BlackRock's Aladdin: More Powerful Than Politics?

This week, I was perusing one of the darker, edgier corners of the popular news blog Gawker, a section called the 'Black Bag'.

Not somewhere I would normally find myself, yes, but hear me out.

As it happens, financial technology actually popped up, in the form of a specific villain to slay: the Aladdin platform run by BlackRock that manages or in some way supports around $11 trillion in assets across a substantial portion of the buy side.

Getting past the insufferable Gawkerized writing—the obligatory needless adjectives and adverbs like "dumb" and "awesomely," and describing BlackRock founder Larry Fink as a "dweeb"—the piece, at its heart, did seem to have a argument to make, and built off a more wide-ranging tome published in a similarly intransigent corner of the BBC's website, a blog written by respected documentary filmmaker Adam Curtis called The Medium and the Message. (Thanks Marshall McLuhan.)

Dazed and Confused
The Gawker's article's main points were two. While interesting, they rather quickly start to confuse with one other.

Point One: It alleges that Aladdin is pushing forward some kind of politics-killing "stability" as a matter of its being, doing so from a non-descript datacenter compound in rural Washington state where, naturally raising suspicion, no one would look for it. Referred to here, to be clear, isn't politics in the traditional “hack” politics sense, so much as a philosophical idea that in any space there should be levers for debate and disruption.

Point Two: A few paragraphs later, it is then suggested that Aladdin was actually an early and far more systemically important version of the model used by app-based driver service Uber, which ostensibly acts (or pretends to act) as a market-making platform, connecting firms with services they need, but instead is stealthily disintermediating the market completely with very little risk taken on its own, and in the process, loops back a funnel of invaluable information that it can then turn around for its own benefit. Shady stuff.

The bottom line to all this? A system as big as Aladdin, pulling in as much of the world's assets as it does, is inherently problematic. The BBC's post goes even as far to say it's more powerful a force than domestic politics. Not because it's risky; quite the opposite, it was designed to be actively, even radically, risk-averse, but to be so in a way that happens to make BlackRock incredibly influential, and also very profitable.

Group Think
The legitimate question this critique raises is about the nature of stability—and in part, the use of scalability as a means to that end. Can it be dangerous for so many firms to buy into and operate on a single platform, behaving essentially in the same way? Probably, if the way the platform is designed actually encourages group-think.

But Aladdin's market share and compute power alone—and even BlackRock's outsize influence on regulatory and enforcement matters, overall—don't quite connect those dots.

Exchange operators and investment banks have always been born of necessity and grow great because of it, too; we all know the famous agreement under the Buttonwood tree that launched the New York Stock Exchange.

Then, as now, the benefits weren't exactly flatly and publicly distributed. That these same kinds of agreements now manifest themselves in lines of code running through a protected datacenter, rather than among a few brokers standing on a street corner in the light of day, doesn't make a tremendous difference—other than to perhaps make the whole thing feel more conspiratorial in an era that loves this sort of thing.

And unlike Uber—which will surely one day soon see its business model upended by liability issues—BlackRock already takes on a ton of operational risk and cost to maintain its place atop the mountain. Its software isn't cheap, nor is running its infrastructure.

Because of its foresight, Aladdin may be the gift that keeps on giving, but it's not a mobile phone app out there poaching taxi drivers. Some of Aladdin's largest development partners, like Tradeweb, are happy to give a little bit to gain access to Aladdin's screen real estate. The nature of the transaction is different.

Facing the Facts

It's great, of course, for the wider media to understand and investigate the technology relationships that undergird the capital markets. We're constantly trying to figure them out across the Waters brands, and it's fair to say that they're not always as transparent as we would like.

But the trillions of dollars in assets and Larry Fink's conservative disposition aside, it's mistaken to construe Aladdin's position in the market—even, indeed, its broader purpose in the world—as so completely cynical and asymmetrical, relative to those whom it serves.

You could lump it in to those ideas about technology, sure. Maybe the ideological premise feels right. But the facts just aren't quite there.