With just under $6 trillion in assets under management (as of year-end 2018) BlackRock is the largest money manager in the world. Virtually unheard of only a decade ago, it has now grown into one of the most powerful forces in financial markets and politics alike.
Central to this ascendance was its risk management software, Aladdin. Aladdin — an acronym for Asset Liability and Debt and Derivative Investment Network — has become the “industry’s dominant platform for keeping track of portfolios.” It counts among its clients approximately 200 financial firms who use the software to manage approximately $18 trillion in assets.
But Aladdin is not just a business tool. Many governments throughout the world rely on BlackRock, and Aladdin, in times of crisis. This has included the US government, which hired BlackRock to manage toxic assets following the financial crisis.
Aladdin’s unprecedented market dominance raises a number of concerns. First, overly widespread reliance on a single software is likely to amplify the consequences of its flaws. For instance, if thousands of money managers think “with the same tools,” the impact of that tool missing something important could be catastrophic.
Second, while Aladdin has widely been lauded as the gold standard in risk management software, the risks of a herd mentality should be given serious consideration. The dominance of a single powerhouse firm generally reflects a breakdown of the market which tends to reduce innovation. Aladdin’s ubiquity ought to generate scrutiny from competition regulators, including the Justice Department’s Antitrust Division, rather than be augmented by the government via any contracting process.
Yet the presence of many former BlackRock employees at the highest levels of many governments reasonably calls into doubt whether or not concerns about Aladdin’s dominance would be a factor in the contracting process.
Aladdin has also helped BlackRock to further insinuate itself into the halls of power throughout the world. BlackRock’s efforts to exert influence over the regulatory process through lobbying and revolving door hires are well-recorded. Aladdin is yet another way in which BlackRock gains an advantage over other firms and the general public.
That is why it is important that the general public understand the exact nature of the contractual relationships between BlackRock and the federal government. We know from news reports at the time that both the Federal Reserve Bank of New York and the Treasury Department hired BlackRock to help manage toxic assets in 2008 and 2009. There appears, however, to be no public record of these contracts, so it is not known exactly how BlackRock was chosen, how much it was paid, and how long the relationship was set to last. The lack of transparency surrounding the relationship between BlackRock and these agencies, along with Aladdin’s growing dominance, also suggests that other departments could be using BlackRock’s services without the public knowing.
In order to gain more clarity, Revolving Door Project has sent Freedom of Information Act requests to (A) the Treasury Department, (B) the Federal Reserve Board of Governors, (C) the US Securities and Exchange Commission, and (D) the Commodity Futures Trading Commission in order to (1) determine if any of these agencies have used Aladdin in the last twelve years and, (2) if yes, understand the nature of these relationships.
With this information, the general public will be better prepared to identify and call attention to troubling conflicts of interest between BlackRock and the federal government. This is particularly important as many of those in BlackRock’s upper echelons appear to be preparing for a stint in a future Democratic regime while recent BlackRock Managing Director Craig Phillips already exerts enormous influence in Trump’s Treasury Department.