BlackRock Inc. chairman Laurence D. Fink, who made his reputation as a bond trader, now has his eyes on the stock market -- in more ways than one.
Mr. Fink wants the PNC Bank Corp. subsidiary -- which manages $148 billion, mostly in fixed-income assets for pension plans -- to loom larger in equity management. For the past month, however, his focus has been on another aspect of equities: BlackRock's debut as a publicly traded company.
BlackRock went public Oct. 1, selling a 14% stake that raised $126 million. The deal marks the first time a banking company has spun off part of its asset management business to the public. Shares, which were offered at $14, closed at $17.4375 Tuesday afternoon.
The offering put an $895 million value on New York-based BlackRock and supplied capital to pay down a heavy debt load that landed on the company's books when PNC bought it in 1995.
The stock offering left Pittsburgh-based PNC, which paid $240 million for BlackRock in 1995, with a roughly 68% stake worth about $609 million on paper. Insiders hold much of the balance.
Mr. Fink himself is enjoying the bounty. He owns a 3.5% stake, worth a tidy $31.25 million at the offering price. But the 46-year-old executive, a former Boston Co. trader who helped found BlackRock in 1992, said he has no intention of cashing out.
"The organization is growing quite rapidly," Mr. Fink said. "We have a great interest and philosophy in making BlackRock a well-rounded asset manager."
First and foremost, he wants to see BlackRock expand. The company, which employs 650, is looking to do more with equities, especially mutual funds. BlackRock will use the cash it is generating to finance expansion, Mr. Fink said. Equities make up 12% of the company's assets, versus 58% in fixed-income and 30% in money market funds.
He bristles at the idea that a company known for its fixed-income offerings could be anything but a success in expanding its equities and mutual funds businesses.
"I don't believe that products themselves determine success," Mr. Fink said. "You need to create a style of investing and a process that is consistent with your stated goals."
Mr. Fink did not rule out acquiring another asset management firm, but he said BlackRock might first take smaller steps. One possibility, he said, involved "lift-outs" of teams of money managers from competing asset management companies.
From a management standpoint this is a preferable approach, he said. "Things are more controllable and it's easier to work with a smaller group of people."
Still, Mr. Fink adds, "if the right firm came along" -- one that had solid equity experience, similar investment philosophies, and not too steep a price -- he would consider approaching PNC about a deal.
PNC is eager to see BlackRock build a broader business.
"Going into this, we wanted them to be more than a fixed-income company," said Thomas H. O'Brien, chairman of PNC. "We wanted them to help us build a world-class asset management operation."
Any new additions to BlackRock's managerial ranks would probably find themselves with equity in the company. Under Mr. Fink's guidance, BlackRock's stock offering was structured to give almost one-half of the staff an ownership stake through stock awards.
The compensation plan got a green light from PNC, which Mr. Fink says is an amenable partner. "I get along very well with the office of the chairman," he said.
While acknowledging that he initially thought he would never team up with a bank, Mr. Fink said the sale of BlackRock to PNC has been positive.
"We share common interests and philosophies of how to grow the investment business," he said, adding that PNC largely leaves BlackRock to do its own thing.
In his dealings with PNC, Mr. Fink has taken on some bankerly roles. He serves on the asset liability committee of PNC's main banking unit. Meanwhile, four top PNC executives, including Mr. O'Brien, sit on BlackRock's board.
On the fixed-income side, BlackRock counts as its chief competitors Pimco Advisors Holdings, the Western Asset Management unit of Legg Mason Wood Walker, and the Miller Anderson & Sherrerd arm of Morgan Stanley Dean Witter.
In its money market operation, BlackRock competes with companies such as Federated Investors, Fidelity Investment Management Services Co., and Goldman Sachs.
Mr. Fink has the respect of competitors. "Larry is a very talented person who has had a lot of success in this business," said William D. Cuengros, chairman of Newport Beach, Calif.-based Pimco.
"Under Larry's leadership BlackRock is doing quite well," said Mr. Cuengros, whose own firm has $256.2 billion of assets under management.
For the last few years, BlackRock's assets have been growing at a compounded rate of 30% annually. The most recently available figures show the company posted net income in the third quarter of $16.2 million on $100 million of revenues. Last year BlackRock had $35.6 million of net income on $260 million of revenues.
"This is a growth company with rising profit margins and a strong management team," said William R. Katz, asset manager analyst with Merrill Lynch. "A lot of other managers take broader interest rate risks or make sector bets to hit their numbers. But BlackRock sticks to its proven methods" of providing a competitive return and steering clear of too much risk.
Still, the company faces the same challenges as all asset managers. Accounts in the pension management field have been known to travel from firm to firm. Also, the long-running favorable market climate could turn.
"You wonder what would happen under a less benign operating environment" of higher interest rates, less economic growth, or declining stock prices, Mr. Katz said.
BlackRock's fixed-income investments are well regarded. The company's bond funds regularly beat benchmarks such as the Lehman Brothers aggregate index. And this fall, BlackRock's fledgling mutual funds were recognized as sound investments in a ranking by Barron's.
In a newer initiative, the company has begun offering risk management services and software to companies.
The risk management operation grew out of a contract that BlackRock had with General Electric to assess the liquidation value of the balance sheet of its Kidder Peabody unit. The system that BlackRock developed, in which portfolios are tested against a host of possible loss scenarios, was initially used for the company's own accounts. Now, it is offered to companies that do not necessarily keep their pension money with BlackRock.
Mr. Fink said BlackRock spends $30 million a year on investment technology, with most of the outlay going to develop and upgrade the risk management software. But the investments pay off, he said, with clients footing two-thirds of the technology budget.
Longer term, Mr. Fink says he sees BlackRock with more of a presence in foreign locales such as Europe and Japan and predicts the firm will have at least $250 billion under management.
He plans to be with the firm at least long enough to see that day, despite confessing to a degree of wanderlust. Family vacations typically take him, his wife, and three children to exotic destinations such as Burma, Patagonia, and Tanzania.
Still, Mr. Fink said his mind rarely strays from the office -- or the trading floor -- for too long. "I never like to be too far from the real action," he said.
