BlackRock, the world’s first fund manager, is a waking giant that is changing capitalism. it has plenty of strength to try. She manages 6.3 trillion dollars –5.3 trillion euros–, almost as much as the GDP of Germany and France together. Talk face-to-face with governments and financial institutions. He advises them on how to act and does the same with the companies in which he is the main shareholder. Among them are, for example, 88% of the companies in the S&P 500 index.
BlackRock‘s neo-capitalism is more monopolistic – it concentrates wealth in fewer hands – and the European Commission fears that it will have a pernicious effect on competition, resulting in greater inequality. It is also more long-term. It seeks returns to nurture, for example, one of its main businesses: the pension plans of employees who no longer trust the welfare state. It is capitalism that rewrites the rules of the social contract. It is also a more technological capitalism as it relies on artificial intelligence to decide how to protect and grow investments.
The manager moves 5.3 trillion dollars, almost as much as the GDP of Germany and France together
Over the past nine years, BlackRock has grown on the back of a bull market and has more and more investors. Public administrations, sovereign wealth funds and private savers trust him with their money in exchange for a benefit that between 2007 and 2017 was 80%.
The vast majority of these investors, as recognized by Larry Fink, CEO of BlackRock (in the photo), lose confidence in the State and look to the private sector for the guarantees of subsistence that the public sector does not offer. Long-term savings tools, such as pension plans, are the company’s priority.
BlackRock has also shown that fund managers and not banks are the true global players. “This is the real story,” says Daniela Gabor, professor of economics at the University of the West of England. Banking, more regulated since the 2008 crisis, loses weight as an economic engine in favor of fund managers, unregulated giants because they are mere intermediaries, agents who pass on the profits and losses of their investments to their clients. The US Treasury, for example, does not consider that they are a risk to the system, too large entities that, if necessary, should be bailed out.
Over the past nine years, BlackRock has grown on the back of a bull market and has more and more investors
BlackRock and its competitors are today the main shareholders in almost all the big multinationals, corporations that cannot ignore their strategic advice. Bayer and Monsanto, for example, have merged, largely thanks to pressure from BlackRock, the main shareholder of both.
This “common ownership” (owning shares of companies in the same sector) affects competition and, according to Fiona Scott, a former antitrust prosecutor for the US Department of Justice, is a decisive force in consolidating monopolies.
Margrethe Vestager, the EU’s competition commissioner, fears the same thing and has ordered an investigation. When an institution has interests in several companies that compete with each other –as is the case with BlackRock– there is an incentive to reduce competition. The German government’s antitrust commission believes, however, that the lack of incentives for competition cannot be attributed to what institutional investors like BlackRock do.
BlackRock advises governments and large companies on how to act
José Azar, a professor at IESE, Isabel Teu, from the University of Navarra, and Martin Schmalz, an economist from the University of Michigan, have analyzed the role of large fund managers in the US airline sector. BlackRock and Vanguard are among the largest shareholders in the Big Five, and ticket prices on some major routes have risen by 4-10%. Azar believes that the effect on competition is clear, and based on false competition, companies more easily obtain benefits to the detriment of the consumer.
Michael Theurer, a member of the Liberal Party (FDP) in the Bundestag, believes that “thanks to its sheer size, BlackRock has market power that no state can control. This undermines the basic rules of our market economy.” What also worries Theurer is that BlackRock could be an advisor to a government – as it was to the Spanish to create Sareb – and then benefit from this privileged information to decide on its investments.
“Thanks to its sheer size, BlackRock has market power that no state can control.”
Michael Theurer
Member of the Liberal Party (FDP) in the Bundestag
BlackRock maintains that this conflict of interest has been resolved by building “Chinese walls” between its consulting and investment divisions. But it seems difficult that, in some way, inside information does not circulate among BlackRock’s directors and senior officials. As a result of its collaboration with the Bank of Spain, for example, BlackRock had privileged information about the financial and real estate sectors, in which it invested heavily starting in 2008.
Giants like Vanguard and State Street, as well as BlackRock, use their great power – voting power at general shareholders’ meetings – to influence the long-term strategy of investee companies. The benefit of these companies reduces to that of BlackRock and its customers. The bull market favors them. The 6.3 trillion dollars it manages are 20% more than a year ago. Among his clients there are more and more public administrations, such as the State of California, which have entrusted him with their pension plans.
BlackRock, therefore, also indicates, according to Professor Gabor, “the decline of the welfare state.” A State that, for example, reduces the deficit at the cost of not providing future social spending opens up a great opportunity for fund managers, who have become “systemic institutions that reflect structural changes both in the organization of finances and in the contract relationship between the citizen and the State”.
As a result of its collaboration with the Bank of Spain, for example, BlackRock had privileged information about the financial and real estate sectors, in which it invested heavily starting in 2008.
BlackRock was born in New York in 1988 and its main attractions since then have been offering passive investment products and a great ability to minimize risk.
Passive investment is made through products such as ETFs (Exchange Traded Funds). These funds replicate the composition of a stock index and the objective is to imitate its evolution. You just have to follow it and for this there is the Aladdin digital platform. This is BlackRock’s central operating system, a brain that lets you know what you have and what you will have. Aladdin calculates risk and makes buy-sell decisions, and does it so well that BlackRock gives it away (for a fee) to other investors.
When thousands and thousands of operators (traders) see the world through Aladdin’s telescope, the risk of a bad analysis causing a global disaster skyrockets. BlackRock, faithful to his philosophy, minimizes this risk with a strong investment in artificial intelligence. It has a laboratory in Palo Alto and at least 25% of its 13,000 employees work on the technological development of robots that analyze information (big data) and learn by themselves based on their own analytical capacity. Machines are going to manage our wealth, and BlackRock isn’t the only one who thinks they’re going to do it better than people.
*Shares managed by Blackrock Group on behalf of its clients are held by numerous subsidiaries around the world. Investigate Europe, with the help of the corporate research team from the University of Amsterdam, calculated the respective shares via the Thomson One database and summarized them as of March 3, 2018, for each company involved in an addition. In some cases, the proportion of the total number of shares in the respective companies determined in this way is higher than the proportion of voting rights officially notified by Blackrock at shareholders’ meetings and also exceeds the reporting thresholds at supervisory authorities. Blackrock declined to comment. The competent supervisory authorities, such as the German Bafin, announced a review of the data.
BlackRock is so big and so liquid that the Bank of Italy also believes it poses a “systemic risk.” If you pull out of one bear market and others follow, you could turn a mere correction into a crash. BlackRock has declined to comment “on the record” on this and other concerns raised by its size and activity.
Somehow, however, Fink understands that BlackRock helps consolidate monopoly capitalism, and perhaps for this reason last January he warned companies of the need to make “a positive contribution to society.” He advised them not to focus so much on quarterly profits as to improve their value over the long term.
BlackRock can be a transformative force in the market economy but without touching its essence, that is, the endless growth of profits. Capital, as the writer John Berger said, can only exist as such if it is continuously reproduced: “Its present reality depends on its future satisfaction.”
Our present and our future are in the hands of BlackRock more than many would think reasonable.
