Larry Fink and the End of The Bull Market

The longest bull market in financial history got its start on March 9, 2009. 

Some numbers:

Nasdaq return, from that date to its 11/26/21 peak: 1,166 percent.

S&P return, from that date to its 12/31/21 peak: 597 percent.

Dow return, from that date to its 1/27/22 peak: 413 percent.

And then there is Blackrock – which over that span of time became the largest money manager in the world. Its return, from March 9 2009 to its 11/21/21 peak: 955 percent.

This is an extraordinary figure. Asset managers tend to be safe, steady performers, the bottom line is tied to the fees they pull in from their pile of assets. The increase, or decrease, in profits is never dramatic – growth stocks they are not.

Here is another way to look at what happened to Blackrock during this period of time. On that date in March its AUM was $1 trillion, a decent amount, yes, but not enough to make the firm stand out among its financial peers. Blackrock’s CEO at the time, Larry Fink, was well enough known in and around Wall Street, but he had no wider reputation.

Then, just three months after that March low, everything changed. Taking advantage of the balance sheet woes of the British bank Barclays, Fink pulled off one of the great financial heists in M&A history, buying the bank’s exchange traded funds business for $13.5 billion. He had a tremendous insight, one that would permanently alter the asset management industry: the running of large scale money would be driven by low fee passive strategies and risk mitigation solutions, not the brains and braggadocio of portfolio managers. 

Nearly 13 years later, at the end of 2021, Blackrock’s assets under management hit $10 trillion – with most of that sum comprising ETFs and other passive strategies. In other words, Larry Fink bought $6 trillion in assets for $13.5 billion. That is what you call a good trade.

In many ways the ETF boom is at the root of this bull market. With post crisis interest rates held artificially low, a great tidal wave of money was in search of return and, via big liquid ETFs, cash flowed into pretty much every asset category. Sure there was stock picking, but for those chasing the soaring indices the most efficient means to do this were ETFs.

Suddenly Larry Fink was not just another bond guy – he was the largest money manager in the world. The fruits were bountiful. He dispensed market wisdom on CNBC, whispered in the ear of treasury secretaries, became a MOMA trustee and joined the board of the Council on Foreign Relations. Final entree came from David Rockefeller who bestowed on him his annual, eponymous, award.

I first got to know Larry in 2002. He ran a bond shop no one had heard of but he was also a relentless Wall Street networker. He was on the board of the New York Stock Exchange during the scandal over Dick Grasso’s pay, and he seemed to know everyone. All Wall Street CEOs are hungry, driven and want to win – but Larry just wanted it more. You could hear it in his voice. His mind, ceaselessly in overdrive, ran faster than his mouth, the result being scatter shot sentences, word pile ups and meandering idea tangents. He loved to dish on his peers and nothing delighted him more than seeing a competitor blow up or lose his edge. 

Again, many CEOs are similarly inclined. Not like Fink though. He was never happy with what he had, even as it became clear that he was going to be the largest money manager in the world. For a while he wanted to be Treasury Secretary, then he wanted to run Merrill Lynch – just before it imploded in 2008. Finally, he realized, hey: it's actually kind of cool to run more money than God.

Every year now, Fink pens a widely distributed annual letter in which he holds forth on his favorite topics: ESG investing, globalization, robust capital markets, the fintech boom, and, always: ETFs as a force for good in the world. All of which, more or less, explains the market’s 12 year run – and the rise of Blackrock (and Fink).

So, in reading Larry’s most recent letter, two passages leapt out at me.

The Russian invasion of Ukraine has put an end to the globalization we have experienced over the last three decades.

Since year end, however, market sentiment has shifted and these first few months of 2022 have been challenging, especially for many of you – our shareholders – who have watched our share price come down from all-time highs. As a significant owner of BlackRock shares myself, I share your disappointment in our stock’s performance year-to-date.

When, arguably, Wall Street’s most passionate globalization booster pronounces its end, one takes notice. Then there is his lament regarding Blackrock’s stock price – and he is right on that score: since the stock peaked at $971 in mid-November, its down 34 percent, underperforming, quite dramatically, the peer group and the wider indices. AUM, which is how Fink likes to keep score, is also down, clocking in at $9.5 trillion at the end of March. 

Predicting the end of a bull market is a fool’s game. I gave it a shot during a market downdraft in October 2014 – The party’s over was the ludicrous lede – and promised myself that I would never do it again. 

Still, while I write these words with caution, one does sense a mood shift. Rates are going up, ETF inflows are slowing and – as Fink himself admitted – the globalization boom (the rise of China, cheap money sloshing around the world, the emerging sway of sovereign wealth funds and the wealth explosion worldwide) which began to ramp up when BlackRocket went public in 1999 seems to have hit a pause. 

Blackrock is not going anywhere. It will remain at the top of the asset management pile for years to come, though I am going to bet that it never hits the $10 trillion benchmark again. Ditto with Fink: he is buoyant and resilient – at First Boston in the 1980s, he helped design the souped-up mortgages that blew up the world and was fired for his troubles. He will be 70 in November, and, despite succession rumblings over the past decade, will not cede control anytime soon. 

But his stock is down, as is AUM. The party may not be over, but the guests are heading for the door.