What Larry Fink Told David Rubenstein About Investing
Carlyle Group CEO David Rubenstein’s latest book, How to Invest - Masters on the Craft, offers a broad look at the world of investments, in all its shapes and flavours. It brings together a fascinating number of personages, intereviewed by Rubenstein who have all made a significant contribution to the investment world - from fixed-income to private equity to venture capital.
But perhaps the best insights come from the very first personality to be featured in the book - Larry Fink, BlackRock Chairman and CEO.
Like Rubenstein, Larry Fink has been around a while. He also started small, made mistakes along the way and expresses a surprising amount of humility for someone who has built the world’s largest asset manager.
The quotes from How to Invest below - along with my commentary - highlight some of his insightful thinking, giving a distilled look at one of the most fascinating and powerful investors in the world.
”We’ve [in Wall Street] lost the narrative of long-termism. We’ve lost the narrative of what’s important to all the men and women who are trying to build to live in retirement and dignity.”
No one can fault Fink for calling out the so-called “short-termism” that is prevalent in the world of investing today. As the founder and driving force behind BlackRock’s rise, he knows more than a little about the key factors needed in building for the long-haul.
What is noteworthy in the second part of this quote is how keenly aware Fink is of the main reason for BlackRock’s existence. While his firm is huge even by Wall Street standards, he has not lost sight of the fact that most of the people who - directly or indirectly - invest in BlackRock’s offering are ordinary people who want to live their lives in dignified retirement. BlackRock could very well get caught up in the fact that it is a B2B business, serving the cream-of-the-crop of pension fund and hedge funds around the world.
Instead, Fink is deeply aware that ultimately BlackRock’s mission is to help the end client of those funds - and he remains concentrated on that goal.
“Culture is what binds an organization. Culture is what makes an organization differentiated and unique. I spend at least 30 percent of my time focused on our culture, if not more.”
The well-known adage that “Culture eats strategy for breakfast” is certainly well-known to Larry Fink. Even as BlackRock has risen to the top of the investing world, he has never lost sight of the true reason that he has been successful - a strong culture.
This ties in very closely with the sense of mission that BlackRock and Fink adhere to. Remembering that investing other people’s hard-earned money requires a level of exceptional excellence that often goes missing in the investing world, Fink has made it his main job to keep the culture of BlackRock strong - even as it grows and expands.
There is nothing that will engender long-term success in a firm like building - and maintaining - a rock-solid culture of service and excellence.
“[The Aladdin platform] creates efficiencies and a better dialogue. It enhances our culture. It pumps the blood throughout the whole organization.”
The surprising thing about this statement is that Fink acknowledges the fact that culture is not only about mission statements, value propositions on a PowerPoint or a cool company off-site. Ultimately, culture comes down to how people work together and how aligned they are in what they do on a day-to-day basis.
Technology, for Fink and BlackRock, is a true enabler of this. The Aladdin platform has been lauded for its ability to let BlackRock manage as many assets as it does. But few understand that it has been a key linchpin in the smooth coordination of the entire company, as scattered around the world as it may be.
As the future unfolds, technology will continue to play an increasing role in the success of organizations and in their ability to work closely together, staying in sync and accomplishing great things for clients.
And nothing builds a great culture like getting things done with a mutual sense of accomplishment by all involved.
“I had the view that global capital markets were going to be the engine for economic growth. At the time [of the iShares acquisition], we had $2.7 trillion in assets. That represented 1.6 percent of the global capital markets. Today we’re $9.6 trillion and we’re about 1.9 percent of the global capital markets. […] Even as large as we are, we only control assets comprising 1.9 percent of the ecosystem.”
Humility may not be the first quality one expects from the chairman and CEO of the world’s largest asset manager. But Fink obviously has a bird’s-eye perspective on global markets and their development. After all, he has seen it happen with his own eyes.
Clearly he subscribes to the maxim that “a rising tide lifts all boats”. The key differentiator is that it seems he has not been caught up in his own success and (still) shies away from thinking in terms of zero-sums.
That is unique.
“One of the outgrowths of [all the mergers of banks and insurance companies] was a financial crisis, because many financial services firms never consolidated onto one common platform.”
The flip side of BlackRock’s harmonized operations and its smooth success is the chaos and disarray that has afflicted many other firms as they have grown and expanded.
It may be natural to think first and foremost about cultural integration of two or more firms in terms of personalities, office locations, language and so on - but technology and processes play an even bigger role than deciding which logo to use and what language to speak.
What Fink and BlackRock have understood is that a shared, integrated platform simply helps people get their work done - and move efficiently to meet the needs of clients. Without those two factors - efficiency and client-focus - very few companies can scale and be as successful as BlackRock has been.
“I don’t think there was anybody who believed that the path of BlackRock was to be wealthy. Wealth is an outcome of success, but there was not one person among us who was motivated principally by material possessions and achieving great wealth. It was about building something that we would be proud of.”
King Solomon wrote that “pride goes before destruction” - but in the case of BlackRock’s trajectory, the sense of accomplishment, combined with a strong humility has made the company and its founder great.
While pundits around the world will deride BlackRock for being too big and its people for being too wealthy, Fink is right to say that ‘wealth is an outcome’ of success (if one thinks that wealth is a good way to keep score…). By focusing on the bigger picture and the narrow focus of his business, Fink has made it clear how important it is to ‘keep the main thing, the main thing.’
This ties in again to the long-term thinking that has been key to BlackRock’s success. How many companies got side-tracked in reckless pursuit of profits, while neglecting the necessary steps it takes to build a business, a product or a strong company culture?
Too many…
“The foundation of my career was about educating clients about this new class of assets, and as that asset class grew, we were able to expand.”
Few people today would think of Larry Fink as a pioneer. But in many ways he was. And in blazing a trail forward with ETFs and passive investment strategies that have become so prevalent over the years, he certainly faced opposition.
For this reason, his role as an educator and an explainer has been probably one of the most important factors in his and BlackRock’s success. What people do not understand, they will very rarely ever buy.