The Secret Of BlackRock's Success? Cautious Calculation

Ten years later, its shrewd moves are a master class in capitalizing on others’ risk

Annie Massa

Our memories of the 2008 U.S. financial crisis primarily concern losses: Bear Stearns, Lehman Brothers, homebuyers, insurers that made reckless bets, and American taxpayers who shouldered billions of dollars in bank bailouts. What about the big wins? One stands out.

BlackRock Inc., the world’s largest money manager, may never have grown as far and as fast as it did without the unprecedented changes brought about by the recession. The business now towers over its competitors; its $6.3 trillion in assets under management exceeds the size of Germany’s economy.

The story of how BlackRock reached its current position is also the story of the financial industry over the past 10 years. The rise of exchange-traded and index funds and low-fee investing; lower risk tolerance on consumers’ part and higher anxiety within institutions; the government’s scramble to understand this crash and prevent future ones—all of these played to BlackRock’s benefit.

BlackRock declined a request to interview Chief Executive Officer Larry Fink or any company executive for this story. Asked to comment on how the crisis shaped 10 years of growth, BlackRock spokesman Brian Beades offered, “We have always worked to anticipate our clients’ changing needs, and we deliberately evolve our business to meet them.”

The tale of that evolution post-crisis begins with Barclays Plc, which was looking to boost its capital reserves after rejecting U.K. government bailout money. The bank put up one of its crown jewels for sale: the iShares ETF unit, part of the fast-growing, San Francisco-based fund management subsidiary Barclays Global Investors Ltd. (BGI).

BlackRock was no stranger to transforming itself through deals, including previous acquisitions of Merrill Lynch Investment Managers and State Street Research & Management Co. When iShares came up for sale, BlackRock was able to seize the opportunity in a big way, sweeping in with a $13.5 billion cash and stock offer—not just for the ETF unit, but for all of BGI. “They were in a position to play offense while everyone else was scrambling,” says Kyle Sanders, an analyst at Edward Jones & Co.