The biggest company in the world in terms of assets under administration (AUM) is BlackRock with over $11.6 trillion. This means the investment world pays attention to the annual letter by Chairman Larry Fink.

One of the reasons BlackRock is so big is their tradition investment in technology. In the 1980’s the banks generally had better technology than the buy side, and this exacerbated an information asymmetry. BlackRock’s founders wanted to better understand portfolio risks and protect against downsides but could not find any products that suited their needs. This led BlackRock to invest in and develop Aladdin, its robust investment platform and risk-management system. By the 1990’s, institutional clients were expressing an interest in using Aladdin to oversee their full portfolio, not just the assets that BlackRock managed on their behalf. By 2020, Aladdin has grown to cover every asset class and is used by BlackRock and more than 200 insurance companies, pension funds, and asset managers in nearly 50 countries. BlackRock continues to improve the platform at scale and realize the benefit as an overall ecosystem. (think Microsoft on your laptop).

In an article written by Iain Withers and Ross Kerber of Reuters, Larry Fink wrote in his letter that protectionism has returned with force.

Mr. Fink wrote about the wealth divide that too many people are currently missing out on prosperity in twin-speed economies, where the wealthy build more wealth and others face deeper hardship.

Mr. Fink’s part solution is to democratize markets by helping a greater number of consumers access to potentially higher returns in private markets such as infrastructure and private credit.

BlackRock is a world leader in passive index-tracking funds. He believes that individuals should move from 60% stocks and 40% bonds to 50% stocks, 30% bonds and 20% in private assets.

One method to do this was first BlackRock bought infrastructure specialist Global Infrastructure Partners, private credit provider HPS and private data firm Prequin. The companies will provide the deals and BlackRock will figure out how individuals can invest in them. The big problem is most publicly traded assets are priced daily on the market while private stocks are not listed, trade less frequently and pricing can vary.

Linking to dividend paying stocks, in the last couple of decades we have seen the growth of private equity and as the growth came it has allowed more companies a choice in raising capital. Do they issue bonds, stocks or using private equity and all have advantages and disadvantages. One thing investors do like about BlackRock is the leader in index funds and the Aladdin software system that gives institutional investors an edge. As long as the two assets are world leaders, expect BlackRock to continue to build on AUM.

There are more questions than answers, till the next time – to raising questions.