Episode Description:
For The Bid's 200th episode, joining Oscar is one of BlackRock's founders, Rob Kapito. Rob currently serves as president of BlackRock. and has witnessed the firm's incredible journey from the days of a largely US-based fixed income shop to becoming the firm trusted to manage more money than any other investment company in the world. Rob shares insights on the history of BlackRock, the firm's growth, and the evolving culture that has driven its success. We also look ahead to the future and get Rob's views on what lies ahead for BlackRock.
This content is for informational purposes only and is not an offer or a solicitation. Reliance upon information in this material is at the sole discretion of the listener. In the UK and Non-European Economic Area countries, this is authorised and regulated by the Financial Conduct Authority. In the European Economic Area, this is authorised and regulated by the Netherlands Authority for the Financial Markets.
For full disclosures go to Blackrock.com/corporate/compliance/bid-disclosures
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Oscar Pulido: Welcome to The Bid, where we break down what's happening in the markets and explore the forces changing the economy and finance. I'm Oscar Pulido.
We are celebrating the Bid's 200th episode, and joining us is one of BlackRock's original founders, Rob Kapito. Rob currently serves as president of BlackRock. He has witnessed the firm's incredible journey from the days of a largely US-based fixed income shop to becoming the largest global asset manager in the world. In this special episode, Rob will share insights on the history of BlackRock, the firm's growth and the evolving culture that has driven its success. We'll also look ahead to the future and get Rob's views on what lies ahead for BlackRock.
Rob, thank you so much for joining us on The Bid.
Rob Kapito: I'm delighted to be here on the 200th episode of The Bid.
Oscar Pulido: You're right, it is the 200th, episode. you have been with us before. It's been a while, since. It's great to have you back. We thought what better way to commemorate the 200th episode than to talk to one of the founders of BlackRock and to take a look back at the history of the firm and its founding. Take us back to 1988, the origins of BlackRock. I've heard a story about a bunch of founders in a room with one telephone. I think that's true, or maybe it's folklore, but perhaps you could start there?
Rob Kapito: Well, it's half true. So, we had one office and two desks and one couch. And Larry and Ralph each had a desk. Sue Wagner and I each had different sides of the couch.
But we had four phones, and I never sat on Sue’s side of the couch, we respected our responsive positions there. We started in business and interesting enough, we had helped a lot of people, previously and they all called and wanted to help. And there was a lot of congratulatory calls that you are starting your own business, and we felt very good about ourselves, but at the end of the day there was no business, there was just a lot of congratulations.
So, we recognized we really had to hunker down and execute on a business plan, which was, to go out to clients who needed to understand the risk in their portfolios because, the markets were changing. There were a lot of new securities being created that were complicated and we thought we had a better way with the analytics that we were building to understand what the risk is, and that was going to be our calling card. And then we were going to hope that someone would give us the opportunity to manage their money. And in those days, you really needed a five-year track record. And we also realized if you've only been managing money ' for, one year, no matter how much technology you have, you can't have a five-year track record.
So, we had to, go out and find a couple institutions that really gave us an opportunity and trusted us, and we kept our promises. and over the next five years we were able to add many other institutional accounts. And also, to examine how we can bring institutional quality management to the retail market. And so, we had to really study and understand what the individual investor was looking for and the wrappers that they could buy those particular instruments in and start to use our structuring capabilities to come up with a plan, and then we were able to raise money, from mom and pop, of which, we also kept our promises to. And so that's the key Oscar, to growing a business, is keeping a promise to your clients. And if you do that, you can build great businesses together.
Oscar Pulido: And so, Rob, it was certainly humble beginnings in 1988, and then 11 years later, October 1st, 1999, BlackRock went public. So, it's been now 25 years since the firm went public. I remember the late nineties being characterized by technology, stocks and high-flying growth companies. I'm trying to imagine what it was like for an asset manager to go public in late in the late nineties.
Rob Kapito: Now, there were a lot of stops along the way before an IPO and the IPO was because we needed the currency to be able to attract more partners to come into the company. and the day we went public, of course we were very excited. It's a very stressful day, talking to institutions that would be interested in also, making a bet on us.
We were relegated to ringing the bell Friday afternoon at 4:30 on the stock exchange when there were about six people left on the floor. But when you go public, where you go public, it’s not really relevant, what is relevant is growing from that level. And so, we focused right after ringing that bell to how we were going to grow our business and keep again, our promise now to a new group of people, our shareholders.
Oscar Pulido: And that growth has come both organically and inorganically. But I can attest to some of the growth that BlackRock has attained through acquisitions 'cause I myself started my career with Merrill Lynch Investment Managers, which was one of the firms that BlackRock acquired along the way. So, talk a little bit about some of those acquisitions and what's been the thought process in making those acquisitions over the years?
Rob Kapito: It's more about the capital markets growing and being able to put in front of clients what they need, and then we either have it, build it or buy it.
So, if I go back to 1995, I could walk into a client and for a 7.5% return, which was considered a good return in 1995, I could give you a hundred percent bonds. So, if you look at BlackRock then, we were a bond manager. But over the next 10 years, as interest rates declined and the equity markets became more attractive, we needed to have both bonds and equities in order to get that seven and a half percent return.
So, what we had internally was not enough to be the best in equities. So we went on a search, and that search led us to Merrill Lynch Investment Management, which we dated for a while to see if the culture would fit and, could we form a great organization together. And as we, we bought Merrill Lynch Investment Advisors and Merrill Lynch became a 49% owner, in BlackRock. And that gave us the equities globally that we needed to get that 7.5% return.
If you fast forward again another 10 years, what you needed to get that 7.5% return was not only bonds and equities, but alternatives. So, it put us in the search to find firms that could offer alternatives on a global basis in order to get that return. So, where I'm going in this is that we're always thinking about what the client needs and can we produce it both internally or externally, and that describes what our plan was. We're not that smart, it always comes from the clients, and it also comes from where the capital markets are at the time and can we meet their goals and objectives.
And the one thing that I should have mentioned that we were continuing to build from day one all through these acquisitions was our technology product called Aladdin. And Aladdin is really the key. It's the nucleus of everything that we do. And in fact, it wasn't built for this reason, but it was one of the secret sauces of us able to do these acquisitions because the only thing where we were religious about was that all the assets, no matter who we bought or what portfolio teams we brought on, had to go through Aladdin. So, throughout the history of the firm, we have one single source of truth, only one number, and it all comes from Aladdin, where you could see the risk of your portfolios on one piece of paper. And that has become a very large and important business, where over 200 institutions use Aladdin as their technology support.
So, technology, returns, alpha broad base of products and keeping our promises. So, all of those things have been consistent, throughout the history of the firm.
Oscar Pulido: And Rob, as you took us through that timeline, you also, said a word ‘culture’, when you were talking about the acquisition of Merrill Lynch investment managers and that you were evaluating if that would be a good fit culture-wise. So, talk a little bit about as the firm has grown, have you had an intentional action that you've taken about developing the culture of BlackRock? What's your observation of the culture and how has it changed maybe over the years?
Rob Kapito: Culture is very interesting, and I think a misunderstood phrase. Every firm develops over time a culture. A culture of excellence, a culture of keeping a promise, a culture of working together as teams and understanding what the mission is.
This is a people business, like everything else. And we had to make sure that the people that we were going to bring into the firm had similar values and had a similar moral conduct. But the secret sauce is not that you try to get that firm that you're interested in to fit in with your culture. What you do is you look at that culture, make sure that you feel it's a good one, and then the combination of the two create the new culture, the improved culture. And that has been something that we've really tried to work on. And with each of those, and this is sometimes the things that bring down a firm because they, they have a merger, it becomes a silo.
People don't want to work together. It's the basics, of being partners and what do partners really mean. But in all of this, you all have to understand what the mission is. To create a better financial future for our clients, and that's what we've focused on. So, in each of these acquisitions, we've improved our culture and that is really important. We also have gone best in class, so sometimes there's overlap who gets to win.
And that's how you can continue to have a meritocracy, and you build a culture of excellence, and you make sure these are people that. are most interested in keeping their promise to the clients and they have the capacity to build.
Oscar Pulido: And it's interesting, you're saying whatever the culture was, in that, small room with the original founders of the firm, has evolved over time because you've found companies that had a culture that, you found interesting and that you thought would be additive to the firm. And then, that has then helped evolve the culture of BlackRock. Rob, we've spent a lot of time looking backwards at the last 36 years of BlackRock's history. Take us forward now, as you think about where BlackRock is headed, what excites you, what do you see in the years ahead?
Rob Kapito: I see an incredible growth in the capital markets in a different way than the private markets are going to grow. And one of the reasons for that is, countries are at deficits, and they don't have the ability to invest in the infrastructure and the technology they need to grow their country, grow their populations.
And this opens up a whole opportunity in infrastructure investing and private and public capital merging together in order to accomplish this. You might have seen our acquisition of Global Infrastructure Partners because we need to be very big in that space in order to accomplish our objectives on behalf of our clients.
The second thing is we have aging populations. Everyone talked about the baby boomers and what's going to happen and people on the east coast moving to Florida and the demographics, all that's happening. The populations are getting older in many countries, and people do not have the savings and investments to be able to retire in dignity.
And a lot of people that worked at companies, those companies went from defined benefit plan to defined contribution plan. They gave their employees the money, a lot of them kept it in cash, didn't invest it in a way that would be good for them in the future. So, we need to create a product just for the retirees so that they can live in dignity and that's really important. So, we need to have all of these different pieces to come up with something that would fit the risk profile of a person retiring. And that's why, if you're listening to this podcast, we're a fiduciary and this is, in my opinion, a noble profession.
And the reason for that is because we're really not managing people's money, we're managing their dreams. So, people have worked for 30 years, they need this money to pay for their kids' college, for weddings, for their new home, or just to live in many years where they're not going to be working. So, this is the responsibility, that's a dream. So, this is the money that they're going to need to be able to meet those dreams. So, it's a noble profession.
You used to be in the global allocation world. I was sitting at a Broadway show and a person came over and said, are you Rob Kapito from BlackRock? I said, yes. He said, 'I just want to tell you that I invested in Global Allocation 15 years ago. And I used the money to pay for my kids' education. I just paid for my daughter's wedding with it, thank you so much.' That's the client, that's where we kept the promises. This guy has worked his whole life, so it has to be an investment that understands who that client is, the risk and the rewards. That's what we do.
Every day something is happening around the globe, and we have to modify and pivot our strategy in order to keep our promises. So, it's fun, we've been enjoying it. It's been a very long ride. I'm not going to say that a lot of bumps along the way. We've been through 11 financial crises. We're still here. Our clients are still happy. We continue to grow, and it gets back to having the right culture and keeping your promises and putting the client always first.
Oscar Pulido: And it's interesting to hear you just talk about the noble profession. I think maybe when people enter the finance industry, it's a little less clear what their impact on that end client is.
Rob, you know BlackRock extremely well, and you've taken us through a little bit of a tour of its history. What would you want people to know about BlackRock? If there was one thing and they're just learning about the firm, what would you want them to take away?
Rob Kapito: I'd like them to know that the BlackRock brand, is a pristine brand, that we're a fiduciary, that we do everything 24 hours a day to keep our promises to them, to meet their goals and objectives. We understand the risk. We manage that with the appropriate rewards and that we are about the client.
I know people advertise how much money we have under management, it's not BlackRock's money, and we recognize that. Every day we come in here, we have an awesome responsibility to protect that principle and get them a good return. And I want them to know that we take that very seriously every single day. And we recognize that our whole brand is built on keeping our promise. And I intend to make sure the rest of the organization does that.
Oscar Pulido: Rob, I'm sure if we had unlimited time there are many stories over those 36 years that, we haven't heard yet, but at some point, we will have you back on The Bid to talk more about your views on the world, and you can hold me to that promise as well. Rob, thank you so much for joining us on The Bid.
Rob Kapito: Thank you. And great luck on the next 200 episodes!
Oscar Pulido: Thanks for listening to this episode of The Bid. If you've enjoyed this conversation, check out the episode with another of BlackRock's co-founders, Larry fink on Rethinking Retirement, and subscribe to The Bid wherever you get your podcasts.
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Disclosure
This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities, funds or strategies to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The opinions expressed are as of the date of publication and are subject to change without notice. Reliance upon information in this material is at the sole discretion of the reader. Investing involves risks. BlackRock does and may seek to do business with companies covered in this podcast. As a result, readers should be aware that the firm may have a conflict of interest that could affect the objectivity of this podcast.
For more information go https://www.blackrock.com/corporate/compliance/bid-disclosures
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