Group faces increased scrutiny as central banks ask it to help run stimulus packages

When the 1907 financial crisis threatened to plunge America into a depression, John Pierpont Morgan locked the country’s top bankers into his cavernous Manhattan study until they struck a deal to end the turmoil.
The financier proved a vital bridge between Washington and Wall Street, setting a template for tackling complex crises that have erupted ever since.
Morgan’s stature has never been rivalled, but as the coronavirus pandemic threatens the financial system, some believe the closest parallel to a powerful figure at the intersection of finance and policymaking is Larry Fink, the founder and chief executive of BlackRock.
Mr Fink’s power stems from running the world’s largest asset manager, but increasingly BlackRock’s influence is wielded via a small consultancy division called Financial Markets Advisory.
FMA’s recent high-profile contract wins from governments and central banks to oversee billions of dollars in stimulus money and to shape new sustainable finance rules has extended BlackRock’s influence in the corridors of power in capitals across the world.
“It took a banker who was trusted in DC to do what the government couldn’t,” says David Zaring, a professor at Wharton business school in Philadelphia, of Morgan. “Fink is comfortable in public policy, writes letters to corporations — that reminds me of JP Morgan.” 
Other observers see a less flattering comparison, arguing that BlackRock has become the new “vampire squid” of finance — a description foisted on Goldman Sachs a decade ago — due to its government ties.
In the last month, the Federal Reserve and Bank of Canada have turned to BlackRock to manage the vast asset-buying programmes they unleashed to prevent financial markets collapsing. More consulting work may follow given BlackRock is “having dialogues across different governments right now”, Mr Fink, 67, told analysts this month.
FMA is dwarfed by BlackRock’s asset management business. It contributed less than 1 per cent of the group’s $14.5bn in revenue last year.
“These programmes show the power and influence of BlackRock and how connected Larry is with Washington,” said Kyle Sanders, an analyst with Edward Jones. “They will make some money off it but it’s more about power and influence.”
While the division puts BlackRock and Mr Fink at the heart of the response to the economic devastation wrought by the pandemic, it carries risk for a company already established as one of the biggest winners from the roaring bull market that followed the 2008-09 financial crisis.
FMA is led by Charles Hatami, a media-shy former hedge fund manager, and overseen by Philipp Hildebrand, vice-chairman of BlackRock and one of scores of former public officials recruited over the years. Established at the height of the last financial crisis when the US Federal Reserve picked BlackRock to manage assets from AIG and Bear Stearns, FMA has since hoovered up hundreds of assignments for governments, central banks, regulators and big investors.
The unit is separated from the company’s fund managers by an “informational barrier” and staff are barred from sharing sensitive information to colleagues in the asset management business. The Fed has required BlackRock to conduct regular sweeps of its email server to ensure the group is following the rules.
The company is fiercely protective of the barrier, which is “repeatedly audited and reviewed by clients, competitors, regulators, and BlackRock control functions”, it said in a statement to the FT.
However, the Fed’s decision to hire BlackRock has attracted a wave of criticism because the central bank will buy credit exchange traded funds for the first time, all but requiring it to purchase ETFs from BlackRock, the market leader. One Wall Street executive, who declined to be named given BlackRock’s clout, called it an “unbelievable” decision. 
Underlining the company’s sensitivity to the scrutiny, Mr Fink reacted tetchily when an analyst asked about it on the asset manager’s earnings call this month. “I think it’s insulting,” BlackRock’s founder said. “I object to the way you framed it as a bailout.”
The group has pledged not to take any fees from the ETFs the Fed buys, but BlackRock has already benefited from the central bank’s intervention. The $14bn investors poured into iShares, its ETF business, was the biggest contributor to BlackRock’s inflows in the first quarter.
“The fee rates are very low but there is this halo effect — BlackRock is the asset manager all of these governments are choosing to help them out,” said Craig Siegenthaler, an analyst with Credit Suisse. “BlackRock is winning these mandates while other asset managers are losing mandates.”
Although the Bank of Canada also hired Toronto-based TD Asset Management to help administer its asset-buying plan, BlackRock’s sheer size and record mean it is often the only company able to help authorities at the height of an emergency, people familiar with the contracts told the FT. 
Earlier this month, BlackRock landed another prestigious contract, when the European Commission asked FMA to help weave environmental, social and governance considerations into the EU bank regulations.
The appointment drew rebukes from some organisations like Finance Watch, a lobby group, which highlighted the “obvious conflict of interest” given that BlackRock invests in European banks and pointed to the fund manager’s past criticisms of the sustainable finance rules it will now impose. 
Muddying the picture further, ESG investing is a big priority for BlackRock’s asset management business. In January, the company pledged to double the number of its ESG funds and remove some fossil fuel companies from actively managed portfolios to sharpen its sustainable investing focus.
At the same time, BlackRock is still one of the biggest shareholders in fossil fuel businesses, while Mr Fink holds the titles of both chairman and chief executive — although this is the norm in corporate America it is for some a governance red flag that has led large shareholders to vote against the company.
“It is generally not advisable to task the fox with guarding the henhouse,” Davide Serra, the founder of the hedge fund Algebris, said in a letter to the European Commission seen by the FT.
“We cannot help but think that the commission’s interest in procuring unbiased advisory expertise would be better served by awarding this contract to tenderers with no obvious conflicting interests (such as NGOs or think-tanks), rather than to a potentially conflicted firm that is in dire need of building credibility credentials on sustainable investing.”
The commission said that BlackRock’s proposal was the best on offer “both technically and financially”.
As the FMA’s contract wins pile up, there are signs that its success — and Mr Fink’s high-profile position — may become a vulnerability for BlackRock.
In the wake of the 2008-09 crisis, the company lobbied policymakers that large fund managers should escape being designated systemically important to the financial system — and the more onerous regulation that went with it. Given BlackRock’s explosive growth over the past decade and high profile, political scrutiny is growing. 
Last week, two Democratic members of the House of Representatives — Jesús García from Illinois and Katie Porter from California — singled out BlackRock when they launched a bill to address systemic risk in the financial sector.
“Congress must act now to rein in firms like BlackRock,” Mr García said.