Larry Fink’s BlackRock posted blow-out earnings this week – and you can thank the business it’s doing in the war-torn Middle East, On The Money has learned.
That may sound hard to swallow if you read the economic doom-and-gloom that is portrayed everywhere in the mainstream media over the Iran conflict. Soaring oil prices, inflation and relentless pessimism are headlines you can expect on any given day.
And to be sure, there are real financial questions dogging the Persian Gulf. War aside, Saudi Arabia’s $1.5 trillion Public Investment Fund is showing strains from spending plans including something called “The Line,” a futuristic, miles-long, glass-and-steel mega-development that could cost up to $1 trillion by the time it’s completed – supposedly sometime after 2030.
It’s one reason the Saudi’s announced that they are mothballing their nascent golf league, LIV Golf, which never mounted a competitive threat to US PGA four years after its launch. “That was an easy one to kill,” said one observer. “It’s not like they don’t have other priorities.”
Yet despite the headline-grabbing hiccups and the missiles and the drones, for places like Saudi Arabia, Qatar, and UAE’s Abu Dhabi, it’s mostly business as usual, my sources tell me. We reported this a couple of weeks ago – and it was confirmed by Fink in his first quarter earnings calls with Wall Street analysts.
Fink doesn’t see the LIV detour as existential to the region’s long-term business prospects. The voluble CEO of the world’s largest money manager, with $14 trillion in assets, has an eye on every market, and in every region in the world, and he sees green in the desert. Yet his comments about the staying power of the Middle Eastern economy on Tuesday were overlooked by much of the mainstream media – maybe because they don’t fit in with its narrative.
Wall Street trading desks, which have their own information gathering systems, can’t afford to look away from what is really happening on the ground. Collectively, the sovereign funds of Gulf nations control trillions of dollars of investable assets and they’re some of Wall Street’s biggest customers.
BlackRock, which Fink started in 1988, has been managing money from these funds for decades and may have the biggest footprint of any Wall Street firm in the area. He is close to the Saudi PIF and BlackRock has offices in Dubai, Riyadh, Abu Dhabi, Doha, and Kuwait.
In fact, Middle East business helped power BlackRock’s 46% jump in first-quarter earnings, Fink pointed out. Inflows from sovereign clients to BlackRock’s funds remained strong, and spending on infrastructure, which BlackRock also manages, is accelerating, he said.
“We have not seen any change in behavior” among the Gulf nations, Fink said on Tuesday’s call. He added that BlackRock has done some “co-investments in the last few months” in the region. Most reassuring, there has been no flight to quality from sovereign funds, bailing on their holding and buying safe-haven securities like US Treasuries.
“If anything, I think the money’s still continuing to flow … their investment behavior has not changed.”
Fink added that “obviously, things could change if there’s a prolonged violence in the region,” but BlackRock believes the conflict and its economic impact is at least starting to become “contained.”
The firm pointed out in a recent note to investors there’s “evidence of actions that could reopen shipping traffic in the Strait of Hormuz.” That includes US navy ships which, after a blockade of Iranian ports, appear ready to be facilitating the flow of oil.
Maybe that’s why oil has fallen to below $100 a barrel and the S&P hit 7,000 on Wednesday – a new record that flies in the face of the endless media speculation about the economic disaster the conflict will supposedly create.
Fink, I am told, views the war as something that the economy and BlackRock can survive. During the call Fink pointed out that BlackRock is well positioned to capitalize on the Middle East’s transition from an energy-based economy to one moving into high growth areas in tech and artificial intelligence.
The conflict also highlighted the need for the region to fix its energy infrastructure so it can create pathways outside Iranian influence including the Strait of Hormuz.
“We see huge opportunities,” Fink said. “More opportunities, not less.”
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