In 2013, the asset management firm BlackRock unleashed a lobbying blitz to carpet-bomb a new Treasury Department agency, pushing federal regulators away from tightening requirements on its massive business lines.
Now, however, the New York firm — with $7.8 trillion in assets under management — could face its biggest threat yet, with Democratic control of the White House and influential figures on the left bent on breaking Wall Street apart.
But BlackRock, the world’s largest asset manager, is entering this era in a unique position: Two of President-elect Joe Biden’s senior economic advisers worked there in the years after they left the Obama administration.
Brian Deese, who until Dec. 18 led sustainable investing at BlackRock, is Biden’s pick to lead the White House National Economic Council. And Wally Adeyemo, who worked at BlackRock for just over two years, including as an interim chief of staff to founder Larry Fink, is slated to be deputy treasury secretary, with a direct hand in shaping the Biden administration’s approach to financial regulation. Adeyemo left the firm in 2019 to lead the Obama Foundation.
A Biden transition official said the incoming administration expects Deese and Adeyemo to recuse themselves from matters pertaining specifically to BlackRock for an “appropriate period” determined by law and an ethics agreement that is still in development. Still, their prominence within the top tier of Biden’s economic team, and BlackRock’s heavy investment in Washington influence in recent years, puts the company in a unique position heading into a period when its business lines could be coming under close scrutiny.
The firm’s ability to emerge victorious during battles in the Obama administration offers clues about how it could seek to survive and thrive during Biden’s time in office, and it presents the incoming administration with thorny questions about how it will seek to regulate a powerful firm with direct connections to its team.
BlackRock has a lot at stake. Janet L. Yellen, Biden’s nominee to run the Treasury Department, has been sharply critical of moves by the Trump administration to ease oversight of companies such as BlackRock. If Yellen tightens restrictions, the company could find itself in a much different regulatory environment, potentially forcing it to set aside more reserves and hire more compliance officials.
No U.S. firm can match its presence across the global economy. It has made purchases on behalf of the Fed and holds 5 percent or more of the shares of nearly all the companies traded on the S&P 500, according to one analysis published in 2019.
Still, combining a deft touch and an unrelenting lobbying blitz, it has kept policymakers at bay and been allowed to continue growing.
“The way that we proceeded reflected what I think was a correct view that you have to ask the questions without knowing the answers,” said a former senior Obama administration official, who like other current and former officials interviewed for this report spoke on the condition of anonymity to discuss private deliberations or preserve working relationships. “Candidly in some ways, the aggressive nature of the BlackRock advocacy made that harder, not easier.”
BlackRock said in a statement that as an asset manager, it is subject to regulation by a range of agencies, and that it supports regulatory reform that “increases transparency, protects investors and facilitates responsible growth.”
“We believe in the value of open dialogue and transparency on important policy issues, and over the last decade, as regulators around the world implemented new rules and regulations that have re-shaped the regulatory environment governing a wide range of asset management products and practices, we aimed to be a helpful contributor to this process,” the company said.
Former officials who worked with Adeyemo and Deese pointed out that neither worked at BlackRock or other finance firms for long portions of their careers and said they believe it unlikely that they would have adopted the firm’s views on financial regulation. Adeyemo previously worked for now-Sen. Elizabeth Warren (D-Mass.), a frequent antagonist of Wall Street, at the Consumer Financial Protection Bureau. When he announced Adeyemo’s nomination, Biden said he was “highly recommended” by Warren.
Neither Adeyemo nor Deese consulted with BlackRock executives about the firm’s engagement with the Treasury Department or regulators during their time with the company, said a person familiar with the matter.
But Washington observers said that even if BlackRock does not lobby Deese and Adeyemo directly, the perception of the firm being well connected within the Biden team will give it extra sway at a critical time. Finance experts and former officials said the Biden administration will need to strengthen the very government institutions and regulatory mechanisms that BlackRock has spent years aggressively lobbying against, and some worried that BlackRock could try to use its connections to undermine tougher enforcement.
“This is an area that the Biden administration really needs to take a close look at, and hopefully there aren’t going to be conflicts of interest affecting things,” said Marcus Stanley, policy director for Americans for Financial Reform, a liberal nonprofit group that advocates for stricter regulation of Wall Street. “BlackRock’s policy positions are very relevant to choices that the Biden administration is going to have to make.”
Biden transition spokeswoman Rosemary Boeglin said in an emailed statement that the incoming administration “has committed to establishing the most ethically rigorous administration in American history.”
“All nominees and appointees will commit to following all appropriate ethics rules in their work, including by meeting financial disclosure requirements, stepping down from outside positions, divesting assets, and recusing themselves from matters as required by federal ethics rules, their agencies, and the White House,” Boeglin said.
BlackRock is a massive financial company, but it is not a bank. It does not take government-insured deposits. It is an asset manager, investing and holding money on behalf of clients.
The firm aggressively snapped up senior and mid-level Obama administration officials from the White House and Treasury Department, giving it connections that have now proved fortuitous with Biden’s victory. And its political action committee and employees have given millions of dollars in campaign donations to politicians over the past decade, with more funds going to Democrats than Republicans, according to an analysis by the Center for Responsive Politics.
Shortly after Barack Obama took office in 2009, BlackRock executives began meeting with mid-level and senior White House economics officials, senior adviser Valerie Jarrett, Chief of Staff Rahm Emanuel and, later, Chief of Staff William Daley, according to White House visitor logs. In 2014, Fink met three times with Jeff Zients, then the director of President Obama’s National Economic Council and now slated to take on the role of coronavirus czar in the Biden administration.
Because it is not an investment bank — risk-taking in the investment banking sector helped cause the 2008 financial crisis — BlackRock could present itself as a constructive voice with useful perspectives on a range of issues facing policymakers, former officials said. The Federal Reserve Bank of New York turned to BlackRock for help in 2008, asking it to oversee failing assets held by Bear Stearns and American International Group. During meetings at the White House and in Congress during the Obama era, Fink would offer his insights on the health-care industry, infrastructure and gig workers, said people who met with him. BlackRock has further honed this stance through its Investment Institute, a sort of internal think tank that publishes bulletins with commentary on geopolitics, and an entire section on its website devoted to commentary on financial stability.
But BlackRock’s engagement in Washington took on a different tenor when it came to the prospect of regulations it saw as a serious threat to the firm’s business model. Former Obama officials and congressional aides pointed to how BlackRock reacted to the possibility of being named a “systemically important” non-bank financial institution by regulators, another way of saying the company was “too big to fail.”
Such a designation, a power granted by Congress to a group of regulators called the Financial Stability Oversight Council, could have cut into BlackRock’s profits by requiring it to set aside more capital reserves or hire more compliance specialists, for instance, and it would have placed BlackRock under the direct supervision of the Fed. In late 2013, news leaked that the FSOC was reviewing BlackRock and Fidelity, another asset manager, as it studied the issue.
Former officials said the chances of BlackRock actually being designated were minimal, but the firm still unleashed what they saw as a disproportionate, aggressive lobbying effort, blanketing congressional aides and regulators directly and via industry trade groups with meeting requests, letters and white papers laying out their views.
BlackRock’s main position has been that instead of targeting individual firms, regulators ought to review potentially risky activities in a sector, such as exchange-traded funds. Opponents of the activities-based approach say such a method would not have prevented the 2008 financial collapse.
But former officials said much of their frustration with BlackRock stemmed not from any specific policy position but rather what they saw as the firm’s aggressiveness and its willingness to exaggerate regulators’ actions to members of Congress. They viewed its bare-knuckles approach in Washington as contrary to its public stance of praising regulators for their actions after the 2008 crisis.
“You cannot do financial regulatory policy without some measure of trust in regulators’ judgment,” said a former Obama-era Treasury Department official. “BlackRock’s efforts were not just focused on policy changes but were focused on undermining that trust.”
Other officials said they found BlackRock to be sincere in its effort to educate policymakers about complex lines of business.
“I did find them to be very knowledgeable,” said one former Obama-era regulator who spoke on the condition of anonymity to describe internal meetings. “They did lots of research and published the findings of that research, thought about the issues and commented on the issues in a thoughtful way.”
Spurred by BlackRock’s push, members of the GOP-led Congress held public hearings in which they lacerated Obama administration officials and criticized their decision-making process as opaque.
In a related episode, BlackRock also led a charge to discredit the Treasury Department’s Office of Financial Research (OFR), created by Congress in the 2010 Dodd-Frank Act. The agency was designed to be an independent bureau empowered to demand data from Wall Street giants, shed light on opaque financial markets and hold its own against the same regulators who had missed the warning signs before the 2008 crash.
Four former officials said BlackRock’s lobbyists were by far the most vocal in pushing back against a 34-page September 2013 OFR report on the asset management industry that concluded those firms could pose a risk to financial stability. The report had been commissioned by the FSOC to help it figure out a framework for judging whether such firms were systemically important.
For its part, BlackRock felt the OFR report had not been prepared transparently, unhappy that it was granted just two meetings a year apart, to engage with the agency on the report, said a person familiar with the matter. The firm filed six letters with the Securities and Exchange Commission commenting on the OFR report between November 2013 and May 2014. By comparison, its three biggest competitors in the asset management industry — Vanguard, Fidelity and State Street — filed five letters total. The fallout over the report permanently damaged the OFR’s reputation, several former officials said, and eroded its support in Congress.
Former officials attributed BlackRock’s aggressive approach to vice chair and firm co-founder Barbara Novick, who has a reputation as a dogged, dedicated operator who makes it her job to get to know everyone, from 24-year-old entry-level agency staffers to senior White House advisers, Republicans and Democrats.
“We believe policy decisions should be data driven, and we have approached advocacy by publishing educational materials drawing on data and facts,” Novick said in a statement. “We are proud of our contributions to policy issues that impact investors globally.”
Novick and her staff made themselves ubiquitous, spreading their influence through industry groups such as the Managed Funds Association, the Investment Company Institute, the Securities Industry and Financial Markets Association and the Committee on Capital Markets Regulation, officials said.
“There are some companies or trade associations who will wait until a particular issue gathers momentum before intervening, but BlackRock seems pretty determined to quash anything,” one former Democratic congressional aide said. “They don’t miss anything, and they intervene early and often.”
By 2014, BlackRock had notched a key victory when the FSOC announced it would focus on potentially risky activities rather than labeling individual firms as risks.
In 2019, the Trump administration went further, overhauling the process by which the FSOC could assess the risks presented by non-bank financial firms and making it unlikely, experts said, that any company would draw tighter regulation. The new approach, which among other changes requires a cost-benefit analysis before a company is designated, was hailed in its draft form by BlackRock, in a 72-page submission complete with appendixes, as a “very significant improvement on the existing process.”
Dennis Kelleher, president and CEO of Better Markets, an advocacy group that favors more robust Wall Street oversight, said the changes “created this Rube Goldberg set of procedures that make it almost impossible for the FSOC to ever designate any activity as systemically significant” and even harder to designate any entity, either.
“It is entirely consistent with everything the shadow banking system lobbyists all wanted,” including asset managers, private equity firms, hedge funds and others, said Kelleher, who is a volunteer with the Biden transition team.
The new approach drew rare public criticism from four former senior U.S. economic officials, including Yellen. She and her colleagues wrote in a letter that the changes “would make it impossible to prevent the build-up of risk in financial institutions whose failure would threaten the stability of the system as a whole.”
The Treasury Department did not respond to a request for comment on the 2019 guidance. Treasury Secretary Steven Mnuchin’s former counselor at the agency, Craig Phillips, was a managing director at BlackRock before he joined the Trump administration.
In her new role, Yellen could try to rescind the guidance and push the FSOC to increase its scrutiny of non-bank financial firms. A Biden transition official said that there is “no daylight between Yellen and Adeyemo on financial regulation” and that Adeyemo agrees with Yellen’s stance in the 2019 letter.
Another major issue regulators were examining in the years after the financial crisis was what kinds of new rules to institute for money-market funds, which are not guaranteed by the federal government like regular bank accounts but which still typically serve as risk-free places for investors to store cash. They are run by asset managers such as BlackRock.
In 2008, when investors fled money-market funds, the Fed had to step in to prevent further mayhem. In response, the FSOC proposed three possible changes in November 2012 and questioned the wisdom of an approach BlackRock had advocated months earlier, for liquidity fees that would activate only in times of crisis. But the FSOC could only recommend rules, and it was then up to the SEC to debate and adopt them.
Novick filed a letter with the FSOC pushing back against its proposals. Then she and her team met with SEC officials around a week before Christmas in 2012, presenting their views in PowerPoint form. BlackRock was one of many Wall Street players that lobbied the SEC during this time period, including Vanguard, Fidelity and Federated. BlackRock also organized a 2013 letter that suggested a new definition for retail money-market funds, which the SEC ended up adopting.
The eventual changes adopted by the SEC in 2014 were weaker than what the FSOC had proposed. They incorporated liquidity fees and were greeted with cautious praise by industry players. Now, those who wanted stronger regulations feel they have been vindicated. In March, as investors rushed to pull money out of the market during the first weeks of the coronavirus pandemic, the Fed was forced to intervene, announcing it would establish a special backstop for money-market funds, among several other emergency actions. The industry was effectively bailed out again.
BlackRock has already moved to shape the discussion around further measures, issuing a paper in July that deflected blame for the instability away from money-market funds.
The turmoil last spring revealed unstable practices in parts of the asset management industry, including in money-market funds, said Sheila Bair, former chair of the Federal Deposit Insurance Corp.
“Everybody always knew this was a significant source of systemic risk that, because of the power of the asset management industry, we didn’t really tackle,” Bair said. “That was true of Obama as well as Trump. I hope they [members of the Biden team] have the courage to do it.”