Larry Fink - The Most Powerful Man in Finance | A Documentary
Summary
TLDRThe video narrates the rise of Larry Fink, the founder of BlackRock, from his early career setbacks to creating one of the world's largest asset management firms. After a major trading loss, Fink left First Boston to launch BlackRock, which pioneered risk management through mortgage-backed securities and sophisticated financial engineering. The company grew exponentially, handling trillions in assets, and became a dominant force in global finance. Fink's strategic use of technology and ETFs positioned BlackRock as a leader in investment management, giving him unparalleled influence in the financial world.
Takeaways
- 📉 Larry Fink suffered a $100 million trading loss in 1986, leading to his departure from First Boston.
- 🏦 Post-failure, Larry Fink founded BlackRock, which later became a leading global asset manager.
- 💼 In the 1960s, California experienced significant political change, influencing Larry Fink's early life and education.
- 🎓 Fink pursued a political science degree at UCLA and later an MBA, aiming for a career in politics.
- 💼 He started his career as a bond trader at First Boston, becoming the youngest manager and excelling in the mortgage market.
- 💡 Fink was instrumental in creating mortgage-backed securities, a financial innovation that had profound impacts.
- 📈 After a significant loss, Fink met Steve Schwarzman, who invested $5 million to start Blackstone Financial Management.
- 💹 BlackRock grew rapidly, reaching $8 billion in assets under management within five years.
- 🏢 Fink's investment philosophy emphasizes understanding and calculating risk before making investments.
- 🏦 BlackRock separated from Blackstone and was later acquired by PNC Bank, which Fink used to buy out Blackstone's ownership.
- 🎨 As a billionaire, Fink also invested in art, considering it a strong inflation hedge similar to real estate.
Q & A
Who is Larry Fink, and why is he significant in the world of finance?
-Larry Fink is the founder of BlackRock, the world's largest asset management firm, overseeing trillions of dollars in assets. He is a key figure in the financial world due to his role in developing mortgage-backed securities and his firm's massive influence on global markets.
What major setback did Larry Fink face in 1986, and how did it impact his career?
-In 1986, Larry Fink suffered a $100 million loss in just one quarter while working at First Boston. This loss severely damaged his reputation, leading to his eventual exit from the firm. However, it became a turning point that pushed him to start BlackRock.
How did BlackRock initially start, and who were its early investors?
-BlackRock started as a joint venture called Blackstone Financial Management with an initial $5 million investment from Steve Schwarzman, the founder of Blackstone. Larry Fink convinced Schwarzman and his partner Pete Peterson to invest in the idea, despite his tarnished reputation.
What role did Steve Schwarzman play in the early days of BlackRock, and how did his relationship with Larry Fink evolve?
-Steve Schwarzman was an early investor in BlackRock through Blackstone. However, their relationship soured when Fink wanted more autonomy for BlackRock, which led to a split. Eventually, BlackRock separated from Blackstone, and Fink bought out Blackstone’s stake in the company.
What innovation did Larry Fink help pioneer in the early 1980s, and how did it contribute to financial markets?
-Larry Fink was one of the architects behind the development of mortgage-backed securities, which transformed individual mortgages into tradable financial instruments. This innovation revolutionized the financial markets, although it also contributed to the later 2008 financial crisis.
How did BlackRock build its reputation as a ‘problem solver’ on Wall Street?
-BlackRock built its reputation by helping companies, like GE, restructure and manage complex portfolios of problematic assets. The firm's expertise in risk management and financial engineering made it the go-to firm for handling difficult financial challenges.
What is financial engineering, and how did BlackRock use it to gain a competitive edge?
-Financial engineering involves restructuring and repackaging existing financial securities into new ones to mitigate risks or create value. BlackRock leveraged financial engineering to help companies deal with complex assets, which became one of its key competitive advantages.
Why did Larry Fink advocate for using technology and data in financial management?
-Larry Fink was one of the first to recognize the importance of technology in finance, using computing power to analyze cash flows and risk in mortgage-backed securities. He believed that a data-driven approach would allow for more precise investment decisions and risk management.
How did BlackRock’s focus shift after the 2008 financial crisis?
-After the 2008 crisis, BlackRock shifted its focus away from risky fixed-income derivatives and began acquiring ETF (Exchange Traded Funds) businesses. This move allowed the firm to tap into the growing market of smaller retail investors, significantly expanding its asset base.
What is Larry Fink’s approach to risk management, and how has it shaped BlackRock’s investment strategy?
-Larry Fink places a strong emphasis on understanding and managing risk. His approach involves not making any investments unless the risks are fully understood and calculable, which has shaped BlackRock’s reputation as a firm focused on risk-conscious investing.
Outlines
💼 Larry Fink's Early Setback and BlackRock's Rise
Larry Fink, once a Wall Street darling, suffered a $100 million trading loss, which led to his departure from his firm. Despite this setback, Fink went on to create BlackRock, a global asset management firm managing trillions of dollars. His innovative strategies in financial technology and asset management helped BlackRock become a dominant force in the industry.
🤝 Fink's Downfall and His New Partnership
After his significant loss, Fink became an outcast in the investment world, with no firms willing to hire him. Determined to regain his status, he met Steve Schwarzman of Blackstone, who believed in Fink’s talent and provided $5 million to start Blackstone Financial Management. This partnership allowed Fink to re-enter the financial world, with Blackstone backing his vision.
🏗️ The Rise of BlackRock and the Split from Blackstone
Fink and Schwarzman's partnership flourished, but as Fink aimed to grow BlackRock, tensions arose due to conflicting visions. Fink eventually severed ties with Blackstone, selling Blackstone's stake to PNC Bank. This move allowed Fink the freedom to grow BlackRock into a financial powerhouse, setting the stage for its dominance in asset management.
📊 BlackRock's Breakthrough with Risk Management and GE
In 1994, BlackRock gained significant recognition by helping General Electric manage a complex portfolio of mortgage securities. Fink’s innovative financial engineering and use of advanced analytics turned this challenge into a major success, further solidifying BlackRock’s reputation as a go-to firm for managing complex assets.
🎨 Larry Fink’s Strategy: Art and Real Estate as Wealth Assets
Larry Fink, now a billionaire, emphasized the importance of investing in art and real estate, believing these assets are better stores of wealth than gold, especially during inflation. Platforms like Masterworks have made it easier for investors to buy shares of multi-million dollar artworks, reflecting Fink’s philosophy on alternative investments.
Mindmap
Keywords
💡Black Monday
💡Asset Management
💡Mortgage-Backed Securities
💡Risk Analytics
💡Financial Engineering
💡ETFs (Exchange-Traded Funds)
💡Index Fund
💡Financial Derivatives
💡BlackRock
💡Larry Fink
💡Risk Management
Highlights
Larry Fink's $100 million trading loss at First Boston in 1986, which led to his departure from the company.
Fink founded BlackRock after his failure, which later became the largest asset management firm in the world.
BlackRock now manages over $7 trillion in assets, with an additional $20 trillion through proprietary software.
Larry Fink's early involvement in creating mortgage-backed securities, which became central to the 2008 financial crisis.
Fink's early career success in bond trading at First Boston, where he became the youngest department manager.
The introduction of computing power to the trading desk in 1982 revolutionized mortgage cash flow analysis.
Fink's $1 billion profit for First Boston, making him the most profitable man at the firm before his major trading loss.
Fink's innovative use of financial engineering and risk management, which became a cornerstone of BlackRock's success.
The pivotal partnership with Steve Schwarzman of Blackstone, leading to the creation of BlackRock in 1988.
The eventual breakup with Blackstone in 1994, after Fink wanted more control and stock options to expand BlackRock.
BlackRock's breakthrough moment came when it helped General Electric offload toxic mortgage assets in the early 1990s.
Fink's strategy of using quantitative analysis and algorithms to assess risk revolutionized asset management.
By 1999, BlackRock had gone public and became the fifth-largest asset manager in the U.S.
BlackRock's dominance in ETFs, controlling nearly half of the U.S. market, helped democratize investing for smaller investors.
Fink's influence over global financial markets, with BlackRock becoming a major shareholder in nearly every public company.
Transcripts
[Music]
it was a year before the Black Monday
crash Wall Street darling Larry thinkink
suffered a 100 million trading loss I
was so angry at myself I was just
mortified at myself humiliated think now
is forced to leave the company but upon
his failure he will build the mightiest
company in the world Black Rock
[Music]
another too big to fail asset manager
which handles over7 trillion in direct
management and another 20 trillion
through their proprietary
software I mean Larry f with those
numbers you can say whatever he wants
Black Rock was fantastic
[Music]
California is on the rise to become the
most populated state in
America like the rest of the country
the' 60s was a turbulent time for
California a decade of a drastic
political
change it was such an exciting headyy
time to find out that under the official
reality there was this seething turmoil
of young people learning new music new
thoughts new ideas new literature new
poetry new ways of being Larry Frink is
one of those young people he enrolls in
UCLA to pursue a political science
degree hoping one day to make impact as
a
politician after getting an MBA degree
from USA think takes a job at a leading
Investment Bank versus Boston as a bond
Trader it was a perfect time to get into
the bond business in the early '70s
bonds only began to be actively traded
Larry fing excels at this job he rapidly
Rises through the ranks becoming the
youngest manager at his Department
started first boss in
1976 I was the first Freddy Mac Bond
Trader and so the mortgage Market was
just if it's an infancy and then in
1982 we had the ability to put a PC on
our trading desk before that you had no
ability to put a computer on a trading
desk and it was very clear to me that if
we could have computing power on the
trading desk we were going to have the
ability to dissect cash flows of
mortgages and we were the most
profitable component of first Boston in
83 and 84 and '
85 by 1983 the American economy had
rebound from a DEC long recession the
highest order of business before the
nation is to restore our economic
Prosperity after taking over the
president Reagan work to boost the
economy he starts cutting taxes and
deregulating Wall Street creating a
perfect environment for financial
Innovations one of such is the mortgage
back Securities simply put they bundled
millions of mortgages and turned them
into Securities that can be traded by
any investor Larry was one of the
Architects behind this financial
Innovation which 20 years later morphed
into economic bomb but in the meantime
Larry sells these newly minted security
to large investors like Pension funds
and endowments generating tens of
millions of fees for first Boston at the
time first Boston was at the top of the
investment banking industry specializing
in mergers and
Acquisitions after creating $1 billion
profit for the firm Larry fing becomes
the most profitable man at first
Boston when you're at that level and
you've had all of that success and you
have all of this money
there's a mindset that you're almost
Invincible but then he loses $100
million in just one quarter of
1986 so you could work a lifetime
creating wealth under certain
assumptions that something can't happen
and then bang you're everything you've
lost everything for your whole lifetime
because you thought it couldn't
happen that is a year before the
infamous Black Monday crash and the
market was still in a euphoric state
because everyone was making money unless
you're hedged for events like Black
Monday whatever Alpha you you you think
you're going to get you're not going to
get it when you started having those
types of successes The Firm gave you
more Capital we were taking bigger and
bigger risks without the intended Risk
Technology to navigate that risk uh and
in the second quarter 1986 we lost $100
million on Wall Street one big loser can
raas all your winners the same is true
for reputation although he wasn't fired
but he was sidelined all of a sudden
people don't want to be seen with him
anymore he becomes the Untouchable the
message is clear it is time to quit the
trouble is with tarnished reputation no
Investment Bank will want to hire
him at age 36 Larry thinkink is
unemployed I said to myself 30 days
after we lost money in that quarter even
though we had we made 130 the first
quarter and lost a 100 of it in the
second quarter I said I'm leaving but it
took me a year and a half because I
never ever thought I was going to leave
but it took me a year and a half to try
to determine what I wanted to do next
always a competitive man think refuses
to surrender and is determined to regain
his past Glory by any means
necessary this time he will start his
own business and to do that he will need
investors but with his reputation it is
nearly impossible to raise money
until he meets the legendary Steve
[Music]
schwarzman Steve schwarzman the founder
of Blackstone is one of the most
powerful figures on Wall Street in his
30 years Reign he turned Blackstone into
the biggest private Equity company in
the world but by 1988 Blackstone was
still a lesser known consulting firm and
like think Steve schwarzman was a Cast
Away
he was a rising star in Leman Brothers
on his way to become the CEO but due to
a nasty power struggle he was forced to
leave the
company I I saw a lot of Behavior Uh
that I didn't like and so decided to go
out and do something uh with my partner
who' been thrown out the year before by
the management that went in and
ultimately blew up the company
in 1988 Blackstone just started as a
private Equity business and barely
completed its first deal but Steve
schwarzman is already thinking big by
expanding the company to more areas and
he's considering a wealth management
business one of the reason why
schwarzman was so successful is that he
has an eye for talent he knows how to
hire the best people we wanted to
attract somebody to run it who was a 10
on a scale of 10 because you'll find in
your careers
if you're a 10 God bless you you'll be
wildly successful if you attract
tens they always make it rain if you
need rain um and they just have an
ability to sense problems design
Solutions do new things and that's what
a 10 does and Larry thinkink is a
10 after meeting think schwarzman
decided to start a joy Adventure called
Blackstone financial management by
investing $5 million with fank took me a
year and a half to assemble my thoughts
and and and I told it I told the story
to Steve schwarzman and Pete Peterson
and uh they loved it and they they had
more confidence in me than I had myself
they wanted to go right ahead and we did
that and it all you know we started
making we actually started making money
with within two weeks we talk about
Investment Company and a fund it's easy
to get confused in this case Steve
schwarzman gave $5 million to start a
management company but then they have to
raise money for their
fund within 5 years think built his fund
to have 8 billion under
management think has learned a lesson
that one should always be risk conscious
one of his investment principles is that
he would not put down a dime until the
risk can be understood and calculated
there were so many other companies that
really didn't understand the risk and
most importantly the buy side the
investors had no idea the risk they were
taking and there was a great need for a
company that starts off uh with a high
concentration in Risk analytics and in
principally in the fixed income area
there was a lot of analytics and
equities back then but nothing in in in
bonds he was one of the first in the
industry to rely heavily on statistics
and algorithms to make investment
decisions f is now back on the top he
recognizes that in order to grow bigger
his company needs to offer more stock
options to attract talented people he
demands schwarzman to give up some of
blackstone's ownership to his a great
disappointment St schwarzman rejected
his
plan both Steve schwarzman and Larry
Frink are highly competitive type A
people but Steve schwarzman is a
investment banker while think is more of
a traitor Steve schwarzman he's
unusually conservative of actually
unusually risk averse for a successful
entrepreneur and investor this was a
visceral thing like a primal impulse not
to lose
money two Alphas are always doomed to
clash from the
get-go after being rejected by St
schwarzman for his proposal think is
determined to completely seever ties
with a firm by finding a buyer to
purchase blackstone's ownership as
schwarzman is going through a divorce in
his personal life the news that F wants
to lead Blackstone sent him into a
frenzy ego is a great thing in business
an ego you show me a Titan of industry
and I'll show you somebody with a big
ego but on Wall Street everything has a
price including
ego convenient way to borrow is now even
better because the rate on a PNC Bank
home equity line of
credit just took a tumble
PNC Bank stands for Pittsburgh National
Corporation a finance group with a long
history and lineage in 1991 PNC was on a
buying spree acquiring dozens of smaller
firms it is a perfect buyer for f to get
rid of blackstone's
control they offer hundreds of millions
of dollars to buy out Blackstone steak
think about this Steve schwarzman and F
started this business with just about $5
million that is a huge return in just 5
years although Steve schwarzman is still
hesitant the money it just too good to
ignore he agrees to sell the asset
management business to PNC this is the
biggest mistake in Schwan's career at
the time even he couldn't foresee that
the side business of Blackstone will
someday become a financial giant that
dwarves even Blackstone
itself 1994 was a fateful year for Black
Rock after separating from Blackstone
theany company was still small by Wall
Street standard $8 billion a fixed
income portfolio is not considered to be
big because bonds tend to make less
returns and a little bit less risky now
free to build Black Rock any way he
likes think is holding nothing back but
to win he must find an edge that others
don't have and it will come from an
unexpected Place remember our old
kitchen yeah
SM under the leadership by of Jack welge
GE started an explosive growth fielded
by easy money in the mid 80s General
Electric Venture into new Industries
including news and finance the company
bought ker Peabody a one's respected
Investment Bank but was later found
guilty of insider trading and accounting
fraud once Welsh realizes how deeply in
trouble his new firm is he decides to
sell it to virtually anyone willing to
buy pine Weber another investment bank
is willing to acquire PE body from J but
not its toxic bomb portfolio which
consists of $10 billion worth of CMOS a
type of mortgage Securities these
derivatives are notorious for their
complexity Welch was a brilliant manager
but he was no Finance expert he
frantically tried to get rid of the
toxic assets left by Peabody but due to
the complexity of the portfolio no Wall
Street firm wants to touch it except
Black Rock
as the pioneer of CMOS F realizes if
Black Rock can help GE properly evaluate
the assets he is set to make a huge
profit and it will also be a breakout
moment Fin's team of quantitative
analysts Works tirelessly for weeks to
re-evaluate the portfolio and to
repackage them into a new set of
derivative
assets Black Rock helped GE gradually
unload the assets and recover their
value with minimal loss if you're
confused about what he did and how he
did it you're not alone it's called
Financial engineering it's about
packaging restructuring existing
Securities into new ones while some of
these Securities are indeed valuable
they're only available to Big players in
finance but in the early 1990s the
financial engineering becomes Larry
Fin's number one Competitive
Edge from then on black rocks developed
a reputation as a Ghostbuster for
companies with a problematic assets
Larry fing becomes the guy to call the
success with G solidifies black Rock's
reputation on Wall Street just 3 years
after separating from Blackstone black
Rock's asset under management grew to
$46 billion its parent company PNC
decided to merge its wealth management
division with black rock with a combined
$154 billion total asset
assets after becoming a billionaire
Larry think does what all billionaires
do collecting Arts he believes that arts
and real estates are the two greatest
stores of wealth in the world and
investors with a greater than 100K
portfolio should use Arts as a better
inflation hedge than gold art has
benefited immensely from soaring costs
according to data from City in fact they
reported that Contemporary Art prices
appreciated by
23.2% versus 3.8% for the S&P 500 during
periods of 3% inflation or higher like
right now but unless you have $100
million in the bank you could never take
a proper stake in this asset class until
now masterworks.io acquires
multi-million dollar paintings by famous
artists like basat and Banky and allows
anyone to invest in them just like
picking stocks online and they built an
Innovative platform that they recently
raised $110 million in series a funding
at a valuation over $1
billion the securitize each painting
file with the secc and issue sheares
representing an investment in R piece on
their platform that investors can either
hold or until Mass Works sell the
painting or sell to other Mass Works
members on their
platform investor already saw a 32%
annualized price appreciation from the
sale of their banking painting meta fees
now thanks to Masterworks I'm an
investor in basad and I invite you to do
the same through the link in the
description you will skip the weight
list and get Priority Access to invest
like me and
Larry by the time it went public in 1999
Black Rob became the fifth largest
publicly traded asset manager in
America be wants to be number
one over the next 5 years Black Rock
continues to grow accumulating $400
billion
Assets in a little over 10 years thinks
Black Rock has grown to be a monster and
this monster only wants one
thing to get
bigger in the mid90s the United States
saw a strong economic recovery like
never before during Clinton's second
term unemployment fail the stock market
surged and America once again became the
epicenter of the technological
Revolution rised during the turbulent
60s and economic recession think joined
Wall Street after creating his job at
first Boston think Started Black Rock a
decade later Black Rock became the most
formidable Forest on Wall Street with
hundreds of billions of dollars under
management but underneath of prosperity
a crisis is brewing the financial
derivatives that F helped develop in the
80s have now transformed into a ticking
time bomb in December 2000 Congress
passed the commodity Futures
modernization Act act it banned any
regulation of
derivatives investment Banks make
billions through the business of
securitization this business links
investment Banks insurance companies and
rating agencies together connecting
trillions of dollars in mortgages and
other loans with investors all over the
world the essence of it all is about
shifting risks or rather socializing
risks and privatizing profits
but the risk is still there since anyone
could get a mortgage real estate prices
skyrocketed real estate is real they can
see their asset they can live in their
asset they can rent out their
[Music]
asset there's gripped markets overnight
with Asian stocks St fell off a cliff
the largest single point drop in history
share prices continued to
Tumble in a matter of days one of the
pillars of w one of the first Banks to
fail is be Stern the US government asks
the biggest Commercial Bank JP Morgan
Chase to bail out bear Stern we we
bought ba Bear Sterns and it wasn't
bailed out by the government the
government did a little bit of financing
we only did it because we asked to by
Hank Paulson and we thought if it went
down that could be a huge crisis for the
globe Jamie Diamond is the shest banker
on Wall Street he's not going to acquire
beern at a loss so he dials up like
Larry Frink for
advice incidentally Tim gner who was
orchestrating the deal was already
contacting Larry Frink about bear Stern
in normal times this is a conflict of
interest but F was just too good at his
job so everyone just ignored it then
black rock is hired again to help rescue
AIG practically behind every major deal
due in 2008 Black Rock was part of it
and as an expert on Mor mortgage back
Securities he was called in to help and
to clean up with people like Hank
Paulson and Jamie Diamond and Tim gner
on speed dial Larry think helped
engineer a remarkable rescue for the
financial industry the financial crisis
provided the perfect opportunity for
think to strengthen his position as the
new king of Wall
[Music]
Street after the housing crisis of 2008
issuing and treading fixed income
derivatives are no longer the most
desirable business to get
into since the early 2000 the internet
has become widely available enabling the
growth of social networks like Facebook
and
YouTube now we're at 100,000 people so
who knows where we're going next um
we're hoping to have many more
universities by the Fall social media
enables virtually frictionless mass
communication and a fast flow of
information think realizes this change
will fund Mally alter the finance sector
from the wreckage of the 08 Disaster One
business would explode the ETFs the best
single thing you could have done was
just buy an index fund statistically
this is the simplest way to build wealth
for probably 99% of
investors the markets will grow over the
long term and so because of that we can
invest into some of these different
funds that are available to US every
year it turns out that probably 2third
of the active managers are outperformed
by the index and the third that
outperform in one year are not the same
as the ones who do it the next year in
his classic book Ren and walk down Wall
Street Burton Mill proposes that a
market is essentially random and
therefore unbeatable the only rational
thing to do is putting money in
everything influenced by moil mutual
fund Legend John ble launched the first
public index mutual fund in
1975 starting with just $1 million this
fund tracked the movement of S&P
500 after that many follow suit but
these mutual funds did not become
publicly traded until
1993 when the first ETF spdr came to
life in the aftermath of the housing
crisis in 2009 Black Rock has already
begun acquiring ETFs starting with the
iar from Burton sparlay Bank through
just three funds you can get exposure to
1,500 stocks with minimal fees just like
the fishing industry very few people get
Wealthy by hunting whales most of the
revenue comes from smaller fish with
large volumes I guess to F he realized
that the future of investing is about
tapping into the pockets of smaller
investors volume over profits black rum
controls nearly half of the ETFs in
America in 20 4 alone Black Rock raised
$103 billion shortly The Firm becomes
the major shareholder in almost every
public company out there they have 50
billion in locked Martin and northr
Grumman each has and it's been the most
successful it's not a bank it's just an
investment company and it's been the
most successful in the world so it's
it's huge it's massive Larry f now has
more potential power to influence the US
economy than anyone else he is the GP
Morgan of the 21st century and we're the
largest pension manager in Japan in
Mexico where we are now becoming we just
did an acquisition we're going to be the
largest asset manager in Mexico we have
one technology pipe worldwide that
connects everything we do at the firm
used to remain passive F now has become
more involved in every company's board
so over the last 5 years we built up our
our corporate stewardship team and I
actually believe there's less
accountability at boards than there
should have been in in global companies
and so what we've now been asking
companies please describe your long-term
plan you tell us what longterm is but
most importantly please just tell us
that you reviewed your long-term
strategy with your board it means it
start exercising his immense
power provided by the old the ETFs he
controls e
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