March 24, 2023
SUBSCRIBER DASHBOARD
  • Login

No products in the cart.

siliconicarus.org
No Result
View All Result
  • Blockchain
  • Impact Finance
  • Smart City
  • Biosecurity
  • Genomics
SUBSCRIBE
  • Blockchain
  • Impact Finance
  • Smart City
  • Biosecurity
  • Genomics
No Result
View All Result
siliconicarus.org
No Result
View All Result

Game, Set and Match: BlackRock’s ESG Gambit and the End of Risk

by Raul Diego
2 years ago
Reading Time: 6 mins read

LONDON, UNITED KINGDOM – Before 2020, the last time Wimbledon was cancelled had been due to the destruction of the tennis tournament’s famous center court during World War II. Nearly eighty years later, the grass court championship was again forced to suspend the competition as a result of the pandemic. This time, however, the All England Lawn Tennis Club (AELTC) – which owns and operates the grass court games – was covered by a $141 Million payout from an insurance policy it had taken out seventeen years earlier.

The curious inclusion of specific language addressing a pandemic or epidemic disease in the policy contract notwithstanding, these kinds of disaster insurance policies are nothing new. But, in the early 1990s, a significant wrinkle was added to the mix when losses incurred by the insurance industry after hurricane Andrew motived the sector to outsource the risk of these policies to capital markets through the creation of so-called Catastrophe Bonds or Cat bonds.

In essence, these new instruments allowed insurance companies to spread the risk among hundreds or thousands of outside investors by packaging these kinds of policies as derivatives and selling them on the open market. The financial innovation spurred the growth of the insurance-linked securities (ILS) industry, which comprises cat bonds and several other types of securitized debt instruments revolving around insurance “loss events“.

RELATED POSTS

Natural Asset Managers – How Decentralized Ledger Technology Will Drive the Ecosystem Services Sector

Double Eclipse: India to Take Over G20 Presidency, Lead Roll Out of CBDCs and the Tokenized Economy 

Elite Tinder? The App Crypto Billionaires and Offshore Banks Are Using to Hook Up the Digital Currency Pipelines

The Fred Perry statue is seen at Wimbledon as the spread of the coronavirus disease (COVID-19) continues (Reuters Photo)

Previous Wimbledon champion Novak Djokovic would not get a chance to defend his crown or play for the $2.4 Million-dollar first-place purse in 2020, but AELTC would receive almost half of the $310 Million it had projected to make in ticket sales that year. Virtually all of the money paid out of the tournament’s policy will not come from the Insurance company, which charged about $2 Million a year for the contract, but from investors whose portfolios will now lose the principle they would have otherwise recuperated had the public health emergency stipulated in the policy not come to pass.

At the moment, the relatively tiny ILS industry stands at about $118 Billion worldwide, but significant events in the world of global finance this week augur a massive expansion in this sector as the two largest asset management companies on the planet, with a combined $16.1 Trillion under their control, signaled rapid movement in this direction and opened the door for a brave new world in which a pension fund meant to cover the retirement of workers in one country can be diverted to cover the losses of a company (perhaps a sports tournament) in another as a result of an unpredictable natural event.

By the Power of ESG 

BlackRock and Vanguard sit atop the global asset management food chain and both are leading the way in the implementation of Environmental, Social and Governance (ESG) mandates across the private sector and ushering the so-called Fourth Sector – an emerging corporate paradigm, that amalgamates the non-profit sector, religion and private companies in a new black-box corporate structure, developed by Rockefeller Foundation’s B Lab and hinging on the UN’s Sustainable Development Goals (SDG).

On Wednesday, BlackRock formerly launched an ESG fund, with cat bonds as a “targeted asset“. Part of the BlackRock Capital Allocation Trust (BCAT), whose top investors include Alphabet, Microsoft and Amazon, the fund will focus on identifying “ESG-appropriate” securities and bonds that use proceeds in a “green manner”. By including cat bonds in the fund’s investment strategy, BlackRock sets the stage for such disaster finance vehicles to drive the burgeoning ESG market and opens the door for these high-risk instruments to become part of the portfolios, that more traditional investment fund managers put together for regular investors.

A protester holds a puppet shaped as crown and reading BlackRock, a US global investment management corporation among feminist activists performing the “Because of Macron” choreography, in Paris on January 24, 2020, during a demonstration as part of a nationwide multi-sector strike against the French government’s pensions overhaul. / AFP / LIONEL BONAVENTURE

In addition, Fintech’s encroachment into the asset management game through direct indexing (DI) technologies is bringing “big-data analysis, quantitative algorithms and risk modeling” tools that are usually only available to high-net worth or institutional investors to the much larger intermediary market. BlackRock, J.P. Morgan and others have already made strides in these areas by acquiring DI development firms over the last few months, but perhaps no greater signal of the reality that this is not a mere trend was Vanguard’s acquisition of Oakland-based DI company Just Invest last month – the first acquisition for the legendary company in 46 years.

Nice Work if You Can Get It

The wealth-management behemoths concede that the move towards direct indexing tech is all about wielding ESG’s power to completely fashion corporate policies writ large and not about opening long-held investment secrets to the general investing public. While Vanguard may seem to have dragged its feet, the writing on the wall is clear and momentum is rapidly shifting towards the creation of the Fourth Sector as BlackRock, Vanguard and Fidelity Investments (collectively known as the Big Three) begin to use their considerable influence in the boardrooms of the world’s corporations to push through ESG-based reforms.

Controlling over $34 Trillion between them, the Big Three will have “a de-facto veto on all major corporate decisions by 2040” if nothing changes, according to John Rekenthaler from financial services firm, Morningstar, Inc. The indexing giants are availing themselves of ESG “filters” to pick and choose which companies are able to access investor funds and would become veritable “kingmakers”, not to mention the ability to steer the very markets their bottom line depends on.

Portrait of American founder and CEO of the Vanguard Company John C Bogle, Malvern, Pennsylvania, 1995. Bogle, an amateur astronomer, poses with an antique telescope. John C Bogle died of cancer at 89. Bogle founded Vanguard Group and introduced low-cost index funds, becoming a legend on Wall Street. LEIF SKOOGFORS—GETTY IMAGES

“What’s happening now is that indexing consolidation is shifting some of that power from corporations to asset managers, and people are concerned”, says Joshua Levin of OpenInvest – the DI firm recently bought by J.P. Morgan. Predictably, Levin downplays the concerns by characterizing the problems as “a temporary way point”. Nevertheless, the amount of power acquired by firms like BlackRock and Vanguard in the aftermath of the 2008 controlled demolition of the traditional banking model is unlikely to be relinquished any time soon, despite Rekenthaler’s optimism that technologies like OpenInvest will soon “allow motivated Gen-Z-ers and Millennials to [engage in individual proxy voting] via their Vanguard account or Robinhood app”.

Those days may yet come. But, certainly not until the likes of BlackRock, Vanguard and their insurance industry partners have set the rules of the game and their profit margins are protected against any contingency, whether these come in the form of a momentary glitch in the software that causes a stock’s value to plummet or a securitized natural disaster that was called in by God. The point is to win at all costs and capitalize on life’s unpredictability without assuming any risk. 

Raul Diego

Raul Diego is a contributing editor and the founder of Silicon Icarus. He has worked as a photojournalist for Anadolu Agency, producer for Newsbud, court videographer for Law & Crime Network, and most recently as staff writer for Mint Press News before embarking on this independent endeavor. Currently without country or home, he stalks street musicians in his spare time.

Related Posts

Natural Asset Managers – How Decentralized Ledger Technology Will Drive the Ecosystem Services Sector
Blockchain

Natural Asset Managers – How Decentralized Ledger Technology Will Drive the Ecosystem Services Sector

February 11, 2023
Double Eclipse: India to Take Over G20 Presidency, Lead Roll Out of CBDCs and the Tokenized Economy 
Blockchain

Double Eclipse: India to Take Over G20 Presidency, Lead Roll Out of CBDCs and the Tokenized Economy 

November 1, 2022
Elite Tinder? The App Crypto Billionaires and Offshore Banks Are Using to Hook Up the Digital Currency Pipelines
Impact Finance

Elite Tinder? The App Crypto Billionaires and Offshore Banks Are Using to Hook Up the Digital Currency Pipelines

January 11, 2023
DeFi For the People, Life For the Machines
Blockchain

DeFi For the People, Life For the Machines

June 20, 2022
Marx’s Socialist Encryption Standard and Other Myths of Cyberpolitics 
Impact Finance

Marx’s Socialist Encryption Standard and Other Myths of Cyberpolitics 

January 11, 2023
Blackstone’s Ultimate Real Estate Play: Your Head
Capitalism

Blackstone’s Ultimate Real Estate Play: Your Head

January 11, 2023
Next Post

The Devil's Currency - Part I

CC BY-NC 4.0

Attribution-NonCommercial 4.0 International (CC BY-NC 4.0) Attribution — You must give appropriate credit, provide a link to the license, and indicate if changes were made. You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use. NonCommercial — You may not use the material for commercial purposes.

topics of interest

  • Biosecurity State
  • Blockchain
  • Gamification
  • Genomics
  • Impact Finance
  • Smart Cities

Newsletter | The Sidebar

Check your inbox or spam folder to confirm your subscription.

  • Subscriber Dashboard
  • About
  • Contact

© 2023 Silicon Icarus - All Rights Reserved | Privacy Policy

No Result
View All Result
  • Biosecurity State
  • Blockchain
  • Impact Finance
  • Smart Cities
  • Subscribers

© 2023 Silicon Icarus - All Rights Reserved | Privacy Policy

Welcome Back!

Login to your account below

Forgotten Password?

Retrieve your password

Please enter your username or email address to reset your password.

Log In
Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?