Original Title: Legends Live @Citi with Larry Fink, Chairman and CEO of BlackRock
Guest: Larry Fink, Co-founder, Chairman, and CEO of BlackRock
Host: Citigroup Global Banking Chairman Leon Kalvaria
Compiled & Edited by: LenaXin, ChainCatcher
ChainCatcher Editor's Summary
This article is compiled from the latest issue of the dialogue with legendary figures @Citi, where Citi's Global Banking Chairman Leon Kalvaria converses with Larry Fink, co-founder, Chairman, and CEO of BlackRock. As of the video release, BlackRock's assets under management have reached $12.5 trillion. How did Larry achieve this?
In this issue, Larry will share his unique insights on leadership, the themes of his career, and his experiences in creating a brilliant journey.
ChainCatcher has organized and compiled.
Summary of Highlights:
The personal computer is what truly changed Wall Street.
Profound lessons: First, believing oneself to have a top-notch team and market insight, yet failing to evolve thinking alongside the market; second, being blinded by the ambition to capture market share when competing with Solomon Brothers.
The foundation of the company is the development of risk tools, and BlackRock's culture is deeply rooted in risk technology.
Artificial intelligence and financial asset tokenization will reshape the future of investment and asset management.
The essence of the asset management industry is result-oriented.
Investors need to seek information that the market has not fully recognized; old news is unlikely to generate excess returns.
If active investment is effective, ETFs would never rise.
If the U.S. economy cannot sustain a growth rate of 3%, the deficit issue will overwhelm the country.
As long as asset-liability matching and deleveraging are in place, losses will not spread into a systemic crisis.
Bitcoin is a hedge against an uncertain future.
Only by fully investing ourselves throughout the entire process can we maintain our qualification for dialogue and our voice in the industry.
(1) How has Larry's growth experience shaped his leadership?
Leon Kalvaria: How does your family background shape your unique worldview and risk decision-making abilities, ultimately leading to excellence on a global scale?
Larry Fink: My parents were very outstanding. They were socialists, open-minded, and placed great importance on two things: academic achievement and personal responsibility. They often told me, "If you are not doing well after turning 18, don't blame your parents; the responsibility lies with you."
This teaching made me understand the importance of independence from a young age. I started working in a shoe store at the age of 10, and this experience taught me how to communicate and connect with customers. Although nowadays children rarely start working this early, that time made me mature early and learn to take on responsibilities. It wasn't until I was 15 that I truly began to plan a more goal-oriented life.
Leon Kalvaria: How does your academic background from the West Coast help you transition to a leader in established companies?
Larry Fink: In January 1976, I saw snow for the first time during an interview in New York. I was a typical West Coast youth, wearing turquoise jewelry, with long hair, often dressed in a brown suit. First Boston was the most appealing among many companies; they offered personalized training programs, and several leaders in the trading division made me feel at home. They directly arranged for me to enter the trading department, which was uncommon at the time.
Wall Street back then was completely different from now. In 1976, First Boston only hired 14 people. At that time, the total capital of all Wall Street investment banks was only about $200 million, including Goldman Sachs, L.F. Rothschild, Kuhn Loeb, Lehman Brothers, White Weld, Merrill Lynch, etc. (excluding commercial banks).
At that time, investment banks operated like family workshops, taking on almost no risk. The expansion of the balance sheet only began after 1976.
In the first month of joining the trading department, I was confident that I could handle this job. After the training, the company assigned me to the mortgage and guarantee department, which had only three people, and this made me very excited.
(2) Larry's Entrepreneurial Journey
Leon Kalvaria: What fundamental new insights about finance and risk have your experiences with early securitization practices given you?
Larry Fink: What truly changed Wall Street was the personal computer. Before that, there were only tools like the Monro calculator or HP-12C. In 1983, the mortgage department was equipped with a few computers, which, by today's standards, may seem rudimentary, but allowed us to rethink how to integrate mortgage pools and calculate their cash flow characteristics.
The securitization process was initiated by restructuring cash flows through real-time data processing. At that time, many calculations were still done manually, but the derivatives field, such as interest rate swaps, was emerging due to the application of trading layer technology. Wall Street was thus completely transformed.
The important opportunity for the establishment of BlackRock is that the seller's technology always leads the buyer.
Leon Kalvaria: What is the most unexpected lesson you learned? What insights did you gain from it that may have shaped your later leadership at BlackRock?
Larry Fink: Let’s talk about my career trajectory. I became the youngest managing director at 27, joined the executive committee at 31, but by 34, I had become unbearable due to my arrogance.
At that time, the principle of team supremacy only applied during profitable periods. In 84-85, we became the most profitable department in the company and even set a quarterly record, but in the second quarter of 86, we suddenly lost 100 million dollars. This exposed the essence of the problem: when profitable, we are hailed as heroes, but when we incur losses, 80% of people no longer support us, and the so-called team spirit completely collapses.
I learned two profound lessons: First, thinking I had a top-notch team and market insight, yet failing to evolve my thinking with the market; second, being blinded by the ambition to capture market share while competing with Solomon Brothers. Lou was fired a year before me for a similar mistake, yet I did not take it as a warning.
I have never been able to forgive the company for blindly adding capital when I did not strongly oppose it; we lacked risk management tools, yet took on unknown risks. This failed experience ultimately became the soil that nourished BlackRock's growth.
Leon Kalvaria: What makes you still believe that entrepreneurship can succeed under the dual pressure of widespread skepticism and personal setbacks?
Larry Fink: That experience really made me lose a lot of confidence. Although it took me a year and a half to rebuild my career, I received partnership offers from several Wall Street firms during that time, but I always felt it wasn't right to go down the old path again. So I started researching the possibility of shifting to a buy-side market.
At that time, there were two important clients willing to invest in my startup, but I lacked confidence to start on my own, so I proactively contacted Steve Schwarzman. First Boston had raised the initial fund for Blackstone (approximately $545 million), and with our relationships with savings institutions, I assisted in completing part of the fundraising.
Through the introduction of Bruce Wasserstein, I got to know Steve and Pete. They were very interested in the ideas I proposed, in fact, Steve believed in me more than I believed in myself, and eventually I became the fourth partner at Blackstone.
After resigning, that weekend, I held an open house at home, with about 60-70 people attending to discuss my new plans. I directly told some of them: "After I leave, you will actually be able to develop better." At that time, the company was experiencing a breakdown, with some leaving and some staying, but this honesty found a more suitable path for everyone.
(3) The Development and Importance of Aladdin Technology
Leon Kalvaria: What were the key factors that led to BlackRock being chosen by the U.S. government for critical advisory during the financial crisis? Did the Aladdin technology become a decisive advantage due to its early deployment?
Larry Fink: At the company's inception, there were two technical experts among the eight members. We invested $25,000 to acquire the SunSpark workstations that were just released in 1988, which enabled us to independently develop risk tools at BlackRock.
From day one, the foundation of the company has been the development of risk tools, and BlackRock's culture is deeply rooted in risk technology.
When Kidder Peabody, a subsidiary of General Electric (GE), filed for bankruptcy in 1994, we proactively offered assistance to CEO Jack Welch and CFO Dennis Damerman based on our long-standing partnership with GE. While it was widely believed that Goldman Sachs would be hired, we were entrusted with the task of liquidating its bad assets thanks to the Aladdin system.
I declare that no consulting fees are required, and compensation will be paid after success. After nine months of operation, the asset portfolio was ultimately profitable, and GE paid the highest consulting fees in history.
I hope my investment team can establish itself with its own success and capabilities, and I hope Aladdin can compete with and win against anyone. We have decided to open the Aladdin system to all customers and competitors.
In 2003, we encountered a financial crisis. With the trust relationship established with the U.S. government and regulatory agencies, we participated in multiple rescue operations with the same philosophy. Bear Stearns was hired by JPMorgan (JP) over the weekend to analyze its asset portfolio; during the urgent assistance to JP in assessing risks on Friday and Saturday, I was allowed to communicate simultaneously with Treasury's Hack and the Fed's Tim.
On Sunday morning at six o'clock, Tim called for support. I responded that I needed to obtain permission from JPMorgan CEO Jamie before transitioning to government service. To expedite the process, we were directly hired by the U.S. government.
The Finance Minister asks, "Will American taxpayers suffer losses from taking over assets?" I suggested including the principal and interest in the calculation, as the assets have already been significantly written down and the interest rates are extremely high, making it very likely that taxpayers will recover their funds.
After that, we were successively hired to handle the AIG restructuring and the crisis responses of the governments of the UK, the Netherlands, Germany, Switzerland, and Canada.
(Note: American International Group is abbreviated as AIG, translated as 美国国际集团)
(4) What is the intention of the annual letter to shareholders?
Leon Kalvaria: What is the core creative concept behind the annual letters to shareholders that you have been writing since 2012? Is it aimed at documenting key turning points, conveying insights to investors, or making strategic declarations?
Larry Fink: Aside from a few core themes, I have never tried to make a declaration when writing these letters. If it weren't for the acquisition of BGI in 2009, which made us the largest index institution in the world, I wouldn't have even put pen to paper. At that time, we took on a large amount of equity management responsibility, yet only had voting rights and not disposal rights.
This is consistent with the ideas discussed by Warren, the core of the initial few letters is to promote 'long-termism', encouraging long-term investors to think about long-term trends, which is the entire original intention.
(Note: Larry Fink's shareholder letter has been humorously referred to by Leon Kalvaria as a sister piece to Warren Buffett's letter to some extent.)
(5) The Major Trends Reshaping Asset Management in the Future
Leon Kalvaria: From your perspective, what major trends do you think will reshape your future investments and asset management?
Larry Fink: Artificial Intelligence and the Tokenization of Financial Assets. Today, during lunch with a former finance minister and central bank governor, he candidly stated in a personal capacity that the banking industry has been left behind by technology in many areas.
The innovative practices of Brazil's New Bank are expanding to Mexico, and digital platforms like Germany's Trade Republic are also disrupting traditional models. These cases confirm the power of technology to reshape industries. Combining AI with big data analytics allows for a better understanding of its disruptive nature, for example, BlackRock established an AI lab at Stanford in 2017, hiring a team of professors to develop optimization algorithms. We manage $12.5 trillion in assets and need to process massive amounts of transactions, while technological innovation is driving us back to the source of responsibility.
Leon Kalvaria: How will these tools be made available to the public, while ensuring transparency and accountability, and maintaining BlackRock's advantages?
Larry Fink: Early scaled operators will have a greater advantage, which worries me about society as a whole. Large institutions that can bear the costs of AI technology will become the leaders.
However, by the time the second generation of AI becomes mainstream, competitive advantages will face challenges. BlackRock's current advantages are actually far beyond the levels of one year ago and five years ago. Our investments in technology have reached a massive scale, with all operations based on a technological architecture, including trade processing, process optimization, mergers and acquisitions integration, and a unified technology platform, which is much larger than external perceptions.
Leon Kalvaria:** How are the three major acquisitions in the private equity asset space (Prequin/HBS/Bio) reshaping investors' asset allocation patterns in the private equity market?**
Larry Fink: Today's earnings call reiterated the importance of continuous transformation. The acquisition of BGI (including iShares) in 2009 raised market doubts, but the "passive + active combination + full portfolio focus" strategy has been successfully validated—iShares' scale has jumped from $340 billion to nearly $5 trillion.
In 2023, BlackRock's private equity business saw significant growth, with infrastructure investments achieving a breakthrough from zero to $50 billion, and private credit expanding rapidly. The demand from clients exceeded expectations, prompting us to take innovative measures, accelerating the integration of public and private offerings. Technological advancements will drive the free allocation of public and private assets, a trend that will encompass all institutional investors, including 401k plans.
The acquisition cost of Prequin is only 1/3 of the peers, yet it is a key layout: by integrating the E-Front private equity analysis platform with the Aladdin public system, it has built a full-chain risk control capability for public and private assets, aiding in the integration of investment portfolios and deepening client dialogue.
Leon Kalvaria: What is the current status of retirement funds?
Larry Fink: If you can earn 50 basis points over 30 years, in the long run, your returns in the private market will exceed this number; otherwise, the liquidity risk is not worth taking. In total, your portfolio could increase by 18%.
Four months ago, BlackRock held a retirement summit in Washington, attended by 50 members of Congress and the Speaker of the House at a dinner. As the manager of federal government retirement plans, we manage 50% of the retirement-related funds within 12.5 trillion dollars of assets.
(6) Relationship with Global Leaders and Strategic Impact
Leon Kalvaria: When global leaders seek your personal advice on financial and geopolitical issues, how do you combine investment expertise with geopolitical risk assessment?**
Larry Fink: Building Trust is Fundamental. Since 2008, central bank governors and finance ministers from various countries have been accustomed to having in-depth conversations with me, and all dialogues remain within the office. Although no formal confidentiality agreements have been signed, trust, like my interactions with CEOs, hinges on the assurance that conversations will never be disclosed. These discussions have always revolved around substantive issues, and while I am not always right, my views are based on history and facts.
Leon Kalvaria: You have served as a mentor to numerous leaders for a long time, and this unique communication channel is truly rare.
Larry Fink:The essence of the asset management industry is results-oriented. **We do not profit from capital turnover or trading volume, but rather rely on actual outcomes. We are deeply involved in the global retirement system (the third largest retirement management institution in Mexico, the largest foreign-funded retirement management company in Japan, and the largest retirement fund manager in the UK), and therefore always focus on long-term issues.
This influence is irreplaceable, built on a foundation of years of trust. I will proactively meet with newly appointed leaders from various countries (such as Claudia in Mexico and Kiel in Germany) before their inauguration to ensure smooth communication, which is precisely a manifestation of our unique value.
Leon Kalvaria: When you look back at your recent career, who are your mentors and influencers?**
Larry Fink: When we went public in 1999, BlackRock's market value was only $700 million. We attracted seasoned directors such as Merrill Lynch CEO Dave Kamansky and General Electric's Dennis Damerman. The board has always been our cornerstone. When we acquired Merrill Lynch Investment Management, we transformed from a U.S. fixed income institution into a company operating in 40 countries globally, during which I repeatedly discussed management models with the board.
The board of directors remains crucial today, with Cisco CEO Chuck Robbins providing technological insights and former Estée Lauder CEO Fabrizio Freda contributing marketing wisdom. These cross-disciplinary experts keep me relying on the board to drive growth.
(7) Audience Q&A Session
Q: How will artificial intelligence reshape the future investment paradigm? How do you think different investment strategies (individual investors vs. institutions) will evolve? What direction will future development trends take?
Larry Fink: Every investor needs to seek information that the market has not fully recognized; traditional information (old news) can no longer generate excess returns. Artificial intelligence generates unique insights by analyzing differentiated datasets, and our systematic equity team has outperformed the market for 12 years. Their AI algorithm and big data-based thematic investment strategy have beaten 95% of fundamental stock pickers over the past decade.
But this is like baseball; maintaining a 30% batting average is extremely difficult, and achieving it for five consecutive years is even rarer. Only a few investors can consistently outperform. Most fundamental investors see dismal returns after fees, which is the core reason for the shrinkage of the active management industry. If active investing were truly effective, ETFs would never have risen.
Traditional asset management companies are experiencing a downturn in market value, with many peers listed in 2004 having a market value of only 5 to 20 billion USD, while BlackRock has reached 170 billion USD, primarily due to their inability to invest in technological upgrades. The gap between us and traditional agents will continue to widen.
Leon Kalvaria: What is the most underestimated black swan risk in the current market? If the U.S. economy cannot maintain a growth rate of 3% (even with controlled inflation), what systemic crises could arise?
Larry Fink: If the US economy cannot sustain a growth rate of 3%, the deficit problem will crush the nation.
In 2000, the deficit was 8 trillion dollars, which soared to 36 trillion 25 years later and continues to worsen. Only by maintaining a 3% growth can the debt/GDP ratio be controlled. However, the market is skeptical about this. The deeper risk lies in:
20% of U.S. Treasury bonds are held by foreign entities, and if tariff policies lead to isolationism, the amount of dollars held may decrease;
Development of local capital markets in multiple countries (e.g., BlackRock raising $2 billion in India, Saudi Arabia launching MBS operations) leads to domestic savings being retained in the country, weakening the attractiveness of U.S. Treasuries.
3.Stablecoins and currency digitization may reduce the global role of the US dollar.
The solution lies in liberating private capital and simplifying approval processes. Countries like Japan and Italy are also facing a deficit crisis triggered by low growth.
Although there may be black swan events in the private credit sector, the higher matching rate determines that the current systemic risk in the capital markets is lower than in previous years. As long as there is asset-liability matching and deleveraging, losses will not spread into a systemic crisis.
(8) Why did Larry's attitude towards digital assets change?
Leon Kalvaria: What are the key factors behind your evolving stance on digital assets, particularly stablecoins? Has your perspective changed due to other institutions embracing the field at an unprecedented pace?
Larry Fink: I once harshly criticized Bitcoin during a discussion with Jamie Dimon, calling it "the currency of money laundering and theft," which was my view in 2017.
However, the reflections and research during the pandemic changed my perception: an Afghan woman used Bitcoin to pay salaries to female workers banned from employment by the Taliban. The banking system was under scrutiny, and cryptocurrency became a way out.
I gradually realized that the blockchain technology behind Bitcoin has irreplaceable value. It is not a currency, but a "fear asset" to cope with systemic risks. People hold it due to concerns about national security and currency devaluation, with 20% of Bitcoin belonging to illegal holders in China.
If you don't believe in the appreciation of assets in the next 20-30 years, why invest?
Bitcoin is precisely a hedge against an uncertain future, the high risks and rapidly changing environment require us to keep learning.
(9) Larry's Leadership Principles
Q: What are your core leadership principles? Especially in the face of dramatic changes in the industry and the need to flexibly adjust strategies, how do you maintain consistency in leadership?
Larry Fink: One must insist on daily learning; stagnation means falling behind. There is no "pause button" in leading a large enterprise; one must give it their all. To become the best, you must constantly challenge yourself and hold your team to the same standards. After fifty years in the industry, I still strive for each day to be my best.
In the end, only by fully committing oneself can one maintain the qualification for dialogue and the right to speak in the industry. This right must be earned with strength every day, and it is by no means taken for granted.
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Interview with BlackRock CEO Larry Fink: Bitcoin is the hedge against an uncertain future.
Original Title: Legends Live @Citi with Larry Fink, Chairman and CEO of BlackRock
Guest: Larry Fink, Co-founder, Chairman, and CEO of BlackRock
Host: Citigroup Global Banking Chairman Leon Kalvaria
Compiled & Edited by: LenaXin, ChainCatcher
ChainCatcher Editor's Summary
This article is compiled from the latest issue of the dialogue with legendary figures @Citi, where Citi's Global Banking Chairman Leon Kalvaria converses with Larry Fink, co-founder, Chairman, and CEO of BlackRock. As of the video release, BlackRock's assets under management have reached $12.5 trillion. How did Larry achieve this?
In this issue, Larry will share his unique insights on leadership, the themes of his career, and his experiences in creating a brilliant journey.
ChainCatcher has organized and compiled.
Summary of Highlights:
(1) How has Larry's growth experience shaped his leadership?
Leon Kalvaria: How does your family background shape your unique worldview and risk decision-making abilities, ultimately leading to excellence on a global scale?
Larry Fink: My parents were very outstanding. They were socialists, open-minded, and placed great importance on two things: academic achievement and personal responsibility. They often told me, "If you are not doing well after turning 18, don't blame your parents; the responsibility lies with you."
This teaching made me understand the importance of independence from a young age. I started working in a shoe store at the age of 10, and this experience taught me how to communicate and connect with customers. Although nowadays children rarely start working this early, that time made me mature early and learn to take on responsibilities. It wasn't until I was 15 that I truly began to plan a more goal-oriented life.
Leon Kalvaria: How does your academic background from the West Coast help you transition to a leader in established companies?
Larry Fink: In January 1976, I saw snow for the first time during an interview in New York. I was a typical West Coast youth, wearing turquoise jewelry, with long hair, often dressed in a brown suit. First Boston was the most appealing among many companies; they offered personalized training programs, and several leaders in the trading division made me feel at home. They directly arranged for me to enter the trading department, which was uncommon at the time.
Wall Street back then was completely different from now. In 1976, First Boston only hired 14 people. At that time, the total capital of all Wall Street investment banks was only about $200 million, including Goldman Sachs, L.F. Rothschild, Kuhn Loeb, Lehman Brothers, White Weld, Merrill Lynch, etc. (excluding commercial banks).
At that time, investment banks operated like family workshops, taking on almost no risk. The expansion of the balance sheet only began after 1976.
In the first month of joining the trading department, I was confident that I could handle this job. After the training, the company assigned me to the mortgage and guarantee department, which had only three people, and this made me very excited.
(2) Larry's Entrepreneurial Journey
Leon Kalvaria: What fundamental new insights about finance and risk have your experiences with early securitization practices given you?
Larry Fink: What truly changed Wall Street was the personal computer. Before that, there were only tools like the Monro calculator or HP-12C. In 1983, the mortgage department was equipped with a few computers, which, by today's standards, may seem rudimentary, but allowed us to rethink how to integrate mortgage pools and calculate their cash flow characteristics.
The securitization process was initiated by restructuring cash flows through real-time data processing. At that time, many calculations were still done manually, but the derivatives field, such as interest rate swaps, was emerging due to the application of trading layer technology. Wall Street was thus completely transformed.
The important opportunity for the establishment of BlackRock is that the seller's technology always leads the buyer.
Leon Kalvaria: What is the most unexpected lesson you learned? What insights did you gain from it that may have shaped your later leadership at BlackRock?
Larry Fink: Let’s talk about my career trajectory. I became the youngest managing director at 27, joined the executive committee at 31, but by 34, I had become unbearable due to my arrogance.
At that time, the principle of team supremacy only applied during profitable periods. In 84-85, we became the most profitable department in the company and even set a quarterly record, but in the second quarter of 86, we suddenly lost 100 million dollars. This exposed the essence of the problem: when profitable, we are hailed as heroes, but when we incur losses, 80% of people no longer support us, and the so-called team spirit completely collapses.
I learned two profound lessons: First, thinking I had a top-notch team and market insight, yet failing to evolve my thinking with the market; second, being blinded by the ambition to capture market share while competing with Solomon Brothers. Lou was fired a year before me for a similar mistake, yet I did not take it as a warning.
I have never been able to forgive the company for blindly adding capital when I did not strongly oppose it; we lacked risk management tools, yet took on unknown risks. This failed experience ultimately became the soil that nourished BlackRock's growth.
Leon Kalvaria: What makes you still believe that entrepreneurship can succeed under the dual pressure of widespread skepticism and personal setbacks?
Larry Fink: That experience really made me lose a lot of confidence. Although it took me a year and a half to rebuild my career, I received partnership offers from several Wall Street firms during that time, but I always felt it wasn't right to go down the old path again. So I started researching the possibility of shifting to a buy-side market.
At that time, there were two important clients willing to invest in my startup, but I lacked confidence to start on my own, so I proactively contacted Steve Schwarzman. First Boston had raised the initial fund for Blackstone (approximately $545 million), and with our relationships with savings institutions, I assisted in completing part of the fundraising.
Through the introduction of Bruce Wasserstein, I got to know Steve and Pete. They were very interested in the ideas I proposed, in fact, Steve believed in me more than I believed in myself, and eventually I became the fourth partner at Blackstone.
After resigning, that weekend, I held an open house at home, with about 60-70 people attending to discuss my new plans. I directly told some of them: "After I leave, you will actually be able to develop better." At that time, the company was experiencing a breakdown, with some leaving and some staying, but this honesty found a more suitable path for everyone.
(3) The Development and Importance of Aladdin Technology
Leon Kalvaria: What were the key factors that led to BlackRock being chosen by the U.S. government for critical advisory during the financial crisis? Did the Aladdin technology become a decisive advantage due to its early deployment?
Larry Fink: At the company's inception, there were two technical experts among the eight members. We invested $25,000 to acquire the SunSpark workstations that were just released in 1988, which enabled us to independently develop risk tools at BlackRock.
From day one, the foundation of the company has been the development of risk tools, and BlackRock's culture is deeply rooted in risk technology.
When Kidder Peabody, a subsidiary of General Electric (GE), filed for bankruptcy in 1994, we proactively offered assistance to CEO Jack Welch and CFO Dennis Damerman based on our long-standing partnership with GE. While it was widely believed that Goldman Sachs would be hired, we were entrusted with the task of liquidating its bad assets thanks to the Aladdin system.
I declare that no consulting fees are required, and compensation will be paid after success. After nine months of operation, the asset portfolio was ultimately profitable, and GE paid the highest consulting fees in history.
I hope my investment team can establish itself with its own success and capabilities, and I hope Aladdin can compete with and win against anyone. We have decided to open the Aladdin system to all customers and competitors.
In 2003, we encountered a financial crisis. With the trust relationship established with the U.S. government and regulatory agencies, we participated in multiple rescue operations with the same philosophy. Bear Stearns was hired by JPMorgan (JP) over the weekend to analyze its asset portfolio; during the urgent assistance to JP in assessing risks on Friday and Saturday, I was allowed to communicate simultaneously with Treasury's Hack and the Fed's Tim.
On Sunday morning at six o'clock, Tim called for support. I responded that I needed to obtain permission from JPMorgan CEO Jamie before transitioning to government service. To expedite the process, we were directly hired by the U.S. government.
The Finance Minister asks, "Will American taxpayers suffer losses from taking over assets?" I suggested including the principal and interest in the calculation, as the assets have already been significantly written down and the interest rates are extremely high, making it very likely that taxpayers will recover their funds.
After that, we were successively hired to handle the AIG restructuring and the crisis responses of the governments of the UK, the Netherlands, Germany, Switzerland, and Canada.
(Note: American International Group is abbreviated as AIG, translated as 美国国际集团)
(4) What is the intention of the annual letter to shareholders?
Leon Kalvaria: What is the core creative concept behind the annual letters to shareholders that you have been writing since 2012? Is it aimed at documenting key turning points, conveying insights to investors, or making strategic declarations?
Larry Fink: Aside from a few core themes, I have never tried to make a declaration when writing these letters. If it weren't for the acquisition of BGI in 2009, which made us the largest index institution in the world, I wouldn't have even put pen to paper. At that time, we took on a large amount of equity management responsibility, yet only had voting rights and not disposal rights.
This is consistent with the ideas discussed by Warren, the core of the initial few letters is to promote 'long-termism', encouraging long-term investors to think about long-term trends, which is the entire original intention.
(Note: Larry Fink's shareholder letter has been humorously referred to by Leon Kalvaria as a sister piece to Warren Buffett's letter to some extent.)
(5) The Major Trends Reshaping Asset Management in the Future
Leon Kalvaria: From your perspective, what major trends do you think will reshape your future investments and asset management?
Larry Fink: Artificial Intelligence and the Tokenization of Financial Assets. Today, during lunch with a former finance minister and central bank governor, he candidly stated in a personal capacity that the banking industry has been left behind by technology in many areas.
The innovative practices of Brazil's New Bank are expanding to Mexico, and digital platforms like Germany's Trade Republic are also disrupting traditional models. These cases confirm the power of technology to reshape industries. Combining AI with big data analytics allows for a better understanding of its disruptive nature, for example, BlackRock established an AI lab at Stanford in 2017, hiring a team of professors to develop optimization algorithms. We manage $12.5 trillion in assets and need to process massive amounts of transactions, while technological innovation is driving us back to the source of responsibility.
Leon Kalvaria: How will these tools be made available to the public, while ensuring transparency and accountability, and maintaining BlackRock's advantages?
Larry Fink: Early scaled operators will have a greater advantage, which worries me about society as a whole. Large institutions that can bear the costs of AI technology will become the leaders.
However, by the time the second generation of AI becomes mainstream, competitive advantages will face challenges. BlackRock's current advantages are actually far beyond the levels of one year ago and five years ago. Our investments in technology have reached a massive scale, with all operations based on a technological architecture, including trade processing, process optimization, mergers and acquisitions integration, and a unified technology platform, which is much larger than external perceptions.
Leon Kalvaria:** How are the three major acquisitions in the private equity asset space (Prequin/HBS/Bio) reshaping investors' asset allocation patterns in the private equity market?**
Larry Fink: Today's earnings call reiterated the importance of continuous transformation. The acquisition of BGI (including iShares) in 2009 raised market doubts, but the "passive + active combination + full portfolio focus" strategy has been successfully validated—iShares' scale has jumped from $340 billion to nearly $5 trillion.
In 2023, BlackRock's private equity business saw significant growth, with infrastructure investments achieving a breakthrough from zero to $50 billion, and private credit expanding rapidly. The demand from clients exceeded expectations, prompting us to take innovative measures, accelerating the integration of public and private offerings. Technological advancements will drive the free allocation of public and private assets, a trend that will encompass all institutional investors, including 401k plans.
The acquisition cost of Prequin is only 1/3 of the peers, yet it is a key layout: by integrating the E-Front private equity analysis platform with the Aladdin public system, it has built a full-chain risk control capability for public and private assets, aiding in the integration of investment portfolios and deepening client dialogue.
Leon Kalvaria: What is the current status of retirement funds?
Larry Fink: If you can earn 50 basis points over 30 years, in the long run, your returns in the private market will exceed this number; otherwise, the liquidity risk is not worth taking. In total, your portfolio could increase by 18%.
Four months ago, BlackRock held a retirement summit in Washington, attended by 50 members of Congress and the Speaker of the House at a dinner. As the manager of federal government retirement plans, we manage 50% of the retirement-related funds within 12.5 trillion dollars of assets.
(6) Relationship with Global Leaders and Strategic Impact
Leon Kalvaria: When global leaders seek your personal advice on financial and geopolitical issues, how do you combine investment expertise with geopolitical risk assessment?**
Larry Fink: Building Trust is Fundamental. Since 2008, central bank governors and finance ministers from various countries have been accustomed to having in-depth conversations with me, and all dialogues remain within the office. Although no formal confidentiality agreements have been signed, trust, like my interactions with CEOs, hinges on the assurance that conversations will never be disclosed. These discussions have always revolved around substantive issues, and while I am not always right, my views are based on history and facts.
Leon Kalvaria: You have served as a mentor to numerous leaders for a long time, and this unique communication channel is truly rare.
Larry Fink: The essence of the asset management industry is results-oriented. **We do not profit from capital turnover or trading volume, but rather rely on actual outcomes. We are deeply involved in the global retirement system (the third largest retirement management institution in Mexico, the largest foreign-funded retirement management company in Japan, and the largest retirement fund manager in the UK), and therefore always focus on long-term issues.
This influence is irreplaceable, built on a foundation of years of trust. I will proactively meet with newly appointed leaders from various countries (such as Claudia in Mexico and Kiel in Germany) before their inauguration to ensure smooth communication, which is precisely a manifestation of our unique value.
Leon Kalvaria: When you look back at your recent career, who are your mentors and influencers?**
Larry Fink: When we went public in 1999, BlackRock's market value was only $700 million. We attracted seasoned directors such as Merrill Lynch CEO Dave Kamansky and General Electric's Dennis Damerman. The board has always been our cornerstone. When we acquired Merrill Lynch Investment Management, we transformed from a U.S. fixed income institution into a company operating in 40 countries globally, during which I repeatedly discussed management models with the board.
The board of directors remains crucial today, with Cisco CEO Chuck Robbins providing technological insights and former Estée Lauder CEO Fabrizio Freda contributing marketing wisdom. These cross-disciplinary experts keep me relying on the board to drive growth.
(7) Audience Q&A Session
Q: How will artificial intelligence reshape the future investment paradigm? How do you think different investment strategies (individual investors vs. institutions) will evolve? What direction will future development trends take?
Larry Fink: Every investor needs to seek information that the market has not fully recognized; traditional information (old news) can no longer generate excess returns. Artificial intelligence generates unique insights by analyzing differentiated datasets, and our systematic equity team has outperformed the market for 12 years. Their AI algorithm and big data-based thematic investment strategy have beaten 95% of fundamental stock pickers over the past decade.
But this is like baseball; maintaining a 30% batting average is extremely difficult, and achieving it for five consecutive years is even rarer. Only a few investors can consistently outperform. Most fundamental investors see dismal returns after fees, which is the core reason for the shrinkage of the active management industry. If active investing were truly effective, ETFs would never have risen.
Traditional asset management companies are experiencing a downturn in market value, with many peers listed in 2004 having a market value of only 5 to 20 billion USD, while BlackRock has reached 170 billion USD, primarily due to their inability to invest in technological upgrades. The gap between us and traditional agents will continue to widen.
Leon Kalvaria: What is the most underestimated black swan risk in the current market? If the U.S. economy cannot maintain a growth rate of 3% (even with controlled inflation), what systemic crises could arise?
Larry Fink: If the US economy cannot sustain a growth rate of 3%, the deficit problem will crush the nation.
In 2000, the deficit was 8 trillion dollars, which soared to 36 trillion 25 years later and continues to worsen. Only by maintaining a 3% growth can the debt/GDP ratio be controlled. However, the market is skeptical about this. The deeper risk lies in:
20% of U.S. Treasury bonds are held by foreign entities, and if tariff policies lead to isolationism, the amount of dollars held may decrease;
Development of local capital markets in multiple countries (e.g., BlackRock raising $2 billion in India, Saudi Arabia launching MBS operations) leads to domestic savings being retained in the country, weakening the attractiveness of U.S. Treasuries.
3.Stablecoins and currency digitization may reduce the global role of the US dollar.
The solution lies in liberating private capital and simplifying approval processes. Countries like Japan and Italy are also facing a deficit crisis triggered by low growth.
Although there may be black swan events in the private credit sector, the higher matching rate determines that the current systemic risk in the capital markets is lower than in previous years. As long as there is asset-liability matching and deleveraging, losses will not spread into a systemic crisis.
(8) Why did Larry's attitude towards digital assets change?
Leon Kalvaria: What are the key factors behind your evolving stance on digital assets, particularly stablecoins? Has your perspective changed due to other institutions embracing the field at an unprecedented pace?
Larry Fink: I once harshly criticized Bitcoin during a discussion with Jamie Dimon, calling it "the currency of money laundering and theft," which was my view in 2017.
However, the reflections and research during the pandemic changed my perception: an Afghan woman used Bitcoin to pay salaries to female workers banned from employment by the Taliban. The banking system was under scrutiny, and cryptocurrency became a way out.
I gradually realized that the blockchain technology behind Bitcoin has irreplaceable value. It is not a currency, but a "fear asset" to cope with systemic risks. People hold it due to concerns about national security and currency devaluation, with 20% of Bitcoin belonging to illegal holders in China.
If you don't believe in the appreciation of assets in the next 20-30 years, why invest?
Bitcoin is precisely a hedge against an uncertain future, the high risks and rapidly changing environment require us to keep learning.
(9) Larry's Leadership Principles
Q: What are your core leadership principles? Especially in the face of dramatic changes in the industry and the need to flexibly adjust strategies, how do you maintain consistency in leadership?
Larry Fink: One must insist on daily learning; stagnation means falling behind. There is no "pause button" in leading a large enterprise; one must give it their all. To become the best, you must constantly challenge yourself and hold your team to the same standards. After fifty years in the industry, I still strive for each day to be my best.
In the end, only by fully committing oneself can one maintain the qualification for dialogue and the right to speak in the industry. This right must be earned with strength every day, and it is by no means taken for granted.