BlackRock CEO outlines post-merger vision
Larry Fink discusses integrating Merrill Lynch Investment Management, asset classes and products to build, and competing on a global scale.
Laurence Fink is chairman and CEO of BlackRock, a firm he helped found in New York. It has become a $1 trillion independent asset manager in the wake of this yearÆs acquisition of Merrill Lynch Investment Managers. During a visit to Hong Kong yesterday he made time to speak with AsianInvestor magazine.
AsianInvestor: Why will BlackRock be a better firm after the MLIM acquisition?
Larry Fink: It might not. The last thing I want to sound is overconfident. But there is a high probability that we will become a better firm.
What does æbetterÆ mean?
The world is getting smaller because of the Internet and technology. We are aware of everything happening instantaneously. Client needs have become immediate. And the world is getting larger thanks to the development of the capital markets and liquidity. There was $12 trillion of global financial assets in 1980; as of 2004, there was $136 trillion. Wealth is growing faster than many people realise.
The successful asset management firm has to have global scale, global reach and global vision. It needs one common culture. That takes not days, but continuous action.
What is the way to create a single corporate culture?
By empowering local teams, which manage each region and locality, but governed through an understanding of the companyÆs culture. This requires a link between the global management and the locality, and that link is technology.
We have BlackRock Solutions, a proprietary platform that we also offer to clients, which links the front, middle and back offices. Over the course of the next year we will integrate the new BlackRock through this common platform.
The old BlackRock was already on a single platform; the old MLIM had 18 operating platforms. But through this technology of sharing information and managing global risk, organised along a common culture, we should be a superior firm with a global outlook, yet organised at each locality to be client-centric. If we can put all of this together, we should be a better firm and a better fiduciary.
The track record for M&A in asset management isnÆt great.
The investment management business is chock full of mergers that failed. We have traditionally grown organically but we did buy State Street Research in 2004 and that has been a monumental success for BlackRock.
In MLIM we found a firm with great intellectual capital, great products and great distribution. BlackRock has top information and investment management technology and a strong institutional footprint.
Was MLIM the right fit simply because it was available?
There were rumours that we looked at asset management businesses like Citigroup, Mellon and Morgan Stanley. Without confirming or denying these rumours, we did look at other investment firms. I wonÆt name them. But we didnÆt seriously consider any of them except for Merrill Lynch.
How would you compare the MLIM culture youÆve acquired with BlackRockÆs original culture?
MLIM was already multiple cultures when we acquired it. You had basically two parts, the old Mercury Asset Management team and the old US team in Princeton, which had their own styles. But we found a very proud company that had gone through a number of public embarrassments û the Unilever suit, underperformance in both the US and Europe, the backlash from Merrill LynchÆs private bank over that poor performance.
But what hasnÆt been reported is that MLIM has enjoyed a tremendous turnaround in the past 18 months. It is now the largest grower of mutual fund assets in the UK and Europe. ItÆs now number six in outstanding assets in Europe. We found a firm that had changed entirely. The culture was one of confidence and pride, one that was winning new business, both retail and institutional. We found a firm of people who are neurotic û thatÆs a good word. Intense. These are words IÆd use to identify people at BlackRock.
Do the MLIM people like the idea of a common platform?
Our platform is more of a sharing process. The MLIM model was more like a series of boutiques, which they used to retain employees. But our MLIM partners all buy into our idea. They recognise the need to share information. To be a good investor in New York, you need to know whatÆs happening in Hong Kong, in London, in Mumbai.
And is there a big change for BlackRock as well?
This is a big change for both MLIM and for BlackRock. The old BlackRock governed like a partnership. There was a lot of discussion about me making a decision. I hate that. It may be historically true but it hasnÆt been recently. WeÆve changed our model of governance in the past few years. WeÆve been talking about globalisation. Before we ever looked at MLIM, we asked [former under-secretary of the US Treasury Department] Peter Fisher to be our chairman for Asia and to build robust local teams. These decisions couldnÆt come from some dummy in New York. So BlackRock has been evolving toward a matrix management and empowering local governance. The MLIM transaction speeds up this process. WeÆre trying to change our behaviour, which means more local accountability.
How do you decide which products and teams are best of breed, and which to cull?
That was all done by June. That was our number-one priority when the merger was announced in February. Our clients had to know right away.
What were some of the biggest changes?
We had a few redundancies. But it wasnÆt a Solomonic decision, cutting people in half. We had two teams of European equities but with different styles and we retained both. Fixed income was consolidated because itÆs a more centralised product. ItÆs not like the BlackRock team won each time. For example, our tax-exempt, credit and liquidity cash-management teams are a combination of both firmsÆ teams. And we moved people around. I think our clients appreciated the speed with which we made these decisions.
Was there any change to BlackRockÆs investment philosophy or investment process, particularly in fixed income?
No. Zero. Instead weÆve added credit research and a few more products.
ThereÆs a lot of convergence in the business these days: clients become competitors, and vice versa; long-only firms do hedge funds and hedge funds do long-only, and so on. How do you decide which opportunities to pursue or ignore?
These are not my decisions. But in the next six months weÆll need to review our mix of products. I donÆt know with certainty that all of our products today are ideal. We need to build better capabilities in certain areas like emerging-market debt and global equities. Those are two giant areas in which we want greater scale and a larger practice. It doesnÆt mean weÆre going to make an acquisition. But we are looking to hire more people or transfer people around.
What about the alternatives space?
WeÆre looking at other alternative products. WeÆre not planning lift-outs. Instead weÆre incubating some ideas, like in private equity. ThereÆs no formal process by which we say, ôWe need this product.ö We listen to our clients. IÆd say we have 90% of the products that our clients want.
IÆll give you an example. When we acquired State Street Research we also got a real-estate equity platform with $6 billion of assets. Today our BlackRock team has built that to $13 billion. Plus MLIM also had $3 billion in real-estate equity. Last week we partnered with a a US developer, Tishman Speyer, to acquire Stuyvesant Town and Peter Cooper Village in Manhattan. Most people have no idea weÆre such a big player in real-estate equity. WeÆre now in the top five worldwide, with around $20 billion of assets under management.
WhatÆs the business strategy for Asia?
ThatÆs up to people like Peter [Fisher], Seiichi [Fukuyama, previously MLIMÆs Asia-Pacific CEO], Winnie [Pun, managing director in Hong Kong] and other team leaders. I expect this will be a great place to invest. WeÆre taking a new floor in Hong Kong. WeÆve now got 48 professionals here and within 18 months weÆll have 75. WeÆre taking new space in Tokyo. We want large assignments in Singapore. IÆm now travelling to Taiwan and Korea.
We have huge ambitions here, not because AsiaÆs a good place to be, but because we can better serve our clients here. WeÆve got over $1 trillion in assets now, a global reach, and teams of neurotic and intense problem-solvers for our clients. The two areas worldwide that IÆm most excited about are Asia and the Middle East; I learn a lot from visiting our clients in these places.
Will you continue your emphasis on institutional business?
BlackRock has been 100% institutional in Asia. No, thatÆs not right û weÆve done mutual funds in Japan with Nomura. But weÆve been mostly institutional here. But will that continue? By no means. We now have a strong mutual funds practice in Hong Kong and Taiwan, and a growing business in Korea. In Asia weÆre now about 50/50 retail versus institutional.
Think about the history of institutional asset management: itÆs been about relative value investing versus liabilities or an index. Retail management has been about absolute returns. But individuals are now more educated. They have a better understanding of risk versus reward and they have learned from volatile experiences.
Meanwhile institutions arenÆt happy about just investing in 10-year US Treasuries. Persistently low interest rates have been a problem. Investors worldwide are looking for higher returns. TheyÆve learned about absolute returns or alternative strategies. Hedge fund assets worldwide have gone from $256 billion in 1996 to almost $1.2 trillion this year.
Our clients have moved closer together in how they think. So the merger of our institutional platform with one that has a retail component makes sense.
Do you want to offer local-currency bond products in Asia?
I mentioned earlier the growth in capital markets. A good market of that has come from bonds. It will continue to grow, with more securitisation and more things like high yield. So I would expect to see more Asian corporate bonds and securitisations. ThatÆs one reason why BlackRock has to build its manufacturing capability in Asia, and not just do marketing here. We must take advantage of peculiarities in local bond and equity markets, and integrate those with our global platform.
AsianInvestor: Why will BlackRock be a better firm after the MLIM acquisition?
Larry Fink: It might not. The last thing I want to sound is overconfident. But there is a high probability that we will become a better firm.
What does æbetterÆ mean?
The world is getting smaller because of the Internet and technology. We are aware of everything happening instantaneously. Client needs have become immediate. And the world is getting larger thanks to the development of the capital markets and liquidity. There was $12 trillion of global financial assets in 1980; as of 2004, there was $136 trillion. Wealth is growing faster than many people realise.
The successful asset management firm has to have global scale, global reach and global vision. It needs one common culture. That takes not days, but continuous action.
What is the way to create a single corporate culture?
By empowering local teams, which manage each region and locality, but governed through an understanding of the companyÆs culture. This requires a link between the global management and the locality, and that link is technology.
We have BlackRock Solutions, a proprietary platform that we also offer to clients, which links the front, middle and back offices. Over the course of the next year we will integrate the new BlackRock through this common platform.
The old BlackRock was already on a single platform; the old MLIM had 18 operating platforms. But through this technology of sharing information and managing global risk, organised along a common culture, we should be a superior firm with a global outlook, yet organised at each locality to be client-centric. If we can put all of this together, we should be a better firm and a better fiduciary.
The track record for M&A in asset management isnÆt great.
The investment management business is chock full of mergers that failed. We have traditionally grown organically but we did buy State Street Research in 2004 and that has been a monumental success for BlackRock.
In MLIM we found a firm with great intellectual capital, great products and great distribution. BlackRock has top information and investment management technology and a strong institutional footprint.
Was MLIM the right fit simply because it was available?
There were rumours that we looked at asset management businesses like Citigroup, Mellon and Morgan Stanley. Without confirming or denying these rumours, we did look at other investment firms. I wonÆt name them. But we didnÆt seriously consider any of them except for Merrill Lynch.
How would you compare the MLIM culture youÆve acquired with BlackRockÆs original culture?
MLIM was already multiple cultures when we acquired it. You had basically two parts, the old Mercury Asset Management team and the old US team in Princeton, which had their own styles. But we found a very proud company that had gone through a number of public embarrassments û the Unilever suit, underperformance in both the US and Europe, the backlash from Merrill LynchÆs private bank over that poor performance.
But what hasnÆt been reported is that MLIM has enjoyed a tremendous turnaround in the past 18 months. It is now the largest grower of mutual fund assets in the UK and Europe. ItÆs now number six in outstanding assets in Europe. We found a firm that had changed entirely. The culture was one of confidence and pride, one that was winning new business, both retail and institutional. We found a firm of people who are neurotic û thatÆs a good word. Intense. These are words IÆd use to identify people at BlackRock.
Do the MLIM people like the idea of a common platform?
Our platform is more of a sharing process. The MLIM model was more like a series of boutiques, which they used to retain employees. But our MLIM partners all buy into our idea. They recognise the need to share information. To be a good investor in New York, you need to know whatÆs happening in Hong Kong, in London, in Mumbai.
And is there a big change for BlackRock as well?
This is a big change for both MLIM and for BlackRock. The old BlackRock governed like a partnership. There was a lot of discussion about me making a decision. I hate that. It may be historically true but it hasnÆt been recently. WeÆve changed our model of governance in the past few years. WeÆve been talking about globalisation. Before we ever looked at MLIM, we asked [former under-secretary of the US Treasury Department] Peter Fisher to be our chairman for Asia and to build robust local teams. These decisions couldnÆt come from some dummy in New York. So BlackRock has been evolving toward a matrix management and empowering local governance. The MLIM transaction speeds up this process. WeÆre trying to change our behaviour, which means more local accountability.
How do you decide which products and teams are best of breed, and which to cull?
That was all done by June. That was our number-one priority when the merger was announced in February. Our clients had to know right away.
What were some of the biggest changes?
We had a few redundancies. But it wasnÆt a Solomonic decision, cutting people in half. We had two teams of European equities but with different styles and we retained both. Fixed income was consolidated because itÆs a more centralised product. ItÆs not like the BlackRock team won each time. For example, our tax-exempt, credit and liquidity cash-management teams are a combination of both firmsÆ teams. And we moved people around. I think our clients appreciated the speed with which we made these decisions.
Was there any change to BlackRockÆs investment philosophy or investment process, particularly in fixed income?
No. Zero. Instead weÆve added credit research and a few more products.
ThereÆs a lot of convergence in the business these days: clients become competitors, and vice versa; long-only firms do hedge funds and hedge funds do long-only, and so on. How do you decide which opportunities to pursue or ignore?
These are not my decisions. But in the next six months weÆll need to review our mix of products. I donÆt know with certainty that all of our products today are ideal. We need to build better capabilities in certain areas like emerging-market debt and global equities. Those are two giant areas in which we want greater scale and a larger practice. It doesnÆt mean weÆre going to make an acquisition. But we are looking to hire more people or transfer people around.
What about the alternatives space?
WeÆre looking at other alternative products. WeÆre not planning lift-outs. Instead weÆre incubating some ideas, like in private equity. ThereÆs no formal process by which we say, ôWe need this product.ö We listen to our clients. IÆd say we have 90% of the products that our clients want.
IÆll give you an example. When we acquired State Street Research we also got a real-estate equity platform with $6 billion of assets. Today our BlackRock team has built that to $13 billion. Plus MLIM also had $3 billion in real-estate equity. Last week we partnered with a a US developer, Tishman Speyer, to acquire Stuyvesant Town and Peter Cooper Village in Manhattan. Most people have no idea weÆre such a big player in real-estate equity. WeÆre now in the top five worldwide, with around $20 billion of assets under management.
WhatÆs the business strategy for Asia?
ThatÆs up to people like Peter [Fisher], Seiichi [Fukuyama, previously MLIMÆs Asia-Pacific CEO], Winnie [Pun, managing director in Hong Kong] and other team leaders. I expect this will be a great place to invest. WeÆre taking a new floor in Hong Kong. WeÆve now got 48 professionals here and within 18 months weÆll have 75. WeÆre taking new space in Tokyo. We want large assignments in Singapore. IÆm now travelling to Taiwan and Korea.
We have huge ambitions here, not because AsiaÆs a good place to be, but because we can better serve our clients here. WeÆve got over $1 trillion in assets now, a global reach, and teams of neurotic and intense problem-solvers for our clients. The two areas worldwide that IÆm most excited about are Asia and the Middle East; I learn a lot from visiting our clients in these places.
Will you continue your emphasis on institutional business?
BlackRock has been 100% institutional in Asia. No, thatÆs not right û weÆve done mutual funds in Japan with Nomura. But weÆve been mostly institutional here. But will that continue? By no means. We now have a strong mutual funds practice in Hong Kong and Taiwan, and a growing business in Korea. In Asia weÆre now about 50/50 retail versus institutional.
Think about the history of institutional asset management: itÆs been about relative value investing versus liabilities or an index. Retail management has been about absolute returns. But individuals are now more educated. They have a better understanding of risk versus reward and they have learned from volatile experiences.
Meanwhile institutions arenÆt happy about just investing in 10-year US Treasuries. Persistently low interest rates have been a problem. Investors worldwide are looking for higher returns. TheyÆve learned about absolute returns or alternative strategies. Hedge fund assets worldwide have gone from $256 billion in 1996 to almost $1.2 trillion this year.
Our clients have moved closer together in how they think. So the merger of our institutional platform with one that has a retail component makes sense.
Do you want to offer local-currency bond products in Asia?
I mentioned earlier the growth in capital markets. A good market of that has come from bonds. It will continue to grow, with more securitisation and more things like high yield. So I would expect to see more Asian corporate bonds and securitisations. ThatÆs one reason why BlackRock has to build its manufacturing capability in Asia, and not just do marketing here. We must take advantage of peculiarities in local bond and equity markets, and integrate those with our global platform.
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