firm Wall Street trusted for such a task. Timothy Geithner, president of the New York Fed, turned to Larry Fink. With official authorization, BlackRock moved into Bear Stearns to conduct a full-scale liquidation.
The irony? Twenty years earlier, Fink’s team had rented workspace in Bear Stearns’ trading floor. Now, the man once humiliated on Wall Street returned as the firefighter-in-chief—himself a founding architect of the mortgage securities industry that helped cause the subprime crisis.
With BlackRock’s assistance, JPMorgan completed the acquisition at around $10 per share. The legendary name Bear Stearns vanished. Meanwhile, BlackRock’s reputation soared. The three major U.S. rating agencies—S&P, Moody’s, and Fitch—had awarded AAA ratings to over 90% of subprime mortgage securities, destroying their credibility in the crisis. The entire U.S. financial valuation system had collapsed. Amid the chaos, BlackRock—with its superior analytical systems—became an irreplaceable executor of America’s bailout program.
Bear Stearns, AIG, and the Fed’s Rescue Efforts
In September 2008, the Fed launched another, even more dire rescue operation. American International Group (AIG), the nation’s largest insurer, saw its stock drop 79% in the first three quarters, primarily due to $527 billion in credit default swaps (CDS) nearing collapse. A CDS is essentially an insurance contract: if a bond defaults, the CDS pays out. But crucially, you didn’t need to own the underlying bond to buy a CDS. This was like countless people without cars buying unlimited car insurance. If a $100,000 vehicle got damaged, insurers might owe $1 million in claims.
Market speculators turned CDS into pure betting instruments. While subprime mortgage bonds totaled about $7 trillion, the CDS contracts insuring them reached tens of trillions—exceeding annual U.S. GDP of $13 trillion at the time. The Fed realized: if Bear Stearns was a bomb, AIG was a nuclear weapon.
The Fed authorized an $85 billion lifeline, taking 79% ownership of AIG—effectively nationalizing it. Once again, BlackRock received special authorization to conduct full valuation and liquidation, serving as the Fed’s de facto chief operating officer.
Thanks to these coordinated efforts, the crisis was eventually contained. During the subprime meltdown, BlackRock was also tasked by the Fed with aiding Citigroup and overseeing the $5 trillion balance sheets of Fannie Mae and Freddie Mac. Larry Fink emerged as the new king of Wall Street, forming close ties with Treasury Secretary Paulson and New York Fed President Geithner.
Geithner later succeeded Paulson as Treasury Secretary. Fink, meanwhile, earned the nickname “America’s shadow Treasury Secretary.” BlackRock had evolved from a purely financial firm into a hybrid of government and commerce.
The Birth of a Global Capital Giant
Acquiring Barclays Global Investors and Dominating the ETF Market
In 2009, BlackRock seized another major opportunity. UK-based investment bank Barclays, facing operational difficulties, agreed to sell its iShares fund business to private equity firm CVC. The deal was nearly finalized—but included a 45-day bidding clause. BlackRock lobbied Barclays: “Instead of selling iShares alone, why not merge your entire asset management division with BlackRock?”
In the end, BlackRock acquired Barclays Global Investors for $13.5 billion. This transaction is widely seen as the most strategically significant acquisition in BlackRock’s history—because Barclays’ iShares was then the world’s largest issuer of Exchange-Traded Funds (ETFs).
Since the dot-com bust, passive investing has gained momentum. Global ETF assets have now surpassed $15 trillion. Acquiring iShares allowed BlackRock to capture 40% of the U.S. ETF market. Such massive scale necessitates broad asset allocation to diversify risk.
On one hand, active investing; on the other, passive tracking via ETFs and index funds—which requires holding all or most stocks in a sector or index. As a result, BlackRock holds stakes in numerous large-cap listed companies worldwide. Its clients are mostly institutional giants like pension funds and sovereign wealth funds.
BlackRock’s Influence in Corporate Governance
Theoretically, BlackRock merely manages assets on behalf of clients. But in practice, it wields immense influence. At shareholder meetings of companies like Microsoft and Apple, BlackRock frequently exercises voting rights on major decisions. Among large U.S. corporations representing 90% of total market capitalization, BlackRock, Vanguard, and State Street consistently rank as either the top or second-largest shareholders. The combined market cap of these firms—around $45 trillion—exceeds U.S. GDP.
This level of ownership concentration is unprecedented in global economic history. Moreover, firms like Vanguard lease BlackRock’s Aladdin system for their own risk management—meaning Aladdin oversees even more assets than BlackRock directly manages—by over ten trillion dollars.
The Keeper of Capital Order
In 2020, amid another market crisis, the Federal Reserve expanded its balance sheet by $3 trillion in emergency stimulus. Once again, BlackRock served as the Fed’s trusted agent, managing corporate bond purchases. Numerous BlackRock executives have gone on to serve in the U.S. Treasury and the Federal Reserve—while former government officials have taken roles at BlackRock. This revolving door between public service and private finance has sparked intense public scrutiny.
One BlackRock employee once remarked: “I may not like Larry Fink, but if he left BlackRock, it would be like Ferguson leaving Manchester United.” Today, BlackRock manages over $11.5 trillion in assets. Fink’s seamless navigation between government and business commands respect—and fear—on Wall Street. This dual identity reflects his deep mastery of the industry.
True financial power does not reside on the trading floor, but in the mastery of risk itself. When technology, capital, and power perform in unison, BlackRock has transformed from an asset manager into the keeper of capital order.
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