BlackRock Inc. is the biggest company you’ve probably never heard of.
BlackRock was formed by founder and CEO Larry Fink in 1988 in New York City as a risk management and fixed income institutional asset manager. Now, it is the world’s largest asset manager with $10 trillion currently in its portfolio.
According to Marketwatch, there is currently around $40 trillion in circulation around the world — which means BlackRock manages a quarter of the world’s money. Forget Tesla and Amazon and their eccentric, space-faring CEOs; BlackRock and its comparatively reclusive CEO are the biggest players on the global financial stage.
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How did BlackRock become the largest asset manager in the world, and what does it mean for the current and future world economy?
BlackRock and Vanguard are two of the Big Three passive fund asset management firms. The third, State Street, is owned by BlackRock — whose largest shareholder is Vanguard. It seems all roads lead to BlackRock. Vanguard is the largest shareholder of BlackRock. Vanguard itself, on the other hand, has a unique structure that makes its ownership more difficult to discern, but many of the oldest, richest families in the world can be linked to Vanguard funds.
“Vanguard and BlackRock are the top two owners of Time Warner, Comcast, Disney and News Corp, four of the six media companies that control more than 90% of the U.S. media landscape,” said Jeannette Copperman in a Common Reader article.
Together, BlackRock and Vanguard own 18% of Fox, 16% of CBS, 13% of Comast — which owns NBC, MSNBC, CNBC, and the Sky media group, 12% of CNN, and 12% of Disney — which owns a number of subsidiaries.
Media behemoths that may present themselves as rivals are, in reality, owned by the same company. The editorial authority of BlackRock in the companies in which it has a stake is debatable, but the point is, it can direct narratives globally and influence geopolitics at the grandest of scales.
BlackRock’s Magic Genie
While BlackRock and Vanguard shape the media landscape of the world, BlackRock’s secret weapon, an advanced trading algorithm called Aladdin, has been shaping global markets for decades.
The extensive technology program which, by some estimates, operates more than $21.6 trillion in assets, was created by Fink and several colleagues in 1988. Aladdin is an acronym for the Asset, Liability, Debt, and Derivative Investment Network — a program that executes an average of 250,000 trades per day.
Aladdin executes trades in every asset class across every industry and directs the actions of the Federal Reserve and almost every major U.S. bank. It controls over half of all ETFs, 17% of the bond market, and 10% of the stock market.
It collects data points on every market, every company, and every asset, and uses machine learning to calculate which trades to make in less time than it takes for your brain to send an electrical signal through your nervous system to your fingers.
The network that makes up Aladdin is approximately 5,000 supercomputers that now act as the central nervous system for the world’s most sophisticated investors and asset managers.
Every major bank and fund has come to rely on Aladdin and its all-powerful AI to beat the market, which raises several fundamental questions about the nature of our fragile financial system.
The Hands of the Few
If Aladdin’s network were to be hacked, it could have a swift and catastrophic impact on the global economy. The more existential problem is the monopoly this algorithm has created. BlackRock essentially rents out its proprietary golden goose to the world’s highest bidders — mostly large hedge funds and megabanks. This paradigm leaves smaller investors at a major disadvantage and gives companies like BlackRock and Vanguard license to steer the economy as they see fit.
“As soon as BlackRock appears as one of your shareholders, your company stands out from the crowd and gains a huge amount of prestige,” said journalist and BFM Business TV show host Grégoire Favet. “When you are Larry Fink, you can talk as equals with the director of the IMF or a head of state. Mr. Fink has already been received twice at the Élysée since the election of Emmanuel Macron.”
The Keys to the City
When the global financial crisis hit, Aladdin was called upon by every major bank, as well as the head of the Federal Reserve and U.S. Treasury.
The U.S. government called on Aladdin to figure out which assets to keep and let go of at Bear Stearns Cos., a New York-based global investment bank, securities trading and brokerage firm that failed in 2008 and was subsequently sold to JPMorgan Chase.
The success Aladdin had in almost single-handedly stopping the world from experiencing complete financial collapse earned it a prestigious place among the world’s governing bodies. Aladdin was given free reign to decide what to do with the $2 trillion that was printed in the wake of the Great Recession. The majority of it was allocated to bonds and funding to prop up the mortgage companies and banks — assets in which BlackRock was already heavily invested.
In 2017, Fink launched a new project at BlackRock called Monarch, which replaced many of the firm’s fund managers with algorithms. Now, over 70% of all U.S. stock market trades are executed by robots, according to Investopedia.
The influence of BlackRock and its all-powerful algorithm cannot be overstated. As of 2021, at least three executives from BlackRock operate notable positions in President Joe Biden’s cabinet. Biden appointed BlackRock executive Brian Deese as Head of the National Economic Council, and Adewale Adeyemo, former chief of staff to BlackRock’s chief executive, is the top official at the Treasury Department.
Era of AI
While AI programs become more sophisticated, possibly to the point of becoming sentient, Aladdin has been quietly shaping the world’s economy, making the largest asset managers even bigger, and bailing out entire governments. The era of AI isn’t coming, it has been here for decades. And it is now so integrated into our financial system, the world would collapse without it.
