Speaker 1: We are Trillions. I'm Joel Webber and I'm America Tunis.
Speaker 1: We have a lot of people join us on trillions,
Speaker 1: But in the e t F world, there's very few
Speaker 1: players as big as black Rock. Yeah, you know, we
Speaker 1: dive into these little corners of the e t F
Speaker 1: area and there's such great stories in some of the
Speaker 1: smaller areas and issues. But sometimes you just got to
Speaker 1: talk to King Kong or Godzilla and really, you know,
Speaker 1: touch base with them because they are so dominant. And
Speaker 1: black Rock is you know, the king of the hill,
Speaker 1: that's right, and the others being uh, Vanguard's also very big,
Speaker 1: state streets, really big. But Eric, what what is it
Speaker 1: about black rock and their approach to the ETF business?
Speaker 1: So one time I wrote an article that never got published,
Speaker 1: probably for the best. I sometimes write stuff that editors like,
Speaker 1: you can't put this out um where I compared every
Speaker 1: e t F fisher er to like a classic rock band,
Speaker 1: and I gave I shares to me or black rock
Speaker 1: was the Beatles, because you know how they covered every
Speaker 1: single genre. You know, they covered folk, rockabilly, they even
Speaker 1: had a little heavy metal blues. The Beatles would basically
Speaker 1: listen to anything and be able to recreate that sound
Speaker 1: and make it great. And so they had such an
Speaker 1: eclectic sound across their ten years of existence or twelve years.
Speaker 1: To me, that's I Shares. They are trying to be
Speaker 1: everything to everybody. They have a T F S that
Speaker 1: cover just about every single thing out there. They are
Speaker 1: looking to be a completely full service, full product shop.
Speaker 1: They've got thirty eight percent market share in the U
Speaker 1: S E. T F space and Vanguard is although climbing fast,
Speaker 1: so they're constantly battling with Vanguard. But then you take
Speaker 1: a bigger step back in black Rock is the biggest
Speaker 1: asset manager in the world with seven point four trillion.
Speaker 1: Now you said something in there that UM for the
Speaker 1: uninitiated can be a little confusing. There's black Rock and
Speaker 1: there's ICE Shares. What what the difference between those two brands? Right,
Speaker 1: So black Rock has a lot going on UM I
Speaker 1: forget the percentages, but I Shares is UM you know,
Speaker 1: below fifty of their UM revenue and assets. But it's
Speaker 1: I believe one of the fastest growing areas. Vanguard is
Speaker 1: the same way UM E T S. If if you're
Speaker 1: successful et f ISHO are guaranteed. That's one of the
Speaker 1: fastest growing areas for assets. But black Rock is a
Speaker 1: much bigger company. They serve, they have institutional management things
Speaker 1: like separate accounts that you don't even hear of. They
Speaker 1: have mutual funds UM, they even are starting to build
Speaker 1: up tech solutions. There are very creative, dynamic company, and
Speaker 1: what I always say about them is that they're the
Speaker 1: one company I feel that is able to go tote
Speaker 1: to tote to Vanguard, and Vanguard with that mutual innerstive
Speaker 1: structure is very difficult to compete with UM. That structure
Speaker 1: makes them lethal. But Rock, to me, has made a
Speaker 1: commitment to get into playing shape for what I call
Speaker 1: the Vanguardian future, and they've done a great job and
Speaker 1: they're able to really hold their own against Vanguard. And
Speaker 1: of course, black Rock acquired I Shares from Barkley more
Speaker 1: than a decade ago now, and that was sort of
Speaker 1: the firm's entry into the et F space. I always
Speaker 1: thought that when black Rock bought the I Shares brand
Speaker 1: from Barkley's back then, it was like the Louisiana purchase
Speaker 1: of asset Management. I'm still stunned that Barkley's would sell
Speaker 1: it like that, But then again, Barkley's I believe bought
Speaker 1: it back in the day for a ridiculously low amount
Speaker 1: from I think Morgan Stanley, which I believe they were
Speaker 1: called Webbs before that. And this is the early nineties,
Speaker 1: the really frontier era of e t F. So I
Speaker 1: shares has a long history going all the way back.
Speaker 1: But what made the black Rock purchase of I shares
Speaker 1: so good in my opinion, is they bought a lot
Speaker 1: of the most liquid ETFs in every category. So black
Speaker 1: Rock has a ton of the most liquid ETFs in
Speaker 1: certain category is and that gives them huge advantage, a
Speaker 1: little pricing power, and again it makes him a formidable
Speaker 1: competitor to Vanguard or anybody else. Joining us from black
Speaker 1: Rock Armando Senra, he's the managing director of black Rock,
Speaker 1: as well as Annie Massa, who's a asset management reporter
Speaker 1: with Bloomberg. This time on Trillion, a bunch of really
Speaker 1: important questions for black Rock. Armando, thanks so much for
Speaker 1: joining us on trillions. Great to be here. You guys
Speaker 1: are the biggest tt F fishure and I want to
Speaker 1: I want to start this going back to the month
Speaker 1: of March pre fed right when there's no bids on
Speaker 1: some treasuries. The market is completely in haywire mode. UM
Speaker 1: E t f s traded five point five trillion in March.
Speaker 1: That's normally what they trade in a quarter, right, so
Speaker 1: they were really put through the ringer. You had some
Speaker 1: bond price, bondy t F prices eating from the navy.
Speaker 1: I could imagine that your your phone was ringing off
Speaker 1: the hook. Talk to us about what it was like
Speaker 1: in March for you as the issuer of the E
Speaker 1: t f s, a lot of which were the most
Speaker 1: traded at the time. Yeah, thank you, Right, that's a
Speaker 1: that's a great question. It seems like March was a
Speaker 1: million years ago, but it's it's not that long ago,
Speaker 1: right that I've been in the industry for twenty six years,
Speaker 1: and I thought that I had seen a lot of
Speaker 1: different market events, but I've never seen anything like what
Speaker 1: we went through in March. And you know, beyond just
Speaker 1: what was happening in the financial markets, just the the
Speaker 1: human tragedy of everything that was happening around the world,
Speaker 1: and obviously the impact that was having on our employees,
Speaker 1: our clients, and so many people in the globe. UM.
Speaker 1: You know, definitely that was from a market's perspective, There
Speaker 1: was a tremendous amount of activity and that included, you know,
Speaker 1: just the volumes, like the way you describe them, were
Speaker 1: off the chart. And if you just look at the
Speaker 1: equity trading volumes whereas high as for you one percent,
Speaker 1: I mean, then then they ended up normalizing back to
Speaker 1: the twenties. But that there was a tremendous amount of
Speaker 1: outreach two clients. There was a tremendous amount of effort
Speaker 1: in within the portfolio engineering which is how we call
Speaker 1: our portfolio managers for UM, for our A t f S,
Speaker 1: really making sure that everything works and that we were
Speaker 1: able to deliver to clients the quality that they come
Speaker 1: to expect from I Suresh. And also you know, you
Speaker 1: you started we were talking about the discounts to an
Speaker 1: ad A tremendous amount of outreached two clients, both institutional clients,
Speaker 1: wealth clients, really working with them and helping them understand
Speaker 1: exactly what it is that was happening, what they we're
Speaker 1: seeing in the screens. And I think that you referred
Speaker 1: to an event that for us it was actually proved.
Speaker 1: It was kind of like the ultimate proof point of
Speaker 1: in this case. I think that you're probably referring to
Speaker 1: fixing committ as of the fact that fixing commydas were
Speaker 1: passing the past that we're working uh, and they were
Speaker 1: providing two investors the utility UH that that we always
Speaker 1: talked about, that we're providing liquidity that we're provided providing
Speaker 1: transparency in pricing. So all that was happening now the experience,
Speaker 1: depending on what you were sitting, you were all of
Speaker 1: a sudden seeing a big discount to Enevy that was
Speaker 1: ultimately the result of the A t F providing a
Speaker 1: glimpse to the actual pricing of the underlying securities because
Speaker 1: the the E t F was trading a lot more
Speaker 1: than the underlying box Amonda. One thing that really helped
Speaker 1: calm the nerves fixed in kind of E t F
Speaker 1: markets in that very tribulent period was knowing that the
Speaker 1: FED was stepping into backstop credit markets. And I wonder
Speaker 1: what do you think if you re around the clock
Speaker 1: and the FED hadn't stepped in, maybe as fast or
Speaker 1: with as much force as it did. What do you
Speaker 1: think might have happened with authorized participants and market participants?
Speaker 1: How do you think things might have gone if the
Speaker 1: FED hadn't acted as quickly as it did. Sure, Annie,
Speaker 1: I think that Look, if I think that what is
Speaker 1: most important to me is when you think about the
Speaker 1: events in March UH and when you think about what
Speaker 1: was happening with with credit markets. Ultimately e t f
Speaker 1: s were delivering the performance, They were delivering the liquidity,
Speaker 1: and I think that that was validating the instrument as
Speaker 1: a great way to gain exposure to the bond market.
Speaker 1: And I think that whether it's the FED, whether it's
Speaker 1: central banks in all the places around the world, whether
Speaker 1: it's institutional investors, whether it's wealth investors, I think that,
Speaker 1: you know, the performance that e t f s, that
Speaker 1: fixing committee s were delivering is what gives the ultimate
Speaker 1: validity to the instrument. So I think that we can
Speaker 1: speculate what would have happened if they fed that I
Speaker 1: don't know. What I can tell you is that it
Speaker 1: was not. I think that e t f s were
Speaker 1: performing before the FED step in UH and I think
Speaker 1: all theo at me, Yes, the father step in, and
Speaker 1: obviously that added validity due to the instrument. But they
Speaker 1: ultimately investors, both institutional investors and wealth investors that were
Speaker 1: getting the benefit that we have been talking about for
Speaker 1: many years around fixing commuts. The mutual fund world is
Speaker 1: was I felt wasn't covered as much. But active fixed
Speaker 1: income mutual funds it's seen ninety billion dollars and outflows
Speaker 1: two straight weeks. Everybody thinks e t f s would
Speaker 1: will freeze up in this kind of situation, but we
Speaker 1: speculated that if these fixed income mutual funds, which are
Speaker 1: much bigger, had to sell bonds into an a liquid
Speaker 1: market and then had more outflows, it would create a
Speaker 1: downward spiral where you might actually have mutual funds freezing up,
Speaker 1: halting redemptions, and it could have just gotten really nasty
Speaker 1: for a while before it got better. We can spend
Speaker 1: a lot of time speculating many things that could have
Speaker 1: happened on how they could have been I think ultimately,
Speaker 1: I think, look, March was a moment of like stress
Speaker 1: that we have never seen before March. Whenever I was
Speaker 1: in similar forms like this one, I was talking about
Speaker 1: what happened in December of two thousand nineteen, or we
Speaker 1: were talking about what was happening in different crisis is
Speaker 1: in the last ten years, UH and throughout all of those. Ultimately,
Speaker 1: these instruments work and if you're an investor and you
Speaker 1: were looking for liquidity, and all of a sudden, you
Speaker 1: look at instruments like l QD was trading was changing
Speaker 1: hands ninety thousand times. On March twelve, the five top
Speaker 1: holdings inside the LQUV traded hands thirty seven times. You
Speaker 1: look at h y G, that was a hundred and
Speaker 1: sixty eight thousand times each day, uh, during the months
Speaker 1: of March. So again you know, like you look at
Speaker 1: the utility that thep have provided to the investor and
Speaker 1: ultimately provided that liquidity when they were looking for liquidity.
Speaker 1: Now the discount to n a V. Look, if you
Speaker 1: needed the liquidity, you could have it. It was giving
Speaker 1: you the pricing that you can get at that point.
Speaker 1: It was providing pricing and it was providing liquidity. And
Speaker 1: I think, look, that's why we've seen the tremendous flows
Speaker 1: and no, Eric, you follow it closely, we've seen the
Speaker 1: tremendous influence into fixing comedias globally. Right. So I'm not
Speaker 1: going to speculate what would have happened at this Ultimately,
Speaker 1: I leave it up to you to write that. Okay,
Speaker 1: fair Um, So one difference about sort of this crisis
Speaker 1: and and moment of stress has been black Rock has
Speaker 1: actually become very close with the FED in terms of
Speaker 1: facilitating UM some of the nuances of what's happening in
Speaker 1: the et F marketplace. You know, any wrote about that
Speaker 1: for for us at Business weekn We actually created a
Speaker 1: piece of art that looks like a government seal, excepted
Speaker 1: it as Department of black Rock on it. And I'm curious, Armando, like,
Speaker 1: what do you guys think of that? Look. I think
Speaker 1: that you know as Matt about the FED program as
Speaker 1: I do. I think that you know very well that
Speaker 1: our financial markets advisory group in within black Rock is
Speaker 1: a completely independent group separated. They have their own traders,
Speaker 1: their own portfolio managers, is completely independent from from the
Speaker 1: rest of black Rocks. So I mean, like, I know
Speaker 1: as much about it as you do. I think that ultimately,
Speaker 1: when you look at the flows, I think that sometimes
Speaker 1: that gets lost. Uh. They have been obviously, you know,
Speaker 1: there's a FED purchase program. Uh some of the dfs
Speaker 1: that they have thought have been black Rock UM. But
Speaker 1: ultimately that's just a small piece compared to the overall
Speaker 1: flow that we have seen coming in into fixing communts. Yeah,
Speaker 1: and you know it's interesting. I look at the FEDS
Speaker 1: E t F portfolio and to me, it looks like
Speaker 1: an E t F strategists portfolio, not what you typically
Speaker 1: see from a large institution. So there's an E t
Speaker 1: F no how because you've got like twelve thirteen ETFs
Speaker 1: in here, including stuff like U, S, H, y A,
Speaker 1: n g L, stuff that's deeper in the toolbox that
Speaker 1: we we like, but like a Yale universe, so you
Speaker 1: would never go that deep. So it's interesting to see
Speaker 1: the FED do this, and they they didn't really create
Speaker 1: any disruptions in trading, so I thought it was pretty
Speaker 1: much Scalpel level precision in how they did this. I'll
Speaker 1: pass it off to Annie to talk for flows. Yeah, unflows, Armando,
Speaker 1: So I think that, Um, I'm sure GTFS took in
Speaker 1: about fifty one billion UM in that flows last quarter.
Speaker 1: What was driving that? Like underneath that broader figure, what
Speaker 1: kinds of products were driving those? Yeah? I mean, look,
Speaker 1: it's um the last couple of months, it's been great
Speaker 1: to see the flows back. I mean now you're to
Speaker 1: date were close to sixty UM. Just the last month,
Speaker 1: it's been close to twenty billion in flows. Uh. If
Speaker 1: if you see the beginning of the year. Obviously there
Speaker 1: was well, the beginning of the year started as what
Speaker 1: could have been a record year of flows, and then
Speaker 1: obviously you know, market events derail that, especially you know
Speaker 1: like market driven instruments, right, the type of instruments that
Speaker 1: when investors are trying to take risk of the table
Speaker 1: they use and you know, we have the breadth of
Speaker 1: our product really provides the utility to investors. I think
Speaker 1: that you've seen tremendous growth in fixing committeeps. That is
Speaker 1: we already talk a lot about it, but that that
Speaker 1: has been one of the the key areas of flows.
Speaker 1: You've seen tremendous growth, also sustainable just in the in
Speaker 1: the first quarter more than the whole year of last year,
Speaker 1: and we are in record flows. Our Factors franchise was
Speaker 1: pretty stable given the the outlaws that we saw overall
Speaker 1: in Factors. So I would say when when you think
Speaker 1: of the strategic segments, that that what we call is
Speaker 1: to the segments of black Rock, a lot of strength
Speaker 1: beginning with fixing committees. Since then is beginning to change, right,
Speaker 1: You're beginning to see more equity flows, You're beginning to
Speaker 1: see what would be the beginning of flows back into
Speaker 1: international markets, primarily developed markets, Like you're beginning to see
Speaker 1: investors putting money back on international um. You know, specific
Speaker 1: countries at times, like you're beginning to see how investors
Speaker 1: are more some of the flows are more specific as
Speaker 1: to the country that they are going in as supposed
Speaker 1: to broad UH international exposure, Like we had significant flows
Speaker 1: into Germany our Black Rock Investment Institute UH started turning
Speaker 1: positive to UH to Europe on the back of a
Speaker 1: better response from COVID and the beginning of restarting of
Speaker 1: the economy. So you're beginning to see those flows coming
Speaker 1: in in the last few weeks as well. So Armando, UM,
Speaker 1: I want to ask a little bit about competition. UM.
Speaker 1: You know, I Shares such a story brand in the
Speaker 1: e t F space, but not the only one UM.
Speaker 1: And you know Vanguard in particular has become Between I
Speaker 1: Shares and Vanguard. That's something like Eric says, seventy two
Speaker 1: percent of e t F flows in the past three years.
Speaker 1: You guys have really just become these these behemoths really
Speaker 1: in the space. And I'm wondering who's King Kong and
Speaker 1: Who's Godzilla. That's up to you to decide. There there there.
Speaker 1: They're both big, So what's the difference. Look, I mean
Speaker 1: I think that our we have a very differentiated business model.
Speaker 1: I mean I think that I'll go back to what
Speaker 1: I said at the beginning. You know, I shares is
Speaker 1: not one thing ultimately. Uh. You know, when you look
Speaker 1: at how we think of product segments, we have breath
Speaker 1: of product, different uses for different investors. We have a
Speaker 1: very strong institutional um client base. Uh, and doesn't take difference.
Speaker 1: And you know, you clearly see that volatility when you
Speaker 1: have moments where is a risk on or risk off.
Speaker 1: But again, you know, like I think that is our
Speaker 1: differentiative business model to provide a breath of product across
Speaker 1: different investors and different uses. Uh. That's that's what we do.
Speaker 1: And you can ask bangor about what they do, but
Speaker 1: that's at the core of what we're intending to do
Speaker 1: is really facilitate better portfolio construction through our thrower outprea.
Speaker 1: I call the E T F industry the terro dome.
Speaker 1: It is not for the faint of heart. And you know,
Speaker 1: this year, Vanguard has a little bit of a lead
Speaker 1: and flows although they've been doing some shifting from their
Speaker 1: mutual fund to their e t F, So I'd say
Speaker 1: maybe thirty billion ish might be that maneuver the rest natural.
Speaker 1: But anyway, you guys are always neck and neck, right,
Speaker 1: Um you cut the fee in I VV which is
Speaker 1: your smp f F I think a month ago to
Speaker 1: three basis points to tayvoo, I guess just talk a
Speaker 1: little bit about what's behind that, and just more generally
Speaker 1: the idea of competing against the vanguard or competing against
Speaker 1: you guys and getting into this playing shape where you
Speaker 1: have to sort of cannibalize yourself to survive, and how
Speaker 1: useful that might be in ten years when you know,
Speaker 1: post a bear market where a lot of consolidation, Do
Speaker 1: you look at it that way? Do you look at
Speaker 1: it is like getting yourself into the best possible shape
Speaker 1: for a rougher future for asset management. When you think
Speaker 1: about our pricing, we've been really consistent. We have been
Speaker 1: very vocal around we're going to invest in pricing somewhere
Speaker 1: around one and a half to two and a half
Speaker 1: per center of revenue. But we invest for growth. So
Speaker 1: when we invest in pricing is for the potential of
Speaker 1: growth more than will overcome the loss of revenue of
Speaker 1: the cat so when you look at what we did
Speaker 1: in IVV a few years ago, we tripled the size
Speaker 1: of the fund since then. When you look at what
Speaker 1: we are doing in IVV now, again, we're doing it
Speaker 1: because we want as UM the IVV a spl if
Speaker 1: I founder the exposure to be the largest one in
Speaker 1: the world. So we do it for growth. UM. So
Speaker 1: I think that every you know, ultimately, when you look
Speaker 1: at the industry is extremely competitive, all IPPs. When you
Speaker 1: look at the alternatives in the active world, epps are
Speaker 1: extremely competitive. So again, you know, I think that you've
Speaker 1: gotta be thinking about our pricing right now. Whenever we
Speaker 1: cat is because we want to grow. Over the last
Speaker 1: few years, we have returned back to the investors somewhere
Speaker 1: around six d million dollars in UM and fed cats
Speaker 1: in voluntary ficcats that we have introduced, and every single
Speaker 1: one of those moves was intended to grow our asset
Speaker 1: dates and our revenue base. Armando. One thing that has
Speaker 1: been highlighted in the past couple of quarters are flows
Speaker 1: into E S G E T s and in particular
Speaker 1: in the sustainable suite of products at black Rock, and
Speaker 1: it's something where I think mentioned in his letter at
Speaker 1: the top of the year about wanting to double the
Speaker 1: number of I shares M E s G, E T S.
Speaker 1: So what do you think is behind those flows? Is
Speaker 1: there anything more than meets the I with just customer
Speaker 1: preferences shifting and then as you think about what to
Speaker 1: develop and what hasn't already been picked over as far
Speaker 1: as new products in the sustainable space, you know where
Speaker 1: is your head up sustainable and E s G we're
Speaker 1: extremely excited about at the firm and also in within
Speaker 1: ashres um. You mentioned flows. I think that this year
Speaker 1: alone as it flows were around eleven billion. If you
Speaker 1: look at the whole year of two thousand and nineteen
Speaker 1: were around five billion for the full year UH. And
Speaker 1: we already thought that Lazio was an inflection point and
Speaker 1: all the point that that I think it's interesting is
Speaker 1: when you look at this year, Europe was heading flows
Speaker 1: into sustainable investing overall, not just TPFs UH. This year
Speaker 1: actually in within a hears we're seeing more flows coming
Speaker 1: into E s G from US investors. Why is that happening?
Speaker 1: I think that they change in the narrative and they've
Speaker 1: been more clear around investing and sustainable investing in E
Speaker 1: s G is not about values. Uh about value, is
Speaker 1: about the recognition that ultimately E s G related risks
Speaker 1: in a portfolio will have a significant impact in asset
Speaker 1: pricing in capital ocasions. I think that it's also interesting
Speaker 1: some of the things that we've seen this year. There
Speaker 1: was a lot of emphasis on on the E on climate.
Speaker 1: I think that this year that has also expanded to
Speaker 1: more focused from investors, both institutional and wealth investors on
Speaker 1: the S and the G, society and governance, and especially
Speaker 1: on the back of some of the events that you've
Speaker 1: seen this year, how companies treat their employees, the composition
Speaker 1: of their of their boards, the diversity in the firm.
Speaker 1: I think that there's these are factors that more and
Speaker 1: more investors will focused on. Okay, Ormando, I am the
Speaker 1: s G skeptic. The three things I would push back
Speaker 1: on s G in general are with the flows. I
Speaker 1: think the media characterizes it as like millennials have E
Speaker 1: s G fever, But half of the flows are our
Speaker 1: model portfolios, which they still count. But it's one hand
Speaker 1: moving the money there, and the institutional seating again still counts.
Speaker 1: Everything counts in the terra dome, but half his grassroots organic,
Speaker 1: and that's not a ton given the hype. Second point,
Speaker 1: E s G largely is a bet on tech and
Speaker 1: against the energy. So it's almost like the mouth of
Speaker 1: an alligator. If energy has a supply shock, E s
Speaker 1: G could be heard and will people be disappointed by that?
Speaker 1: And then the third issue is E s G U,
Speaker 1: which is the biggest one, that's your I think it's
Speaker 1: like seven billion at this point. Um you know it
Speaker 1: owns Facebook and Exon. It's sort of like diet E
Speaker 1: s G, which is makes sense because you might not
Speaker 1: want to have too much tracking, or at least advisors
Speaker 1: are tend to not go for that. But then do
Speaker 1: people who want E s G really want to own
Speaker 1: Facebook and Xon? Let me just begin at the beginning.
Speaker 1: So model portfolios, Yes, I mean I think that and
Speaker 1: it goes back to what I said earlier. I think
Speaker 1: that is about how do you think of E s
Speaker 1: G risks have your building a portfolio? And this is
Speaker 1: why you see E s G now being part of
Speaker 1: model profolires. And this is not only whether it's our
Speaker 1: black Rock model proferlires. These our third party model porfolios.
Speaker 1: You see a lot more activity and this is why
Speaker 1: we are also accelerating the development of new products. And
Speaker 1: like I think any mentioned, we committed it to triple
Speaker 1: our product base in e s G because we need
Speaker 1: to create more building blocks so portfolio model portfolio builders
Speaker 1: can have the building tools to increase their sustainable allocations
Speaker 1: in their proferlio. So, yes, you see that, and that's
Speaker 1: a good thing, by the way. The second one in
Speaker 1: terms of the the the client base, I've never been
Speaker 1: a believer in thinking that it is just millennials. I
Speaker 1: think that there is a higher awareness of e s
Speaker 1: G and importance to society. But again, this is not
Speaker 1: about values. I think that there's a play there. I
Speaker 1: think that there are some people that are going to
Speaker 1: want to invest according to their values, and we want
Speaker 1: to provide that choice. But again I would fall back
Speaker 1: to UH. What I would say is a less polarizing conversation,
Speaker 1: which is this is about returns. This is about e
Speaker 1: SD related risks. This is about how climate change will
Speaker 1: have an impact on the performance of companies that may
Speaker 1: be issuing mortgages in areas that may be flooded, or
Speaker 1: if you are a company that is highly reliant on
Speaker 1: water supplies, a better use and more efficient use of
Speaker 1: your water of how you use water UM, you know
Speaker 1: you will be a more efficient and more profitable company
Speaker 1: that will do better. Companies that are able to attract
Speaker 1: and retain the best talent because of their practices will
Speaker 1: do better. So again this you know, if you go
Speaker 1: back to the narrative around not values, but really investment
Speaker 1: risk and investment returns, I think that that, yes, millennials
Speaker 1: have been coming in, but you've also seen institutional investors.
Speaker 1: Some of the largest investors that we've had in the
Speaker 1: last year have intention plans. You're beginning to see asset
Speaker 1: owners across the blow beginning to change their benchmark to
Speaker 1: increase allocations to E s g UM. Then the final
Speaker 1: one is is one that we have to do a
Speaker 1: better job Eric, and I agree with you. I mean
Speaker 1: I think that them and we are trying, and we're
Speaker 1: putting a lot of energy in education to really help
Speaker 1: investors understand, you know, how do you build a portfolio
Speaker 1: with sustainable, how do you investment sustainable? And the range
Speaker 1: of sustainable offering that we have, how does it work.
Speaker 1: So we have a range of products that we're launching
Speaker 1: call Advance that's kind of like the most pure form
Speaker 1: of E s G investing where you're gonna have extensive
Speaker 1: screen up screens, UM, you're gonna have UM eliminate the
Speaker 1: entire value chain of certain industries and certain types of investments.
Speaker 1: Then you have another range of products that we have
Speaker 1: called aware, where you're being aware of sustainable metrics, but
Speaker 1: you're still investing close to the benchmark, so less tracking area.
Speaker 1: So the offering that you refer to is an offering
Speaker 1: that you kiptin into sustainable, but you want to still
Speaker 1: have uh the same similar returns to the benchmark. So
Speaker 1: armando UM for all your efforts and and the you know,
Speaker 1: the good intentions behind where you're trying to go with this,
Speaker 1: you know, a crisis hits and everybody turns into uh
Speaker 1: robin Hood day traders, it seems, and you know, we
Speaker 1: we actually pulled some of the numbers and we were
Speaker 1: kind of shocked. Um, but according to these numbers that
Speaker 1: we saw, I Shares is not in the top twenty
Speaker 1: of of e t f s that are being traded
Speaker 1: on robin Hood. And was curious if there was one
Speaker 1: product you could get into that top twenty, what would
Speaker 1: it be. The last thing that I think that we
Speaker 1: would want is to promote day trading. I think that
Speaker 1: if you look at the DNA of black Rock, our company,
Speaker 1: I mean, how many letters have you seen from Larry
Speaker 1: about long term missive uh and the importance of staying invested,
Speaker 1: the importance of portfolio construction. I mean, I think that
Speaker 1: talking about their trading will be going back, going back
Speaker 1: to Jurassic Park. I mean, it's like everything that we're
Speaker 1: talking to investors about is laun terminism, stay invested. I mean,
Speaker 1: like even the offering when we build that we're offering,
Speaker 1: Like if you think about our thematics offering, the megatrends offering,
Speaker 1: one of the things that we're thinking around that is
Speaker 1: how do we keep people invested? So through those teams, Uh,
Speaker 1: one of the main benefits is that hopefully through the
Speaker 1: lens of understanding the team and having kind of like
Speaker 1: a connection. If you like self driving cars, h, if
Speaker 1: you like autonomous vehicles and and electric vehicles, this is
Speaker 1: one thing that you can invest in and you can
Speaker 1: stay invested because we believe by staying invested people will
Speaker 1: have better returns. The rest is just gambling. So we're
Speaker 1: not gonna get into that. And let me um talk
Speaker 1: a little bit about the the bigger picture here, which
Speaker 1: is what we had Martin Small, who it's your predecessor, right,
Speaker 1: and we asked him what's the breakdown of E t
Speaker 1: F users by assets? So in other words, institution advisor
Speaker 1: and do it yourself retail. And I believe, don't quote me,
Speaker 1: it was in the ballpark of you know, advisors of
Speaker 1: the bulk institutions, a small slice and then do it
Speaker 1: yourself retail. I think he said it was like Robin Hood.
Speaker 1: We've seen a couple of products kind of just skip
Speaker 1: the advisor and just be hits on Robin Hood. Um,
Speaker 1: do you see that channel growing? We're more and more
Speaker 1: people just do it themselves. Do you see that ten
Speaker 1: eating into one of the other two areas? Those those
Speaker 1: percentages that Marktin talked to you about haven't really changed
Speaker 1: that much because you know, ultimately, yes, the direct has
Speaker 1: been increasing, but we've seen tremendous growth in the institutional space,
Speaker 1: like even this year for instance, from a flow perspective,
Speaker 1: we've seen great growth because now we have more asset
Speaker 1: managers and massive downers utilizing fixing comediev's to replace their
Speaker 1: individual holdings or bombs. I think we have a very
Speaker 1: strong commitment to advisors. It has worked incredibly well for us.
Speaker 1: I think direct will continue to increase, but overall the
Speaker 1: percentages haven't really changed. At the beginning of this year,
Speaker 1: I went to an e t F conference and everyone
Speaker 1: was like, oh, you know, it's January. They're like, oh,
Speaker 1: this is the year of like the active non transparent
Speaker 1: ETS and like it turns out is a year of
Speaker 1: a lot of different stuff. But nevertheless, you guys are
Speaker 1: pursuing UM active non transparence of your own. I wonder
Speaker 1: if you could talk to us a little bit about
Speaker 1: UM where you see those kinds of products going. What
Speaker 1: you know, you're in a quiet period for the ones
Speaker 1: that you filed for, but how big of an opportunity
Speaker 1: do you see it actually being? And like, has this
Speaker 1: space already been picked over by smart data already? This
Speaker 1: MELDA ETS and active management. No. I mean, look, we're
Speaker 1: super excited about our factors offering and that has been
Speaker 1: a tremendous franchise of growth for us separately from separate
Speaker 1: from that, UH in the active space, and and I
Speaker 1: think that we have been really clear around UM. You know,
Speaker 1: wherever we see an opportunity to bring two clients performance
Speaker 1: through an investment strategy that will benefit from the idea
Speaker 1: of structure UM, we will bring it to market and
Speaker 1: that's that's you've seen an acceleration of our offering UM
Speaker 1: in the active space primarily transparent. And if you look
Speaker 1: at our filing has been transfer has been mostly transparent,
Speaker 1: and most of the growth has been through transparency. Now,
Speaker 1: are there strategies that at times would benefit from some
Speaker 1: sort of non transparent or semi transparent structure because you're
Speaker 1: trying to protect the holdings that you are, the investments
Speaker 1: that protfolio manager are making. Yeah, there's going to be
Speaker 1: times that that happens, and then we have the option
Speaker 1: to do that type of portfolio as well. I think
Speaker 1: ultimately we don't think in terms of transparency and non transparency.
Speaker 1: We think of what can we bring to investors that
Speaker 1: is new, that brings innovation, that brings performance. What's the
Speaker 1: best rapper to bring it in? As the secondary decision,
Speaker 1: I have a bet with my esteem colleague Todd Rosenbluth,
Speaker 1: the infamous UM. We're betting whether active non transparent ets
Speaker 1: will have ten billion by April first next year. I
Speaker 1: am the under, he's the over, and a big reason
Speaker 1: I'm the under is smart beta. I think if smart
Speaker 1: beta didn't exist, active non transparence would have a lot
Speaker 1: of real estate to try to capture. But the fact
Speaker 1: is you can get active strategies served up rules based
Speaker 1: in smart beta. For example, your U S, m V
Speaker 1: or mt um momentum and minimumal or even multi factor
Speaker 1: which combines them all for you know under twenty basis points.
Speaker 1: How does an active human, especially in the large cap space,
Speaker 1: dislodge something so cheap um which advisor's love right now?
Speaker 1: And do you think I will win my bet with Todd?
Speaker 1: Um So, I think that this will uh make Todd
Speaker 1: not so happy, But I think I would put my
Speaker 1: money with you, um Man, alright, Smart, I think that
Speaker 1: I may change my answer if I'm talking to him,
Speaker 1: But um I think that, look, there's an opportunity in
Speaker 1: the active offering. I agree with you in terms of
Speaker 1: the potential for factors, and our factor offering has proven that.
Speaker 1: And I think that the transparency that they bring the
Speaker 1: rules based approach, I mean a lot of that is
Speaker 1: a tremendous benefit and has proven in the performance right,
Speaker 1: And I think that we're still in the early days
Speaker 1: of the growth of factors. Um there's there's a space
Speaker 1: for certain strategies and that's what we're doing. There's certain
Speaker 1: strategies that are incredibly attractive, and obviously I cannot talk
Speaker 1: about them right now because of the quiet period. But
Speaker 1: you know, there's some active strategies that it will be
Speaker 1: great to have a monunity of form. I just think
Speaker 1: that they grow. It's going to be different, Eric, how
Speaker 1: much did you wager on that bet? By the way, Um,
Speaker 1: it's a state dinner, but I can go crazy with
Speaker 1: the side dishes when we get some cream spinach. Um,
Speaker 1: definitely a couple of drinks. I'm gonna lap it up
Speaker 1: because it's a year long bet, so might as well indulge.
Speaker 1: I'm one for one with my bets with Todd, So
Speaker 1: otherwise it's hopefully yeah dinner. God. I hope we it's
Speaker 1: we can do it in real life, hope. Eric. Um.
Speaker 1: I have a question about I Shares versus black Rock branding.
Speaker 1: You guys have started to use the black Rock name
Speaker 1: on certain ETFs Um. Why is that? We just want
Speaker 1: to make it easier for clients to understand what it
Speaker 1: is that they're buying. Uh. And I think that when
Speaker 1: it comes to active we are going to name them
Speaker 1: black Rock, just to make it easier to understand that
Speaker 1: if you're blind a black rock EPF, that means it's
Speaker 1: an active ETF. And if you're in and I CPF,
Speaker 1: you're buying on index bace CPS. So it's just it's just,
Speaker 1: you know, trying to make it easier for clients to
Speaker 1: understand exactly what they have and what he means. Let's
Speaker 1: shift gears a little bit here, and you know we
Speaker 1: talked about your UM, your massive flow intake earlier. There's
Speaker 1: a steady stream of worries on how you and Vanguard
Speaker 1: in particular Impassive, which is ultimately you guys are continuing
Speaker 1: to become bigger and bigger owners of America's corporations. There's
Speaker 1: two concerns. One is proxy voting. Will you vote politically
Speaker 1: like with E. S G all the time? Or you
Speaker 1: got you have customers in every state, so how do
Speaker 1: you vote and balance all those needs? And number two
Speaker 1: is do you think that if Passive becomes a bigger,
Speaker 1: bigger owner corporations will somehow be less motivated to actually
Speaker 1: engage in capitalism and we become like somehow it's more
Speaker 1: like lazy UM. I mean look, the its economy UH
Speaker 1: is large, diverse and vibrant, and I mean, ultimately, when
Speaker 1: you look at what we're trying to do, what we
Speaker 1: are about is we have a FIDU shared responsibility to
Speaker 1: our clients. It's not our money, it's our clients money.
Speaker 1: And what we are trying to achieve is the best
Speaker 1: to media objectives of the clients. Depending on the portfolio
Speaker 1: that that we manage on behalf of that. You know,
Speaker 1: when when you look at that discussion, I mean sometimes
Speaker 1: we forget that we have a tremendous we have billions
Speaker 1: of dollars in active management UH and there are individually
Speaker 1: selecting securities. So index is one part of our of
Speaker 1: black Rock, and then we have our active book and
Speaker 1: ultimately both decisions have to be driven by the FIDU
Speaker 1: shary of responsibility that we have to deliver the first
Speaker 1: the best performance to clients. So again, you know, like
Speaker 1: we you know, there's been a lot of discussion around that.
Speaker 1: We don't believe that that's an issue. We don't believe
Speaker 1: that the size of index, even when you look now
Speaker 1: the size of freight with the investments as a percentage
Speaker 1: of the with the market, the size of fixing come
Speaker 1: investments is a percentage of the bond market. Um, that's
Speaker 1: we don't believe that that's an issue that we should
Speaker 1: be concerned about. The other thing that I hear a lot,
Speaker 1: and I just like to get your take on this
Speaker 1: the indies, right, these are small independent issuers. They're great
Speaker 1: about you guys a lot. You know, you get into
Speaker 1: themes and like maybe the more hardcore area of the
Speaker 1: factor space. What do you say to them, thinking like, hey,
Speaker 1: come on, can't you just like let us own this area?
Speaker 1: Why does black Rock have to go into everything? And
Speaker 1: also I think that one thing that they one complaint
Speaker 1: they often have is like if they have a good idea,
Speaker 1: black Rock can easily just take it. I think there's
Speaker 1: plenty of I I believe that the more etf issuers,
Speaker 1: the better it is for the overall industry. The better
Speaker 1: is for the market, the better it is for clients.
Speaker 1: And I think that, you know, the only thing my
Speaker 1: only comment here that I would bring is that what
Speaker 1: we need to see is real innovation coming from different issuers.
Speaker 1: You know. I think that if you're just trying to replicate, uh,
Speaker 1: you know, and you've seen that over and over again,
Speaker 1: you know, someone comes with a new version of the
Speaker 1: SMP five hundred, a cup weighted generic index at a
Speaker 1: lower price. I just don't think that that game will work.
Speaker 1: I think that if you bring real innovation that delivers
Speaker 1: value to clients, I think that you have h then
Speaker 1: the opportunity to grow and be successful. But overall, I
Speaker 1: think that the more competition that we have, the better
Speaker 1: we get. We're not gonna stop. So we're very competitive.
Speaker 1: We want to stay competitive. We want to uh continue
Speaker 1: to innovate, uh and you see that in some of
Speaker 1: the offering that that we're creating in the last few years.
Speaker 1: But I think that there's an opportunity for real innovation
Speaker 1: to come in. But if you just introduce something at
Speaker 1: a lower price, I think that the idea that just
Speaker 1: costs is what it's going to drive success. I think
Speaker 1: that that's wrong. That will fail. Okay, it seems like
Speaker 1: everybody at Black Rock is musically inclined. Martin Smalls has
Speaker 1: a gigantic guitar collection. I'm curious, you know what, what
Speaker 1: kind of what kind of instruments you play? Well, I
Speaker 1: tell you what. Maybe we can talk better about things
Speaker 1: that I would like to play. I would love to play,
Speaker 1: to play the electric guitar like Martin, that would be
Speaker 1: I would love that. I'm a huge rock fan, would
Speaker 1: love that. I have absolutely no musical talent whatsoever, but
Speaker 1: I would love to play the electric guitar. You could
Speaker 1: do the cow bell in the in the black Rock band,
Speaker 1: I could do that, you know block because andrew A
Speaker 1: is the synthesizer guy. My colleague over there, Kate Bernhardt
Speaker 1: is an excellent singer. I was wondering if do they
Speaker 1: ask you to name three guitar chords in the interview
Speaker 1: and when you file for a job. I saw him
Speaker 1: play they play uh or black Rock last year. That
Speaker 1: was the first time that I saw them live, and
Speaker 1: I was humbled by the amount of talent on stage
Speaker 1: because I couldn't I really couldn't play anything. So they
Speaker 1: were incredible. They did an amazing job and they actually
Speaker 1: placed all of the songs that I really loved, so
Speaker 1: it was great. Armando, thanks so much again for joining
Speaker 1: us on Trillions. No, thanks for having me here. It's
Speaker 1: been a pleasure. Thanks for listening to Trillions until next time.
Speaker 1: You can find us on the Bloomberg Terminal, Bloomberg dot com,
Speaker 1: Apple Podcasts, Spotify and wherever else you like to listen.
Speaker 1: We'd love to hear from you. We're on Twitter, I'm
Speaker 1: at Joel Webber Show, He's at Eric call Tunis and
Speaker 1: you can find any at Antonia b Massa. This episode
Speaker 1: of Trillions was produced by Magnus Hendrickson. Francesca Levy is
Speaker 1: the head of Bloomberg Podcast. Bye.