Laurence D. "Larry" Fink is one of the eight founders of BlackRock Inc., New York, one of the fastest growing money managers of the 1990s. Mr. Fink started his career at First Boston in 1976 in the company's training program, moved to fixed-income trading and built its mortgage-backed securities business into a Wall Street powerhouse.
Mr. Fink joined leveraged buyout specialist Blackstone Group in 1988 to start an asset management business that was 60% owned by employees. By 1991, Mr. Fink and his colleagues managed $9 billion. By 1994, Mr. Fink and his colleagues were ready to leave Blackstone Group. They renamed the company BlackRock, and found a new majority owner - PNC Bank. Company ownership was altered again when 14% of the company went public in October 1999. PNC retained a 70% stake; Mr. Fink and colleagues got 16%. BlackRock's assets under management increased from $24 billion to $165 billion in 1999 and today total about $226 billion.
Mr. Fink's favorite mantra regarding BlackRock is "team, team, team, team, team," but both insiders and outsiders readily acknowledge he is the heart of the company, which has grown from "a group of eight friends" in 1988 to more than 800 employees.
Q What has been the most gratifying part of BlackRock's success?
A That it was a simple idea. The creation of BlackRock was in terms of understanding risk. That simple idea has transformed itself into a large asset management company.
On a personal note, people who have known me throughout my two careers in my 27 years in this business say that what they're most impressed (with) about me is that I've done it twice. I don't think about it, but I hear that constantly. That I started off with a department of four at First Boston and built it up to a big giant department with a lot of money; left that, started this with a group of friends - eight people - and now we're 800-plus people who have $226 billion in assets.
Q What have you found frustrating about moving from the group of eight friends to a group of 800?
A I don't know what makes all 800 tick. I am basically very much of a hands-on manager, and yet you can't be with all 800 people. You can't be with multiple offices. We're now spread out geographically, 3,000 miles apart.
Q Do you often travel to the other offices?
A Yes, but it's not the same network as it was when there were 10 people. I like to think it is, but it's not. I like to know everyone's name, but I don't.
Q Why was BlackRock so successful so fast?
A One of the greatest surprises in starting this company almost 14 years ago was that I did not have the self-confidence that we were going to be able to do it on our own. And so we affiliated with Blackstone Group, and they were wonderful partners when we started.
But within 30 days, we had such an outpouring of support from friends that we were able to generate so much business ... I think people were shocked. "Where did these people come from? How did they raise this money?"
But we were so well known - it was the relationships that I had with the different Wall Street firms. What we did ... as a team of people was, we lived up to the expectations of people who helped raise money for us. Through those pools of money that we raised from Wall Street, the pension community started taking notice. And there was one person who is very involved now, who was the first person to help give us money - that was John Meyer at GE, who still runs GE's pension. It was John Meyer and Fred Zuckerman, who passed away, who ran Chrysler's pension fund. They were the first of the pension community to give us money.
One other thing that went in our favor when we started the company was that we said risk is important; management of that risk is very important. And we are not going to be this firm that's going to have this huge excess return.
BlackRock also was helped by an industry trend of greater concentration in equity assets and looking for more stable value assets in fixed income (in the late 1980s and early 1990s). That's one of the big industry trends, and I think that trend will continue over the next 10 years. And it's why so many firms are now trying to mimic BlackRock.
Q In terms of growth into new investment areas, will you build or buy?
A We're not a boutique, and yet we're not a supermarket. We're somewhere in between. I think we will continue to play that role ... but we will never be a supermarket.
We need to continue to build out our domestic equity platform, and we're doing that through liftouts now. We have not bought yet.
We look at a lot of companies. Obviously, it was very public: We were looking at Scudder and walked away from it before the auction process started.
I don't believe in buying companies unless it's negotiated. How can you have an intense conversation with your counterparties if you don't have the time to spend together? Merging companies is no different than getting married.
Q Will you insist that any acquisitions take the BlackRock name and stay on the BlackRock platform?
A Yes, unless they have a better retail name than (we do), because we don't have a strong retail name. But institutionally? Absolutely. It's hard enough to manage one name! How can I manage two names? God bless the CEOs who can manage multiple names.
Q Are you seeking to build BlackRock's alternative investment capability?
A Well, we manage about $4.8 billion there now. The majority of alternatives are fixed-income oriented or real estate ... It's been very successful. We have a $2 billion hedge fund. It's closed. If we opened up that fund, it would be twice the size.
The problem with alternatives is not raising money; it's living up to your clients' expectations. And so for me to offer more alternatives, I need to feel comfortable that my team can manage more money. If we were fee dogs, we could raise a lot of money.
One of the companies we are looking at acquiring is heavily involved in alternatives. If we're going to do it, we'll do it in January or February. It's a real top-quality alternative investment firm. So, can we transform this $8 billion alternatives platform into a $12 billion or $16 billion alternatives platform? Is this realistic? It's very accretive. On paper, I can promote a very luxurious story for the next six months. We need to make sure that for multiple years, this is accretive.
We have the reputation of doing things very slowly. We are reticent in going after the blue-plate special. And alternatives today are the blue-plate special.
Q You were described once as "chafing" under PNC, BlackRock's majority owner. What are you doing about it? Is 15% of the company enough to reward your employees?
A No, 15% is not enough. We are working on that. PNC knows it. We have consultants that said 25% is what management should have. There's no issue in that. At the end of January or in early February, we will roll out a new equity plan. It's not approved yet, so I can't talk about it.
"Chafing." PNC has been a spectacular partner in leaving us alone and letting us flourish. And they respect that. But long-term, we have issues. Are we more than an investment, and are we strategic? I question that. They are spectacular partners overall, but that is a big issue.
We flourished under them. Most investment companies have not flourished under a bank. I think we flourished with them, not because of them. Can we double from here? I don't know. Do they help us?
I still chafe, is my answer.