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Larry Fink, the most powerful man in the world stock market: "The planet is in transition, and the transitions are terrifying, messy"

2023-04-22T17:05:29.906Z


The president of BlackRock, the world's largest fund manager, warns that the US banking crisis is not over yet and calls on Europe to create its 'green' incentives to prevent more corporate flight


Tuesday April 18.

Nine in the morning.

Ritz Hotel in Madrid.

Nearly 200 guests collect their accreditations.

There are CEOs of the Ibex, bankers, lawyers and directors of fund managers.

After finishing the coffee, they enter one of the large rooms of the renovated luxury establishment.

BlackRock holds its annual meeting with investors.

Everyone wants to hear Larry Fink, the star of the day.

Because?

Because he is the most powerful person on the Stock Exchange.

The manager who presides and founded 35 years ago manages 9.09 trillion dollars (8.26 trillion euros).

If BlackRock were a country, it would be the third largest economy on the planet, after the United States and China.

The powerful whisper in his ear.

Former banker and writer William D. Cohan has compared him to the Wizard of Oz: "he is the man behind the curtain."

His lecture outburst rumbles menacingly.

“The world is in transition.

And the transitions are terrifying, messy.”

He lists a number of problems like a Biblical plague.

Demographic winter, fragmentation, energy crisis, inflation or populism.

He speaks of "lack of hope."

But, suddenly, his pessimistic speech opens great clearings for optimism.

It is as if his head had clicked and he remembered that he has potential customers to sell his products and services to.

For this he pulls from the Dickensian manual: it is the worst of times, it is the best of times.

“After a long period with negative interest rates, we now have the possibility of good returns.

There are better opportunities than three years ago.

I would not run away from the market, I would go towards it”.

Fink shells out his vision of the world for 35 minutes.

He makes clear his Darwinian conception of investment.

It is a zero sum game.

For some to win, others must lose.

Her schedule couldn't even be supported by a twenty-something.

She arrived in Spain first thing in the morning and won't be here for 24 hours.

After finishing the conference, he makes a hole to attend exclusively to EL PAÍS.

We started the conversation because of his penchant for letters.

Every year he sends two urbi et orbi letters, one to clients and one to the world's top business leaders.

The last letter is dated March 15.

The world was reliving those old ghost days with the failure of Silicon Valley Bank (SVB).

Ask.

 The supervisors have taken a series of measures and the banking tension in the United States has lowered the tuning fork.

Do you think that the risk of suffering another financial crisis is definitely behind us?

Answer. 

The risk has not yet disappeared.

But instead of being a full-scale financial crisis, we are looking at a crisis that affects mainly the regional banks in the United States, which are highly exposed to the effects of interest rate rises.

They took deposits in the short term and invested in the long term.

What has happened leaves one thinking because in the United States there are 4,000 banks.

Do we need that many?

The answer is not just economic, but social because many people believe that regional banks play a very important role in local communities.

However, some of these entities took too many risks and may have to be liquidated in the coming weeks.

It is a risk that, for example, I do not see in Spain.

Q. 

BlackRock was a shareholder in SVB.

Did they not see anything unusual in the way the entity managed its balance sheet?

A.

 That was because of our index funds that track the composition of indices, including stocks.

Our position was not the result of an active management decision.

Q. 

In your letter, you spoke of a crisis in slow motion, a succession of dominoes that fall due to the enormous monetary and fiscal stimuli that were approved after the covid.

The first token to collapse was low inflation;

the second, the solidity of some banks, and now he warns of a third problem that is yet to come: liquidity.

What is it referring to?

A.

 It is a much bigger problem and affects pension funds above all, especially those that are more leveraged.

During the last 15 years, the best investment option was illiquid assets [those that are not as easy to sell as stocks or bonds].

With 0% rates, financing was free and you could obtain extra profitability with alternative investments.

Now liquidity already costs 5%.

Many long-term investors are going to need liquidity and to pay for it they will need to sell illiquid assets from their portfolios, often with a deterioration in their valuation.

Q. 

Do you think that central banks have gone too fast and too far raising interest rates?

R.

 No. If one analyzes the mandate of the central banks, their duty is to control inflation and maintain financial stability.

Financial stability is not bad.

The problem with inflation is that at the same time that interest rates are raised to cool prices, many governments are launching very aggressive fiscal plans.

This complicates the task of central banks.

Q.

 Do you think that inflation continues to be the main economic threat?

R. 

If we compare it with what?

Q.

 Faced with fragmentation, trade wars, populism...

R. 

I believe that inflation is a consequence of populism and it is also the result of fragmentation.

That is to say, I do not believe that inflation arises by magic, it appears due to the political measures that are applied at all times.

And those inflationary measures can be from fiscal stimuli to measures that restrict immigration.

And above all it is a consequence of economic fragmentation.

Every leader I talk to questions whether he should reduce his dependence on China.

That is a big change.

At the same time, the governments themselves generate fragmentation, citing, for example, reasons of national security.

Europe uses the stick more than the carrot, it taxes everything and that is not always optimal

Fink (1952) grew up on the West Coast of the United States.

He was born in Van Nuys (California).

There her father had a shoe store and her mother worked as a teacher.

In high school he met what is now his wife and graduated from the University of California Los Angeles (UCLA).

However, his entire professional career has been on the East Coast.

His first job was at First Boston.

He joined in 1976 and made a name for himself as a mortgage securitization trader, a product that years later, with the outbreak of junk or subprime loans, inoculated the financial crisis that led to the Great Recession.

His success story is very true to the American tradition.

A mixture of a self-made man and a phoenix.

In 1986, his apartment in First Boston suffered millions in losses.

A wrong bet on interest rates took Fink from rising star to persona non grata.

He left the entity through the back door.

From that moment on, and according to what he told Vanity Fair, he swore to himself to understand at all times what risks he was assuming with his investments.

In 1988, together with eight partners and under the initial umbrella of Blackstone, the venture capital giant, he launched BlackRock, an investment fund manager initially specializing in fixed income.

What started as an adventure in a small rented room at Bear Stearns headquarters has grown into a public company with a capitalization of $104 billion and 19,800 employees in 30 countries.

It is an octopus whose tentacles reach everywhere.

It has shares of 16,000 listed companies in 85 markets.

In Spain it is, together with the Norwegian sovereign fund, the main owner of the Ibex 35. BlackRock owns 4.8% of Telefónica, 5.48% of BBVA, 5.08% of Santander, 5.25% of Iberdrola and 5.3% of Repsol.

Only in these five companies their investment adds up to 11,376 million.

Unlike most managers, it does not delegate to external advisors (proxy advisors) what to vote at each shareholder meeting.

It has its own team that turns the thumbs up or down after analyzing the agenda of the assemblies.

Fink considers himself a "believer" of bitcoin.Claudio Álvarez

P.

 Ferrovial approved the change of headquarters and BlackRock voted in favor of this measure at the last shareholders' meeting.

Why do you think it could be beneficial for the company to go to the Netherlands?

R. 

I cannot comment because I was not involved in that decision.

Q. 

The company's strategy has generated a debate in Spain about whether the country has sufficient legal certainty to attract foreign investment.

What do you think?

A.

 The only thing I can tell you is that we are looking for investment opportunities in Spain, we are very optimistic about the country.

If you are asking me if Spain represents a great investment opportunity for our clients, the answer is clear: yes.

Q. 

Do you think that the electoral calendar that Spain has ahead of may have an impact on the market due to the uncertainty about its results?

A.

 I don't think so.

The country is in a very good position relative to the Eurozone.

You are blessed with sun and wind, the country has a great entrepreneurial culture, and its small businesses are as competitive as German or Italian ones.

Therefore, there are great investment opportunities.

I cannot go into the particular dynamics of a company that has decided to move its headquarters.

What I can tell you is that we see that more and more European companies are moving to the United States because of the IRA [the Inflation Reduction Act, which contains a multi-million dollar aid package for decarbonization as long as the activity is carried out on American soil] .

Q.

 You were very critical of Donald Trump for his nationalist version of the economy and against globalization.

But now the Biden government has launched a subsidy war with the approval of the IRA.

R.

 I would not call it war.

Q.

 And what would you call it then?

A.

 When I talk to European leaders, they don't see it as a war and they tell me that they should do the same to encourage investment.

Europe, historically, has applied more the stick than the carrot.

They tax everything and that's not always optimal.

What the subsidies are going to do is increase the willingness to invest in the United States.

The problem in Europe is also obtaining permits for projects.

That, and the IRA grants, are going to make companies prefer to invest in the United States.

Q.

 So you think Europe should approve its own IRA?

R.

 I think it would be the best thing that could happen to the world.

If the planet can decarbonise the economy at a higher rate, why would that be a bad thing?

Q. 

In your conference, you have insinuated that you trust technology more than the decisions of politicians to achieve decarbonization.

Because?

Q. 

It's not exactly like that.

What I believe is that we need to ensure that the energy transition is as fair and equitable as possible.

For that to happen we must develop alternative energy sources with cost efficiency.

And to lower the price of this new energy we have to develop technological innovations.

Q. 

Do you think that the energy response to the war in Ukraine has been a step backwards in decarbonization?

A.

 No. Maybe in the short term it can be seen that way because countries like Germany are using more coal, but in many ways it is an accelerator of this transition because it has made the need to generate alternative energy sources even more evident.

Crises like the war in Ukraine must accelerate investment in decarbonization.

Think of Europe, the continent does not have its own energy sources, with the exception of Norway.

Therefore, Europe needs to build its own sources.

What the war has shown is the great energy dependence that Europe has on fossil fuels.

Q.

 In the market there are more and more investments that claim to be sustainable, more companies that sell their climate efficiency... Don't you think that there is a clear risk of

eco-laundering

of image in the market?

R. 

No. I think that in this area we move in a world of labels, both from the extreme left and from the extreme right.

We need to stop putting labels on things because it's a waste of time and we need that time to think about how to build better resilience so that our economies can deliver long-term growth while also being more energy resilient, with increased use of alternative energy.

Labels are good for headlines, but not much else.

We have to work with energy companies, not against them.

We must be constructive, honest, work together with governments.

That is why I believe that Europe must have its own program to accelerate decarbonisation.

There are great investment opportunities in Spain.

The country is blessed with sun and wind

Fink has power and money, lots of money.

His salary last year was $25.2 million.

He is one of BlackRock's largest individual shareholders and Forbes puts his personal fortune at $1 billion.

The manager's empire began to be cemented with his going public.

It landed on the stock market in 1999 at a price of $14 per title and is currently trading at $694, 4.854% more.

Like other Wall Street bigs, the company is a huge predator.

Two purchases explain its great growth.

In 2006 it acquired Merrill Lynch Investment Management and three years later it absorbed Barclays Global Investors.

His board of directors is synonymous with power and influence.

Fink still accumulates the positions of president and CEO.

Next to her are representatives of the petrodollars—Bader M. Alsaad,

In 2022, BlackRock billed 17,873 million dollars and earned 5,178 million.

Its main lines of business are retirement solutions and index products.

In the case of the latter, the manager saw the bicoca that traded funds or ETFs were: low commissions, liquidity and transparency.

In 2012 she launched iShares, which has become a reference in what is known as passive management.

BlackRock has retail clients, but the bulk of its commissions come from large institutional investors such as the world's main public and private pension funds or sovereign wealth funds.

Its business links are not limited to the private sector.

Fink has a direct line with prime ministers and presidents of the Government.

Many countries have used her services for advice.

The United States Treasury itself asked BlackRock for help to manage the toxic assets of the different nationalized entities after the collapse of Lehman Brothers.

During the euro crisis, the Greek government also asked him for advice on its financial system.

The president of BlackRock participated in a colloquium with investors moderated by Aitor Jauregui, head of the manager in Latin America.Claudio Álvarez

Q. 

Along with the energy transition, another of your fetish topics is saving for retirement.

Do you think pensions are not guaranteed?

R.

 The biggest problem around retirement is not in large companies, but in small businesses, where there are not enough contributions.

One of the reasons I say there is less hope in the world is because more and more people are approaching retirement and have no savings.

Q.

 BlackRock does business with private pensions.

He doesn't think it's good for him to introduce fear about the sustainability of the system?

R. 

That is another myth, another label.

Our job is to solve problems for our customers.

We are the largest pension manager in the world and we are not because we spread fear, but because we offer opportunities.

Q. 

Your company manages nine trillion dollars and the biggest driver of contributions in recent years has been index products.

Some experts believe that there is a bubble in passive management.

What do you think?

A.

 I don't know who says that, but I don't agree at all.

I challenge anyone who says it to prove it.

Most ETF investors are active investors.

If you look, over the last year the biggest growth in ETFs has been in fixed income.

In the bond market there are thousands of debt issues and what an investor wants are three or four ETFs that give them exposure to this asset at a good price, with transparency and the best execution.

Active investors buy an ETF, which is a passively managed product, but actively manage it.

Q. 

Is a company the size of BlackRock an entity that introduces systemic risk?

R. 

I also challenge anyone who says that we are an entity with systemic risk.

100% of the money we manage is not ours, nor is it on our balance sheet, but belongs to our clients and invested in the market.

Also, we have no leverage.

Silicon Valley Bank was leveraged because it had short-term deposits and long-term assets.

We don't have any of that.

Because we are the main retirement investors, we look more to the long term than to the short.

In every conversation I've had with regulators, they end up agreeing with me and acknowledging that we're not systemic.

In 2005, the banking sector was largely responsible for financing the economy, today it is the capital markets.

To some extent it may pose a risk, but it is not a systemic risk.

How do we monitor it?

What I want to say is that I am not against a commission monitoring it.

As the weight of the capital markets increases, the risks must be rethought.

Many people are nearing retirement and have no savings.

That explains why there is less hope in the world

Fink, in addition to passive management, was a visionary in the application of technology to the investment world.

In 1999 he began selling his own technology (Aladdin) to third parties.

The next frontier is artificial intelligence.

Four years ago he launched his AI Lab in Palo Alto to investigate possible applications in the investment field.

The BlackRock founder also cultivates his image as a man who helps the community.

He has a seat on the boards of New York University and the Museum of Modern Art (MoMA).

In addition, he is involved in Robin Hood, a foundation that works to reduce poverty in Manhattan.

Q.

 What do you think of cryptocurrencies?

R.

 I am a bitcoin believer.

One of the things we do at BlackRock is sell hope because people take money out of banks for us to manage and make a profit.

I think bitcoin, by contrast, is the ultimate fear asset.

Its raison d'être is that you do not trust your government, you are concerned about the future of money, and you want a decentralized monetary system.

In this sense, bitcoin is not a currency, but another asset class.

A kind of digital gold.

In the rest of the cryptos, the majority is smoke and that is the reason why there are so many bankruptcies.

Crypto in theory should be a decentralized ledger.

Bitcoin has it, but in the case of FTX the ledger was closed.

That's why I think the tokenization of stocks and bonds is a great opportunity.

Definitely,

Q. 

BlackRock lost money in the FTX fiasco.

What lessons do you draw from this mistake?

A.

 We lost just over 18 million, which in the context of 9 trillion assets under management, was a negligible amount that we invested through one of our venture

capital

funds .

I can tell you that the fund managers did a thorough

due diligence

.

Q. 

Thanks to the use of artificial intelligence, do you think there will come a time when robots replace managers?

A. 

What I'm waiting for is the moment when robots replace CEOs [laughs].

Q. 

Speaking of which, have you thought about when your retirement will arrive?

A.

 I am 70 years old, but I love my job.

Of course, the board and I are very aware of this topic and take a close look at the next generation of leaders within the company.

"Teleworking doesn't work"

Speaking at the Ritz this week, Larry Fink was blunt: What separates good companies from bad companies is their corporate culture.

“Let's be clear, the covid damaged the culture in companies.

Everybody knows".

In this sense, the president of BlackRock largely blames remote work.

“Teleworking doesn't work.

It is one of the reasons why we have more inflation: productivity has sunk ”, he stressed. 


During his discussion with Aitor Jauregui —currently responsible for BlackRock for Latin America after being promoted from his position as head of the manager in Spain—, Fink recalled that business culture is not something theoretical.

“It has to be observed in the daily behavior of all employees.”

In this sense, the founder of the largest investment firm in the world told an anecdote: “On one occasion I visited a company.

It had a beautiful building.

And in the hall, engraved in marble, were his principles.

I began to read them, and as I did, I saw that many were lies."

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Source: elparis

All business articles on 2023-04-22

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