The new King of Wall Street, Blackrock (NYSE:BLK), founded in 1988 may not be the world’s most valuable company. but it could be the world’s most important. Blackrock stock is up over 2,000% in the last 20 years.
The dividend that began at 20 cents in 2003 is now $3.63 per share. Its price-to-earnings ratio of 18.85 is nearly double that of big banks like JPMorgan Chase (NYSE:JPM) and Goldman Sachs (NYSE:GS).
Blackrock is also more systemically important. When the Fed looked for bond-buying help in the wake of COVID-19 it turned to Blackrock. Many analysts say Blackrock has now replaced Goldman Sachs as the most important banking company in the world.
A Closer Look at Blackrock Stock
Blackrock is best known for iShares, the line of Exchange Traded Funds bought from Barclays (OTCMKTS:BCLYF) a decade ago.
While it was founded as a private equity firm, Blackrock is really a technology outfit. Its Aladdin portfolio management system was the basis of its 1999 IPO.
It began offering computerized risk management and trade processing in 2000. It created its own trading platform in 2012. It bought the digital wealth management outfit FutureWeb in 2015, and eFront in 2019. It’s Blackrock transaction processing that has made it a “fourth branch of government.”
Blackrock also profits like a tech company. About 28% of last year’s $14.9 billion in revenue hit the net income line. Its market cap is roughly five times its annual revenue. Its financial statements are those of an operating company, not a bank.
A Political Shift
Because Blackrock is a tech company, it looks at the world as a tech company would.
This is not the way resource and manufacturing companies look at the world. Only managers at these companies require an elite education. Software factories, by contrast, are staffed by people with masters’ degrees. The “engineering track” at a tech company pays as well as management in other industries.
Technology companies thus see human minds as the gating factor to growth. Where they come from, who they love, or which sex they are matters less than their ability to apply talent to business problems. What they think also matters. Tech workers use the scientific method in their work and accept the conclusions of scientists on most issues.
It’s no coincidence that technology companies are mostly located in liberal states and big cities. That’s where their ore is, the brains they need to prosper. As tech companies have gained in economic power, they have also begun agitating for political power.
Blackrock, it turns out, is a lot like Microsoft (NASDAQ:MSFT).
Blackrock’s Mid-Life Crisis
The imperatives of technology-led Blackrock to sign on to a Business Roundtable statement last year saying corporations should support more than just shareholders.
In January, CEO Larry Fink posted an open letter stating that climate risk is investment risk, and agreeing with the Business Roundtable’s statement. At his recent annual meeting, Fink defended the statement against liberal activist demands it do more.
Support of the Roundtable has brought Fink, a registered Democrat, under direct attack from conservative activists. Conservatives claim the company’s new stance violates its fiduciary duty. Given the enormous voting power Blackrock ETFs have in stocks, conservatives fear Blackrock’s activism could be used against them.
They’re right.
The Bottom Line
The power of Blackrock to drive its agenda, through its ETFs’ ownership of stock, is going to be limited.
But the political power of technologists is going to be heard. Technology is where the money is. Investors need to adjust their calculations on all investments accordingly, not just those in Blackrock stock.
Dana Blankenhorn has been a financial and technology journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in MSFT and JPM.
