Present at the Creation

In 2014, BlackRock got the Carol Loomis treatment.

That July, Loomis—effectively in-house scribe to Warren Buffett’s Berkshire Hathaway, and a Fortune institution—aimed her formidable powers of observation at the asset manager, by then the world’s largest. What did the future hold for Larry Fink and his $4.3 trillion behemoth?

“Assuming he stays healthy, his style is likely to be extant at BlackRock for a good many years,” she concluded, nearly 6,000 insightful words into the article. “Fink likes to describe BlackRock as a ‘neurotically charged financial services company’” and “an ambitious, competitive outfit” well positioned for years ahead. Having grown by another $300 billion since then, she wasn’t wrong—but I couldn’t shake the feeling that Loomis glossed over perhaps the most interesting part of the whole endeavor: How did a firm that has come to absolutely dwarf its competition begin? 

“Let’s give credit where credit is due—Larry Fink and Ralph Schlosstein had this idea,” Barbara Novick, a co-founder and vice chairperson, tells me. “There were eight founders in total: Four of us came with Larry from First Boston, and two people came with Ralph from Lehman.” Novick was 27 at the time. 

The idea had been simple—to them at least. Markets were getting increasingly complex with the advent of securitization, they believed, and sell-side firms were significantly better positioned than the buy side to take advantage of such innovations. “So the initial idea was to create a niche firm focusing on structured products,” Novick says. 

Like any startup, there were hiccups. “The original name wasn’t actually BlackRock,” she says “It was Blackstone Asset Management.” Stephen Schwarzman’s private equity giant was an original venture investor in the firm; it wasn’t until four years after the 1988 founding that Novick, Fink, and Co. changed the name. (Schwarzman eventually sold his stake after a reported falling out, much to his chagrin and to the benefit of PNC Bank in Pittsburgh. The stake returned more than 100 times pretax on PNC’s initial $240 million investment, Loomis reported.)

But according to Novick—and against the grain of almost every startup experience—the early years were marked not by tumult, but success.  

Their first fund was the Blackstone Income Trust; the second was a private overseas fund, also focusing on mortgage securities. Then came Blackstone Term Trust—“that third fund was the inflection point,” she says. “It was within the first year: We founded the firm in March of 1988, and that fund launched in November.” It was, for the time, very large, and allowed the group to reinvest in their business. 

“That was our first innovation—inventing the term trust,” she explains. Brokers apparently loved it, but a common refrain was heard within the walls of the new firm: “I really wish I could sell my clients a product that returned their initial investment.” At the time, closed-end funds were perpetual, with very little concept of returning the original capital. Not Blackstone Asset Management’s. “The term trusts were designed explicitly to return the money at a specific term of time. It was the game changer.”

Novick understands that luck played a role in the firm’s ascent: Being a fixed-income shop for the two decades following 1988 was the investing equivalent of owning the New England Patriots before it signed Tom Brady. She attributes much of the company’s attributable success to two simple factors: energy and listening. “You have to have a tremendous amount of energy. You have to really listen to what people’s needs are, and try to figure out how you can solve their problems. If you come at it thinking you can push your brilliant product on other people, you won’t succeed. But if you can listen to needs, priorities, challenges, and help people solve them—you may succeed.”

If it was that easy, you’d all be Larry Fink or Barbara Novick—and I’d be Carol Loomis.