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Mistakes come in different sizes. For Larry Fink, one mistake cost his trading firm $100 million.
Larry Fink is the CEO of BlackRock [NYSE: BLK], an investment firm now managing over $15 trillion in assets owned by ordinary pensioners and sovereign wealth funds alike. In the year's second quarter, BlackRock pulled $192 billion in new client cash with the U.S. stock market locking in new highs. He believes there's even more room for equity growth, thanks in part to the AI boom that's taken Wall Street by storm.
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"Returns are broadening beyond the U.S," Fink told investors in a June earnings call. "We see great market fundamentals with higher corporate margins and earnings momentum catalyzed by new technology."
Fink said BlackRock, the firm he had founded in the late 1980s, was a "direct beneficiary of this growth."
Yet, Fink wasn't always a Wall Street success story. Earlier in his career, Fink made a mistake that cost another firm $100 million and led to his ouster.
Fink began working for the First Boston Corporation in 1976 as a bond trader. Over the next decade, he climbed up the ladder at First Boston, becoming one of the youngest managing directors at the company at 26 years old, leading a desk devoted to trading mortgage-backed securities. He was later tapped to join First Boston's management committee in 1983.
Then came a period of trades that transformed his armor into an anvil. Over the second quarter in 1986, Fink's desk lost $100 million. The culprit: plunging interest rates. Fink and his team had staked out positions betting rates would climb. When they didn't, those trades were demolished alongside hedges meant to shield them from the risk. By 1988, Fink was out at First Boston.
"My team and I felt like rock stars. Management loved us. I was on track to become CEO of the firm," Fink once said in a speech. "Well, I screwed up. And it was bad."
Fink later described that chapter as an instructive one that showed Wall Street firms hadn't developed adequate risk management tools or procedures to ensure healthy portfolios.
"We didn't know why we were making so much money. We didn't have the risk tools to understand that risk," Fink said in a 2010 interview with Vanity Fair. "It's what I tell everybody today: You should analyze your portfolio just as much when you are making money, because you could be taking on too much risk."
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Fink founded Blackstone in 1989, which became the behemoth it is today. He says living in a state of perpetual learning is key to success.
"That's the most important lesson I've learned by watching other firms. They actually forget that their job has to evolve and change all the time, and that what worked in the past may not work in the future," Fink said in a 2012 interview. "In my view, if you don't believe you're learning, if you're not a student, you're probably going backward."
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This article originally appeared on Moneywise.com under the title: 'I screwed up': Larry Fink lost $100M in a single quarter, got pushed out, and built BlackRock on top of the wreckage
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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