Future of Finance 2024: BlackRock and the Future of Finance

Fortune

Robert Goldstein, Senior Managing Director and Chief Operating Officer; Member, Global Executive Committee; Co-chair, Global Operating Committee, BlackRock Moderator: Lee Clifford,  Executive Editor, Enterprise, Fortune

Transcript

00:00Good morning, everyone.

00:02All right, Rob.

00:03You made it here in the nick of time.

00:04Braved some awful traffic.

00:06Let's dive right in.

00:07OK.

00:08A little traffic is good.

00:09It shows the city is sort of back.

00:11I like it.

00:12Absolutely.

00:12The city might be too back.

00:15OK, so you guys founded an AI lab in 2018.

00:19You've been at this for a little while.

00:20Tell us, where is it?

00:22What does it do?

00:23What have you learned?

00:23Sure.

00:24And I think that when people talk about AI,

00:29they forget that the AI lab at MIT

00:33was actually founded in the 1950s.

00:36So a lot of these ideas, these concepts, these methodologies

00:41are actually not brand new.

00:44What's brand new for the past few years

00:47has been this confluence of there's

00:49more data than anyone could have imagined even a few years ago.

00:54And the amount of compute capacity in the world

00:58and how you access it has just fundamentally changed.

01:03A couple of years ago, even less,

01:05when ChachiPT started what I would call a gen AI revolution,

01:12the world changed again.

01:14So we had started our AI lab in 2018.

01:18We've been using these methodologies really

01:20for a couple of decades.

01:22And what the purpose of the AI lab, which is literally

01:27right on the border of the campus of Stanford,

01:32and we have a lot of people who are affiliated with the math

01:35department, the electrical engineering

01:37department of Stanford who are effectively running the lab.

01:41And the vision at the time was a very simple vision,

01:44which was we have a lot of things we're solving for.

01:48We have a group of people who are solving for them using

01:50a variety of methods we've been trying for many, many years.

01:54And let's get a group of people who

01:56are more focused on natural language processing,

02:01optimization, more focused on the math than the finance.

02:06And let's throw the same problems at them

02:08and see how they would ultimately

02:10solve those problems.

02:11And we've had great, great success with that.

02:15What changed a couple of years ago,

02:17and I think at the most basic level you could think of it,

02:20as everything we were doing really

02:23was centered on numbers.

02:25Now what's happening with Gen AI is

02:28that you're able to extend your problems and solutions to be

02:33more about words and language.

02:36And that unlocks what I believe will

02:40be the most significant technology innovation,

02:45evolution, revolution of my 30-year career,

02:49because the kinds of things you could do

02:53have just expanded greatly.

02:56And I'll give, can I give one quick example?

02:59You may.

02:59OK, so the quick example that I would give

03:02is we had a presentation to BlackRock's board

03:05several months ago.

03:07It was either October, November, or last year.

03:11And the presentation was on Gen AI

03:15and what our strategy associated with Gen AI is.

03:18And as part of that presentation,

03:21because we normally would write a memo as part of the board

03:24materials, we had the idea of let's actually use

03:29ChatGPT to write the memo.

03:32So we took what our strategy document was,

03:35and we fed it into ChatGPT with a very simple prompt.

03:40And that prompt was write an executive summary,

03:43I think it was 500 words, maybe 1,000 words,

03:47for the board explaining our strategy, some of the risks,

03:50and so on.

03:52So it gave us a memo.

03:54And then we gave that memo to a bunch of people

03:56internally to read.

03:58And what was most amazing to me is,

04:02and we have some tough graders within BlackRock,

04:05let me be very clear.

04:07As we gave the memo to those tough graders to read,

04:10everyone had comments.

04:13And the comments were typically things

04:15like, I hate the tone.

04:18The comments were like, I think you're selling yourself short.

04:22The comments were like, what about this?

04:25No one realized it was actually written by a computer.

04:29A couple of people, when we told them

04:31it was written by a computer, they said,

04:32I don't like the computer's tone.

04:35I'm like, well, you should take that up with the computer.

04:37And then what became clearer is that even something

04:42like the tone, the computer will

04:45be able to modify its tone.

04:46It's like, be a little nicer.

04:48Or you feed it 10 other memos with the right tone,

04:52and you say, give me the tone of those memos.

04:55So those are the kinds of problems

04:57you would have never thought of a computer solving

04:59three years ago, writing the memo,

05:01describing your strategy.

05:04So the unlock here is a generational unlock.

05:09And particularly through the lens of a COO,

05:12it's an incredible force with regard

05:17to how you need to think about operating a company,

05:21the talent strategy, and just the overall strategy of how

05:25you engage with and communicate with clients,

05:28how you process information to generate investment ideas.

05:33It's a whole new world.

05:35Let's talk about strategy a little bit.

05:36One thing I'm hearing from a lot of companies

05:38is suddenly you need to re-evaluate your strategy

05:40every three months, every six months.

05:42It's no longer something that gets evaluated

05:45every couple of years.

05:46What are you finding?

05:47Well, I think as a starting point, without question,

05:53everything is just happening faster.

05:56So if you take a step back, I think this is another,

06:00we would think of technology innovation and consequence,

06:05maybe an unintended consequence.

06:08But everything is happening faster in this world.

06:11And a big part of it is because one

06:13of the fundamental ingredients for change is information flow.

06:18And the information flow is just accelerating, accelerating,

06:21accelerating.

06:23So I think we view strategy as an incredibly fluid assignment.

06:32But what's interesting from a BlackRock lens

06:34is that the strategy has been largely unchanged.

06:39Because from our perspective, we're

06:43really looking at what are the challenges that clients

06:47have with their whole portfolio, with the whole investment

06:51portfolio.

06:52And the core of our strategy is really

06:54fulfilling that whole portfolio requirement.

06:58And if anything, many of the forces

07:00that are happening, including the forces

07:02that we're describing now, are just

07:06accelerating the client requirement

07:09to work with people who could do more and more things

07:12for that whole portfolio.

07:14When you look back over your 30-year career at BlackRock,

07:17what are some of the things that you think

07:19are unique about your company and have

07:22made it so successful over the past 30 years?

07:25We only have six minutes.

07:26I think I could talk for a year about my 30 years.

07:29But importantly, I think that if you

07:34look at the history of BlackRock,

07:36and if you look at what BlackRock is today,

07:39and even as we were being introduced,

07:41we spoke about BlackRock.

07:42We spoke about the Aladdin platform.

07:45We spoke about the ETF platform, the iShares platform

07:49that we have.

07:50And what's interesting is that if you

07:53think about the asset management industry,

07:55particularly if you go back 30 years ago, 20 years ago,

07:5910 years ago, and you could argue even today,

08:03it really is organized much more around the service providers,

08:07the asset managers.

08:10And then there's this expectation

08:11that the clients have to put all these service providers

08:15together.

08:17So even if you look at BlackRock and our size and scale,

08:23it still is under 10% of the market.

08:26The industry is incredibly bifurcated,

08:29which leads to the client having to do a lot of work.

08:33And the strategy that we've been employing

08:35at the most basic level is that the clients

08:38are our compass for where we take the company.

08:41So the clients are building these whole portfolios.

08:44Those whole portfolios involve taking investment strategies

08:49that seek alpha, investment strategies

08:53that are designed to provide exposures

08:55through replicating indices, public markets,

08:58private markets, across a whole array of things.

09:02Then you need to understand the risks in those portfolios.

09:06You need to understand asset allocation.

09:08You need technology to do the processing.

09:11So our strategy has always been, how

09:13do we be able to solve the client's whole problem

09:17or any building block piece or the technology infrastructure?

09:23Now, if you look back, when we started to provide Aladdin,

09:28people said, why would an asset manager provide technology?

09:33When we bought Barclays Global Investors,

09:36and we, as part of that, had the iShares leading ETF franchise,

09:44people basically said, you need to be an active manager

09:48or you need to be an index manager.

09:50They would call it back then a passive manager.

09:52It could be nothing further from the truth.

09:55You can't be both.

09:57It was religious.

09:59And we just said, why is it religious

10:03if clients are taking all these pieces

10:07and putting them together?

10:08Isn't the industry an industry designed to serve its clients?

10:13And I think if you look at the past three decades,

10:16the industry is just shifting more and more.

10:20And I like to think BlackRock is leading in that shift to,

10:23how can you really service the whole portfolio?

10:27And how could you be able to talk to clients

10:30where, even if they buy one Lego piece, one building

10:33block from you as an individual product,

10:36you recognize it's in the context

10:38of that whole portfolio?

10:40And you can talk to them about that Lego piece

10:45in the context of the whole portfolio.

10:48Well, we're here at the Future of Finance Conference.

10:51So now it's time for some bold predictions.

10:53We're sitting here 10 years from now.

10:55What is going to look different about the whole finance

10:57industry?

10:58I think that BlackRock was founded,

11:05and from the earliest days, there

11:07was a thesis that, at its core, the asset management

11:13industry is an information processing industry.

11:17And I think the past three decades have been,

11:21if you look at it as a line, it's

11:23been going like this towards that vision.

11:26I think the line is going to go like this.

11:28I think that the asset management

11:31industry and the broad business of investments in aggregate

11:38is going to just increasingly become an information

11:42processing, a technology business.

11:44There's going to be mass personalization

11:48that clients are going to be able to experience.

11:51There's going to be a mass ability

11:54to look at all the data that's being created.

11:59And remember, if you look forward as a prediction,

12:02I'm not smart enough to know if it's 5x, 10x, 100x, 500x.

12:08I just know it's lots of x more data in the world

12:12that asset managers will need to understand and process.

12:16And these businesses are just going

12:18to increasingly become technology businesses

12:22in every way possible.

12:24I think it's also quite clear that the lines

12:29between the public markets and the private markets,

12:32the lines between where you are within a capital structure

12:37and a capital stack, all of these lines

12:40are getting more blurry.

12:42So the portfolio of the future will clearly

12:46have public market exposures and private market exposures.

12:51It will clearly have fixed income and equity.

12:54But it will clearly be thought of more

12:56as a series of exposures than the convenience technology

13:01of being able to label things a certain way

13:05and assume as a simplifying assumption,

13:09assume that that label behaves a given way.

13:14Last question.

13:16You've said tech a lot.

13:18I haven't counted, but it's many times.

13:20Is it changing who you're hiring?

13:21What type of background are you looking for now?

13:24That's a great question.

13:25We, within BlackRock, roughly a little over a quarter

13:33of the company would be people who are technologists.

13:37That is something that we've been doing for quite some time.

13:41But it's interesting because I feel like

13:44we have more and more conviction that we

13:46need more technologists.

13:48We also have more and more conviction.

13:50We're a firm that has a very large analyst class every year

13:54that we hire out of university.

13:56We also have more and more conviction

13:58that we need people who majored in history in things that

14:02have nothing to do with finance or technology.

14:05And it's that diversity of thinking and diversity

14:09of people and diversity of looking at different ways

14:12to solve problems that really fuels innovation.

14:16As a history major, we have to stop there.

14:18But as a history major, I'd love to hear that.

14:20Thank you so much for joining us.

14:21Thank you.

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