Guest: Larry Fink, Co-Founder, Chairman, and CEO of BlackRock
Host: Citigroup Global Banking Chairman Leon Kalvaria
Compiled & organized by: LenaXin, ChainCatcher
ChainCatcher Editor's Summary
This article is compiled from the latest episode of Legendary Conversations @Citi, where Citi's Global Banking Chairman Leon Kalvaria talks with Larry Fink, Co-founder, Chairman, and CEO of BlackRock. As of the video release, BlackRock's assets under management have reached $12.5 trillion. How did Larry achieve this?
In this issue, Larry will share his unique insights on leadership, the themes of his career, and his experiences in creating a brilliant journey.
ChainCatcher has been organized and compiled.
Summary of Exciting Insights:
What really changed Wall Street was the personal computer.
Profound lessons: First, thinking that one has a top team and market insight, yet failing to evolve with market thinking; second, being blinded by the ambition to seize market share when competing with Solomon Brothers.
The foundation of the company is the development of risk tools, and BlackRock's culture is deeply rooted in risk technology.
Artificial intelligence and financial asset tokenization will reshape the future of investment and asset management.
The essence of the asset management industry is result-oriented.
Investors need to look for information that the market has not fully recognized; old news can no longer create excess returns.
If active investment is effective, ETFs would never rise.
If the U.S. economy cannot sustain a growth rate of 3%, the deficit issue will overwhelm the country.
As long as asset-liability matching and deleveraging are achieved, losses will not spread into a systemic crisis.
Bitcoin is precisely a hedge against an uncertain future.
Only by being fully committed and engaged can one continuously maintain the qualification for dialogue and the right to speak in the industry.
(1) How did Larry's growth experience shape his leadership?
Leon Kalvaria: How does your family background shape your unique worldview and risk decision-making abilities, ultimately leading to excellence on a global scale?
Larry Fink: My parents are exceptional. They are socialists, open-minded, and place great importance on two things: academic achievement and personal responsibility. They often told me, "If you are not doing well after becoming an adult, do not blame your parents; the responsibility lies with you."
This teaching made me understand the importance of independence from a young age. I started working in a shoe store at the age of 10, and this experience taught me how to communicate with customers and build connections. Although children these days rarely work at such an early age, that time made me mature early and learn to take on responsibilities. It wasn't until I was 15 that I truly began to plan a more goal-oriented life.
Leon Kalvaria: How does your academic background on the West Coast help you transition into a leader in a traditional company?
Larry Fink: In January 1976, I saw snow for the first time during an interview in New York. At that time, I was a typical West Coast youth, wearing turquoise jewelry, sporting long hair, and often dressed in a brown suit. First Boston was the most attractive among many companies, as they offered personalized training programs, and several leaders on the trading floor made me feel welcome. They directly arranged for me to enter the trading department, which was uncommon at that time.
Wall Street at that time was completely different from now. In 1976, First Boston only hired 14 people. At that time, the total capital of all Wall Street investment banks was only about 200 million dollars, including Goldman Sachs, L.F. Rothschild, Kuhn Loeb, Lehman Brothers, White Weld, Merrill Lynch, etc. (excluding commercial banks).
At that time, investment banks operated like family workshops, taking on almost no risk. The expansion of the balance sheet only began after 1976.
In the first month of joining the trading team, I was confident that I could handle this job. After the training, the company assigned me to the mortgage and guarantee department, which only had three people, and I felt very excited.
(2) Larry's entrepreneurial journey
Leon Kalvaria: What fundamental new insights have your early experiences in securitization brought you regarding finance and risk?
Larry Fink: The personal computer is what truly changed Wall Street. Before that, there were only tools like the Monroney calculator or the HP-12C. In 1983, the mortgage department was equipped with a few computers, which, by today's standards, were rudimentary, but allowed us to rethink how to integrate mortgage pools and calculate their cash flow characteristics.
The process of securitization was initiated by restructuring cash flows through the processing of real-time data. At that time, many calculations were still done manually, but the derivatives field, such as interest rate swaps, was emerging due to the application of trading-layer technology. Wall Street was thus completely transformed.
The important opportunity for BlackRock's establishment is that the seller's technology has always been ahead of the buyer.
Leon Kalvaria: What is the most unexpected lesson you learned? What insights did you gain from it that may have shaped your later leadership at BlackRock?
Larry Fink: Let's talk about my career path. I became the youngest managing director at 27, joined the company's executive committee at 31, and by 34, I had become unbearable due to my arrogance.
At that time, the team-first philosophy only applied during profitable periods. In 1984-1985, we became the most profitable department in the company, even setting a quarterly record, but in the second quarter of 1986, we suddenly lost 100 million dollars. This exposed the essence of the problem: when profitable, we were hailed as heroes, but when losing, 80% of the people no longer supported us, and the so-called team spirit completely collapsed.
I learned two profound lessons: first, thinking I had a top-notch team and market awareness, yet failing to evolve my thinking with the market; second, when competing with the Solomon Brothers, I was blinded by the ambition to capture market share. Lou was fired a year earlier than me for a similar mistake, yet I did not take it as a warning.
I have never been able to forgive the company for blindly adding capital when I did not strongly oppose it; we lacked risk management tools and took on unknown risks. This failed experience ultimately became the soil that nurtured BlackRock's growth.
Leon Kalvaria: What makes you still believe that entrepreneurship can succeed under the dual pressure of widespread skepticism and personal setbacks?
Larry Fink: That experience indeed made me lose a lot of confidence. Although it took me a year and a half to rebuild my career, during that time I received partnership offers from several Wall Street firms, but I always felt it was not suitable to walk the old path again. So I began to explore the possibility of shifting towards the buy-side market.
At that time, two important clients were willing to invest in my startup, but I lacked confidence to start solo, so I proactively contacted Steve Schwarzman. The first Boston had raised the initial fund for Blackstone (approximately $545 million), and thanks to our relationships with savings institutions, I assisted in completing part of the fundraising.
Through the introduction of Bruce Wasserstein, I got to know Steve and Pete. They were very interested in the idea I proposed, in fact, Steve believed in me even more than I did myself, and I eventually became the fourth partner at Blackstone.
After resigning, that weekend, I held an open house at home, and about 60-70 people showed up to discuss my new plans. I directly told some of them, "You will actually be able to develop better after I leave." At that time, the company was experiencing disintegration, with some people leaving and others staying, but this honesty helped all parties find a more suitable path.
(3) The Development and Importance of Aladdin Technology
Leon Kalvaria: What were the key factors that led to BlackRock being chosen to provide critical advisory to the U.S. government during the financial crisis? Did the Aladdin technology become a decisive advantage due to its early deployment?
Larry Fink: When the company was founded, there were two technical experts among the eight people. We invested $25,000 to purchase the SunSpark workstation that was just released in 1988, which allowed us to develop risk tools independently at BlackRock.
From day one, the foundation of the company has been the development of risk tools, and BlackRock's culture is deeply rooted in risk technology.
When Kidder Peabody, a subsidiary of General Electric (GE), went bankrupt in 1994, we proactively offered assistance to CEO Jack Welch and CFO Dennis Damerman based on our long-standing partnership with GE. While the outside world generally believed that Goldman Sachs would be hired, we were entrusted with the task of liquidating its bad assets thanks to the Aladdin system.
I declare that no consultation fee is required, and the payment will be made after success. After nine months of operation, the asset portfolio eventually made a profit, and GE paid the highest consultation fee in history.
I hope my investment team can establish itself through its own success and capabilities, and I hope Aladdin can compete with anyone and win. We have decided to open the Aladdin system to all customers and competitors.
In 2003, we faced a financial crisis. With the trust relationship we had with the U.S. government and regulatory agencies, we participated in several bailouts with the same philosophy. Bear Stearns was hired over the weekend by JPMorgan (JP) to analyze its portfolio; while urgently assisting JP in assessing risks on Friday and Saturday, I was allowed to maintain communication with Treasury's Hack and the Fed's Tim simultaneously.
On Sunday morning at six o'clock, Tim called for support. I responded that I needed to obtain permission from JPMorgan CEO Jamie before transitioning to government service. To expedite the process, we were directly hired by the U.S. government.
The finance minister asked, "Will American taxpayers incur losses from taking over the assets?" I suggested including the principal and interest in the calculation, as the assets have already been significantly written down and the interest rates are extremely high, making it likely that taxpayers will recover their funds.
Since then, we have been successively hired to handle the AIG restructuring and the crisis response of the governments of the UK, the Netherlands, Germany, Switzerland, and Canada.
(Note: American International Group, abbreviated as AIG)
(4) What is the purpose of the annual letter to shareholders?
Leon Kalvaria: What is the core creative concept behind the annual letters to shareholders that you have been writing since 2012? Is it aimed at documenting key turning points, conveying insights to investors, or making strategic declarations?
Larry Fink: With a few core themes aside, I have never tried to make a declaration in writing these letters. If it weren't for the acquisition of BGI in 2009, which made us the largest index provider in the world, I wouldn't have put pen to paper at all. At that time, we took on a significant amount of equity management responsibilities, but only had voting rights and not disposal rights.
This is consistent with the ideas discussed by Warren, as the core of the initial few letters is to promote "long-termism," encouraging long-term investors to think about long-term trends, which is the entire original intention.
(Note: Larry Fink's shareholder letter was jokingly referred to by Leon Kalvaria as a sort of sister piece to Warren Buffett's letter.)
(5) The Future Trends Reshaping Asset Management
Leon Kalvaria: From your perspective, what major trends do you believe will reshape your future investments and asset management?
Larry Fink: Artificial Intelligence and the Tokenization of Financial Assets. Today, during lunch with a former finance minister and central bank governor, he candidly stated that the banking industry has been left behind by technology in many areas.
The innovative practices of Brazil's New Bank are expanding to Mexico, while digital platforms like Germany's Trade Republic are also disrupting the traditional landscape. These cases demonstrate the power of technology to reshape the industry. Understanding how AI can transform big data analytics reveals its disruptive potential; for instance, BlackRock established an AI lab at Stanford in 2017, hiring a team of professors to develop optimization algorithms. We manage $12.5 trillion in assets, which requires processing massive amounts of transactions, and technological innovation is driving us back to the roots of responsibility.
Leon Kalvaria: How will these tools be made available to the public, ensuring transparency and accountability while maintaining BlackRock's advantages?
Larry Fink: Early large-scale operators will have an advantage, which makes me concerned about society as a whole; large institutions that can bear the costs of AI technology will become the dominant players.
However, by the time of the second generation of AI popularization, the competitive advantage will face challenges. BlackRock's current advantage is actually far greater than it was a year ago and five years ago. Our investment in technology has formed a huge scale, and all operations are based on a technological framework, including trade processing, process optimization, mergers and acquisitions integration, and a unified technology platform, which is far beyond external perceptions.
Leon Kalvaria: How are the three major acquisitions in the private equity asset space (Prequin/HBS/Bio) reshaping investor asset allocation in the private market?
Larry Fink: Today's earnings call reiterated the importance of ongoing transformation. The acquisition of BGI (including iShares) in 2009 raised market doubts, but the "passive + active combination + full portfolio focus" strategy has been successfully validated — iShares' scale has jumped from $340 billion to nearly $5 trillion.
In 2023, BlackRock's private equity business saw significant growth, with infrastructure investments achieving a breakthrough from zero to $50 billion, and private credit expanding rapidly. The demand from clients exceeded expectations, prompting us to take innovative measures, accelerating the integration of public and private markets. Technological advancements will drive the free allocation of public and private assets, a trend that will encompass all institutional investors, including 401k plans.
The cost of acquiring Prequin is only 1/3 of that of peers, yet it is a key layout: by integrating the E-Front private equity analysis platform with the Aladdin public fund system, a comprehensive risk control capability for public and private assets has been established, aiding in the integration of investment portfolios and deepening client dialogues.
Leon Kalvaria: What is the current status of retirement funds?
Larry Fink: If you can earn 50 basis points in 30 years, in the private equity market over the long term, your returns will exceed that figure; otherwise, the liquidity risk is not worth taking. Overall, your portfolio can increase by 18%.
Four months ago, BlackRock held a retirement summit in Washington, with 50 members of Congress and the Speaker of the House participating in the dinner. As the manager of the federal government's retirement plans, we manage 50% of the retirement-related funds among the $12.5 trillion in assets.
(6) Relationship with Global Leaders and Strategic Impact
Leon Kalvaria: When global leaders seek your personal advice on financial and geopolitical issues, how do you combine investment expertise with geopolitical risk assessment?
Larry Fink: Building trust is fundamental. Since 2008, central bank governors and finance ministers from various countries have been accustomed to having in-depth conversations with me, with all discussions remaining within the office. Although no formal confidentiality agreements have been signed, trust, like my communication with CEOs, hinges on the fact that these conversations are never leaked. These discussions always revolve around substantive issues; I am not always right, but my views are based on history and facts.
Leon Kalvaria: You have served as a mentor to many leaders for a long time, and this unique communication channel is indeed rare.
Larry Fink: The essence of the asset management industry is results-oriented. We do not profit from fund turnover or trading volume, but rather rely on actual outcomes. We are deeply involved in global retirement systems (the third largest retirement management institution in Mexico, the largest foreign-owned retirement management company in Japan, the largest retirement fund manager in the UK), and therefore we always focus on long-term issues.
This influence cannot be replicated; it is built on years of trust. I will proactively meet with the newly appointed leaders of various countries (such as Claudia in Mexico and Kiel in Germany) before they take office to ensure smooth communication, which is precisely the embodiment of our unique value.
Leon Kalvaria: When you reflect on your recent career, who have been your mentors and influencers?
Larry Fink: When we went public in 1999, BlackRock's market value was only $700 million. We attracted senior directors such as Merrill CEO Dave Kamansky and GE's Dennis Damerman. The board has always been our core pillar. When we acquired Merrill Investment Management, we transformed from a U.S. fixed income institution to a company operating in 40 countries globally, during which I repeatedly discussed management models with the board.
The board of directors remains crucial today, with Cisco CEO Chuck Robbins providing technical insights and former Estée Lauder CEO Fabrizio Freda contributing marketing wisdom. These cross-disciplinary experts keep me relying on the board to drive growth.
(7) Audience Q&A Session
Q: How will artificial intelligence reshape the future investment paradigm? How do you think different investment strategies (individual investors vs. institutions) will evolve? What direction will future development trends take?
Larry Fink: Every investor needs to seek information that the market has not fully recognized; traditional information (old news) can hardly create excess returns. Artificial intelligence generates unique insights by analyzing differentiated data sets. Our systematic equity team has outperformed the market for 12 consecutive years, and its theme-based investment strategy based on AI algorithms and big data has beaten 95% of fundamental stock pickers over the past decade.
But this is like baseball; maintaining a 30% batting average is already very difficult, and achieving that standard for five consecutive years is even rarer. Only a few investors can consistently win. Most fundamental investors have dismal returns after fees, which is the core reason for the shrinking of the active management industry. If active investing were truly effective, ETFs would never have risen.
Traditional asset management companies have low market values, with many peers that went public in 2004 valued at only 5 to 20 billion dollars, while BlackRock reaches 170 billion, precisely because they are unable to invest in technological upgrades. The gap between us and traditional agents will continue to widen.
Leon Kalvaria: What is the most underestimated black swan risk in the current market? If the U.S. economic growth rate cannot be maintained at 3% (even if inflation is controlled), what systemic crises could be triggered?
Larry Fink: If the U.S. economy cannot sustain a growth rate of 3%, the deficit issue will crush the country.
In 2000, the deficit was 8 trillion dollars, which soared to 36 trillion 25 years later and continues to worsen. Only by maintaining a 3% growth can the debt/GDP ratio be controlled. However, the market is skeptical about this. The deeper risk lies in:
20% of U.S. Treasury bonds are held by foreigners. If tariff policies lead to isolationism, the amount of dollars held may decrease;
The development of local capital markets in multiple countries (such as BlackRock raising 2 billion in India and Saudi Arabia launching MBS operations) has led to domestic savings being retained within the country, weakening the attractiveness of U.S. Treasuries.
Stablecoins and currency digitization may reduce the global role of the US dollar.
The solution lies in unleashing private capital and streamlining the approval process. Countries like Japan and Italy are also facing a deficit crisis caused by low growth.
Although there may be black swan events in the private credit sector, a higher matching rate determines that the current systemic risk in the capital markets is lower than in previous years. As long as there is asset-liability matching and deleveraging, losses will not spread into a systemic crisis.
(8) Why did Larry's attitude towards digital assets change?
Leon Kalvaria: What are the key factors behind your evolving stance on digital assets (especially stablecoins)? Has your perspective changed because other institutions have embraced this field at an unimaginable pace?
Larry Fink: I once harshly criticized Bitcoin during a discussion with Jamie Dimon, calling it "the currency of money laundering and theft," which was my viewpoint in 2017.
But the thinking and research during the pandemic changed my perception: an Afghan woman used Bitcoin to pay salaries for female workers banned from employment by the Taliban. The banking system was under scrutiny, and cryptocurrency became the way out.
I gradually realized that the blockchain technology behind Bitcoin has irreplaceable value. It is not currency, but a "fear asset" that responds to systemic risks. People hold it due to concerns about national security and currency depreciation, with 20% of Bitcoin held by illegal holders in China.
If you don't believe in asset appreciation in the next 20-30 years, why invest?
Bitcoin is indeed a hedge against an uncertain future, and the high-risk, rapidly changing environment requires us to continue learning.
(9) Larry's Leadership Principles
Q: What are your core leadership principles? Especially when facing dramatic changes in the industry and needing to flexibly adjust strategies, how do you maintain consistency in leadership?
Larry Fink: We must insist on daily learning; stagnation means falling behind. There is no "pause button" when leading a large enterprise; you must give your all. To become a top performer, you must continuously challenge yourself and hold your team to the same standard. I have been in the industry for fifty years, and I still strive to be at my best every single day.
Ultimately, only by being fully engaged throughout can one maintain the qualification for dialogue and industry discourse power. This right must be earned daily through strength and is by no means taken for granted.
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Dialogue with BlackRock CEO Larry Fink: AI and asset tokenization will reshape the future of investment
Guest: Larry Fink, Co-Founder, Chairman, and CEO of BlackRock
Host: Citigroup Global Banking Chairman Leon Kalvaria
Compiled & organized by: LenaXin, ChainCatcher
ChainCatcher Editor's Summary
This article is compiled from the latest episode of Legendary Conversations @Citi, where Citi's Global Banking Chairman Leon Kalvaria talks with Larry Fink, Co-founder, Chairman, and CEO of BlackRock. As of the video release, BlackRock's assets under management have reached $12.5 trillion. How did Larry achieve this?
In this issue, Larry will share his unique insights on leadership, the themes of his career, and his experiences in creating a brilliant journey.
ChainCatcher has been organized and compiled.
Summary of Exciting Insights:
What really changed Wall Street was the personal computer.
Profound lessons: First, thinking that one has a top team and market insight, yet failing to evolve with market thinking; second, being blinded by the ambition to seize market share when competing with Solomon Brothers.
The foundation of the company is the development of risk tools, and BlackRock's culture is deeply rooted in risk technology.
Artificial intelligence and financial asset tokenization will reshape the future of investment and asset management.
The essence of the asset management industry is result-oriented.
Investors need to look for information that the market has not fully recognized; old news can no longer create excess returns.
If active investment is effective, ETFs would never rise.
If the U.S. economy cannot sustain a growth rate of 3%, the deficit issue will overwhelm the country.
As long as asset-liability matching and deleveraging are achieved, losses will not spread into a systemic crisis.
Bitcoin is precisely a hedge against an uncertain future.
Only by being fully committed and engaged can one continuously maintain the qualification for dialogue and the right to speak in the industry.
(1) How did Larry's growth experience shape his leadership?
Leon Kalvaria: How does your family background shape your unique worldview and risk decision-making abilities, ultimately leading to excellence on a global scale?
Larry Fink: My parents are exceptional. They are socialists, open-minded, and place great importance on two things: academic achievement and personal responsibility. They often told me, "If you are not doing well after becoming an adult, do not blame your parents; the responsibility lies with you."
This teaching made me understand the importance of independence from a young age. I started working in a shoe store at the age of 10, and this experience taught me how to communicate with customers and build connections. Although children these days rarely work at such an early age, that time made me mature early and learn to take on responsibilities. It wasn't until I was 15 that I truly began to plan a more goal-oriented life.
Leon Kalvaria: How does your academic background on the West Coast help you transition into a leader in a traditional company?
Larry Fink: In January 1976, I saw snow for the first time during an interview in New York. At that time, I was a typical West Coast youth, wearing turquoise jewelry, sporting long hair, and often dressed in a brown suit. First Boston was the most attractive among many companies, as they offered personalized training programs, and several leaders on the trading floor made me feel welcome. They directly arranged for me to enter the trading department, which was uncommon at that time.
Wall Street at that time was completely different from now. In 1976, First Boston only hired 14 people. At that time, the total capital of all Wall Street investment banks was only about 200 million dollars, including Goldman Sachs, L.F. Rothschild, Kuhn Loeb, Lehman Brothers, White Weld, Merrill Lynch, etc. (excluding commercial banks).
At that time, investment banks operated like family workshops, taking on almost no risk. The expansion of the balance sheet only began after 1976.
In the first month of joining the trading team, I was confident that I could handle this job. After the training, the company assigned me to the mortgage and guarantee department, which only had three people, and I felt very excited.
(2) Larry's entrepreneurial journey
Leon Kalvaria: What fundamental new insights have your early experiences in securitization brought you regarding finance and risk?
Larry Fink: The personal computer is what truly changed Wall Street. Before that, there were only tools like the Monroney calculator or the HP-12C. In 1983, the mortgage department was equipped with a few computers, which, by today's standards, were rudimentary, but allowed us to rethink how to integrate mortgage pools and calculate their cash flow characteristics.
The process of securitization was initiated by restructuring cash flows through the processing of real-time data. At that time, many calculations were still done manually, but the derivatives field, such as interest rate swaps, was emerging due to the application of trading-layer technology. Wall Street was thus completely transformed.
The important opportunity for BlackRock's establishment is that the seller's technology has always been ahead of the buyer.
Leon Kalvaria: What is the most unexpected lesson you learned? What insights did you gain from it that may have shaped your later leadership at BlackRock?
Larry Fink: Let's talk about my career path. I became the youngest managing director at 27, joined the company's executive committee at 31, and by 34, I had become unbearable due to my arrogance.
At that time, the team-first philosophy only applied during profitable periods. In 1984-1985, we became the most profitable department in the company, even setting a quarterly record, but in the second quarter of 1986, we suddenly lost 100 million dollars. This exposed the essence of the problem: when profitable, we were hailed as heroes, but when losing, 80% of the people no longer supported us, and the so-called team spirit completely collapsed.
I learned two profound lessons: first, thinking I had a top-notch team and market awareness, yet failing to evolve my thinking with the market; second, when competing with the Solomon Brothers, I was blinded by the ambition to capture market share. Lou was fired a year earlier than me for a similar mistake, yet I did not take it as a warning.
I have never been able to forgive the company for blindly adding capital when I did not strongly oppose it; we lacked risk management tools and took on unknown risks. This failed experience ultimately became the soil that nurtured BlackRock's growth.
Leon Kalvaria: What makes you still believe that entrepreneurship can succeed under the dual pressure of widespread skepticism and personal setbacks?
Larry Fink: That experience indeed made me lose a lot of confidence. Although it took me a year and a half to rebuild my career, during that time I received partnership offers from several Wall Street firms, but I always felt it was not suitable to walk the old path again. So I began to explore the possibility of shifting towards the buy-side market.
At that time, two important clients were willing to invest in my startup, but I lacked confidence to start solo, so I proactively contacted Steve Schwarzman. The first Boston had raised the initial fund for Blackstone (approximately $545 million), and thanks to our relationships with savings institutions, I assisted in completing part of the fundraising.
Through the introduction of Bruce Wasserstein, I got to know Steve and Pete. They were very interested in the idea I proposed, in fact, Steve believed in me even more than I did myself, and I eventually became the fourth partner at Blackstone.
After resigning, that weekend, I held an open house at home, and about 60-70 people showed up to discuss my new plans. I directly told some of them, "You will actually be able to develop better after I leave." At that time, the company was experiencing disintegration, with some people leaving and others staying, but this honesty helped all parties find a more suitable path.
(3) The Development and Importance of Aladdin Technology
Leon Kalvaria: What were the key factors that led to BlackRock being chosen to provide critical advisory to the U.S. government during the financial crisis? Did the Aladdin technology become a decisive advantage due to its early deployment?
Larry Fink: When the company was founded, there were two technical experts among the eight people. We invested $25,000 to purchase the SunSpark workstation that was just released in 1988, which allowed us to develop risk tools independently at BlackRock.
From day one, the foundation of the company has been the development of risk tools, and BlackRock's culture is deeply rooted in risk technology.
When Kidder Peabody, a subsidiary of General Electric (GE), went bankrupt in 1994, we proactively offered assistance to CEO Jack Welch and CFO Dennis Damerman based on our long-standing partnership with GE. While the outside world generally believed that Goldman Sachs would be hired, we were entrusted with the task of liquidating its bad assets thanks to the Aladdin system.
I declare that no consultation fee is required, and the payment will be made after success. After nine months of operation, the asset portfolio eventually made a profit, and GE paid the highest consultation fee in history.
I hope my investment team can establish itself through its own success and capabilities, and I hope Aladdin can compete with anyone and win. We have decided to open the Aladdin system to all customers and competitors.
In 2003, we faced a financial crisis. With the trust relationship we had with the U.S. government and regulatory agencies, we participated in several bailouts with the same philosophy. Bear Stearns was hired over the weekend by JPMorgan (JP) to analyze its portfolio; while urgently assisting JP in assessing risks on Friday and Saturday, I was allowed to maintain communication with Treasury's Hack and the Fed's Tim simultaneously.
On Sunday morning at six o'clock, Tim called for support. I responded that I needed to obtain permission from JPMorgan CEO Jamie before transitioning to government service. To expedite the process, we were directly hired by the U.S. government.
The finance minister asked, "Will American taxpayers incur losses from taking over the assets?" I suggested including the principal and interest in the calculation, as the assets have already been significantly written down and the interest rates are extremely high, making it likely that taxpayers will recover their funds.
Since then, we have been successively hired to handle the AIG restructuring and the crisis response of the governments of the UK, the Netherlands, Germany, Switzerland, and Canada.
(Note: American International Group, abbreviated as AIG)
(4) What is the purpose of the annual letter to shareholders?
Leon Kalvaria: What is the core creative concept behind the annual letters to shareholders that you have been writing since 2012? Is it aimed at documenting key turning points, conveying insights to investors, or making strategic declarations?
Larry Fink: With a few core themes aside, I have never tried to make a declaration in writing these letters. If it weren't for the acquisition of BGI in 2009, which made us the largest index provider in the world, I wouldn't have put pen to paper at all. At that time, we took on a significant amount of equity management responsibilities, but only had voting rights and not disposal rights.
This is consistent with the ideas discussed by Warren, as the core of the initial few letters is to promote "long-termism," encouraging long-term investors to think about long-term trends, which is the entire original intention.
(Note: Larry Fink's shareholder letter was jokingly referred to by Leon Kalvaria as a sort of sister piece to Warren Buffett's letter.)
(5) The Future Trends Reshaping Asset Management
Leon Kalvaria: From your perspective, what major trends do you believe will reshape your future investments and asset management?
Larry Fink: Artificial Intelligence and the Tokenization of Financial Assets. Today, during lunch with a former finance minister and central bank governor, he candidly stated that the banking industry has been left behind by technology in many areas.
The innovative practices of Brazil's New Bank are expanding to Mexico, while digital platforms like Germany's Trade Republic are also disrupting the traditional landscape. These cases demonstrate the power of technology to reshape the industry. Understanding how AI can transform big data analytics reveals its disruptive potential; for instance, BlackRock established an AI lab at Stanford in 2017, hiring a team of professors to develop optimization algorithms. We manage $12.5 trillion in assets, which requires processing massive amounts of transactions, and technological innovation is driving us back to the roots of responsibility.
Leon Kalvaria: How will these tools be made available to the public, ensuring transparency and accountability while maintaining BlackRock's advantages?
Larry Fink: Early large-scale operators will have an advantage, which makes me concerned about society as a whole; large institutions that can bear the costs of AI technology will become the dominant players.
However, by the time of the second generation of AI popularization, the competitive advantage will face challenges. BlackRock's current advantage is actually far greater than it was a year ago and five years ago. Our investment in technology has formed a huge scale, and all operations are based on a technological framework, including trade processing, process optimization, mergers and acquisitions integration, and a unified technology platform, which is far beyond external perceptions.
Leon Kalvaria: How are the three major acquisitions in the private equity asset space (Prequin/HBS/Bio) reshaping investor asset allocation in the private market?
Larry Fink: Today's earnings call reiterated the importance of ongoing transformation. The acquisition of BGI (including iShares) in 2009 raised market doubts, but the "passive + active combination + full portfolio focus" strategy has been successfully validated — iShares' scale has jumped from $340 billion to nearly $5 trillion.
In 2023, BlackRock's private equity business saw significant growth, with infrastructure investments achieving a breakthrough from zero to $50 billion, and private credit expanding rapidly. The demand from clients exceeded expectations, prompting us to take innovative measures, accelerating the integration of public and private markets. Technological advancements will drive the free allocation of public and private assets, a trend that will encompass all institutional investors, including 401k plans.
The cost of acquiring Prequin is only 1/3 of that of peers, yet it is a key layout: by integrating the E-Front private equity analysis platform with the Aladdin public fund system, a comprehensive risk control capability for public and private assets has been established, aiding in the integration of investment portfolios and deepening client dialogues.
Leon Kalvaria: What is the current status of retirement funds?
Larry Fink: If you can earn 50 basis points in 30 years, in the private equity market over the long term, your returns will exceed that figure; otherwise, the liquidity risk is not worth taking. Overall, your portfolio can increase by 18%.
Four months ago, BlackRock held a retirement summit in Washington, with 50 members of Congress and the Speaker of the House participating in the dinner. As the manager of the federal government's retirement plans, we manage 50% of the retirement-related funds among the $12.5 trillion in assets.
(6) Relationship with Global Leaders and Strategic Impact
Leon Kalvaria: When global leaders seek your personal advice on financial and geopolitical issues, how do you combine investment expertise with geopolitical risk assessment?
Larry Fink: Building trust is fundamental. Since 2008, central bank governors and finance ministers from various countries have been accustomed to having in-depth conversations with me, with all discussions remaining within the office. Although no formal confidentiality agreements have been signed, trust, like my communication with CEOs, hinges on the fact that these conversations are never leaked. These discussions always revolve around substantive issues; I am not always right, but my views are based on history and facts.
Leon Kalvaria: You have served as a mentor to many leaders for a long time, and this unique communication channel is indeed rare.
Larry Fink: The essence of the asset management industry is results-oriented. We do not profit from fund turnover or trading volume, but rather rely on actual outcomes. We are deeply involved in global retirement systems (the third largest retirement management institution in Mexico, the largest foreign-owned retirement management company in Japan, the largest retirement fund manager in the UK), and therefore we always focus on long-term issues.
This influence cannot be replicated; it is built on years of trust. I will proactively meet with the newly appointed leaders of various countries (such as Claudia in Mexico and Kiel in Germany) before they take office to ensure smooth communication, which is precisely the embodiment of our unique value.
Leon Kalvaria: When you reflect on your recent career, who have been your mentors and influencers?
Larry Fink: When we went public in 1999, BlackRock's market value was only $700 million. We attracted senior directors such as Merrill CEO Dave Kamansky and GE's Dennis Damerman. The board has always been our core pillar. When we acquired Merrill Investment Management, we transformed from a U.S. fixed income institution to a company operating in 40 countries globally, during which I repeatedly discussed management models with the board.
The board of directors remains crucial today, with Cisco CEO Chuck Robbins providing technical insights and former Estée Lauder CEO Fabrizio Freda contributing marketing wisdom. These cross-disciplinary experts keep me relying on the board to drive growth.
(7) Audience Q&A Session
Q: How will artificial intelligence reshape the future investment paradigm? How do you think different investment strategies (individual investors vs. institutions) will evolve? What direction will future development trends take?
Larry Fink: Every investor needs to seek information that the market has not fully recognized; traditional information (old news) can hardly create excess returns. Artificial intelligence generates unique insights by analyzing differentiated data sets. Our systematic equity team has outperformed the market for 12 consecutive years, and its theme-based investment strategy based on AI algorithms and big data has beaten 95% of fundamental stock pickers over the past decade.
But this is like baseball; maintaining a 30% batting average is already very difficult, and achieving that standard for five consecutive years is even rarer. Only a few investors can consistently win. Most fundamental investors have dismal returns after fees, which is the core reason for the shrinking of the active management industry. If active investing were truly effective, ETFs would never have risen.
Traditional asset management companies have low market values, with many peers that went public in 2004 valued at only 5 to 20 billion dollars, while BlackRock reaches 170 billion, precisely because they are unable to invest in technological upgrades. The gap between us and traditional agents will continue to widen.
Leon Kalvaria: What is the most underestimated black swan risk in the current market? If the U.S. economic growth rate cannot be maintained at 3% (even if inflation is controlled), what systemic crises could be triggered?
Larry Fink: If the U.S. economy cannot sustain a growth rate of 3%, the deficit issue will crush the country.
In 2000, the deficit was 8 trillion dollars, which soared to 36 trillion 25 years later and continues to worsen. Only by maintaining a 3% growth can the debt/GDP ratio be controlled. However, the market is skeptical about this. The deeper risk lies in:
20% of U.S. Treasury bonds are held by foreigners. If tariff policies lead to isolationism, the amount of dollars held may decrease;
The development of local capital markets in multiple countries (such as BlackRock raising 2 billion in India and Saudi Arabia launching MBS operations) has led to domestic savings being retained within the country, weakening the attractiveness of U.S. Treasuries.
Stablecoins and currency digitization may reduce the global role of the US dollar.
The solution lies in unleashing private capital and streamlining the approval process. Countries like Japan and Italy are also facing a deficit crisis caused by low growth.
Although there may be black swan events in the private credit sector, a higher matching rate determines that the current systemic risk in the capital markets is lower than in previous years. As long as there is asset-liability matching and deleveraging, losses will not spread into a systemic crisis.
(8) Why did Larry's attitude towards digital assets change?
Leon Kalvaria: What are the key factors behind your evolving stance on digital assets (especially stablecoins)? Has your perspective changed because other institutions have embraced this field at an unimaginable pace?
Larry Fink: I once harshly criticized Bitcoin during a discussion with Jamie Dimon, calling it "the currency of money laundering and theft," which was my viewpoint in 2017.
But the thinking and research during the pandemic changed my perception: an Afghan woman used Bitcoin to pay salaries for female workers banned from employment by the Taliban. The banking system was under scrutiny, and cryptocurrency became the way out.
I gradually realized that the blockchain technology behind Bitcoin has irreplaceable value. It is not currency, but a "fear asset" that responds to systemic risks. People hold it due to concerns about national security and currency depreciation, with 20% of Bitcoin held by illegal holders in China.
If you don't believe in asset appreciation in the next 20-30 years, why invest?
Bitcoin is indeed a hedge against an uncertain future, and the high-risk, rapidly changing environment requires us to continue learning.
(9) Larry's Leadership Principles
Q: What are your core leadership principles? Especially when facing dramatic changes in the industry and needing to flexibly adjust strategies, how do you maintain consistency in leadership?
Larry Fink: We must insist on daily learning; stagnation means falling behind. There is no "pause button" when leading a large enterprise; you must give your all. To become a top performer, you must continuously challenge yourself and hold your team to the same standard. I have been in the industry for fifty years, and I still strive to be at my best every single day.
Ultimately, only by being fully engaged throughout can one maintain the qualification for dialogue and industry discourse power. This right must be earned daily through strength and is by no means taken for granted.