Future of Finance 2024: BlackRock and the Future of Finance
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
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TechTranscript
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.