Larry Fink (BlackRock Co-founder) – Interview at UCLA (Jun 2018)

Chapters

Abstract

Navigating Market Dynamics and Higher Learning: Insights from Larry Fink

In an era marked by rapid economic changes and evolving educational paradigms, Larry Fink’s insights offer a profound understanding of these complex dynamics. His analysis encompasses a wide range of topics, from the uncertainties in financial markets and the interplay of active and passive investing, to the role of higher education and the growing influence of populism on business and society.

A Deep Dive into Market Uncertainties and Economic Indicators

Fink provides a nuanced view of the current financial landscape, marked by a normalization of interest rates post-2017’s record low volatility. He highlights contributing factors such as 3.9% unemployment, indications of real wage inflation, concerns about the scale of U.S. deficits, and increased supply of U.S. Treasuries, collectively pointing towards rising interest rates. This trend poses an uncertain impact on the U.S. equity market, potentially challenging the ongoing bull market.

The early 2018 market burst hints at a possible end to the bull market, though evidence remains inconclusive. Despite record earnings, the lack of corresponding price increases suggests a shift in market dynamics. High M&A activity and a flattening yield curve, while indicative of late-stage economic growth, do not necessarily spell a looming recession. However, Japan’s negative first-quarter GDP and Europe’s economic slowdown add to the mixed economic messages.

The Role of Trade Policies and Global Economic Implications

Fink’s support for globalization underscores its benefits to the majority of Americans. He acknowledges the need for renegotiating trade treaties like NAFTA and reassessing China’s trade policies. However, he cautions against disruptive trade wars, noting China’s pivotal role in the global economy and the potential repercussions of strained relations, such as impacts on U.S. Treasuries and inflation. Disrupting the global economy could lead to China and other countries selling their U.S. Treasuries, pushing down the dollar and raising interest rates.

Investment Strategies: Balancing Active and Passive Management

The debate between active and passive investing garners Fink’s attention, especially in light of the substantial funds flowing into passive strategies. While acknowledging the risks this trend poses, he asserts the continued relevance of active management in ensuring portfolio diversification and risk mitigation. BlackRock’s success in integrating both strategies since its acquisition of BGI in 2009 exemplifies the coexistence and mutual benefit of active and passive management within a single organization. Passive investing represents about 20% of global equity markets, with higher proportions in the United States and lower proportions elsewhere. BlackRock experienced positive flows in both passive and active investments in 2018.

The State of Higher Education and Business Education

Fink addresses the challenges facing higher education, particularly business education. He stresses the importance of evolving these institutions in line with societal changes, albeit acknowledging the lag that sometimes occurs. The balance between the pace of educational evolution and the demands of a rapidly transforming society is critical. Business education evolves with society, but it may sometimes lag behind societal changes. There is a need for business education to adapt to changing times and address the needs of society. The U.S. has fallen behind in college graduates, with only 30% of Americans completing college. Education leads to higher compensation and better job opportunities. The cost of education is a legitimate issue that needs to be addressed.

Education, Populism, and the Corporate World

The significance of education in securing better career prospects is a key point for Fink, who notes the decline in college graduation rates in the U.S. He also delves into the rise of populism, attributing it to public dissatisfaction with government responses to societal needs. In response, Fink urges businesses and business schools to embrace broader responsibilities and foster long-term thinking. Populism is rising worldwide, leading to uncertainty and potential shifts in political landscapes. Populist candidates are gaining traction in elections in Colombia, Mexico, and Italy. Corporations need to address populism and the concerns of the people it represents. A poll revealed that 70% of Americans believe their jobs might not exist in 10 years due to technological advancements. This fear of job displacement contributes to the rise of populism and the perception that governments are not adequately addressing people’s concerns.

He further emphasizes the importance of corporate purpose that transcends profitability, advocating for a commitment to employees, clients, and the community. This approach, he argues, not only nurtures sustainable success but also aligns with responsible corporate citizenship, as demonstrated by BlackRock’s integration into local communities. Businesses and business schools need to focus on the totality of responsibility, including social and environmental impacts, in addition to profitability.

Conclusion

Larry Fink’s comprehensive analysis blends financial acumen with a keen understanding of societal shifts, painting a picture of a world at a crossroads. His insights highlight the complexities of navigating market dynamics, underscore the coexistence of diverse investment strategies, and remind us of the evolving role of higher education and corporate responsibility in shaping a more inclusive and sustainable future.

Notes by: Random Access