Larry Fink has taken BlackRock from eight executives in a single room in 1988 to running more than $5 trillion in clients' money, more than any asset manager on Earth — even more than Vanguard.
Fink has successfully navigated an asset-management industry landscape where most companies have been hemorrhaging assets, and talk of an existential crisis for active managers is not hyperbole. In the past year, index funds have seen inflows of more than $665 billion, while active funds have suffered more than $300 billion in outflows, according to Morningstar.
But holding big stakes in thousands of businesses outside asset management has focused Fink on what managers across many industries are doing right and where they can improve.
Here are some of the key tenets of Fink's management gospel.
As the world's biggest stock investor, Fink's most consistent advice to corporate managers is to look beyond short-term stock swings, and that means investing more in the business and spending less on stock buybacks and dividends. He has even tried, quixotically, to get CEOs to stop giving quarterly earnings forecasts.
Five-year performance of asset-manager stocks
BlackRock: 130 percent
Eaton Vance: 94 percent
Federated Investors: 30 percent
T. Rowe Price: 25 percent
Franklin Resources: 17 percent
(Source: Google Finance, 5/22/2017)
In a January letter to CEOs of companies BlackRock owns stock in, Fink noted that companies were spending all of their operating income — and more — on returning capital to shareholders in a low-rate environment where there are few obvious ways for investors to turn it directly into income. The better approach is to return excess cash flow to shareholders after first investing in the business for future growth.
Fink has defended his own buybacks, saying they are "small enough to be consistent with reinvesting in BlackRock's business."
Fink answered the fair question — What is BlackRock doing to combat short-termism in its own business? — in his annual letter to shareholders last year. The idea is to craft a coherent set of products that make sense together and responds to changes in your business, both current and expected, he wrote.
"There is no force more dramatic today than technology and its potential to transform the asset-management industry," Fink wrote. He described BlackRock as "a start-up with the ability leverage the benefits of scale."
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In BlackRock's case, the best example is building out its Aladdin technology platform, the key to a set of data services sold to other companies that generates 5 percent ($595 million in 2016) of BlackRock's $11 billion-plus in annual revenue (on top of being used to guide BlackRock's funds).
The asset-management industry has for a long time focused — and succeeded — by selling products. Fink says the asset managers who thrive will focus on "outcome management."
Fink wrote, "Clients know the outcomes they want, and it is our job to help them get there."
Adapting isn't always easy, and often has human costs. BlackRock was in the spotlight earlier this year for saying it would cut about 30 investment professionals in a shift toward trading driven by mathematical models. In many markets, BlackRock's automated trading products have beaten indexes more consistently than human fund managers, but they suffered a hiccup in 2016. Fink told CNBC in April that the professionals who had been expected to be cut would be shifted to other jobs that make more use of analytics.
There are some tasks only a computer can do. At BlackRock these include monitoring satellite data of big-box store parking lots and analyzing internet searches for consumer products to predict sales volume or even national economic growth.
Active management isn't dead, but users of the traditional methods need to accept the massive advances in technology and data sciences and incorporate them. BlackRock's Aladdin has close to 30,000 users in 50 countries.
"I've been running the company not quite 25 years," Fink said in 2012. "I still spend an hour a day studying the world and the markets. And if it's not an hour, it's an hour and a half. ... I'm still a student."
This is a practice that other successful icons, including Warren Buffett and his star stock pickers, preach as well.
Fink isn't a big fan of financial engineering, but he has built BlackRock partially through mergers — for example, he bought his way into the ETF business by purchasing Barclays' iShares unit in 2009 for $13.5 billion. The distinction he makes: Buy companies with cultures your company can learn from, not just businesses that will let managers cut costs. He has made smaller deals to get new technologies, and the big one led BlackRock into a whole new way of thinking about asset management.
In a 2013 essay on LinkedIn, Fink put these two traits, along with lifelong learning, as his top three management to-dos.
Culture means values and making sure they are more than "mere words on a wall," Fink wrote. At BlackRock that has meant not trading for the firm's own account, which would threaten the core cultural commitment to put clients' financial interests first, and "institutionalizing our belief that responsibility means knowing and managing risk."
Once culture is set, passion happens almost naturally. "Passion comes from focusing on our responsibility to our clients — the teachers, firefighters, students and retirees who entrust us with their pensions and retirement savings," Fink wrote. "What's the greatest predictor of business success? Not intelligence or talent — but passion."
After building BlackRock from the one-room office, Fink is playing his cards close to his vest when it comes to an eventual successor — for a good reason. He has no designated successor, telling Bloomberg Markets this year he doesn't want some potential candidates checking out mentally once they're out of the running.
"If we did that, some members of our leadership team would not be growing as fast as they're growing," Fink said. "The beauty of what we have now is seven or eight people who are fully in the mix."
The ultimate test of his own management will be whether BlackRock is better off when he goes, he says.
— By Tim Mullaney, special to CNBC.com