By Mina Kimes
At just 38 years old, Rob Goldstein has risen to the upper echelons of the world's biggest money manager. But he maintains a low profile, drawing less attention than most young stars on Wall Street. The same could be said about BlackRock Solutions, the little known, influential division Goldstein helped create and has run since 2009. The secretive 900-person unit is like a consulting firm inside BlackRock, offering expensive technological services and advice to banks, pension funds, and governments around the world. Its $510 million in revenue is a drop in the proverbial bucket of the $9.1 billion that BlackRock generated last year. But as the money manager increasingly seeks to position itself as a holistic problem solver, BlackRock Solutions' role in the company?and Goldstein himself--will accrue greater significance to the firm.
Goldstein, who just moved into a new window office (the most prominent decorations are drawings by his two young children), is a classic BlackRock guy: nerdy, quirky, and quietly ambitious. The executive gets visibly excited when he talks about sorting through vast amounts of data. He is both a self-described gadget geek and a massive Deadhead. Dressed in shirtsleeves, cufflinks engraved with fraction signs, and a tie dotted with tiny Zodiac symbols, Goldstein admits that he regularly reads his horoscope (his sign, Sagittarius?energetic and adventurous?describes him, he says). He waits until the evening to read it so he can see how the prediction panned out. "There must be a database of responses and some algorithm that does it," he muses.
Born and raised in Canarsie?with the accent to prove it--Goldstein was a math whiz growing up; he skipped eighth grade and graduated from high school at the age of 16. His father, a teacher who later became a broker, told him that he could have a car (a used Acura Integra) if he went to SUNY Binghamton instead of an expensive private college. Goldstein agreed to the deal, even though he wasn't old enough to drive until his second semester of school.
After studying economics at college, Goldstein knew he was interested in finance, but the big banks didn't recruit at Binghamton, so he wrote letters to several companies. He received numerous rejections, but he got a "yes" from BlackRock, then a 55-person firm occupying half a floor in a Park Avenue office building. When Goldstein came on board in 1994, he recalls, there were only six people in that year's intake of analysts.
BlackRock, which Fink founded in 1988 with former First Boston colleagues as an asset management division of private equity giant Blackstone, has always stressed risk management. In its early days the company regularly churned out risk reports on all of its portfolios--an unusual practice for a buy-side firm, recalls Goldstein, who used to compare the daily reports by hand to search for inconsistencies, using a ruler to keep his place. The analysts delivered these summaries, which were printed on green paper, to BlackRock's portfolio managers. Soon BlackRock's customers started to ask for their own daily risk reports, and in 1994 the company started selling a service called "The Green Package" to clients.
The company's next big analytics product, Aladdin, was hatched in a similar fashion. BlackRock created an internal operating system to manage and analyze its investment portfolios. In the late '90s, one of BlackRock's clients asked the firm if it could come install the same technology at its offices. The client named the platform Aladdin, which stands for Asset Liability and Debt and Derivative Investment Network. Goldstein and his associates finished the complex task of integrating Aladdin into the client's systems in 2000, marking the official launch of BlackRock Solutions. Today Aladdin has 50 customers--enormous money managers like sovereign wealth funds and banks--who pony up recurring fees for the product and generate about two thirds of the division's annual revenue.
Goldstein, who didn't even have a passport until 2004, now travels regularly around the world. He has a desk drawer full of ID badges from different clients. He won't show them to anyone. "I never say client names," he says, slamming the drawer shut. That discretion proved essential during the financial crisis, when BlackRock Solutions became the de-facto consigliere for the world's biggest financial institutions and governments. Around 2007, Goldstein says, the firm realized it could leverage its analytics power to help other firms evaluate their complex mortgage products. So Goldstein put together a special-ops style team of 200 consultants equipped to tackle tricky financial problems. Though Goldstein refuses to disclose details, some of the unit's high profile assignments have come to light. The U.S. government hired the firm to manage the mortgage securities it purchased from troubled insurer AIG in 2008; Ireland enlisted BlackRock Solutions to help it evaluate its banking system. More recently, the firm was commissioned by Greece to assess the financial health of its local banks.
In 2009, Fink officially named Goldsein head of BlackRock Solutions. The division's value to the firm transcends its contribution to the overall bottom line. For one, BlackRock Solutions' ties to financial giants and governments have burnished the entire company's reputation. (It has also caused some to worry that BlackRock's investment managers could leverage inside information; the firm maintains that it has rigid firewalls in place.) Robert Lee, an analyst at Keefe, Bruyette, and Woods, says BlackRock Solutions, with its focus on analytics and risk management, is the "backbone" of the company. "Its relative importance in the organization is greater than its revenue contribution," he says. "To understand BlackRock, it helps to understand BlackRock Solutions."
It is also a hothouse for innovation. For example, Goldstein's team recently tested a new product that will enable existing Aladdin clients and BlackRock portfolio managers to trade bonds electronically, circumventing brokers at big banks. The Aladdin Trading Network, rumored to be on the drawing table for a few years now, will be up and running in early 2013, says Goldstein. There is a greater urgency, he says, because of the liquidity crunch in fixed income trading. Banks have drastically cut back on the number of bonds they hold in their coffers, partly in response to new regulations, making it harder for investors to buy the assets they need at reasonable prices. Goldstein points out that electronic trading in stocks is the status quo; it's only a matter of time before the same thing happens for bonds, which are still traded by phone most of the time. "Sometimes the great innovations are just doing the obvious--but having the wherewithal to execute," he says.
Some investors are dubious about whether Aladdin Trading Network--and the various other fixed income trading systems springing up at banks and technology firms--will work. When investors trade bonds, they are often haggling over highly specific securities; it's generally more difficult to trade a thousand bonds with unique attributes than it is to trade one thousand shares of common stock. But Aladdin's clients have more than $12 trillion in assets, which should make it easier for BlackRock to facilitate matches.
As head of BlackRock's institutional business, Goldstein now has the wherewithal to pitch BlackRock Solutions' services to a wider berth of clients. His elevation signifies a strategic evolution at BlackRock. As investors shift their money into low-cost ETFs and index funds, the asset management industry faces the prospect of shrinking margins. BlackRock, meanwhile, is looking to become more than just a money manager--the firm wants to be seen as an advisor, analytics provider, and all around problem solver.
Goldstein's career path?he started at BlackRock at the age of twenty and never left?makes him an anomaly in the high-turnover finance industry. He says that's by design. "My personal opinion is that moving around a lot, particularly in a world where things are getting more and more complicated, is not a good career strategy." "Every time you move, you're resetting a knowledge curve." While he says his core responsibility, problem solving, hasn't changed much over the years, new challenges have kept his job interesting. "The good news," he adds, "is today there's a surplus of hard problems."
At just 38 years old, Rob Goldstein has risen to the upper echelons of the world's biggest money manager. But he maintains a low profile, drawing less attention than most young stars on Wall Street. The same could be said about BlackRock Solutions, the little known, influential division Goldstein helped create and has run since 2009. The secretive 900-person unit is like a consulting firm inside BlackRock, offering expensive technological services and advice to banks, pension funds, and governments around the world. Its $510 million in revenue is a drop in the proverbial bucket of the $9.1 billion that BlackRock generated last year. But as the money manager increasingly seeks to position itself as a holistic problem solver, BlackRock Solutions' role in the company?and Goldstein himself?will accrue greater significance to the firm.
Goldstein, who just moved into a new window office (the most prominent decorations are drawings by his two young children), is a classic BlackRock guy: nerdy, quirky, and quietly ambitious. The executive gets visibly excited when he talks about sorting through vast amounts of data. He is both a self-described gadget geek and a massive Deadhead. Dressed in shirtsleeves, with cuff links engraved with fraction signs and a tie dotted with tiny Zodiac symbols, Goldstein admits that he regularly reads his horoscope (his sign, Sagittarius?energetic and adventurous?describes him, he says). He waits until the evening to read it so he can see how the prediction panned out. "There must be a database of responses and some algorithm that does it," he muses.
Born and raised in Canarsie?with the accent to prove it?Goldstein was a math whiz growing up; he skipped eighth grade and graduated from high school at the age of 16. His father, a teacher who later became a bond broker, told him that he could have a car (a used Acura Integra) if he went to SUNY at Binghamton instead of an expensive private college. Goldstein agreed to the deal, even though he wasn't old enough to drive until his second semester of school.
After studying economics at college, Goldstein knew he was interested in finance, but the big banks didn't recruit at Binghamton, so he wrote letters to several companies. He received numerous rejections, but he got a yes from BlackRock, then a 55-person firm occupying half a floor in a Park Avenue office building. When Goldstein came onboard in 1994, he recalls, there were only six people in that year's intake of analysts.
BlackRock, which Fink founded in 1988 with former First Boston colleagues as an asset management division of private equity giant Blackstone, has always stressed risk management. In its early days the company regularly churned out risk reports on all of its portfolios?an unusual practice for a buy-side firm, recalls Goldstein, who used to compare the daily reports by hand to search for inconsistencies, using a ruler to keep his place. The analysts delivered these summaries, which were printed on green paper, to BlackRock's portfolio managers. Soon BlackRock's customers started to ask for their own daily risk reports, and in 1994 the company started selling a service called "The Green Package" to clients.
The company's next big analytics product, Aladdin, was hatched in a similar fashion. BlackRock created an internal operating system to manage and analyze its investment portfolios. In the late '90s, one of BlackRock's clients asked the firm if it could come install the same technology at its offices. The client named the platform Aladdin, which stands for Asset Liability and Debt and Derivative Investment Network. Goldstein and his associates finished the complex task of integrating Aladdin into the client's systems in 2000, marking the official launch of BlackRock Solutions. Today Aladdin has 50 customers?enormous money managers like sovereign wealth funds and banks?that pony up recurring fees for the product and generate about two-thirds of the division's annual revenue.
Goldstein, who didn't even have a passport until 2004, now travels regularly around the world. He has a desk drawer full of ID badges from different clients. He won't show them to anyone. "I never say client names," he says, quickly slamming the drawer shut. That discretion proved essential during the financial crisis, when BlackRock Solutions became the de facto consigliere for the world's biggest financial institutions and governments. Around 2007, Goldstein says, the firm realized it could leverage its analytics power to help other firms evaluate their complex mortgage products. So Goldstein put together a special-ops-style team of 200 consultants equipped to tackle tricky financial problems. Though Goldstein refuses to disclose details, some of the unit's high profile assignments have come to light. The U.S. government hired the firm to manage the mortgage securities it purchased from troubled insurer AIG in 2008; Ireland enlisted BlackRock Solutions to help it evaluate its banking system. More recently, the firm was commissioned by Greece to assess the financial health of its local banks.
In 2009, Fink officially named Goldstein head of BlackRock Solutions. The division's importance to the firm transcends its contribution to the overall bottom line. For one, BlackRock Solutions' ties to financial giants and governments have burnished the entire company's reputation. (It has also caused some to worry that BlackRock's investment managers could leverage inside information; the firm maintains that it has rigid firewalls in place.) Robert Lee, an analyst at Keefe Bruyette & Woods, says BlackRock Solutions, with its focus on analytics and risk management, is the "backbone" of the company. "Its relative importance in the organization is greater than its revenue contribution," he says. "To understand BlackRock, it helps to understand BlackRock Solutions."
It is also a hothouse for innovation. For example, Goldstein's team recently tested a new product that will enable existing Aladdin clients and BlackRock portfolio managers to trade bonds electronically, circumventing brokers at big banks. The Aladdin Trading Network, rumored to be on the drawing table for a few years now, will be up and running in early 2013, says Goldstein. There is a greater urgency, he says, because of the liquidity crunch in fixed-income trading. Banks have drastically cut back on the number of bonds they hold in their coffers, partly in response to new regulations, making it harder for investors to buy the assets they need at reasonable prices. Goldstein points out that electronic trading in stocks is the status quo; it's only a matter of time before the same thing happens for bonds, which are still traded by phone most of the time. "Sometimes the great innovations are just doing the obvious?but having the wherewithal to execute," he says.
Some investors are dubious about whether Aladdin Trading Network?and the various other fixed-income trading systems springing up at banks and technology firm?will work. When investors trade bonds, they are often haggling over highly specific securities; it's generally more difficult to trade a thousand bonds with unique attributes than it is to trade a thousand shares of common stock. But Aladdin's clients have more than $12 trillion in assets, which should make it easier for BlackRock to facilitate matches.
As head of BlackRock's institutional business, Goldstein now has the wherewithal to pitch BlackRock Solutions' services to a wider berth of clients. His elevation signifies a strategic evolution at BlackRock. As investors shift their money into low-cost ETFs and index funds, the asset management industry faces the prospect of shrinking margins. BlackRock, meanwhile, is looking to become more than just a money manager?the firm wants to be seen as an adviser, analytics provider, and all around problem solver.
Goldstein's career path?he started at BlackRock at the age of 20 and never left?makes him an anomaly in the high-turnover finance industry. He says that's by design. "My personal opinion is that moving around a lot, particularly in a world where things are getting more and more complicated, is not a good career strategy," he says. "Every time you move, you're resetting a knowledge curve." While he says his core responsibility, problem solving, hasn't changed much over the years, new challenges have kept his job interesting. "The good news," he adds, "is today there's a surplus of hard problems."
Source: http://finance.fortune.cnn.com/2012/10/11/rob-goldstein-blackrock/
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