The transcript from this week’s, MiB: Mark Wiedman, Blackrock’s Head of Global Client Business, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
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You are listening to Masters in Business with Barry Ritholtz on Bloomberg Radio.
I’m Barry Ritholtz You are listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Mark Wiedman. He is BlackRocks head of Global Client Business. The firm helps oversee about $10 trillion in assets as of the end of the year in 2023. Full disclosure, my firm, OLTs Wealth Management, not only owns ETFs and mutual funds from BlackRock, but last year we purchased a division of the company called Future Advisor, which is an online digital platform that is now called Good Advice. Let’s talk a little bit about iShares, which, which I have argued could be the Stealthiest and greatest corporate acquisition of all time, certainly relative to to the cost.
Barry Ritholtz: So tell us a little bit about the division iShares and Index Investments that you were running from 2011 to 2019 when its growth exploded.
Mark Wiedman: So if you go back to 2011, what you’d see is a world where the ETF, the
exchange traded fund, which is nothing other than an index fund bundled up as a stock, was a small part of many people’s portfolios. It was small in or non-existent in most, most wealth portfolios. Most advisors weren’t using ETFs. Most institutions weren’t using ETFs back then. Some were, but most weren’t. And what happened over the coming decade is pretty simple. Two forces drove the growth of ETFs and of the iShares business. The first was low cost investing. The basic recognition as Warren Buffett has said quite publicly, most people are probably gonna be better off just buying the S&P 500. And the cheapest way to do that is buying an iShare, not what he named another product, buying a simple ETF that gives them access to the capital markets at a low price.
The second force, and this is much more inside baseball and technical, but is actually really interesting if you’re in the capital markets, is that it allows you to trade risk between a buyer and a seller without an investment bank being in between. So the market that has been revolutionized by the ETF, it’s actually not the equity market ’cause that actually agency trading on exchanges has been here for a long time. The market that ETFs revolutionized was the bond market. The bond market was always an over the counter market where you went through a dealer always. And what the ETF does by bundling up risk in effectively like a set is you can sell that set of bonds to somebody else out there in the world who wants that risk, but not have to go through a bank. And what that means, especially is that in times of stress or as banks get smaller and smaller as they are in their trading books, what that means is you can trade risk efficiently with a transparent price on exchange in a way that 15 years ago was literally impossible. So it was those two forces. The securitization of risk in bundles combined with low cost indexing, that’s driven the iShares business to three and a half trillion dollars today, up from about 350 billion when we bought it, when the firm bought it back in 2000 9, 10, 10
Barry Ritholtz: That’s really, that’s really quite amazing. So you’re talking about bonds, but
in my own practice at, at my firm, the fascinating thing is the superiority of ETFs to mutual funds,
especially in non-qualified accounts, taxable accounts, because you get these phantom capital gains
from mutual funds that you don’t get in ETFs. And we found our best practices are mutual funds are
great for 4 0 1 Ks or IRAs or any tax deferred vehicle, but for a taxable portfolio, it’s hard not to go all
ETFs.
Mark Wiedman: So one reason that people that buy ETFs is they’re cheaper than a traditional mutual fund. Sometimes there are great mutual funds with great managers and they may be worth holding on that basis alone. But generally, clients have shifted out of active mutual funds and they moved into ETFs ’cause they get better value from money. But you’re getting at is that you also avoid paying taxes. You postpone paying taxes effectively until the moment that you sell. Right? The way it basically works is along the way with a mutual fund, you’re paying all the taxes incurred by the underlying pm, underlying portfolio manager. He or she’s generating the tax gains or losses. The gains is what we’re worried about. They come through and you pay them that year. As opposed to if you’re holding ’em for 15, 20 years, you pay the capital gains. When you ultimately sell the fund, the ETF takes those gains and puts it off to the future. And of course, there’s always the happy story where you die and your base gets stepped up. It’s a joke. You don’t wanna die.
Barry Ritholtz: So arguably you’re compounding more in identical ETF versus identical
mutual fund.
Mark Wiedman: And in theory, if, because of the tax basis step up at death, ultimately you
may be limiting all those capital gains to boil it down. You don’t get those annoying capital gains charges at the end of the year for a fund you didn’t buy or sell. Right. You take control over the the sale, the timing and the timing of the taxes.
Barry Ritholtz: I totally appreciate what you were saying about the bond side and towards that end, BlackRock has become one of the biggest bond trading shops on the street. The bond side of BlackRock. I know most people think of iShares, think of equities, but you guys are every bit as huge in bonds as you are in stocks.
Mark Wiedman: We do a tremendous amount in bonds in ETFs. We do it in active strategies, which are still very popular. And we actually manage huge sums of money for institutions. So there’ll be huge insurance companies that will come to us and say, you know what? We think it might be more efficient for you just to manage our balance sheet for us, the asset side. So we’ll take over the entire balance sheet and manage all the bonds, the corporate bonds, the treasuries, the agencies that sit on those, those books. All that gets managed in outta one big central book. And we get maximum efficiency for our clients as we trade because there’s really no other beast on the street that’s bigger. And so therefore you can get the best possible returns for your clients. So
Barry Ritholtz: You’re now the largest asset manager in the world, but there are a lot of big competitors in low-cost indexing and ETFs. What does BlackRock do to distinguish itself, to differentiate itself from other lowcost ETF or index providers?
Mark Wiedman: Clients never buy from you because your firm is big. They buy because your product is good. So it’s gotta be, each individual product has to be the best that the client can find. Now part of that is the A brand they trust. So we recently, recently launched the Bitcoin ETF. We’ve raised about six and a half billion dollars more than anyone else. So why? Because it’s a brand that clients trust the pricing was also quite attractive. That’s another part of what you have to be thinking about always in every product, but especially in the UTF world. And then last, you have to be thinking how can you help clients build portfolios? Many financial advisors turn to us to help us figure out how to build their overall portfolios for their clients. We’ll work with them on asset allocations. We’ll give them what we call model portfolios. It’s basically literally a model filled with ETFs, active strategies, ours and sometimes other people’s all in a mix. And it allows them to actually focus on what they do best, which is working with their clients.
Barry Ritholtz: A research report outta Morgan Stanley last year predicted in five years, BlackRock’s AUM would be $15 trillion. That that’s a 50% gain. Pretty heady numbers, pretty substantial. How do you get there? Is this by growing market share? Does the overall pie get bigger? Some combination? How? How do, how do you fulfill those heady expectations?
Mark Wiedman: You start by recognizing how small we are relative to the universe. You talk
about $10 trillion. I’d actually think in terms of revenue. Revenue is where you’re getting clients’ attention. Okay? We are only 3% of global asset management in almost any other comparable industry like sales and trading and investment banking. For example, the leader there would be 15 or 16%. We’re small. We’re a small fish in a very, very big ocean. So how do you get there? You recognize, one, you’re still small. Two, you’ve gotta figure out the products your clients need in every individual market. And it differs. What clients wanna buy in Switzerland is not going to be the same as what they wanna buy in Tokyo. And third, you figure out how do you bring the strengths of the firm, our knowledge for global brand, global economies of scale all together to serve clients. How do you figure that out and yet make each client feel like she or he’s important as an individual financial advisor or a pension plan or a sovereign wealth fund.
Mark Wiedman: So you sound like the head of global client business. [Well, I hope so!] So
what’s a day in the life of the head of global client business at BlackRock like?
Mark Wiedman: So the passions I have are the things that make me get up in the morning. I love seeing clients, I love seeing teams, and I love working on problems that are really pretty interesting. So what do I mean? Today I sit down, for example, with the chief investment officer of a big global insurer. I might be sitting down with somebody running even actually interesting competitors. A lot of competitors use our products. I learn a lot from talking to them. I actually think the top job of any executive is actually building great leaders behind him or her. And then the last part is something I’m very interested in is investing in the transition to the low carbon economy. What I mean by that is for various forces, macroeconomic, microeconomic policy, consumer preferences, we are slowly decarbonizing our economy in the United States, in Europe and Japan actually also in China.
And what’s happening is the day by day small investment decisions are moving future hydrocarbon expenditures. In other words, spending on oil and gas in some future state. Moving it today in terms of capital investments and this transition to a low-carbon economy is one of the biggest trends in the whole investment world. It will consume trillions and trillions of capital. Doing it thoughtfully, consciously. It’s why we just recently bought a company called GIP. It’s a big infrastructure firm. It’s our biggest acquisition in 15 years. ’cause we see this trend of clients investing in infrastructure, especially around this transition to a low-carbon economy. That’s the place where we wanna work with clients. I love that stuff. I love figuring out new products, new teams, new things we can do with clients.
Barry Ritholtz: I want to talk about some of the trends that have been changing that have to be a challenge for your clients as well as BlackRock. How do you help clients navigate market environments like we’ve seen?
In 2022, we have inflation stocks and bonds down double digits. 2023, we have disinflation and the NASDAQ is up 50%. The S&P is up 25%. That throws a monkey wrench to a lot of people’s thoughts about the future.
Mark Wiedman: So we’ve just gone through the biggest rate shock of our professional careers. If you live and work in finance, the first principle, the most important thing is what’s the discount rate? What are the cash flows in the future worth today? That’s what interest rates are. As that transformation happen in the last couple of years where the rate shock from and from central banks is inflation served. That has totally altered client’s portfolios. In 2022, stocks and bonds were both down about 20% globally, huge drop. What that led to is clients going into almost a shock. And actually for thelast couple of years, if you look net global clients, global investors have, at least from what we can see in funds, actually invested negative amounts in equities. Now, somebody obviously bought some, but broadly the broad investor has actually reduced his equity position. He’s even, he’s moved some into ETFs, but a lot into cash, A lot into cash.
And so where clients have moved his into cash and saying, when do I come back in? Now, ironically, actually, the market was up, s and p was up hugely, largely fueled by the AI boom in the LA in the last year. So mo many clients of ours miss that. The question is how do you help ’em? It’s the biggest challenge that their wealth manager like yourself faces. How do you help clients stay invested when they get afraid? That’s one of the biggest questions we have, is how do you work with them and figure out when to be in the markets and when not to jump outta the markets because they’re a little, little, little nervous
Barry Ritholtz: Coming up. We continue our conversation with Mark Weidman BlackRock’s
head of global client business, discussing the mega forces shaping our future economy. I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio.
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