Larry Fink

Larry Fink is an American investor, born in Van Nuys, California in 1952. He studied political science and then took an MBA at the University of California, Los Angeles, joining First Boston in 1976 where he worked on mortgage-backed securities in the period when that market was being invented.

He was highly successful there and then, in 1986, his department lost a very large sum after an interest-rate move went against positions whose risk had been misjudged. He has consistently described the episode as the formative event of his career, and the reason he became preoccupied with measuring risk rather than with predicting markets. He left First Boston shortly afterwards.

In 1988 he founded BlackRock with seven colleagues, initially under the umbrella of Blackstone, on the premise that clients should be able to see the risks in a fixed-income portfolio rather than take them on trust. The firm became independent in 1994. That premise produced Aladdin, the risk and portfolio management platform BlackRock built for itself and then licensed to other institutions, which is why a substantial part of the industry runs on infrastructure owned by one of its competitors.

The 2009 acquisition of Barclays Global Investors, which brought the iShares exchange-traded fund business with it, changed the firm’s character. BlackRock became the largest asset manager in the world and much of what it holds is held on behalf of index investors. That scale, rather than any single investment decision, is the reason Fink’s annual letters to chief executives attract attention and controversy: the letters are read as instructions by companies whose shares the firm holds in size on behalf of other people.

Fink’s founding premise was that the dangerous risks in a portfolio are the ones nobody has measured. The 1986 loss came not from taking risk but from taking risk that had been misdescribed, and BlackRock was built to sell the measurement rather than the confidence. Aladdin is the literal expression of that: a system whose purpose is to say what a portfolio would do under conditions that have not happened yet.

The second idea is about time horizon, and it follows from what the firm became. An index manager holding shares on behalf of retirement savers cannot sell a company it dislikes without abandoning the index, so its only levers are engagement and voting, and its interest is in the company still existing and earning in twenty years. That is the reasoning behind his argument against short-termism: it is a structural position produced by permanent ownership rather than a moral preference.

The same structure is what makes the letters contentious. When the largest holder of a great many companies writes to their boards about long-term strategy, the letter carries weight regardless of how it is phrased, and critics on different sides argue either that an index manager should not be exercising that influence at all or that it should be exercising it differently. Fink’s own framing is that the firm votes shares belonging to its clients and is obliged to act as a long-term owner on their behalf, and BlackRock has since moved to let more clients direct their own votes.

The rise of index investing made a small number of asset managers the largest shareholders in most public companies, and Fink is the most visible figure in that shift. The governance debate it created, about who exercises the votes attached to other people’s retirement savings, is one of the more consequential open questions in modern markets.

Aladdin made risk measurement into infrastructure rather than a service, and its adoption by competitors is an unusual position for a firm’s internal system to reach.