- 18 hours ago
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00:00Susan, I know you've just flown back yesterday, late last night, so thank you for being here with us.
00:04So let's start with how's business been going?
00:07Good morning, everyone, and thank you. Pleasure.
00:11Business is doing really well, I have to say, and probably everybody will hear the sentiment.
00:18The previous session, Hong Kong's really booming, so we're seeing this across the region
00:24from an asset management and growth perspective.
00:30Business has been going well, volumes are up, as Paul Chen said, you know, $400 billion.
00:34If we think of how investors are allocating from an asset allocation perspective,
00:39what are you seeing across BlackRock?
00:41So in terms of allocation, Asia continues to be a region that really embraces active strategies.
00:51So we are seeing the growth continue around the active mutual funds.
00:56We are considering to continue to see growth in ETFs, something very close to our hearts.
01:05And more and more, though, we're also seeing allocation into the private markets.
01:10So really, three key themes.
01:13Let me just touch upon the active side for a minute.
01:15So in active, what we do see is the desire for more thematic funds.
01:22We see the play on income continue.
01:26Income story is no stranger to us in the region.
01:30Everybody wants income.
01:32So now people are looking for diversified methods to generate that income.
01:37In particular, we see high demand for hedge funds.
01:41We see high demand for systematic funds as well.
01:46So that has been the lion's share of the growth coming from across the region.
01:51So if we drill into the active, as you mentioned, you know, what some of you may not know,
01:56Susan and I both started, we know each other from ETFs.
01:59Susan was head of capital markets at BlackRock for iShares.
02:02And as you know, ETFs has grown significantly.
02:04In Hong Kong, it's now surpassed $100 billion in assets under management.
02:08And active is a big thing, to your point.
02:09In Hong Kong, there's a lot of active ETFs that provide very good income.
02:13And Hong Kong, amongst the Asia-Pacific, is one of the highest in regions.
02:16Some of the ETFs provide more than 20% income paid on a monthly basis.
02:20So as a house that has both active and passive, how do you see the two coexisting?
02:25So we fundamentally believe that we needed to bring the two together.
02:29And we did this when we brought BGI into BlackRock.
02:33And that narrative has absolutely played out in the sense that all decisions are active decisions,
02:41whether you're choosing an active fund, whether you're choosing an index fund,
02:46whether you're choosing a private market investment.
02:49So I think that's how it's playing out.
02:51What I would say is that it's incredibly exciting times right now for us,
02:56for all of us in the industry across the ETF space.
03:01Globally, ETFs are around $22 trillion.
03:05In Asia-Pacific, it's only north of $1 trillion.
03:09So just think about that for a moment.
03:12The other stat is today, Asia-Pacific accounts for 18% of global assets under management for our industry.
03:21That's expected to grow to north of 25% by 2030.
03:26So if you couple those two numbers together, what you'll see is there's going to be tremendous growth in ETFs.
03:33You know, the size of our capital markets across the region,
03:38one would expect that that $1 trillion can go to $10 trillion, can go to $20 trillion,
03:43if all the countries focus on driving and growing their capital markets.
03:49I think to leverage off that point, for us, within Bloomberg Intelligence,
03:54our estimate is that ETFs globally will surpass $50 trillion by 2035.
03:59So right now we're at $22 trillion, but we expect it to surpass $50 trillion.
04:02So definitely tremendous growth across that.
04:04Now, you mentioned about thematics and themes.
04:07Can you comment on the recent AI tech sell-off?
04:12Let's see.
04:13I think this is, it was mentioned, there's an IPO.
04:18There is a listing that's going to happen on Friday.
04:21There's been a lot of, you know, talk about how are you going to fund these big mega IPOs.
04:27Some of the sell-off is to raise cash, right, to invest.
04:32Another sell-off is simply what's happening in the Middle East.
04:36So we do have some macro forces that are creating some events that has caused the Friday sell-off, the
04:46Monday sell-off.
04:47But then yesterday, the markets did rebound.
04:49And this, to me, is showing that clients are willing to put money to work.
04:55Every sell-off, we don't see a rush to de-risk.
04:59If anything, we do see selective position risk-on again, and we're seeing that yesterday.
05:06So I think, you know, this is an opportunity for us to look at where there are pockets to generate
05:14that alpha return.
05:16And our investment teams are doing that.
05:18Our clients are expecting us to do that.
05:21Sure, the markets are volatile, but when markets are volatile, that is the opportunity for us to generate excess return.
05:29So I think it's fine for now.
05:32It doesn't mean that the markets won't correct 20% or 30%, right?
05:36But I think all markets globally has proven to be incredibly resilient.
05:41I think if we look at the markets, they have performed phenomenally well.
05:45And if we shift gears slightly into crypto and tokenization, you know, crypto, you guys do have the largest Bitcoin
05:52ETF globally.
05:52Let's talk about crypto.
05:53Hong Kong is trying to be the crypto hub.
05:55We've done a lot in tokenization now.
05:57In Hong Kong, you can buy an ETF and then switch it into gold and get gold jewelry or gold
06:02bars back.
06:03What's BlackRock doing in this space?
06:05So we have, as you mentioned, we have our crypto ETFs.
06:10We continue to see demand for that.
06:14And that will continue.
06:16We are working across the region in many countries to see how we can bring that capacity into the countries
06:24we've actually listed in Australia.
06:26And we're looking at other areas that we can do more in, including Hong Kong.
06:32So if we look at the investment opportunities across Asia Pacific, where does BlackRock see as the most compelling investment
06:39opportunities?
06:42So I think there are a few areas, right?
06:45So if we look at countries, because of AI, we're seeing structural shifts.
06:50Where are they taking place?
06:52Well, Korea, for example, is one big shift.
06:55If we look at what's happening there with just the AI theme playing out and taking companies like Samsung and
07:03Hinex to an incredible level.
07:06And even last week when we had the MSCI rebalance, the weight of Korea in the EM markets went from
07:148%, 9% to now 22%.
07:16These are fundamental shifts that are not going to revert.
07:22So that's Korea, that's Taiwan.
07:25In addition, we see Japan as a destination now because of the end of deflation.
07:32Of course, that's going to take some time to play out.
07:34But there is a lot of interest in Japan.
07:37In particular, in Japan, I would say, is in the private market space, in the private credit space, in the
07:43infrastructure space.
07:44So that's another area that we see a tremendous opportunity.
07:49And then in the ASEAN countries, what we are seeing is this need for diversification and this need to want
07:58to invest outside of home country.
08:02Part of it is driven because of the weaker currencies in the ASEAN countries.
08:06You know, they need to diversify to have dollar assets so that they can balance their portfolios over time.
08:15And broadly, we're seeing clients wanting to further diversify.
08:20What I would say, Rebecca, is that the traditional 60-40 type of portfolio allocation is really underperforming.
08:29And we're finding that the need to think about that portfolio on a holistic manner across both equity, fixed income,
08:38private, public is really critical today.
08:41We're also seeing that you have to look and be very deliberate about how you select what's in each of
08:49the categories.
08:49It's no longer that you can just go buy an active equity fund and expect to generate the returns inactive.
08:58And also, there is the demographic challenges of every country in Asia, and we are living longer.
09:07We have pension challenges across all.
09:10And portfolios of the traditional 60-40 are not going to generate the outcomes that we're going to need for
09:17the future.
09:18So this is why private markets is becoming such an incredibly powerful asset class within the longer-term portfolios because
09:27you need it.
09:28And it fits very nicely in so many ways, right, in terms of long-term returns, you know, when you're
09:36saving for the future, you're less dependent on short-term liquidity.
09:40But you need to be able to see those returns and also what you're investing in in private markets.
09:48Nowadays, we always look at how do we help the countries.
09:51So infrastructure, you invest in country.
09:54So it's a way for you to also, as an investor, have a part in the development of your country.
10:00So you mentioned private markets.
10:02It's very hot right now.
10:03You guys are heavily invested.
10:04You made three large acquisitions recently into private markets.
10:08But there's been a lot of negative news around private markets, especially private credit, you know, investors not being able
10:14to get out of position.
10:16There's been a shortage.
10:17What is your take on this?
10:20So don't always believe what you read in the press.
10:24Headlines are meant to be sensationalized.
10:26That's number one.
10:27Listen, there are pockets of issues in private credit, but it's really very idiosyncratic, and it's very unique at the
10:37moment, okay?
10:39If we look at the overall categories, they are doing well.
10:43They are offering the diversified returns.
10:46And, you know, we at BlackRock, you said we made the acquisitions, we firmly believe that you cannot build long
10:55-term portfolios without going into areas like infrastructure, like private credit.
11:01I would say that, you know, with any portfolio, you have to look at it on a risk-adjusted return
11:10basis.
11:11You also have to be able to do diligence and deploy your capital where you feel is, you know, the
11:18right area.
11:20So, you know, I think, sure, there are some pockets, but if we look at the brown scheme of things
11:27in private credit, the default rates are still very, very small.
11:31And then you mentioned portfolio construction, you know, traditionally the 60-40.
11:35How are investors constructing portfolio now?
11:38To your point, there's so many different products out there available.
11:41So what I would say is there is probably the adjustment of 60-40 within the public markets, and then
11:48increasingly we're seeing allocations in private markets.
11:51So some of you may hear people saying 50-30-20, of which 20 is in private markets, or, you
11:58know, there's a blend.
12:00So we're definitely seeing more and more of that whole portfolio holistic look as into the equity piece, the fixed
12:08income piece, and then the private piece.
12:11And it helps to boost your longer-term returns.
12:14So you mentioned previously income.
12:16In Asia, typically investors will invest mainly in cash and property.
12:21And it's very different to the U.S. where people have retirement funds, you know, they're using ETFs.
12:26How are investors different in Asia than the rest of the world, do you find?
12:30Well, I don't have to tell you, and we all know, Asia traditionally will save a lot in cash.
12:37But this is what makes Asia so exciting, because we are seeing that shift gradually, right?
12:43Where savings is moving into investments, where most of our clients are seeing that if you did not invest in
12:54the capital market, you would have missed out.
12:57Last week I was in Shanghai, and I spoke, and I gave a number that kind of was fascinating to
13:03everyone.
13:04So here's the number.
13:05If you invested $1, right, into China's equity markets over the past 20 years, you would have, on average, generated
13:156.5% per annum, okay?
13:18That is extraordinary.
13:21That's like more than 300 times over the past 20 years.
13:24If you sat in cash, you would not have done that, okay?
13:28These are just the beauty of compounding in capital markets is incredible.
13:33Now, if you do that in every single market, you will see and you will convince yourself that you should
13:39not be sitting in cash only.
13:41You may want to sit a little bit, but you should not be sitting in cash only.
13:45So we do have to start investing in local capital markets and, of course, the diversification into global markets.
13:54So if we look across the region and across the product offering, there's a lot of investment opportunities.
13:59Where do you see are the most undervalued opportunities within Asia Pacific?
14:06So, listen, I think China, because we went 18 months ago where globally the world was like China is not
14:14investable, China is not investable.
14:16Today, we're seeing a lot more attention on China.
14:19The valuations are, on a relative basis, cheaper.
14:23There is value, and there's a lot of value.
14:26And I think we're going to see that play out as, you know, the megaforces of AI start to play
14:33out, as this beam of Asia for Asia,
14:37because our investors want to invest more closer to the region, plays out.
14:42We're going to start seeing that clients will look towards those undervalued plays.
14:47So I definitely think China is one.
14:49The second one is Asian credit.
14:53Asian credit yields incredibly well.
14:57It traditionally has not had the attention, and I'm saying public credit.
15:02It traditionally has not had the focus because of the fact that it's largely a primary activity tool and secondary
15:09liquidity is less.
15:11So we all need to do some work there to promote and get secondary market active liquidity up.
15:17But Asian credit, we see tremendous opportunity in that category as well.
15:22So if we look to the next three to five years, you mentioned China, Asian credit, any other sectors that
15:29you think will outperform?
15:31Or what would be the best ways for investors to express their views?
15:35Well, I think, again, construct your portfolio with a blend of, you know, you're going to have to invest in
15:42the U.S.
15:43With the largest capital markets, it's very hard to stay away from it.
15:47But I think for every dollar, incremental dollar that you're putting into the markets, think about how you should diversify,
15:55both as a hedge but also as a diversification, because certain pockets yields are higher.
16:00Yields are higher in Asia, right?
16:02So we do see home country investments in all countries as something very important.
16:09The AI theme will continue to play out, but it's going to start going downstream.
16:14So think about that downstream effect and what other segments within AI and what other sectors are going to benefit.
16:23You know, obvious ones are going to be health care, biotech, et cetera.
16:28So look at how to diversify on that.
16:31Blend fixed income.
16:33Blend Asian fixed income.
16:34That category is incredibly, incredibly resilient and is a great diversifier.
16:41And then lastly, private markets.
16:44And I think in private markets, for us, it's about infrastructure.
16:48It's about private credit.
16:50So if we look at what Secretary Paul Chen has said, did you have any comments off of what he
16:56said?
16:56I agree with what he said.
16:58Hong Kong is going to be the hub.
17:02Before we end, we're asking every panelist this question.
17:06How is your organization using AI, and what's the impact to the job market?
17:11So at BlackRock, we've been leveraging AI for a long time in certain parts of our business.
17:17We have a systematic quant group that has been experimenting and leveraging the AI tools for more than two decades.
17:25So that's number one.
17:26Number two, we are looking at how we can further embed AI into our processes.
17:32But what I would say is it's very early innings right now.
17:36Everyone is experimenting with AI, and we know that it will help to increase productivity.
17:43We know that it will help make our day jobs more efficient.
17:48So that's for sure.
17:50What I would say is that the use cases of where we will apply AI has to be structural, strategic,
17:59and it has to be on a scale level.
18:04And sure, everybody will have their co-pilots, et cetera, but I think that is just sort of norm.
18:11So we're still testing, but I would imagine that we're going to have multiple use cases.
18:19Hopefully, you did not use AI to come up with any of these answers.
18:22I did not, because I didn't know what you were going to ask me.
18:24So, and then also I think you asked about talent.
18:30So, you know, again, I'm going to talk about in terms of talent and the use of AI, we do
18:37believe it's a way to enhance and make our folks and our day jobs more efficient.
18:45Sure, we're talking about what new jobs don't exist today that will come in the area of, for example, governance.
18:53We're talking about what tasks can be leveraged and how we can retrain our colleagues to move up the stack.
19:01And, you know, I'm super excited, because if I get an hour back, I can do many other things in
19:06that hour.
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