Larry Fink Q&A: “I Don’t Identify as Powerful”
Is $5.1 trillion enough? Not if you’re Larry Fink. The man who built BlackRock Inc. and helped popularize exchange-traded funds now has ambitions to turn the world’s largest asset manager into something more like Google. It’s all about Aladdin, the pioneering software his company developed to analyze investments. Fink sees Aladdin becoming the Android of finance and predicts technology will soon become one of the biggest of BlackRock’s businesses, with revenue approaching $5 billion in five years.
There were few computers on Wall Street when Fink arrived at First Boston in 1976. Hired as a bond trader, he quickly became a star in the burgeoning market for mortgage-backed securities. But eventually he made a trading error, lost too much money, and, after 12 years at the company, was forced out. At 35, determined to reboot his career, Fink co-founded an asset management unit inside Steve Schwarzman’s Blackstone Group. That’s how BlackRock was born. Today the company’s clients include central banks, sovereign wealth funds, and pensions, plus millions of individual investors.
Ask Fink anything, and he’s liable to have an opinion. Fees? Coming down. Active equities? Not dead. The most impressive company? Yep, Google Inc. He’s less certain about the Trump administration: “We’ll know in a year or two.” In this interview, Fink relives the decisive moments that shaped his company, sets a limit on his tenure as CEO, explains the reasoning—and risks—in his succession strategy, and shares his plans for a life after BlackRock.
ERIK SCHATZKER You’ve been described as the most powerful man on Wall Street. Are you?
LARRY FINK I’m not on Wall Street, so the framing of the question is wrong.
ES Let’s define Wall Street in a writ-large way—finance, financial markets.
LF That’s fair. I have no objection to that phraseology. I would say I really take it as a compliment, not as a negative. We built BlackRock into an organization that is active in most of the major countries in the world. We have deep relationships and many conversations with political and business leaders. We do that to help guide our clients in probably one of the most arduous tasks they have during their lifetime, and that is to build wealth so they can live in retirement with dignity. We have lost that conversation. The conversation more than ever before is about the trade, fast money, the moment, the short-termism of the world.
I don’t think of us as powerful. I don’t identify as powerful. But I do identify myself as working as hard as anyone I know in this long-term quest of trying to build our relationships and outcomes for our clients, and hopefully that leads to a great position for BlackRock. I don’t know if I answered your question specifically, because I don’t think of myself as powerful. I think of myself as the CEO of the largest asset management company in the world, and that has a lot of attendant responsibilities.
ES BlackRock began 29 years ago with $0. Today it has more than $5 trillion. Tell me about that evolution.
LF Let me start off by saying that evolution has been fun. It hasn’t been accidental. I think that evolution actually began the first day we started the organization. A quarter of the founders came from risk management—which was very unusual, especially at that time. We used risk management as a mechanism to understand fixed income. We were entirely a fixed-income manager, with a concentration in mortgages. We started in that narrow niche; I believed that was how to grow. We did not want to be a full-service organization. What people don’t know is that we were probably the fastest-growing manager ever from scratch. The growth from zero assets in 1988? That was all organic and something we were very proud of. So we didn’t rush into an IPO.
ES Which finally came in 1999. Why even go public at all?
LF Because I believed we needed to expand. And ultimately I thought we could use our currency for acquisitions—if we did well. But the IPO in ’99 was not a well-sought-after IPO. It was as close to a failure as any IPO during the dot-com era. Technology companies back then saw a 40 to 50 percent boost the first day. Our stock went public at the low end of the range, not at the high end, and it moved up an eighth of a point. It was just the most boring IPO ever.
ES What did you get out of it?
LF Becoming a public firm allowed me to see my competitors firsthand, because they were my investors, too. And it was very clear to me that we had a platform that was very valuable—and yet I couldn’t sell it at all. I was an absolute failure in terms of convincing people that bonds should trade at a higher p-e than equities; they have less volatility, and with less volatility they should trade at a higher p-e. That’s just math, but in the fast and furious dot-com era, nobody cared. They cared about growth.
ES When did you realize BlackRock was destined to become more than just a fixed-income player?
LFAround 2002 it became very clear to me. That’s when we began thinking, Could we do a merger? And, importantly, Do we have the DNA to do a merger? In 2003 I started really looking at different opportunities and went to see Bob Benmosche, who was the CEO of MetLife, about acquiring State Street Research, which had a great, long legacy and managed the Harvard endowment. Bob called me a few months later and said, “You have 30 days to buy it. If we can’t come to terms, I’m going to put it up for auction.” That acquisition cost about $375 million, which at that time was pretty large, and it taught us we had the ability to integrate another asset manager onto our platform.
ES Let’s talk about that platform, Aladdin, for a moment. When did you first appreciate what you had?
LF If you go back to 1994, when GE hired us to liquidate Kidder, Peabody & Co., that was the first time our technology platform was used for outside purposes—for our client’s needs, not our internal portfolio. In 1997 we were hired for Freddie Mac, and that’s when we renamed the software Aladdin. On the day of closing State Street, we turned off the MetLife switch, turned on the Aladdin switch, and everything was unified on one platform. That was pretty eye-opening, that we had that technology.
ES Was that also the key to the Merrill Lynch Investment Managers deal in 2006?
LF Well, the other big issue was, before that first acquisition, we were a pretty arrogant firm. We were so proud of what we did with our organic growth. We believed we were smarter than everybody. When we acquired State Street Research, we saw that there were some smart people there, too. We found out that we did not have as strong a platform as we thought. This is why I believe firms should do mergers, because they really force you to look at your team and, if you’re very open, the team you’re bringing on board. Probably the most important thing we learned is that you should accept some of the foundational cultures of the firm you acquire. What BlackRock became after that merger was a different firm. Our principles never changed—you never change your principles—but the legacies of your firm are different.
ES Is all of that arrogance gone?
LF I would say a great deal of it. You know, when you do these transactions—and this is one thing the asset management industry is pretty weak at—it forces you to be inclusive, to identify the characteristics of these people. Most of the “assets” in asset management are the human beings you’re acquiring anyway. So right after we closed the State Street Research transaction in 2005, we started having conversations with Morgan Stanley, and ultimately, eight or nine months later, we started having a conversation with Merrill Lynch. The conversations with Morgan Stanley never came to fruition, but seven or eight firms contacted us.
ES What other deals didn’t make it over the finish line?
LF We had AIG, Mellon, Morgan Stanley. There’s a little cartoon in my conference room that’s the deals we walked away from, all in a concentrated period of about nine months.
ES They wanted to make BlackRock part of their asset management units?
LF Or we would absorb something. People were showing us all the different combinations. You can’t believe some of the conversations. Most of it maybe lasted a week or two weeks, and then I’d kill it. There was probably not a month that went by that people weren’t contacting us. It was a pretty interesting time.
ES The financial industry has undergone tremendous change since you walked in the door at First Boston in 1976. What do you think it will look like 20 years from now?
LF I think the industry has lost sight of what our responsibilities are. And I think through digitization and technology, it’s going to be reshaped. We need to help elevate this whole concept of financial literacy. It’s shocking to me how many people focus on their health, but so little on their money, on affording longevity and dignity. So we need to help families—especially in this country, as we navigate away from defined benefits and contributions. We have to be leading that effort.
“So much of the anger in this past election is based on people’s fear of their future”
ES You’ve been at the center of two great revolutions in finance: the syndication of asset-backed risk through the mortgage bond and the shift from actively managed assets to passive vehicles, specifically ETFs. What’s next?
LF Erik, I wasn’t smart enough when I was actively involved in those two things to know it was a revolution. When you talk about revolutions, it’s always with the benefit of hindsight. When you’re in the moment, you’re working toward an objective. Even back in the infancy of the mortgage business and asset-based finance, it was very clear we were changing finance, but I don’t think we were very clear on where this was going to go and how far this was going to get. When we bought BGI [Barclays Global Investors], iShares had $385 billion in assets; today iShares has $1.3 trillion. If you’d asked me if I had expected that when I acquired BGI in 2009, I would have said no. But if you’d asked if I’d known ETFs would change the investment management business, yes. In 2007 we did a strategy piece at BlackRock looking at ETFs and concluded we missed it. The only way we were going to be able to get into it was through an acquisition.
ES When you’re deciding how the company needs to evolve, what informs your thinking?
LF We don’t spend enough time as a society understanding how bad the retirement system is in this country. I think so much of the anger in this past election is based on people’s fear of their future. People are frightened; they know they haven’t saved enough money for retirement. They’re going to be highly dependent on Social Security—which, if that’s the only source of income, means living in poverty. In addition, the bigger problem many of our cities and states are facing is that their retirement plans are defined-benefit plans. Their liabilities are so large, and increasing, especially as we transform deadly diseases into chronic ones. That translates into greater longevity and—you’re witnessing it every day as an American—underspending on our infrastructure. It’s a direct cause of the financial positions of state and local governments. And it’s only going to get worse.
I believe the recognition of our precarious retirement position is one of the most underappreciated future crises in this country. I think this crisis is going to be much bigger than health care. Health care is immediate. If you don’t have proper health care, it is today’s problem. But as you know—investing, the whole concept of compounding—if you’re not building your nest egg year after year after year, you’re not going to have enough savings to retire with dignity.
ES You’ve been warning for several years of the toxic implications of workplace automation, growing inequality, and polarizing politics. It’s all there in your letters to shareholders. Here we are. Have we arrived at the reality you foresaw?
LF I don’t know what reality is. All I know is any time I spend time with people and talk about technology, I see even greater implications of what it may do for future jobs. It’s very clear in the rise of global populism; we have not truly identified the bulk reason for this dissatisfaction, this stagnation. It’s chiefly a technological change and a lack of education and retraining. It’s clear that wages have been stagnant in the lower echelons and in some areas of the middle class for some time. It is true that many people who are “employed” are employed at two-thirds, or half, of what their wages were five-plus years ago. Their jobs were lost. All the academic studies show these jobs were lost to some parts of the emerging world, but the major reason was the reduction of human input in the manufacturing process. I was with the CEO of a large shoe company recently, and I learned only two processes of shoe manufacturing now have human input. Do you know what those are? Putting laces on and putting shoes in a box. But even in manufacturing, I’m learning there are many jobs that can’t be filled. Why? Because some of these manufacturing jobs still require some level of technological knowledge.
ES I’m having trouble divining what you think of the state of the world. Are these dark times?
LF No, the opportunities are going to be great. But there are greater opportunities for innovative societies. So, more in the U.S.—we are the most innovative society—than elsewhere. We’re in a period of time where technology is displacing some, advancing others.
You’ve seen real good job growth in cities. Cities are where immigrants move to, and worldwide, cities are where the educated generally go. So what I’m saying about the United States is true in China as well as the U.K.: job growth in cities, job loss in the rural areas. We have to have government policies to help the families who are being displaced. And maybe it’s corporate responsibility, partially, to help them be retooled.
We have to have an understanding of this process. We can’t turn our backs on it. I actually believe there are many good things going on. Right now the mood is not about focusing on the good things. I do believe if the Trump administration is successful in focusing on infrastructure, if we are successful in bringing some jobs back or retaining some jobs, the combination of all this, plus a whole emphasis on job training—
ES There are a lot of “ifs” there. How much confidence do you have that this administration will be successful?
LF Our job is to be guiding any administration, and our job is to be working with this administration to try to be as successful as possible.
ES Will the Trump presidency be good or bad for the economy?
LF The marketplace is saying it’s good. We will know in a year or two—certainly in four years.
ES In the seven years since BlackRock bought BGI from Barclays, assets in actively managed equities have shrunk more than 20 percent. Why are you still a believer in that business?
LF During that period of time, we had coordinated central bank behaviors and great correlations. It’s my belief that we’ll have less correlations, different central bank behaviors. There is a higher probability that some in active management will be able to prove that their stock selection, their asset allocation can earn an excess return after fees. But I do subscribe to the belief that investing is no different from baseball.
ES By which you mean?
LF Let’s say you have a thousand baseball players. The majority hit .250. We’ll have 45 who hit .300, and we’ll have 10 to 15 who can hit consistently over .300. I don’t believe investing is much different, and I believe the trend will still be toward beta, factors, smart beta.
One thing you have to understand related to the growth of ETFs is that a large component of the growth is not people seeking beta; it’s active managers navigating beta for alpha. They’re doing asset allocation. It’s cheaper; it’s more efficient; you have less idiosyncratic risk than in any one stock. So I actually believe one of the unknown secrets about the growth of ETFs is that they’re heavily used by active managers.
I do believe, because of our positioning and the information flow that we have, that we can be one of those .300 hitters. Despite how dark people are painting active equities, we have pockets that have done really well.
ES Long term, what part of that business doesn’t make sense?
LF Well, we’ll see in two or three years how well we’re doing.
ES What about the economics? If an iShares ETF gives me exposure to the S&P 500 for 4 basis points and investment grade credit for 5 basis points, how much can you realistically charge for active management?
LF You can’t charge more than your excess performance. So let’s be clear: Depending on where rates are going, and if indeed less correlation will prove more fruitful for active management, you’ll be able to charge more than the index platform. But do I believe active fees will continue to go down? Yes. I think that headwind is still in front of the industry, that it will continue to affect hedge funds, and that it may start impacting private equity.
ES In other words, if you can’t generate alpha, you’re done for?
LF You’re not living up to the requirements that the clients are asking of you as a fiduciary. The clients are saying, “We will pay you the fees with the idea that you will earn in excess after my fees above the targeted index.” If you can’t meet that over a period of time, you’re not serving your clients well. There are some very fine equity managers that no one talks about. I can think of three or four equity managers who have done well over a 10-, 15-, 20-year horizon. And I could spend a lot of time talking about how bad many managers have done. It gets back to my .300 hitter analogy.
ES Tell me more about your recent shake-up in active equities. You merged some funds, even fired some people. Where do you think the world of equities is going?
LF This wasn’t about machines replacing human beings. Some of our large-cap products, our core alpha products, were underperforming, but our quant equity teams were doing quite well. They were looking at different insights. We wanted a much more holistic platform where the fundamental teams can work with the model people. They see things that the model people do not see, and more importantly we wanted to have the output of the models going to some of the fundamental people. Cross-fertilization, no different from what we do in fixed income. The net result of that: Some people are no longer going to be part of BlackRock. But a year from now, we’ll have just as many people in equities as we do now, they’ll just have different skill sets. It’ll be more data analysis, there will be more model producers. We are not saying active is dead. We think active can be more alive, just using different insights.
ES How big a role will machines end up playing?
LF We have a venture right now in AI [artificial intelligence], a whole group of people working on developing computer-based investing. And that’s truly a computer saying, “Buy this. Sell that.” We’re not there yet. We have a bunch of data scientists working with another company on computer-based learning, but there’s no true AI yet in investing. We’ll see where that goes.
ES What conclusions have you drawn? Is there anything machines can do better than humans?
LF In theory, yes. Humans have subconscious biases. We all do. In theory a computer is not going to have those subconscious biases; it can assess all this information very rapidly, come up with a theme, and invest. But to do real AI, a computer has to constantly learn and update and grow and triangulate and all that. Very high-level stuff.
ES Who’s the other company you’re working with?
LF I can’t say. We have a confidentiality agreement.
ES How long before you know if it works?
LF We are probably going to seed an investment in June. Two firms. So we’re going to put real money there.
ES Do you have any reservations about putting your own money to work in something like that?
LF No, I’d be happy to. But if the firm’s capital wants to be there, I can’t invest my own money. That’d be harming my shareholders. There are many things I would love to invest in but am not allowed to.
“The first artist we signed was a band called Kara’s Flowers. We worked with them and changed their name to Maroon 5”
ES Speaking of outside investments, weren’t you involved with a rock band for a few years?
LF I’m a big music fan, but I also like helping young people start their own careers. Around 2000 I met a young man, James Diener, who was working at Columbia Records. He showed me a business plan for an independent record label and introduced me to his two partners. It reminded me of BlackRock–young, talented people who wanted to start their own thing. I was intrigued and enthusiastic enough about this person and his business model that we raised money. I was the lead investor in Octone Records. The first artist we signed was a band called Kara’s Flowers. We worked with them and changed their name to Maroon 5. We were the label Maroon 5 used for, I think, their first five albums. We made a lot of money on that record company—in a depression! Think about what happened to the record industry at that time. It was the age of pirating and YouTube. People got their music from different sources, they didn’t buy it on CDs.
ES We’re seeing a similar kind of disruption in the financial industry now. Henderson is buying Janus. Standard Life is buying Aberdeen. Your competitors seem to agree that bigger is better. Will that consolidation continue?
LF I would think so. I am leery of any mergers that are done for cost reductions, though. It’s hard to merge cultures at the same time you’re eliminating people and making cost reductions. That’s a very difficult combination.
ES Are you saying it’s all going to end in tears?
LF A one-time cost reduction doesn’t change trends. There has to be more than just being larger.
ES Is there a limit to BlackRock’s size?
LF Sure. If we don’t do our job for our clients, that will put a limit on it. It comes down to clients. If we don’t continue to educate, if we don’t continue to reinforce to our employees that you have to be students of the world, students of the market, that you have to be relevant every day, we’re going to lose that connection with our clients. The limit is how well we continue to educate. If we don’t continue to educate our employees so they can be in front of our clients and teaching our clients every day, if we’re not providing them with that leadership in information, then someone else will be.
ES So you know you’re too big when you’re …?
LF Failing to meet the needs of your clients. The one thing I’m most proud of: When we did the BGI merger, 80 percent of our clients had one [BlackRock] product; I think that today 40 percent of our clients have eight products.
ES You know I’m thinking much more prosaically. You’re north of $5 trillion in assets today. Is there any reason BlackRock can’t be a $10 trillion firm?
LF If we continue to build the mindshare we have with our clients, if we continue to be that trusted partner, if we continue to educate our employee base, if we continue to live the culture that we talk about, whether it’s $10 trillion or $8 trillion or $12 trillion, we can get there. Right now I don’t sense any pressure from our clients related to our size. If anything, scale has become a greater necessity—and for us a greater advantage—than it’s ever been. We’re building deeper relationships and clients are looking to us for more things.
ES On a relative basis, BlackRock is still a small player in many classes of alternatives. Do you need to be bigger in credit opportunities, real estate, infrastructure?
LF Yes, and this is an area we’re going to be focusing on.
ES How do you get there? How do you achieve scale?
LF Blocking and tackling. We have scale in some of our products already. We’re developing scale in infrastructure, with $14 billion [in assets]. Our objective in infrastructure is to be $30 to $40 billion over the course of time. We have a great team. In the funds of funds for private equity, in the funds of funds for hedge funds, we’re one of the top.
ES You’ve never been afraid to make an acquisition to gain scale or to expand in an industry. Why not do that in alternatives?
LF Because you have such “key man” risk in alternatives, and you have to pay a premium. It’s far easier for me to lift out teams or bring up one individual. I don’t see us making a large acquisition in the alt space. There’s not a month that goes by when one of the alt managers or their investment bank doesn’t come knocking on the door to ask if we’d be interested. It’s very hard for me, having to buy a firm twice, because you pay a price and then you pay to lock in the people. That’s not a good plan. Some of these are great, idiosyncratic firms, but they’re based on one or two or five personalities. It’s very hard to buy those organizations. It’s best to systematically build your own team.
ES So to be clear, the answer to the question is … never?
LF Is doubtful. “Never” is—there’s too much finality to that. It is not an emphasis at all at this time. Where we’re going to do acquisitions is in technology, to be adding more to this whole foundation. Take Aladdin for wealth management. We can now do Aladdin for every small account, and we have signed up four different [wealth-management] platforms to put Aladdin onto their desktops.
ES Technology generates how much of your revenue now?
LF Seven percent.
ES Where will it be 10 years from now?
LF Let’s say five years from now. This is a reach, a giant reach, but if we do our job right, 30 percent of our revenue could be from that platform.
ES That’s between Aladdin in its various forms, FutureAdvisor, iCapital, and whatever else you buy?
LF Yes, I’m spending a great deal of time on that right now. I’m looking at acquisitions.
ES Do your competitors appreciate this?
LF If they used Aladdin, they’d certainly appreciate it. Some of our asset management competitors are using Aladdin.
ES You make it sound like a Trojan horse.
LF No, it’s how people frame it. I look at everything as cooperation now. We do so much with so many people. We have a great relationship with JPMorgan [Chase]. JPMorgan was just awarded our big custodial platform, and yet we compete with J.P. Morgan Asset Management. So I look at all of that as—you know what?—it’s just the ecosystem we live in.
ES What company impresses you the most?
LF Google. I think they are maniacal. I don’t mean that in a negative way, but there’s intensity in terms of trying to adapt and change. I am very impressed with what they have done in autonomous vehicles, in AI with DeepMind. I think they stay in front of their competitors continually and adapt and refine their algorithms for having better and better searches. You watch what the leadership team has done there, and it’s really, really impressive. It’s not a fluke. Today, when you meet the leadership team, they’re just as intense as they were 20 years ago.
ES Is there someone, or was there someone, on whom you model yourself as a leader?
ES Larry’s own brand of leadership?
LF I don’t call it that, but yeah. People ask me who inspired me. I say Lee Kuan Yew and Phil Jackson. Why those two? In 1965, Lee Kuan Yew took this mosquito-infested port that the English and then the Malays ravaged, and look at that society today—Singapore is really impressive.
ES And Phil Jackson?
LF The key to success in basketball is the organization, not one individual. And winning in the NBA is all team. It is just as much defense as offense. It’s one thing to have some hedonistic phenoms who have this extraordinary year and win the championship. Jackson’s done it 11 times. To do that every year, rallying athletes to play as a team, to me that’s leadership.
ES You’re 64. How much longer do you plan on being CEO?
LF I’m not planning. I want to be here, if my health and energy allow me to do the job well. You’re talking to someone who travels two weeks a month. Hopefully I will know when I’m not doing it well; that will be a key. The other part of the consideration is when I believe there’s someone capable of doing the job better than I can. And that could be in a year or in five years. I don’t think I’m doing the job in 10 years. But the one thing I know: I don’t want to go home. I don’t think my wife wants me to go home.
ES Can you imagine what it would be like to be retired?
LF I don’t think I’ll ever be retired. Hopefully, I’m active in philanthropy, and I would probably go on a bunch of boards if asked. I think I could provide some advice.
ES When the time comes to let somebody else be CEO, how about staying on as chairman?
LF That would be a disaster.
LF Because it’s unfair. When I leave, I’m going to leave. I only know of a few examples where the CEO stayed on as chairman. It doesn’t work. Leave. Make sure that when you leave, you’re there to provide advice when asked, but leave and allow the new leadership to create their identity.
ES You have no designated successor or heir apparent. Why?
LF Because why would we? Why would we do that and close optionality? If we did that, some members of our leadership team would not be growing as fast as they’re growing. The beauty of what we have now is seven or eight people who are fully in the mix.
ES Any one of whom could end up running the company?
LF I would say that depends on who is designated the CEO and who is chairman. I believe great leadership is about the mix of people. When I mark-to-market my strengths and weaknesses, it’s clear I’m not a person who can operate a division day to day with scale. I’m a more big-picture guy. I’m much better at strategy than most people, and so we have a group of leaders below me with greater abilities as scale operators.
ES With the same vision?
LF That may not be the case. Whoever is the next leader, we’ll have to see if that person is capable of doing the strategy, as I have done, or maybe the president is the strategy person and the CEO is a great scale operator. I don’t believe it’s about one person; it’s about the success of the people around me, and their responsibilities, and how they’re contributing. I don’t believe it’s about one magical person. I’ve seen organizations that have that one magical person, and when that one person leaves, it all becomes a mess.
ES Of these seven or eight people, only one will be “king,” so to speak. Why should they all stay here and play this Game of Thrones?
LF I would not call it a Game of Thrones. It’s not Leave It to Beaver, but it’s a very cohesive, collaborative group.
ES So you don’t think there will be an exodus of talent like there was at GE, when all of those great managers went off and ran Boeing or Home Depot?
LF That may be an outcome, but I don’t think so. I have heard already from two or three of those [seven or eight] people, and if one of them gets the job, the others will stay. They’ve already made personal handshakes.
ES Commitments to you?
LF No, to each other.
ES What about other jobs you’ve considered taking?
LF I have no intention of leaving. There was a narrative about me leaving BlackRock for Washington if the other political party won. I would have still stayed here. I have—without using the word “powerful”—a great job. I really enjoy where we are.
ES If you never end up serving in government, will that be a disappointment?
LF No, I don’t think so.
ES Why? What conclusions did you draw for yourself in those considerations?
LF I’m a pretty private person. And there’s an unfortunate part about being in Washington today, with all the media and the minutiae that’s being focused on—whether the eyebrow was twitching the wrong way or not. It just doesn’t interest me. I’m much more interested in working behind the scenes. I believe I’ve played that role pretty well, and I believe I’m playing that role probably even more today. Having the singularity of a job in Washington, in different circumstances or during a crisis, would be of interest. But getting put under a microscope daily is not appealing. What’s appealing today is whether I have a conversation about helping our country, or the conversations I’m having with other countries. In the last few weeks I’ve had meetings with four leaders of state.
ES That’s a role you enjoy?
LF Well, I’m doing it with the idea that we could have an impact on their financial situation and create better prosperity for their citizens. I do believe globalization has been one of humanity’s greatest achievements. In these last 30 years, we’ve lifted more humans to a middle-class level than at any time in human existence. What we have forgotten, and President Trump and Brexit have identified, is the number of people left behind.
ES So you schedule meetings with world leaders and express a genuine interest in improving their financial markets, growing their economies, and creating better outcomes. Why?
LF Whether you’re selling cars or banking services, you’re doing it with the idea that you’re helping a society. One of the great foundations that created the U.S. was the growth of our capital markets. The main reason we were able to get out of the financial crisis far better than Europe and Japan was that foundation. As banks pulled back, companies were able to finance in the capital markets. That was not the case in Europe. The need to grow capital markets is imperative.
ES Are U.S. capital markets healthy? More and more money is being raised and invested privately.
LF There has been a great change in the psychology of going public. Just like how it’s not appealing to be in Washington because of the public scrutiny, I believe many people are saying, “I’m going to stay private longer.”
ESThat doesn’t sound good for capital markets.
LF It’s not; it’s one of the weaknesses. And this is one of the reasons why we need to be applauding our public companies. There’s a war for great talent. We need to make sure that our best CEOs are paid well. We need to be making sure our public companies have the ability to attract the best and the brightest so they can compete in a global world where talent is a rare commodity. If we make it so caustic to be a public company, there will be more and more companies remaining private.
ES Is there more to governance than shareholder value?
LF We have asked CEOs and their boards to focus on long-term strategy, to tell us about how they are going to be navigating as part of the community and to share their societal impact.
ES One of your messages is that companies need to be more sensitive to the environment. Why is that such a concern for you?
LF My mother was allergic to cats and dogs, so to have pets as a kid I had to do something unusual. Growing up in the San Fernando Valley, there was a creek and an open field and a lot of snakes. I used to collect snakes there as well as in the Santa Monica Mountains and the Mojave Desert. It was a real passion, to be outdoors and to see all these different animals. I remember going to the desert and seeing thousands of desert tortoises. Today they’re pretty rare. And I used to go to these fields in Palm Springs and see desert iguanas. I don’t know if you can even find them in that area anymore. It’s really remarkable how much habitat has been destroyed. Climate change is definitely happening. You see that everywhere.
ES Are companies listening to BlackRock about the environment, about long-term strategy? Or are they saying, “There’s that guy who keeps talking about short-termism and tells us not to buy back our stock.”
LF No, I don’t tell them not to buy back their stock. That is wrong. I am not against buybacks. I am against a buyback if you have a better opportunity to invest in your future, because the return for a long-term shareholder is going to be far better than buying back your stock.
“If I had one more check mark, it’s this: When I’m not here, the firm’s better without me”
ES BlackRock says it’s in the business of building better financial futures. If you generate alpha for clients or beta at a lower cost, terrific. But there’s more to running an asset manager, no?
LF We have to be part of the narrative, yes. Before 2008 the buy side, the asset management industry, had no voice. We wanted to be silent; in fact, clients wanted us to be silent. The banks had the voice—in Washington, in Frankfurt, in Brussels. They played such a powerful role, and we believed, maybe mistakenly, that they had a responsibility to make the market fluid. We learned that they were not speaking on our behalf, so we had to generate a voice—and our voice has become louder. I don’t mean louder because we want to be loud; louder because we have an enormous responsibility. Today, clients recognize that our voices are important, our voices are necessary, and importantly now, especially in this world that’s evolving and changing—whether that’s good or bad, depending on your political view—we have to be a part of that reshaping.
ES Does this shift in the balance of power, from the sell-side precrisis to the buy-side postcrisis, continue?
LF I would say that’s a little overblown. Jamie Dimon’s voice is just as loud today as it was precrisis. I think the role that Goldman Sachs plays in the capital markets is as strong today as it was eight years ago. I think business leaders listen to Lloyd [Blankfein], listened to Gary [Cohn] before he went to government. So I think that’s a little overblown, but I believe there is a need for both viewpoints, and the buy side now understands that it needs to have a voice. I believe we at BlackRock have played that role; Vanguard has played that role; Pimco continues to play a large role. But very few on the buy side really have a voice.
ES Do you want to hear more from Fidelity, from Wamco [Western Asset Management Co.]?
LF That’s not my role.
ES Would it help you?
LF No, I think it would help them. I actually believe many of these people have something to say.
ES Let’s take a moment to reflect on all the various things you’ve achieved: You built this firm, arguably the most successful firm in the history of asset management; you’re one of New York’s most generous philanthropists; you’re a husband, father, grandfather. What’s left? Is there anything more you want to be able to say that you’ve done?
LF I’m not looking for any more check marks, because I’m not a check-mark person. But if I had one more check mark, it’s this: When I’m not here, the firm’s better without me. That would be the ultimate check mark—not that I failed, but that the firm goes to another level of strength.
ES What about issues on a personal level? What do the philanthropies you’ve chosen to support with your time and your money say about you?
LF I’ve always believed in giving back. I’ve been really fortunate—way beyond my wildest dreams. My wife and I never dreamed of the financial wealth that we’ve created. I had to sell my car in grad school, OK?
ES What did you get for it?
LF A few hundred dollars, enough for a month of pizza or whatever. You know what the beauty of it was? We never had any aspiration. Growing up where we grew up, you never had aspirations.
ES On a personal level, what’s important?
LF Oh, this sounds trite, but it’s really important for me to be perceived as a good human being, a caring individual who always comes across as real and unpretentious. And one thing I tell everybody—you may not be able to print this—is that I’m the same turd I was 30 years ago, and I really am proud of that.
Schatzker is an editor-at-large for Bloomberg TV in New York.
Source/original post: https://www.bloomberg.com/features/2017-blackrock-larry-fink-interview/