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Latin America Virtual Forum

Grow with us and watch the video replays of our 2021 Latin America Virtual Forum, where we discussed opportunities for growth post-pandemic, ETFs trends, markets and geopolitical outlooks, our view on sustainability and our stance on social awareness.

Watch the highlights

Dominik Rohe
Head of Latin America, BlackRock

Rohe: Over the past year, we have witnessed massive change in markets, our workplace, and our personal lives, and we’ve had to reinvent what it means to be connected.

Karina Saade
Chief Operating Officer for Latin America, BlackRock
The opportunity to grow and learn is a never-ending journey.

Robert Kapito
Founder and President, BlackRock
The pandemic triggered a variety of challenges over the past 14 months.

Thomas Donilon
Chairman of the BlackRock Investment Institute
It's a tumultuous time in the world.It’s sn especially in Latin America.

Rick Rieder
CIO of Global Fixed Income and Head of Global Allocation Investments, BlackRock
I think we are going through this is the most exciting time in investment history.

Jessica Tan
Global Head of Corporate Strategy, BlackRock
Despite the pandemic and the shutdown of global economies, sustainability has been become an even greater focus for both investors and policy makers through 2020 and now in 2021.

Larry Fink
Chairman and CEO, BlackRock
We spent a lot of time about how COVID has created more inequalities. The reality is climate risk is going to create even more inequalities.

Armando Senra
Head of iShares Americas, BlackRock
Climate change requires a global approach and a global action plan.
What does growth look like in the future state of the world? You need to be nimble and able to adapt.

Frank Cooper
Global Chief Marketing Officer, BlackRock
Our investment conviction is that sustainability risk and climate risk in particular, is investment risk.

Henry Fernandez
Chairman and CEO, MSCI
The global investment industry is about risk capital, and it's about allocating that risk capital from savings to productive investments to create economic growth and prosperity.

Kate Moore
Head of Thematic Strategy for the Global Allocation Investment Team, BlackRock
The era of small government is over, not just in the U.S. but seems like the rest of the world.
The economy firing on all these engines, restart, pent up demand and healthy corporate sector. I think that will drive things going forward.

Dan Restrepo
Founder of Restrepo Strategies LLC
The administration has started on the most critical item, the most pressing item that faces them via vi the Americas, and that is migration.
Our job as a fiduciary is to be working with and along management and their boards of directors to see how they are moving forward.

Sandy Boss
Head of Investment Stewardship, BlackRock

For a company to maintain its social license to operate, that company actually needs to be, you know, in touch with and representative of its consumers and its community. You can't sit on a happy white male island and continue to sell into a population that doesn't look like you.

Dominik Rohe
Head of Latin America, BlackRock

Rohe: Over the past year, we have witnessed massive change in markets, our workplace, and our personal lives, and we’ve had to reinvent what it means to be connected.

Karina Saade
Chief Operating Officer for Latin America, BlackRock
The opportunity to grow and learn is a never-ending journey.

Robert Kapito
Founder and President, BlackRock
The pandemic triggered a variety of challenges over the past 14 months.

Thomas Donilon
Chairman of the BlackRock Investment Institute
It's a tumultuous time in the world.It’s sn especially in Latin America.

Rick Rieder
CIO of Global Fixed Income and Head of Global Allocation Investments, BlackRock
I think we are going through this is the most exciting time in investment history.

Jessica Tan
Global Head of Corporate Strategy, BlackRock
Despite the pandemic and the shutdown of global economies, sustainability has been become an even greater focus for both investors and policy makers through 2020 and now in 2021.

Larry Fink
Chairman and CEO, BlackRock
We spent a lot of time about how COVID has created more inequalities. The reality is climate risk is going to create even more inequalities.

Armando Senra
Head of iShares Americas, BlackRock
Climate change requires a global approach and a global action plan.
What does growth look like in the future state of the world? You need to be nimble and able to adapt.

Frank Cooper
Global Chief Marketing Officer, BlackRock
Our investment conviction is that sustainability risk and climate risk in particular, is investment risk.

Henry Fernandez
Chairman and CEO, MSCI
The global investment industry is about risk capital, and it's about allocating that risk capital from savings to productive investments to create economic growth and prosperity.

Kate Moore
Head of Thematic Strategy for the Global Allocation Investment Team, BlackRock
The era of small government is over, not just in the U.S. but seems like the rest of the world.
The economy firing on all these engines, restart, pent up demand and healthy corporate sector. I think that will drive things going forward.

Dan Restrepo
Founder of Restrepo Strategies LLC
The administration has started on the most critical item, the most pressing item that faces them via vi the Americas, and that is migration.
Our job as a fiduciary is to be working with and along management and their boards of directors to see how they are moving forward.

Sandy Boss
Head of Investment Stewardship, BlackRock

For a company to maintain its social license to operate, that company actually needs to be, you know, in touch with and representative of its consumers and its community. You can't sit on a happy white male island and continue to sell into a population that doesn't look like you.

GABRIEL HASSON:  You are both rock stars. Thank you. This is has been an insightful discussion. It is clear that social awareness and sustainability are taken very seriously at BlackRock. As Sandy has explained, social capital links directly to the financial performance of companies' long-term financial well-being of our clients. Hello, everyone. I'm Gabriel Hasson, the head of Latin America stewardship at BlackRock.

I hope you are enjoying so far this remarkable forum that our incredible team has prepared for you. Shout out to them. I joined the firm two years ago. Prior to joining BlackRock, I spent some years working at ISS Capital solutions, Deloitte, and the Atlantic Council in Washington D.C. where I helped fellow governments and multi-national companies in the United States and Latin America to enhance their ESG approaches. Before that I co-founded a law firm in Mexico where I practiced corporate law and M&A law for 13 years.

In that capacity I helped companies through corporate expansions, and particularly strengthening their ESG practices that ultimately enhanced their opportunities to retract international investments. As you can imagine, my background has been quite relevant for my stewardship role at BlackRock to date. When we think about the role of sustainability has played and it will continue to play, we must put into perspective why are we doing this? In this context, it is important or relevant to highlight that two-thirds of the $8.7 trillion that BlackRock has under management are long-term investments. These are 30, says 40, or 50 years. How are we making sure that our clients' investments continue to be productive in these everchanging challenging circumstances?

Well, we're taking action. Back in January the firm laid out three focus areas in that regard. The first one related to measurement and transparency, which critically depend on sustainability data. Second, augmenting our investment management solutions to offer investors choice and access to invest sustainably, and, third, enhancing our investment stewardship group. To date our group is the largest in the industry with more than 60 members globally.

At BlackRock sustainability is at the heart of what we do. We advocate for sound corporate governance and business practices that drive sustainable long-term financial returns in the companies that we invest in on behalf of our clients. This is, of course, grounded on our conviction that sustainable investments deliver better outcomes for our clients. Our working, as Sandy has explained, involves engaging with companies to communicate our expectations and concerns while informing our voting decisions. It also entails the actual voting, voting the shares and holding directors accountable. For example, last season we voted approximately 17,000 meetings globally.

Finally, using our voice. This is to advance responsible leadership and deliver long-term value for all stakeholders through thought leadership. At stewardship we always put governance at the top of our approach. A strong board with well-developed governance framework enhances the risk management process of a company, but it also provides improvement on their risk mitigation profile. We care deeply about director independence, thoughtful board composition and diversity, relevant skills that serve a company through good times but also through bad times. Public disclosure around these topics are key.

This is why little more than a month ago we sent out a letter towards Latin American portfolio companies requesting the adoption of global practices to make disclosure robust and meaningful. This, to facilitate the evaluation and participation of international investors like ourselves. In that letter we have asked companies to provide public disclosure with approximately 45 days prior to shareholders meetings in which narrative is included supporting director elections. For example, links between director skills and experience, links with this experience and the company's corporate strategy and the risk profile.

Also, within the same time frame, 45 days, make annual sustainability reports available to allow the opportunity for us international investors to evaluate, assess the risk mitigating strategies carried out by the board. We believe the board effectiveness is fundamental for a company's success. Also, for the protection of shareholders' best interests. Part of the board responsibility consistent with their own fiduciary duties is precisely to oversee strategic direction and operation of the company. For these reasons BlackRock interprets the election of directors as one of our most critical responsibilities. Research from our colleagues at BlackRock sustainable investment, as well as the international finance corporation, or ISC, has strengthened our belief that sustainability integrated portfolios, that means those favoring companies with better ESG performance, can provide client better on long-term adjusted returns.

In other words, it is our investment conviction that companies manage on a focus on sustainability are better positioned than less sustainable peers to weather adverse conditions. We are seeing more and more how kinder risks impact investments, but in addition to climate risks, pondering transition risks and transition opportunities will be central for success. Planning for this transition will have a monumental change. At BlackRock we do not decide or dictate a company's business strategy.

However, as you have heard by now, it is our conviction that climate risk is an investment risk. We are explicitly asking of companies to disclose how their business plans are aligned with the goal of limiting global warming to well below 2 degrees scenarios, which is also consistent to achieving net zero global GHG emissions by 2050. Those disclosures are essential to help investors assess a company's actions and ability to precisely transition its business to a low carbon world and capture value creation opportunities created by its climate transition.

We recognize that not all of Latin America has reached peak emissions as outlined in the United Nations determined contributions. As a result, corporate guidance around carbon emissions is at an earlier stage, and engagement on climate risk and energy transition is more nascent in Latin America. As such, our expectations are proportionate, but not less ambitious. We have asked of companies to disclose GHG reduction targets and consider physical and transitional risks such as stranded assets and the long-term cap-EX and planning investments. Our intensified focus on climate risk last year specifically within companies in carbon-intensive sectors led us to vote against directors in 69 companies for climate-related reasons. This year we have expanded our climate review to more than 1,200 companies. Globally representing 90% of scope one and two emissions within our client's listed equity portfolios.

Circling back to that initial question I posed and particularly from a stewardship perspective, how do we make sure clients' investments continue to be productive and sustainable? Well, as you can see from an investment stewardship perspective, we are in a journey to fully embed sustainability into our approach. Therefore, we are certainly looking forward to engaging the fort every important folio company in the years ahead, but to close my remarks, our CEO Larry Fink foretold in his letter to CEOs at the beginning of this year a fundamental reshaping of finance was taking place. That these changes would be driven by a significant reallocation of capital towards sustainable investment.

So, to provide more color and specifics, I now give the floor to our founder and Chairman and CEO Larry Fink and our global head of corporate strategy Jessica Tan.

Hi everybody and thank you Gabriel for that introduction and thank you Larry for being here with us today. I know the group is excited to hear about your views on sustainability. Gabriel mentioned your 2021 letter that you wrote to CEOs, you write one every year, in 2020 you talked about the fundamental reallocation of capital towards sustainable investments and that was pre-pandemic.

Even despite the pandemic and the shutdown of global economies, sustainability has been become an even greater focus for both investors and policy makers through 2020 and now in 2021. Curious to hear what you have been hearing in your conversations with leaders around the world regarding sharpened focus on sustainability.

LARRY FINK :  Well, thank you, Jessica. I see you're in the office too, like I am. I would just like to give everybody a welcome, and hopefully everybody is safe. As we know, in parts of the world, including many parts of the Americas, the pandemic is maybe even worse, and in places in the United States the pandemic is being more under control, and so our hearts are out for those people who their friends or family have been impacted by the disease. Obviously, the one thing that's so important to understand the -- how COVID has changed the world and how COVID has shown the fragility of the world, and I think that's metaphor that I wanted to go into sustainability.

The world is very fragile, and we saw how economies have been so disrupted by COVID and how we live our lives are going to be changed forever because of COVID. Much of it could be positive, so we are changing and adapting. I will use that as another metaphor as a reason why I'm so optimistic about the world because we do adapt as human beings. We grow and learn from our mistakes. We grow from that. Metaphor of the fragility of human's health and how it changed the world is actually connected many more people during 2020 on the fragility of the earth health, the world's health, and I think this has been becoming more of an issue and a more dominant part of the conversations we are having.

More and more -- more people have had time as they work remotely to reflect on what's going on in the world. At the same time, they are focusing on obviously COVID and the impact, but we have witnessed in many parts of the world, in many continents of the world how we are seeing the physical impact of climate change, how it's impacting the world. Through those two issues, the fragility of the world because of health and the fragility of the world because of physical impact, the dominant component of all conversations worldwide, whether it is a wealth management company or an individual investor or a head of state, a dominant part of our conversation is related to how should we be positioning yourself.

Especially for long term investors, investors are focusing on retirement, Afores in Mexico and other parts focusing on long-term outcomes, the impact that climate change is going to have a serious impact, and on maybe those outcomes. Maybe not in the next 12 months, we can go into that later, but I -- Jessica, what I -- what we are seeing at BlackRock and as an asset manager, we are at the nexus between asset owners, because none of the money that we manage is our money, so on behalf of our savers and investors, and our conversations with the companies that we invest in, on behalf of the asset owners. Asset management plays a very significant role in this because it is a conversation we need to have with the owners of capital and how they should be positioning themselves for this issue and whether it's physical impact risk and that's easy to see with rising water levels or fires or floods are persistent and we can see how that will all impact a long term portfolio. The bigger question that asset owners are asking now is the issue of transition risk especially now with so many countries, including now the United States, are now focusing on how do we move forward on how do we start focusing on in terms of shaping the economies for this transition, and so the big question and the more difficult question to answer because you have to be more granular company by company, how are -- how should the portfolio -- the asset owners ask how should we position ourselves for the transition, and the owners of companies and the leadership of companies are trying to decide and describe to us how they are moving forward in their transition to move their company forward.

You know, we are having conversations every day from both sides, and I -- you know, I wrote in my 2020 letter about the tectonic shift in capital, and that's happening. It's -- we're seeing it every day, and I can talk about that later, but we're seeing real evidence of capital moving, capital being asked from where should they position for climate risk or transition risk, and that is our message to so many of the CEOs and management teams of companies and their board that the amount of capital that's moving into these segments now is going to be -- is so pronounced, and we think it's going to accelerate, not decelerate, that all companies are going to have to be prepared. If they're not prepared, they're going to have a lot of capital outflows. Their stock has been underperforming, and obviously, those are the issues that we have to address.

JESSICA TAN:  That is a great point, there is a lot of capital moving to sustainable investment, and you talked a lot about the risk and the opportunity in the transition. Can you elaborate a little bit more on that opportunity so specifically, where do you see sustainability perhaps creating some disruption or the most disruption, and how do you think of companies when they can evolve their strategies and operate to better serve their stakeholders and service this transition?

LARRY FINK:  One of the big reasons we're asking companies to disclose more whether its TCFD or SASB, or whatever their methodology is, I don't -- you know, I want to be clear, we just want better information at the corporate level. We prefer a TCFD type of reporting or maybe SASB, some companies are saying we're going to report it our way. As long as we can understand how they're moving forward, it is through that information accumulation and data, and then, you know, having better analytics, and we are able to now relook at portfolios where I see the greatest transformation is going to be the ability when we have more information at each corporate level, we're going to be able to create more customization of portfolios -- more importantly, through that customization, there are going to be companies moving forward and companies that aren't going to be part of the portfolios or customized indices, and through that process, so if your company, let's say, you're in the fortune 500, but you're not moving forward and are excluded in these new customized portfolios and new customized indices, it means you are going to have capital outflows.

To me this is a major component of this tectonic shift. Through customization, through indexation, we are seeing an acceleration of interest, acceleration of movement. If we ever see then the state funds who are generally pretty social-minded and environmentally minded, if they just looked -- if they just moved all their capital away from the traditional indices of an S&P or a Russell or a FTSE or MSCI, whatever liability, whatever index, if they start saying, you know, where he only want to invest in customized indices that hopefully track and S&P or a Russell maybe we can do that now. When that happens, and I think that's within years or less, that's going to be -- we're going to see trillions of dollars moving away from the traditional indices to these more customization ones.

That's going to be a major component of where this money is moving, but I want to be really clear if society is going to get this right if society -- if society wishes to have this net zero, it’s just a commitment. The net zero reality, it's going to be a lot of capital moving into innovation. It means investing in new technologies for green hydrogen. New technologies for sequestering carbon and steel and cement. New technologies and new processes, new methodologies for agriculture. That's how we're going to get it done. What we believe is going to be a lot, we're going to see a lot of capital moving into innovation, and I've said -- I'll say it again, I believe we're going to see over 100 unicorns. Not the unicorns that we're going to be creating a better social media platform or a better faster food delivery but a unicorn that maybe isn't all the components of the sustainability decarbonization space. The opportunities for transition are huge.

This is why I look at transition risk in climate change as a great opportunity. Not a great -- not -- I'm not -- it's not something I'm frightened of because I do believe we have the ingenuity and the technology if we continue to invest in this. For the emerging world to succeed in a net zero we have to find a way to bring down the green premium. It's only going to be done through innovation, and this is why it's so urgent to be investing in growth opportunities in sustainability.

I think all of you know it took over 30 years to bring down the cost to solar and wind. We don't have 30 years. We had solar and wind farms, you know, 30 years ago. They weren't that effective. We did have proper storage, but today for most countries today that have wind or lots of sun and a lot of LatAm countries have tons of wind and tons of sun, solar now and wind is cheaper than coal, and so we are going to accomplish a lot on the power grid through sun and wind. We need to be investing in technology to have better storage, but the one thing I wanted to say loud and clear, this transition is a 50-year transition.

We are going to be living with hydrocarbons for a long time. BlackRock is not against hydrocarbons. Here we are pushing forward on sustainability, but to have any transition that is fair and just for all parts of society, we are going to have to find a way to make this transition fair and just. We're not going to have it done politically. You're going to have politicians fighting you and getting it done. The one thing that we are pretty loud on and the environments hate me for this, I don't believe that the companies that are into the hydrocarbon business should be divesting. I don't believe they should be selling their hydrocarbon business to some private equity firm or some private organization because we don't change the net zero world. It moves out of a balance sheet of a company onto another balance sheet that is opaque and we don't know what is going on. I believe the companies that are in the hydrocarbon business are the best prepared to navigate down the hydrocarbon stream at the same time they have great technology they have great scientists. Part of this innovation is not just unicorns or start-ups, but it's investing side-by-side with some of the biggest hydrocarbon companies, and the biggest chemical companies, and working with them to develop this. BlackRock right now had an amazing conversation with a couple of big chemical companies that are known for let’s say hydrogen or known for another big, big output of chemicals that have a big carbon footprint. We are working with them on three or four projects right now in creating green hydrogen and sequestering of carbon, and so that's the excitement for me. It is not running away, and this is -- it's working with. It is investing in new technologies and so this is the opportunity, and working with governments, not against governments. Working with society to making sure that the best we can in this transition is the just transition. The last thing I would say, Jessica, and this is where if we fall down, we're going to fall down on this. It's getting government, all governments, to focus on long-term strategies. What we're seeing now in the United States and other countries, when you have administrations go from one extreme to another extreme, you know, what's going to happen in the United States four years later, are they going to abandon what's being done now? That -- we will never get to a net zero world if we don't get society and I mean all of society, to believe that this is a commitment we need to do. Now, parts of society are believing this more and more. I would say more and more human beings in the world believe that we need to do this. More of the millennials are more for this. We do our own surveys of our young employees across the board and they believe in this. This is happening, but if -- but is it happening fast enough. The only way this is going to work is working with governments, for society,  and it has to be done public and private.

JESSICA TAN:  That’s great and it actually leads very well to the next question. Decades-long transition obviously partnership of government is critical. The regulatory environment has really picked up and progressed significantly across the globe. In LatAm, regulators have started to integrate sustainable finance principles into a regulatory frameworks in Mexico, Chile, Columbia, and we expect more to follow. Is there anything else outside of what you’ve already addressed, you talked about just transition but any other thing or big takeaways from global regulatory frameworks and trends that this group should be following? In other words, what do you think investors and policy makers should take into account as these trends continue?

LARRY FINK:  In the last few weeks I’ve had many conversations with political leaders, and I'm begging them for two things. We need to agree on a global taxonomy. And hopefully by COP 26 we can come together with a global taxonomy. If we can’t it’s going to be hard to measure one country or one company in one country versus another if we can't. If the regulators are going to demand public companies to report, report under what? And how? How do we measure one company versus another? So that's problem one that we were asking everybody to focus on.

Two, getting back to my statement before, if regulators only ask public companies to do this, for public companies only to be part of the report and then move forward. We're not going to get to a net zero. The one thing I'm urging every politician, and I don't know if they’re going to be able to do this. We have to ask society uniformly to do this, because we just put pressure on public companies -- more public companies to go private, and they don't have to do it. This is an urgent issue that we need to give governments. It's convenient for politicians to attack public companies. They're transparent. Other than attacking for political reasons, if you really are committed to a net zero country or world, you have to talk to all society to move forward together. I don't feel that's happening.

You know, it's going to be very convenient for the S.E.C. and other regulators worldwide to ask public companies to report, but it's -- if they're doing it for window dressing, that's all we do. That's window dressing. We're not going to get to a net zero world. There lies the fundamental problem. If we don't ask all society to uniformly move together, and that's a hard thing to ever accomplish. Especially in this polarizing world. I mean, every day BlackRock gets attacked from the far left from not doing enough or attacked from the far right because we are, you know, anti- whatever. That's just -- we're a microcosm of what we're seeing, but if we can't get governments to be focused on the totally of change, you know, we're fooling ourselves by just regulating public companies.

We as the largest investor in the world -- we're the largest investor of essentially public companies, and I tell politicians we're -- public companies are moving forward very rapidly. When you see what's happening in the United States, even with the big -- even with the U.S. Chamber of Commerce or the business roundtable, the big public company organizations, we're moving forward and we're going to see that, and we're expecting the regulators to ask us to report, but that's unfortunately not enough if we really want to get to that point. And if I had a pit in my stomach, if I felt nervous about this, it's that. This is the number one issue that I really worry about. If we really are committed to this as a society, we can't just ask public companies and do it on alone or we're never going to get to that level. If they only ask public companies, and that's the path we're going on, by the way. It's convenient, and it's politically smart to just, you know, go after public companies, and if that's all we're going to do, we're never going to get to a net zero world and we’re going to have bigger problems in the future.

JESSICA TAN:  You mentioned that BlackRock has committed to supporting the transition to net zero emissions by 2050. From a client perspective, what are the risks and opportunities they should be thinking about related to the transition to net zero?

LARRY FINK:  Well, as I said before, the opportunities are going to be to get to a net zero is going to be innovation and the massive opportunities to focus on the new technologies. The focus on the traditional companies, the traditional hydrocarbon companies, as they focus and navigate. The trends -- this is why we at BlackRock are spending so much time in building data and analytics. We want to inform our asset owners of how we believe transition risk will impact their portfolios, we want to show how climate risk through imaging technology from satellites on how we can see how that physical impact if you had a one and a half degree change in temperatures, what does that mean using all the different modeling, and what does it mean for water tables and water levels, what does it mean when you have persistent heat, what does it mean for crops?

There's facts that people don't talk about, but in the United States, I can't speak about LatAm-- but in the United States ten years ago Iowa was the largest producer of corn today because of persistent flooding and rising temperatures, as you know, corn can't tolerate a lot of hot heat as much as other crops, like wheat. Today it's South Dakota as the largest producer of corn in America. That's from climate change already. And you're seeing different values in crop insurance. The largest crop insurer in the United States is charging different rates now because of that.

 Another insurer, the United States, we're aware of, you know, just a few weeks ago canceled 2,000 policies in northern California, homeowners’ policies in northern California because in California they had -- they have -- they ban raising prices of insurance -- of existing insurance. They can't stop you from walking away. Now, the little secret is these companies can create an affiliate company in the same holding company and offer insurance, but it's at a higher price. We know in Florida right now the average insurance policies have gone up over 18% in the last two years. So we are seeing how physical climate risk whether its fire, crop, wind or water tables we seeing how that’s impacting. The issue that I have, and this is why we need government to be focused on this in all countries, imagine that town or countries have owned a home for years and years and years, and are you going to be to afford that in the persistent 18% increase in property insurance. Now the wealthy can.

We spent a lot of time talking about how COVID has created more inequalities. The reality is climate risk is going to create even more inequalities. If you lived in one location, you know, 50 years ago I had no risk of climate risk, and now you do because of the changes of temperatures or changes in water tables. We're seeing a big impact. That's going to be a louder and louder story throughout the world.

These are the issues and real live circumstances we are seeing how climate risk is already transforming valuations and prices and this is part of that tectonic shift I was talking about. We're seeing repeatedly almost every day how we're seeing valuations that are changing because the impending risk of climate risk and the greater knowledge of the transition. This is why it requires a lot of long-term government policy creation or we're not going to get it done.

JESSICA TAN:  Larry I’m going to switch topics slightly. Before our session, Sandy, Frank and Gabriel were speaking about stewardship. BlackRock has long believed that sound corporate governance and management practices are crucial to achieving the long-term financial success of companies.  What role does investment stewardship, by large asset managers like BlackRock play, in achieving net zero and supporting stakeholder economies, and if you could give your perspective HO how we've evolved our stewardship engagement with companies to better align with our long-term goals?

LARRY FINK:  Our job is in response to the owners of the capital. Our job as a fiduciary is making sure that the owners of capital are going to have the long-term returns that they need. In that light, this is why we've built out our corporate stewardship team so we could have deeper, broader, more consistent, more active dialogue with more and more companies. Because we are the largest investor of retirement assets in the world, our investors have long durational liabilities, and if you intersect this concept of climate risk and transition risk, we need to as the long-term investor need to understand how each company is moving forward on transition and climate risk.

At the same time, we're patient capital because we're a long-term investor, but our job as a steward of our clients' money is to be informing companies that our asset owners are looking -- are interested in how you as a company are moving forward. Our asset owners are asking BlackRock as their fiduciary how companies are moving forward. We're not doing this as environmentalists. We're doing this as capitalists and a fiduciary, and I want to underscore that. I mean, I am an environmentalist personally, but I can't use that as a role our job as a fiduciary is to maximize return for our clients. We believe that the whole concept of climate risk and transition risk is going to impair some companies if they're not prepared to impair some asset pricing in locations where there is going to be real physical impact risk.

Our job as a fiduciary is to be working with and along management and their boards of directors to see how they are moving forward. That's the -- that is the concept of how I believe our fiduciary responsibility is in terms of stewardship. It's to be informing them what our long-term clients' needs are and why we believe climate risk is an investment risk for them and we need to be -- if we -- we need to now instruct all the companies we own that they need to be more prepared if they're not moving forward, and we need to be working with them on this, but it has to be in a cooperative way that we're working with them too. It is not -- this is not a sprint. This is something that we need to be working with companies. Once again, if we thought it was a sprint, I don't think we would be -- we would create a just transition.

Now, the far left hates what I just said – Many people on the far left don't care about a just transition. They believe that the health of the world is so negative right now that we have no choice, and we're going to create all this. I can't say that. You know, I cannot say that on behalf of the asset owners. We have to be working with the asset owners. One of our asset owners wishes to be very militant on this, we can do that on their behalf, but we -- that's -- it's not our right to push companies over the edge. This is a very delicate process in which we have to be working with our asset owners with their needs and wishes. Especially with their views about climate risk as investment risk. Then we have to work with the owners of the management and boards of companies that have pushed them forward so they are better prepared for this. We can have enduring investments in their companies. I just want to say, it's about creating long-term enduring profits so our clients are benefited, but with the overview that climate risk is investment risk, and we need to be certain that companies are moving forward as a fiduciary of our asset owners that we are doing the best we can to inform the owners of the -- the owners of the management teams of companies that they're moving forward and we will have enduring profit from them.

JESSICA TAN:  Thank you, Larry. I think that long-term view has been a theme throughout today. With that, I think we're actually out of time for this session, but just wanted to –

LARRY FINK:  Wasn't too long-term.

JESSICA TAN:  I wanted to thank you for spending time with this audience today and thank everyone who is watching for spending their time with BlackRock. Thank you to Dom and Karina and others for having both Larry and myself here.

LARRY FINK:  I want to thank everybody for your partnership, your patronage, your friendship, and I would just urge everybody be conscious and get a vaccination

KARINA:  Hello, everyone. Thank you Larry and Jessica for sharing your insights today. It's been incredibly interesting to hear your outlook for sustainable investing, and the role that we as investors as well as our companies and institutions play in integrating ESG considerations into how they operate.

At this point I would like to thank you all for joining BlackRock's 2021 Latin America Virtual Forum. We appreciate you stepping away from your very busy daily routines to spend time with us, and we hope that you've been able to learn and grow with us today. At this point I want to spend a few minutes recapping what we've covered today.

We kicked off this morning hearing from Rob Kapito on his outlook for the future, diving into major trends on the horizon. Next Kate Moore and Rick Rieder provided insights into the ever-changing fiscal policy landscape and implications for the region as they set the stage for our conversations around growth. Armando Senra and Henry Fernandez then dove into the role of sustainable investing, and internationalization in the ETF industry as well as their views on where it's headed. Later, we discussed the implications and the long-term impact of a Biden Administration on LatAm with Tom Donilon and Dan Restrepo. We then joined in for a thought-provoking dialogue around building more resilient economies and championing stewardship to foster inclusivity with Frank Cooper and Sandy Boss. Finally, we rounded out our day with a conversation on sustainability and BlackRock's commitment to net zero with Larry Fink and Jessica Tan.

We view these opportunities to connect with you as one of many ways to learn from one another and grow together. We hope that you have enjoyed these conversations with us today, and we look forward to continuing with them with you in the near future. To that end, your feedback is paramount to help us grow and build stronger, more meaningful experiences for you in the future. I would encourage you all please to fill out the survey that is displayed on your screen.

With that, I would like to take a moment to express my sincere appreciation and gratitude to the organizing team who helped bring this event together and to our sponsors, MSCI and IHS market for their support. Although our day is coming it a close, the opportunity to grow and learn is a never-ending journey.

As such, we invite you all to visit our resource center for additional materials on today's sessions and beyond. We at BlackRock look forward to partnering with you and growing with you further. Thank you for joining us today and stay safe.

Growth of Sustainability: A Tectonic Shift

Larry Fink, BlackRock’s Co-Founder, Chairman and CEO, joins Jessica Tan, BlackRock’s Global Head of Corporate Strategy, to discuss the evolving sustainability landscape, focusing on the path to a net zero economy, the fundamental reallocation of capital and the critical role of investment stewardship in achieving long-term financial success.

Good morning, to everyone. And thank you for joining the 9th annual Latin America investment forum. First and foremost, I hope you have all stayed safe during this time. And that your families are safe and healthy.

This has been an incredibly difficult year for so many around the globe. And continues to be in places like Brazil as you know and in India. So, while for some of us the return to the new normal feels soon, for others it is far from over. The pandemic triggered a variety of challenges over the past 14 months. Our clients needed help navigating uncertainty, accessing liquidity, investing opportunistically and planning for the future. Some industries struggled while others found new opportunities to grow and thrive. I look across the street here in New York City at the closed businesses, the restaurants, dry cleaners, barber, shoe repair, and it is quite humbling. Revenue models have changed. And the companies who have not been able to pivot, they will struggle going forward.

What does growth look like in the future state of the world? You need to be nimble and able to adapt. Look at the growth of e-commerce, a perfect example. It took 10 years for e-commerce to go from 1% to 10% as a percentage of retail sales. But in 2020, 26% of sales were coming from the Internet. While some in-person shopping will certainly return, I think e-commerce will continue to play a much larger role in the future. And that's just one example. And I could tell you that the world is swimming in cash. Many investors moved to cash at the beginning of COVID or due to various policies. They now have more cash savings than they did before. Global liquidity injections have shattered all previous records in response to the pandemic, and this liquidity is fuel for both the real and financial economy. And add to the fact that there is 18.3 trillion in negative yielding debt, and less assets to buy. This landscape is going to result in historic demand for investment opportunities. I believe the velocity of that cash getting invested after the pandemic is both a tremendous opportunity and a powerful force in the economy. Average bank accounts in the U.S. have gone from $400 to $1600 over the past few months. And personal excess savings is near 12% of GDP. Pent up demand is high and inventory across different sectors is low from housing to the auto industry. The word unprecedented has been used throughout the pandemic but these numbers really are unbelievable. Based on this, I think GDP is going to wow the skeptics over the next 12 months. The dollar should moderate lower, and inflation should move gently higher during what I see is a massive productivity boom. Technology is changing the world of productivity and potential growth like nothing we have ever seen before. And now with real cash flow along side of it. So, the ability for companies to create scale globally makes this one of the greatest commercial revolutions and potentially the most exciting time for investing in history. The way I see it, rates will remain low for longer, and equities will continue to rise. The PE ratio is a superficial concept. Cash flow, duration and discount rate are what matters. An asset allocation for the next few years will be most influenced by where you take your duration risk in financial assets with historically and persistently low discount rates. And it shouldn't be in the highest quality bonds. Volatility is the most often described concept in the media and the least utilized, but possibly the best tool for asset allocation, income creation, and portfolio durability. So given this back drop, we need to look globally for bonds, at the U.S. for equities, and we cannot forget Asia. If China grows each half as much as predicted, it should easily be 30% of a portfolio. And if I had to guess, it is probably 0 to 5% for each of you right now. Customized portfolios and models using both active and passive strategies will be key innovative solutions going forward.

As investors and institutions continue to see the need for diversification and a whole portfolio mindset. This was one of the many trends that COVID accelerated. Additionally, the use of ETFs, especially fixed income ETFs grew over the last year. During the COVID-19 volatility in March, iShares and ETFs at large saw trading volumes rise to historic highs. Average daily trading volumes in all U.S. bond ETFs more than tripled to $35 billion compared to around $11 billion the previous year.

The demand for sustainable and ESG investment options has also increased. I have to say, I was surprised by the intensity at which clients talk the talk and walk the walk when it came to ESG. Our sustainable iShares suite alone grew over 200% organically last year. And our fundamental equity sustainable platform grew 5 times in 12 months, from $2 billion to $10 billion in AUM. The continued demand is incredible. And I don't think it is slowing down any time soon. Of course, another increased trend is the demand for alternatives. As interest rates remain low, investors continue to look elsewhere to source the returns they need. And much of that comes from what we call alternatives. Though at BlackRock we're trying to make alternatives less alternative. But the ability to source deals and conduct thorough due diligence has become harder and more important. The BlackRock alternatives group sourced 5700 private deals in 2020. That's the equivalent of 22 deals per day. Scale and access have never mattered more. And at the end of the day, the pandemic also highlighted the importance of knowing exactly what you own and the possible associated risk and correlations. Risk management continues to be critical.

So, it has been a busy year. We have all learned a lot and establishing a new normal is going to take time. There will be trial and error and a continued need for evolution, but I'm very optimistic. I see a huge amount of opportunity and BlackRock is honored to be on this journey with you. I want to thank you for the business that you are doing with us, and for the trust you place in BlackRock. It is something we take very seriously. As always, if there is more we can be doing to help you and your clients or institutions, please do not hesitate to pick up the phone. With that, thank you for participating in this year's event. I think you will find the speaker lineup to be both informative and engaging. Enjoy.

Emerging Global Trends

Rob Kapito, BlackRock’s Co-Founder, President and Director, delivers remarks on market outlook and key trends in the asset management industry. Highlights include the acceleration of sustainable investing, the importance of alternatives in constructing a whole portfolio and the heightened levels of global liquidity amid the COVID-19 pandemic.

Well, Rob, thank you as always. Amazing to see you. Even better to hear from you and get the global perspective. I want to say first off, welcome, to everyone. My name is Ross Znavor. Chief client officer for Latin America. I had the privilege to meet with many of you over the last few months. This is your day. This is your session. We want you to have an interactive session and more importantly we want to hear from you. Encourage you, write down your ideas. Today should be thought provoking.

Number 2, feel free to reach out for your RM. E-mail me, ross.znavor@blackrock.com. We will get to you. We want to have the conversations that Rob was talking about with you. Without question we are going to be going through change yet again, and change is going to create opportunity and opportunity is growth. The theme for today.

So, I want to talk about what you are going to hear today. Investments are going to be at the center of our conversation as Rob mentioned, we're in unprecedented markets and we’re going to start off with Kate Moore and Rick Rieder to take us through that. Talk about the political landscape. Talk about what that will mean for Latin America in particular and of course we’re going to talk about social awareness and sustainability.

So, without any further ado, let's start to think about our next two speakers, the first is Rick Rieder who is the head of Global Fixed Income, Head of Fundamental Fixed Income and member and leader of the Global Allocation Team. More importantly if he's not doing all of that and I can show you this in detail, he's either on CNBC, Bloomberg on your iPhone. He is everywhere. This is in my stock's feed today.

Complementing Rick is Kate Moore, a member of the Global Allocation Investment Team. Head of Thematic Strategy Prior to that, she was the Chief equity strategist for the Blackrock Investment Institute. She also is on CNBC or Bloomberg globally. I think the app appearance is something they might debate so, that might be one of their topics for today. Without further ado we move to Kate and Rick.

KATE MOORE: Thank you very much for inviting me to speak today and I'm very glad to be joining this esteemed crew and group of clients as we sort of try to navigate what has been an incredibly strange and challenging year. We're waiting for Rick to kind of work out some technical difficulties, so we'll get him on, but I wanted to make a couple reflections myself over the course of the last four months. I am thinking about you starting this year being very optimistic about growth, which we heard Rob talk about. Not being as concerned around sustained rising inflation. I'm excited to talk to Rick about that in a moment. But also, to really get back to a more normalized economic environment.

When I think of the backdrop, what's driving the economy this year are 3 things: 1, the restart from everyone getting vaccinated. 2, a bunch of pent up demand. Rob mentioned high savings rates as we have across U.S. consumers this point and that will be very constructive for additional spending. The third thing that's driving the economy at this point is incredibly healthy corporate sector. Something that was maybe a little bit underrealized at the height of the pandemic when we were facing these tremendous economic hurdles. But we have kind of the economy firing on all of these engines, restart, pent up demand and healthy corporate sector. I think that will drive things going forward. So, I'm excited to dive into the policy environment, the growth environment, and inflation and where we should be investing with Rick here in a minute.

Before we bring in Rick for comments, we wanted to pull a polling question out because we don't want to lead the audience. We’d like to hear what you are thinking. So the question is for all of you, as we collect this, we'll have Rick reflecting on it in his first statements here, but when do you expect the U.S. federal reserve to hike rates for the first time since they brought them to 0 for the pandemic? The options are number 1, by the end of 2021. I would say that means you are optimistic. Number 2, by the first half of 2022. Number 3, the second half of 2022. Or you can say, Kate and Rick, we think this is not happening until 2023 and later.

So, we'll ask everyone to please answer that polling question to begin with. I see some response coming in. So far pretty heavily skewed towards the first half of 2022, but we have more people to answer for sure. Rick, I'm going to ask you since we are taking in these answers from our audience, to give us some of your thoughts on how monetary and fiscal stimulus following COVID is evolving your report card about how our policy makers are reacting to both the economic environment and shock we experienced over the last year plus, especially relative to the GFC. Rick, thanks for joining. And I would love to hear your thoughts.

RICK RIEDER: Thanks, Kate. Welcome. If it is okay, I will go right into these, I have two slides I will show that address directly that question, is that okay?

KATE MOORE: Yes, go for it.

RICK RIEDER: We can call those up. Okay. I think there is pretty extraordinary things in play. Bear with me and I will run you through some data that I this I is extraordinary. If you look at where we are, Kate, to your question the Fed has laid out where we are progress from pre pandemic. Look at some of the data. The upper left is the actual automobile people driving. We are now above where we are pre pandemic. To the 4th quarter of 2019 which is pretty extraordinary when we are doing Zoom calls and most of the people in this industry have not come back yet. The restaurants haven't opened. And driving is above where it was pre pandemic. Then you go to the top -- the next chart, this is the gross savings as a percentage of GDP. I think it is the number -- this is what people are underestimating. Take the U.S., it is actually a global phenomenon --What is happening you have immense level of fiscal stimulus, by the way we got another pay down of the treasury's general account to a tune of another $500 billion. We looked at the data this morning. That is a direct payment from treasury into checking accounts literally in the last couple of weeks.

So, this excess savings number is exploding higher, and it is sitting in checking accounts about to be dispersed. Then this chart on the right is personal savings or $2.2 trillion higher than they would have been if you assume the same run rate or growth of the economy before. Then, the chart in the upper right which is incredibly relevant for the pal roll report coming out this week. That number is going to be a lot of noise because what's happening is companies can't actually find the people whether it is regional or sector diversity. Job openings is the highest it has ever been. If you marry this to the bottom, Kate, and we looked at the dynamic around inventory against housing starts, there are no houses on the market. You look at home sales numbers, and you look at autos, there is no inventory. New cars, used cars, no inventory. You look at the bottom right, and look at retail sales, no inventory. We are about to see, and we are in the middle of this explosive reopening, no inventory, rebuild, pricing pressure on commodities because you've got to open this thing up and there is no inventory.

So, if you go to the next page, Kate, I will finish on this and do whatever it is you like. This is where I want to just finish and talk about something that I think is around policy and maybe a bit too public. Larry hasn't yelled at me yet, so I don't know if at some point that's coming. If you look at the upper left, this is Goldman Sachs's current activity index. The highest it has ever been during the -- obviously during COVID-- but during history. Then you look at the financial conditions index. Financial conditions are the easiest ever in history, and there’s been nothing close. Now look at the bottom left. All the Fed has done, and we map their communication back to November 2020 (a half a year ago). We say, how have they changed their statement? The only thing they added is they said that overall financial conditions remain accommodative. In part reflecting policies measures. Blah, blah, blah. Then all they added was: including progress on vaccinations. Then they added a little bit on the bottom left, a little bit of the indicators of economic activity have strengthened. I got that. Then they said there is still risks to the economic outlook, however, they took out the word considerable. Make the risk has come down a little bit.

Look at this on the bottom right, this is where I want to finish, Kate, because this to me is surreal. The Fed is putting $120 billion a month of liquidity into system, almost $400 billion a quarter. The red line is a treasury funding. What happens is you announce a stimulus, then the treasury builds – [break in audio]

RICK RIEDER: Last couple months you have 700 billion --new data this morning-- Another 500 billion getting dispersed -- disbursed right into checking accounts. So when you put those numbers together, trillions of liquidity is in the system. It is too much! Part of why I think the Fed needs to evolve this policy, part of why -- it is a bunch of headlines on this. I know a bunch of our peers across the street have been clamoring for this. I think the Fed needs to taper down the liquidity. What is happening is they are stuffing the system and creating excess and I know this quote went around, I don't know a bunch of headlines yesterday. I saw every client people ask about overheating. You put over a trillion liquidity in the system, it is not just overheating, the commodity prices, lumber, copper, et cetera, but financial assets because you have too much liquidity in the system.

Anyway, I think, Kate, it is interesting to see the poll. By the way, this is remarkable poll. Because I agree with this, but I think most economists will absolutely disagree with that poll, with the results of this poll and tell you no way they are moving to 2023 or later. I think it is wrong. I think they should start tapering, and I will finish with I think they should taper liquidity in the front end of the curve and I think they need to support long end interest rates and they can do this by reducing the size of the QE program but still buy longer at treasuries. Then, I have to let interest rates move up. They have laid out this plan which I think is stubborn. I think it is really hard. I got asked on TV yesterday about how do they change it. I said I don't think they can. A week ago, they said this is the plan. We're not changing. So, I don't know. We're in this surreal period, Kate. You’ve been better than anybody talking about how do you have any conviction in markets and why the uncertainty and liquidity in the markets is hard because this thing is surreal what we're going through. That's probably too much Kate, but I'll stop talking.

KATE MOORE: It is amazing. I love you brought in many of the poll responses. I was going to bring up, too, 70% of the participants think that the Fed is going to have to raise rates in some point in 2022. There is a brave 15% or so think that it could happen as soon as this year. And while I would put us --, BlackRock and you and me and the rest of the team on the constructive side in terms of growth expectations, I think it would be a pretty aggressive move for the Fed to move this year. I wanted to ask you a question about the composition of growth. You made this compelling case in the first slide about all the activity that's picking up. Acceleration of some of that activity across consumers and businesses and how much either stronger it is going to be once we unleash some of that pent up demand --reference I was making in my opening remarks. My key question is: What happens when the sugar high of the restart and the spending of savings and stocks starts to fade in 2022 and onwards? What do you think the composition of growth looks like? Do we go back to the pre COVID trend of about 2.5% GDP in the U.S.? What does it look like?

RICK RIEDER: Good question. I think this year you are going to have -- I think you are going to have real GDP that could have a high 7s percent -- I think our projection is 7.7. I could see it being higher than that. I also think next year you could have a 5. Which I think is bit above what people are suggesting. By the way, that's real. Let's say you put a 2.5% inflation rate on, let's say we got 8 for round numbers this other. You put 2.5% inflation, you are getting close to an 11 nominal GDP. Think about that in our lifetime, would you ever have -- obviously there was a reason for t what's the run rate going forward. This is the critical evolution of policy.

I think what Biden is doing which is dead right is, this was, like you said, a onetime sugar high. Send the stimulus in into people's checking accounts. People buy new iPhones. Try to buy houses, but there is not enough inventory in the market today. Try to buy cars because they are not going to commute as much—not going to use mass transit. No cars available. Then like you say, part of what I think inflation, inflation is going to move higher. Then I'm not certain that inflation a year or two hence is going to be that much higher. I think the Fed is right in their prospects here. I think what Biden is doing is this new infrastructure plan, the new fiscal stimulus is stretched out over I think 10 years. The spending is iterative. What happens is it builds over -- it is staggered over a period of years. And then financed as such, some of it through taxes. So, I think what they are doing is to try and take more durable influence on growth to keep that growth from going right back to trend which is about 2% potential. My sense is, it is always hard to project. Larry Summers says this all the time. I think he's right. Pretty good at projecting the next year or so, a lot can happen. Geopolitically. Globally. But my sense is we're going to grow well into '22. Then we'll get somewhere close to run rate, maybe run a little bit higher if you have this stimulus in place. Boy, I tell you the data in front of us shall it is surreal. Every day I come in, it is like ground hog day for me in terms of what's happening.

KATE MOORE: Absolutely. Earlier this morning I was having a conversation with Nigel Bolton which some of you know a Co-CIO of the fundamental equity business. We were having this conversation about how the policy paradigm has completely shifted. The era of small government is over, not just in the U.S. but seems like the rest of the world.

Rick, to your point, a huge amount of fiscal stimulus coming through not just in one year but over the next decade is going to have pretty profound growth implications. You mentioned a little bit about inflation. I want to double click into that a little bit and talk about it. I care so much about inflation in terms of thinking about how companies manage rising input costs and maintain their margins in this environment. So far so good. But if we have sustained inflationary pressures, that's going to be a different story. Talk to me a little bit about how you think the path of inflation will go? Do we have a significant pop? I'm leading the witness, because, Rick, you have been super vocal in the past talking about how technology exerts a disinflationary force on the world.

RICK RIEDER: One thing I also touch on what you are referring to before, you know we are doing a monthly call tomorrow and I was going to address it tomorrow and I thought it was too complex to go through. There is also transformation of capital to labor in this new administration. And taxes. So like trying to figure that out for growth the next few years, I was going to do it on a monthly, I said it was too hard. I think that's another tricky thing that is worth thinking through. Your point on -- by the way, I am back to office so the New York fire trucks always comes by my office. (sirens occurring) Sorry for that.

RICK RIEDER: Wow, I missed this. One second.

RICK RIEDER: Sorry. I will talk a little bit about inflation once they pull through. Wow. Listen, I think we're going to see this as you saw, see this burst of whether it is copper, iron ore, lumber, and energy broadly. I think you'll see this extend and continue to see this as you reopen and see some of this. I saw the stat yesterday talking about this on one of these calls, this number, this $36,000 increase in the average house of lumber alone. The average house is low 300s. It is a staggering number. Meaning the -- the Fed wants to let this run hot. This is running as hot as you could run it. But then I think you said, I think we are going through this is the most exciting time in investment history. I think technology, every day including this morning, every day we're looking at AI, Cloud, transportation evolution. Spend some time today on both EV and full self-driving. You think about all these technologies, whether it is EV, there is a climatic influence there, there’s a cost influence there.

All the technology, what's driven inflation in the last 20 years has been energy, changing that. Healthcare, major strides and I think some of the investments you and I are taking around robotic, telemedicine. Education, some of the strides being made in education virtually and otherwise. Boy, I think we were going to pre-pandemic -- going down this road of no inflation because you have this incredible pressure down on inflation. I don't think that slowed down. I think that has taken a new gear. Look at online retailing versus otherwise. Look at how we can effectively (except for the fire trucks and others going by in my head), how you can do things on Zoom. I think inflation -- I think the Fed is right, that there is a really transitory nature to some of this. The risk is, and I know we've been been public about this, the risk of overheating financial assets and the longer they keep policy this easy, that risk of inflation -- and, by the way, some of this inflation they are trying to create whether it is food or apparel, it hurts lower and middle income people. I don't know why they would want to promote that further. So, I think they need to evolve it but there is like everybody is talking about the potential for overheating. I don't think you are going to see that in the core measures of inflation. People are paying an awful lot for TIPS today. We can't come up with the math to how that works over a 5 year or 10 year period. There is certainly risk. And in a balanced portfolio having some of that inflation protection is certainly not crazy.

RICK RIEDER: I can't hear.

KATE MOORE: Okay. So, thanks -- I double muted myself for a moment there, Rick. Apologies. Your last comment is a great see into the next part of our conversation which is around asset prices and what's getting reflected in assets prices right now. In particular we talked a lot about the macro side, policy, growth accelerating, inflation improving, maybe a little bit more transitory. All of this is having a pretty significant impacts on valuations across risk assets and certainly even safe haven assets. I would love for to you reflect on opportunities right now particularly credit and equities. Given all of these powerful cross trends that you have mentioned, how do you evaluate the opportunities set in the market right now?

RICK RIEDER: Because liquidity is so immense. By the way, I think if you just map out the amount of liquidity coming in again, it is hard to ---- somehow I was looking at some of the asset backs, so I’ll give you a good example. Subprime auto finance.. AAA subprime auto -- was 5 off. It was 800 in March and April last year. Credit card also at 8 off. It was 400 . Agency mortgages too rich. 008 assets through that now because the banks have to buy them. Real rates in treasuries, too rich by a lot. Because liquidity they stay there and probably stay there for another month or so. So, I think -- so what do you do when I think some of the credit assets have also gotten rich. We think going -- we have a buy in some investment grade, long end investment grade because it will tighten if rates go higher. Securitized assets where you do bespoke financing. Get off what is an financial asset that the world needs to own in commercial real estate. Resi real estate. We’ve been adding some EM in hard currency. Which sometimes I regret or lose sleep over. But EM is, some parts of EM we're encouraged by some of the things in Brazil, Mexico. The trade is pretty reasonable. Indonesia. Looking at rates in India today. Parts of EM that's not without risk. But we've been adding a bit of EM in the debt space and a little in equity.

Kate, when you step back and you look at the earnings yield, free cash flow yield and the equity market -- and the 4s. If you go a little further and assume some earnings growth, top line revenue growth, the income is sitting in the equity market today, not in fixed income. While I think valuations and equities are not cheap, if you take these earnings level and you think you have a Fed that's no matter what rates are going to say low for a long time, I think they will move higher from where they are. By the way, equity market has a lot of the earnings sitting in it. And earnings potential. Income potential I should say.

KATE MOORE: Yeah. I completely agree. I know on the earnings side we are continuing to see massive upgrades in terms of expectations. But of course, the market is not really rewarding some of the outstanding beats and guidance razes that we've -- raises that we've had over the past not just quarter, but I would say also as companies are reporting 4th quarter. I want to talk a little bit about the equity market here. I want to bring up our second polling question. Which is around expectations around the S & P. We have had a good year so far. So% returns in the S & P in just a couple months. But the question is, where will the S & P 500 index end 2021 relative to its current level. Down 5%, down 5 to 10%. Flat from these levels. Up 5 to 10%. Or for the big bulls in the virtual room, higher than 10% from here. Which would be like a 20% annualized return. As we take that in, something I mentioned to you Rick on an e-mail I sent last night, starting to see not just the upgrades from the analysts as they factor in better than expected earnings, but also strategists. People who take a top down view. We have been pretty constructive on earnings and we have been constructive on the equity market as you mentioned. I guess I would ask, putting your asset allocation hat on which you do across a variety of different funds and certainly on the fund we work together called (unclear) how do you think about constructing a multi asset portfolio? Right now?

RICK RIEDER: I think you got to watch your beta. I think the big thing is how much to get income or get return, you've got to run a lot of beta. If you think about a traditional 60/40 portfolio, you had a hedge. You had -- you ran what is a pretty balanced portfolio. Now what will literally cause beta to come under pressure is higher interest rates. Not only is traditional duration of a hedge, it is debilitating at times to your portfolio. I think you got to run a higher percentage of equity. I think you got to run -- and then we will talk about the construct of that. I think you have to run a bit more yielding assets in the portfolio, talk about securitized. A little bit of EM. And run cash. Where possible -- most people can use alternatives, real estate is an inflation hedge, a really good one we do that through the securitized market in a punch of ways.

I think that is a totally different environment. I heard some pensions sending -- a very big one yesterday said to me, not going to own traditional fixed income at all. Which I said is a career problem for me. Can we redress that. They didn't seem to care. I think there is a way, I think you make money on fixed income. I think it has to be really different. Then take the equity risk and layer in whether it is alts and real estate. Then a high level of cash. There is going to be opportunities.

The volatility the last few days, Janet Yellen says something and -- I don't think she meant a lot by what she said. Markets moved. Markets are jittery. They are volatile. Unconvicted. And staring at policy that's confusing. Anyway, I think you have a run a healthy level of cash. I like -- we talk about it all the time. Smarter at it than I am. I still think technology and healthcare and the way the growth in the world is going to be in -- is going to be in healthcare.

Can we pull back because people get nervous about rates? For sure. I watch those earnings numbers as you talked about in the last week, and you think about the not only just the earnings power of the businesses but secondary and tertiary businesses off of some of these big tech and healthcare companies. It is mind blowing. Hoping that it conditions for old line traditional companies and kick off another couple hundred million, that's a hard business to win out over than a week or a month that they may perform well.

KATE MOORE: Yeah. Absolutely. I have had the same reaction. You and I talked about this. You have these phenomenal earnings numbers, and it is hard not to get excited about how technology is going to continue to evolve. Then the way I also think about it, we're not just talking about the technology sector, but companies across all industries and sectors that have really upgraded or empowered their platforms with technology solutions. And like that's just going to be the future. Identifying those companies. And figuring out to your point, Rick, when we have these selloffs like we had yesterday, where we want to be adding back in to some of the best longer term opportunities. Okay. Go ahead.

RICK RIEDER: I was going to say one thing about, spend some time in the last couple days on healthcare. Think about how painful and devastating this virus was. But you also think about the spotlighted -- spotlight it put on the new evolution of healthcare. And you know way better than me. Whether it is -- look at some of the robotic technology. Some of the data simulation in terms of looking at some disease, et cetera. I think this spurred a whole new level of investment, including the Biden program and otherwise. That I think healthcare is going to be a really, really interesting space going forward with, knock wood, some pretty, hopefully, substantial developments over time about healthcare and about technology bringing to the fore there. That's exciting. Some of the investments relevant to that are throwing off a an ample amount of cash flow, so I think that's a cool space from here.

KATE MOORE: I agree. Healthcare is one of those spaces where the pandemic accelerated some trends already in place. Seeing more capital go into the healthcare technologies. We have seen a significant change in behavior, more telemedicine as you mentioned before, and communication across platforms. I want to just spend the last couple minutes touching on the regional views. You mentioned adding emerge market debt talk about a global portfolio at this point. But in general, we have seen significant dispersion across emerging markets. How do you think about the best opportunities in EM. On our team by talk about adding exposure to China and Asia, but also what about Latin American?

RICK RIEDER: First thing, I do think that China is going through a -- but I think China is going through pretty extraordinary dynamic. According to Chinese perspective which is not crazy wrong, whether it is fiscal stimulus and aggressive excessive monetary stimulus, look at Chinese tenure rates that haven't moved from 3.18 yields in 3 months. Save 3 basis points in currency is incredible. China going through a interesting transformation. I think debt and equity, some great investments there. In LatAm we are encouraged in the near term in Brazil. Both in terms of some fiscal evolution and obviously from a valuation point of view some Brazil has gotten interesting and prices have moved to a level that we've been doing a bit more Brazil recently. Mexico as well is a place that particularly on the rate side and the effects side that we have taken some pretty significant positions recently. We haven't really gone back in of any significance in terms of in Argentina. We're watching that situation. But we haven't really grown much exposure there. Looking at some of the other countries a bit. Brazil and Mexico are the place we have taken on both FX rates and increasingly a bit on the equity side where we have taken some exposure. And Asia, China in particular but also India, we are also -- you being at the forefront of this -- looking at some things in India which is what is the most devastating dynamic there. Thinking about where would you invest along side of some government support that is going to come in.

KATE MOORE: Awesome. We're out of time here but I want to say, in this conversation where we spent the last 25 or so minutes ago. Your enthusiasm for growth, future, investment opportunities has come through. Despite the fact that we are running slightly higher cash than historically, that's because we want to be nimble and take advantage of opportunities. Of course, watch the Fed. The Fed watches Rick. And cares quite a lot about his perspectives as a huge money manager. We think that we're going to have to reframe at least or at least change the language around policy as we move forward throughout this other. So, Rick, thanks so much for spending the time. It was great to be part of this conference.

RICK RIEDER: Great. Thank you, Kate.

Growth Opportunities: Are Markets Rightly Priced

Rick Rieder, BlackRock’s CIO of Global Fixed Income, Head of Fundamental Fixed Income, and Head of Global Allocation Investments joins Kate Moore, Head of Thematic Strategy for BlackRock’s Global Allocation Investments to provide market commentary. They share their views on monetary and fiscal policy as well as inflation and asset valuations.

Thank you, Tom and Dan. Very insightful conversation and great take-aways on what a Biden administration means for Latin America and the divergence between countries that we will see in the economic recovery from the pandemic. Hello everyone, my name is Roque Calleja, Head of BlackRock Alternative Solutions for Latin America. I'm very excited to introduce the next session of the day. Global social awareness, social impact, and economic disparity. We have two wonderful speakers for this session. Frank Cooper, Black Rock's chief global marketing officer and Sandy Boss, global head of investment stewardship for Black Rock.

Sandy is responsible for leading BlackRock’s investment stewardship in all its activities as it engages with companies to promote effective governance and create value for clients. Frank and Sandy will be discussing increasing corporate awareness of social issues and socio-economic effects exacerbated by the COVID-19 pandemic, very relevant in the Latin American context. And the role of corporations to tackle the most pressing social issues. Hope you really enjoy this session. With that, over to you, Frank.

FRANK COOPER: Thanks so much, Roque. It's great to be here with Sandy Boss. Sandy, it's maybe your one-year anniversary or really close to it at this point, and it's been -- yesterday was? Okay. Well, look, you've made a tremendous difference already. You really have in terms of your leadership, but also you put a challenge to the marketing team early on to partner closely with the investment stewardship team, and I think it's been working really well, and I'm sure many people in the audience don't think of investment stewardship and marketing as being hand in hand, but we have been, and I think it's made a difference in terms of how we connect to clients, but to really all stakeholders.

Why don't we jump in? We're going to talk about a range of things from stakeholder capitalism to climate change and natural capital to DEI, but I want to start at a fairly high level. You know. We've seen Larry's letter and a call to action that companies that will thrive long-term will address the full range of stakeholders and not just shareholders. That's not putting shareholders to the side. It's bringing more people in. Employees, customers, vendors, and communities. The COVID-19 and the pandemic, as most social crisis, it amplified and accelerated what was already beneath the surface. There's been a changing expectation of corporations with respect to the social challenges. What do you think of the responsibility companies bear to do something about climate and social issues? And secondly, how are we approaching that at BlackRock?

SANDY BOSS: It’s a great question. I think all of us have seen what Milton Friedman wrote 50 years ago, which was that the job of a company was to make money for shareholders, and it was shareholders and that's it. I just think the world has changed dramatically. One of the things that he assumed was that you had a high functioning state that was, one, addressing issues of inequity, but, two, it was also ensuring that if companies were, you know, producing externalities, and if companies were generating adverse effects on the environment or on society that those would be brought into the responsibility of the company through regulation. The world has changed a lot since then. We used to have scarce financial capital. Now we have scarce social capital. We are just not in a position where we can ignore the issues of the environment, the issues of the workforce. It’s interesting, as I look at what's going on with what we are doing, it's affected everything that we do at BlackRock.

We are very, very convinced from an investment perspective that being able as a company to manage you know, natural capital, to manage climate risk, to keep the right relationship with stakeholders, that that links directly to the financial performance of that company, and then that's just tied directly to what we care about on behalf of our clients, which is the long-term savings on behalf of clients. That's our purpose. We are there to ensure our clients’ financial well-being and the financial well-being of more and more people and stewardship plays a key role.

What is stewardship and how do we do that? Essentially, we are a group that spends time all over the world – 3,000 engagements in the proxy year that ended in the middle of 2019; 3,500 engagements in the year that ended in 2020 – going out and meeting with companies, sharing our expectations around, you know, managing the environment, around how they're dealing with their workforces through COVID-19, and then we also do proxy voting so that means, you know, on behalf of our clients: voting in support of management proposals, supporting boards of directors, voting on shareholder proposals, but all with that sound governance, sustainable business practice lens.

FRANK COOPER:I want to stay with you a little bit on this, really on the idea of what is investment stewardship. I think everyone in the audience here will probably have a slightly different view of what it is. Is it all about voting? Is it all about the stick? Or is it just about listening and engaging? Are we neutral? What's the full range of how you engage with boards and companies?

SANDY BOSS: It's a great question, and I think at BlackRock we're in a really unique position because this is a function that we've invested in: 90% of our clients' equity investments, listed equity investments are in indexed products, and that means that we might be invested in a company, you know, 20 times longer than would be the case if it was an actively managed strategy. So what we're doing is really sitting down with the companies. We are a supportive long-term shareholder. The more value that's created in an investee company, the more that then benefits our clients.

We do very much believe in the value of engagement, the value of sharing expectations with companies, we want to see companies be successful. Voting is a complement, and I think there are investors who don’t engage with companies, who only use voting, who don’t have that level of dialogue. We think that dialogue is incredibly important. But we also are voting because we know that that’s effective. Whether it’s voting against directors if we believe that they’re not doing what they need to be doing from a governance perspective or from a sustainability perspective, but also sometimes supporting shareholder proposals. We’re increasingly supporting shareholder proposals because we’re finding that many of them address issues that we care about, many of them are going straight at the urgent issues around climate risk. Some in the U.S. this year around diversity, equity, and inclusion, particularly on the racial front. That's the technique that we use, but it's not punitive. It's actually from our perspective ideally collaborative, win-win between our clients and companies and using voting as a mechanism for signaling if we are not comfortable with something that a company is doing, as part of a long-term engagement.

FRANK COOPER:I love that. It reminds me, when I look at the range of what you have to do, the art and craft of what you do, it reminds me of a lot of the skill set that's required in marketing. It's listening. It's engaging, it’s influencing, it’s persuading.

We don't quite get to the voting part. In marketing we let the consumer or the stakeholder vote, but a lot of similar techniques. I want to expand a little bit, before I go into the next question, on something you touched upon and that’s the Friedman doctrine. And that is a dramatic shift. It’s been 50 years, if you think about it, of MBA students and leaders really adhering to that Friedman doctrine that the sole purpose of a corporation is to maximize shareholder value and profits and we’re seeing a dramatic shift, as you mentioned. There was an Edelman Report out this year, the Edelman Trust Barometer that's been out for decades, and each year it becomes even more important, and it had a remarkable finding. It said that the respondents -- this is thousands of people across all regions of the world who were consistent -- 81% said that they believed that out of all the institutions, that business is the most competent and ethical to deal with the social issues that we’re facing, that’s a dramatic shift!

For those leaders out there, who believe that they have no responsibility to social issues, one thing we know for sure is that the expectation of a wide range of stakeholders is that they actually should do that. That in and of itself is going to shift, and I think you are going to get most of the intense reaction from employees. We're seeing this over and over and over again, and people say, well, that's a millennial problem. Well, even at Black Rock, 60+ % of our workforce are millennials, and in the workforce in general we're seeing something very similar. But it leads me to a real difficult thing, which is, okay, stakeholders often have competing needs and competing motivations in employee versus community or, you know, a vendor versus a shareholder. The question is, how do you unify those stakeholders?

This is one of the reasons why I believe purpose is so important for a company to define why it exists in the world beyond making profits, profits is part of it, but in defining that, it becomes that unifying principal. That principal that unifies all stakeholders and allows you to negotiate the trade-offs that inevitably would happen among those stakeholders. I think purpose is going to remain a really important piece of this whole discussion and stakeholder capitalism.

Sandy, let's shift gears a bit because you mentioned this already, and I think it might be interesting for us to touch on it. I want to talk specifically about diversity, equity, and inclusion as well as its socioeconomic impact. It's an issue we obviously care a lot about at BlackRock. We've announced a set of actions that we are taking to address and advance racial equity and inclusion at the Firm level, as a fiduciary to our client and in the communities in which we operate.

I’d love to hear from you, just generally how you are thinking about it from your seat this idea of diversity, equity, and inclusion, and maybe touch on some specific steps that we're taking to advance it.

SANDY BOSS: Sure. I would be happy to do that. I do think that one of the reasons that diversity, equity and inclusion is so important is because of what's happened in COVID. We’ve had a 1 in 100-year shock, it’s completely devastated lives of many, many people, particularly those living in countries that don’t have much of a social safety net. We’ve seen a couple of really extreme results of that. One has to do with the effect on women. We’ve been seeing this in the developed world, and actually all over the world, we’ve seen an increased participation of women in the workforce that’s been going on for decades that suddenly has been halted and put in reverse as a result of COVID. As schools stop functioning, as the care system stopped functioning, women took up the burden, and now we see it could be a generation before we catch up to where we were only a year and a half ago in terms of women participating.

Then I think if you look at what's going on on the racial front, the effect of COVID in countries like the U.S. was unequal. It was unequal in the shocking health consequences. It was unequal in who needed to go to work physically versus who got to sit in a comfy home behind a computer. That might be boring, but it's pretty safe. With simmering tension also came some horrible and extreme events. I just think the context really, really matters.

Why do we care? Why should companies care? Our belief is very much that for a company to maintain its social license to operate, that company actually needs to be, you know, in touch with and representative of its consumers and its community. You can't sit on a happy white male island and continue to sell into a population that doesn't look like you, and I think -- that's probably going to go in the cartoon -- we've seen how this really matters in two levels really. Two levels. By the way, I agree with you. It's not just millennials. I think today's millennials aren't going to become like the 50-year-olds of today in 30 years. I think they're going to keep caring about the issues they care about and that this is a fundamental structural shift in what matters.

So what do we do? In stewardship we're talking to companies, and we're just focusing in on how do you as a company ensure that you are preserving the connectivity with your workforce and the connectivity with your consumers that you need in order to continue to succeed as a company. We've seen terrible examples where the companies have failed to protect their workforce. We’ve seen examples where companies have gotten on the wrong side of political issues and been boycotted. This is real stuff. Even if a company didn't care about it on principle ground and on purpose ground, they might care about it on commercial grounds. You know, so in stewardship, we are really spending time with companies, first of all, on the diversity of their board, so one of the things that we've seen -- and it's been demonstrated anecdotally and in research -- is that diverse voices in the boardroom don't say just the same thing as everybody else. There is, you know, someone coming in, a woman coming in, a person with a different ethnicity, a different socioeconomic background, is less likely to just agree with the boss at the head of the table because that person doesn't come from a club orientation. That person is used to being an outsider, used to bring different views. And that matters both from the intrinsics of what they say, and it matters in terms of the tone that that board might set at the top for the company.

The other place that stewardship really cares about is then -- thanks for the boardroom, which is fantastic but that's the diversity of 15 or 12 people -- but let's go into the workforce and let's see what are those companies doing in order to ensure that they are over time developing a more gender-balanced workforce. Women hold up “half the sky,” I think that's one of the best book titles ever, it does mean that you should be over time approaching gender parity, and then from a racial perspective, you know, companies thinking about how are they ensuring that the opportunity to enter, to get coached, to advance, to move into the top seats is the same regardless of what your ethnic background is. That's the dialogue that we have, and we're finding companies are meeting us there. We're not finding companies disagreeing. I think, though, that all developed country companies, with a very few exceptions, have a lot to do. Very few can say I'm done, it's sorted, I don't have any issues, and that's a really important contextual point.

FRANK COOPER:I love that response, Sandy, and I got to say, the quote of the year for me so far is: “you can't just sit on a happy white male island.” That is -- that's a quote. I love that one. It's true.

You know, when I think about diversity, equity inclusion, what strikes me is that a lot of people immediately go to this idea it's purely about race and ethnicity and sometimes gender and about fairness, and it's about all those things. But when you ask the question of why are so many people across the globe and those who may not even feel like they're directly affected by it, are participating and advocating and becoming vocal about the need for diversity, equity, and inclusion. I think it's because it's speaking to something fundamental that is happening in culture and society, and that is people feel like they deserve to be who they are when they're at work, that they deserve to have a job that is both fulfilling and energizing, and the type of workplace they want to be in is one in which people care for each other, and these sound like all kind of soft, you know, terms that historically have been outside of the realm of business.

The reality is it's here now, and you can see it from, you know, incidents like the Google walk-out and some of the challenges that Facebook is having in terms of hiring and retaining. Employees are basically voting with their feet on this one. The other thing that strikes me is that, when I think about diversity, equity and inclusion -- and you mentioned this -- it’s been around for so long, this idea that diversity and inclusion, with little effect in terms of changing the foundation and fundamentally representation and the sense of inclusion, and for me one of the stumbling blocks that I see is that we have to expand manager capability, and I think the things that will help expand manager capability in diversity, equity and inclusion is that there's a way to listen that's motivational. We should teach managers that. There's a way to ask questions that are humble and have humility in it and invite people in. There’s a way to manage diverse issues but still find common ground. These are, I think, skills that advance diversity, equity and inclusion, and it advances it for everybody. I think a great manager and a great leader will embody those skills.

Then the very last thing is I think for diversity, equity, and inclusion to really have an impact as leaders we cannot think about it purely as an internal matter. It's not just about talent. You touched on this too, and I agree with that 100%. When we talk about multi-cultural marketing, which was kind of a favorite term back in the early 2000s, that concept still applies, but I would expand it from the traditional notion. It's about marketing to multiple cultures and how do you reach outside of the firm to improve the circumstances so that segments of your population are not walking into the building, to the front door with the burden already on their back. Because there is some people, we have to recognize, who are walking through the front door of the building, of your office and before they walk in, they've already carried a heavy burden. Companies have the capability, and I believe the responsibility, to reduce that. Even if it's purely selfish, if you want your employees to be more productive, but also if you want to be a good neighbor within the community and be invited in to the community, I think that it benefits both the corporation, the community, employees, and ultimately shareholders because I think there's long-term value that emanates from that.

That was a long dialogue and I know we only have a few more minutes left, Sandy. I want to shift to something that I know you have spent a lot of time on, and I want to hear a little bit of detail on this. You know, our investment conviction is that sustainability risk and climate risk in particular, is investment risk, and, you know, of course, we take a holistic approach to ESG, but I would love to hear, how are we approaching this overall? Like kind of the macro-view of it, but then as you start to get to the regions and industries, how do you modulate that? That's where it starts getting really messy, and I'm wondering how do you navigate that terrain?

SANDY BOSS: That's a very big question. The objective function that describes my life right now. Yeah, I think we need to start from the principle that we firmly believe that we need as a planet, as a firm on behalf of our clients, to aspire to and achieve a global net zero by 2050. You know, we need to get there because we're working for our clients financially and perhaps more importantly, also that is important for the well-being of the planet. Just to keep that objective function right.

At BlackRock this is an investment conviction, we’ve put our analytics behind it. Now at the heart of all of our investing are our capital market assumptions which tell us that there's a 25% difference in long-term economic growth between a world where we successfully manage a just transition and one in which we fail to do so. This is a really, really, really vital issue. I think just transition is also really important because it ties back to what we've been talking about with stakeholder capitalism and with diversity, equity, and inclusion. This is very much about ensuring that carbon emissions and other greenhouse gas emissions are reduced. It's also very much about protecting scarce natural capital, both because of its effect on emissions, its dampening effect on emissions, but because there are other unbelievably vital benefits associated with in Latin America, you know, the precious one of a kind in the world Amazonian rainforest, it's water, it’s biodiversity. That objective is very clear. I think we just need to be cognizant of the fact that managing that shift is not … the benefits are not distributed equally, and the costs are not distributed equally naturally. There is a real partnership between companies and governments around how does that get managed and, you know, we're very cognizant that you can't just say to people whose livelihood has always been, you know, deforesting or, you know, working at a coal mine that there will be some lovely job somewhere that people with engineering degrees can get. That's just not helpful, so that's where the public-private partnership comes in.

We at BlackRock, we're engaging with governments. We’d like to see the tremendous progress that we've seen on country commitments continue. We've got 127 countries that have signed up to net zero by 2050, and that's now including the U.S., which is a huge, huge issue, this dynamic where the U.S. and China are working together toward, what I would call a race upwards. It's not a race to zero. It's a race to greatness. Well, it's a race to net zero. That competitive dynamic is actually incredibly valuable, and the governments will need to make investments. They will need to, in particular, look after displaced workers. But that said, you know, coming back to what we were saying before, I think companies bear a very, very important burden in managing this transition. If we look then at what are we doing in stewardship at BlackRock, we've made it very clear what we think companies should do, and we've said we’d like to see any company that we're invested in and particularly the biggest most carbon-intensive companies that we're invested in, we want to see that they have a business plan for how they can contribute to that global net zero by 2050, and we want to understand how they're managing climate risk, how they're, you know, dealing with and addressing and capitalizing on opportunities because it's not all just about risk, it's also about opportunities to be a leader, to, you know, win in batteries, hydrogen, whatever the next opportunity is going to be, and we're engaging with companies and assessing where they stand, and if we feel that they are not making the progress that they should be, that is a place that we're using voting.

I talked before about the tools, and this is a big commitment we made in January 2020 that we would be voting more on climate because this is so urgent. The most important thing you raised and in the context of this Latin American discussion is we're not looking for one size fits all. That every single company needs an identical goal. A very sophisticated developed market I.T. company, the right net zero pathway for them might be net zero by 2030. Microsoft has made a commitment to go net zero since inception. That's a really, really impressive and ambitious goal, and technology companies are less carbon-intensive and so that's a great contribution.

In contrast, if you are looking at a developing market, carbon intensive company in manufacturing, perhaps a coal fired utility, there's a huge transition that needs to happen, and at a time where the economy is still growing and where those low cost fuel sources are really, really important to getting people out of poverty, and so it does mean that we're engaging on these objectives with some proportionality, and what we tell companies, whether it's Latin America or in developing Asia, is this is a significant transition risk for every company.

No company can say “it's fine for me to do nothing because my country doesn't have a target. I'm exempt.” We think that the transition risk for every company and every country is a really significant risk, and, you know, investments that you are making today often those physical investments can have a 10, 20, 30-year lifetime. It does mean that everyone needs to be anticipating this direction of travel, but when we talk to companies in Latin America, when we talk to companies in developing Asia, we are recognizing that they are not in the same position as, say, a rich European company that's been on this journey for a decade or more.

FRANK COOPER: Sandy, I want to make sure I emphasize this point. It sounds like you're saying you're not looking for perfection from every company, but you are looking for proof of progress toward some clear goals that you align on with the company. Is that the correct articulation of it?

SANDY BOSS:I think that's right. I think that most importantly is the company board, the company management, they own the goals. It's their job. We're an investor looking for those goals and plans to be robust. Something that they can realistically follow through on. To be honest, nobody is perfect right now. There are a few companies that have sorted this completely. You know, I can think of a Danish company in the renewable energy business that has it sorted, right, but the fact that I'm thinking of one as opposed to thousands is important, and so, yeah, it's not about current perfection, but it is about being on the journey, being in the right place in the journey, knowing that as a company you need to think about what is your energy mix, what is your carbon footprint, what are the technologies that you need to invest in, and essentially, how you can internalize that environmental cost that you're imposing on, you know, your local community and the world basically because eventually we do believe government policy will catch up, and the eventually looks like it's coming sooner and sooner thanks to the hard work by governments who now seem to be really facing into these issues particularly going up to COP 26.

It is a journey, and I guess the point I would make, Frank, and this is really an important one: the planet is carbon-intensive right now. We recognize there is a need for transition. We can't turn off all the fossil fuel tomorrow and function as a global economy. What we need to do is move at pace and plan for, you know, as fast as possible to make that transition.

FRANK COOPER: Exactly. Sandy, I said it up front, and to me this conversation proved that you are definitely, a rock star. Really enjoyed hearing your comments, and for those who haven't heard it, we have the podcast called “The Bid”. You can find it on Apple or Spotify. I think, Sandy, you've probably done two or three episodes on that as well. I would encourage you all to check it out. Sandy, thanks for the time. I really enjoyed the conversation. I'm going to pass it on to Gabriel Hasson.

Growth of social awareness: Social Impact on Economic Disparity

Sandy Boss, Global Head of Stewardship at BlackRock, and Frank Cooper, Chief Marketing Officer at Blackrock, discuss stakeholder capitalism, diversity, equity and inclusion, climate change, economic inequality, the role companies play to tackle society’s biggest challenges and how we are approaching these issues at BlackRock.

AXEL: Welcome back everyone, my name is Axel Christensen and I’m the Chief Investment Strategist for Latin America at the BlackRock Investment Institute. I hope you’ve enjoyed the first part of our Latin America Virtual Forum in its 2021 edition. Before the break, we heard from our president, Rob Kapito, about how we see global trends emerging, followed by an insightful conversation between our investors Kate Moore and Rick Rieder where they covered the main opportunities and challenges they see investors facing, both in the fixed income and equity markets. And finally, a great conversation between Henry Fernandez from MSCI and our own Armando Senra, not just about ETF and indices but also about diversity and the search for purpose at a personal level.

Now I’m thrilled to present our next session, “What a Biden Administration Means for Latin America.” We’ll be joined by two great speakers with extensive experience in both the US, both in the US foreign policy, where they’ll touch on key issues regarding the relationship that they view the administration has for our region.

So, first Tom – Tom Donilon is the Chairman of the BlackRock Investment Institute, and he’s the former national security advisor to President Barack Obama, in which President Biden served, as we all know, as vice president. Tom is among the nation’s most experienced policy and presidential advisors and has served President Obama as a personal emissary to a number of other world leaders.

He’s going to be joined by Dan Restrepo, who’s the founder of Restrepo Strategies, and Dan has built a career at the intersection of policy, politics, communication, and law, providing counsel to everyone who is interested in exploring opportunities in the Americas as well as Spain. He was also an important advisor to President Obama on issues related to Latin America, the Caribbean and Canada as a special assistant to the president and senior director for the Western Hemisphere Affairs at the National Security Council.

So I hope you enjoy our next session, as certainly I will. Go ahead.

1:31: 36 TOM:Thank you, Axel. It’s great to be here today, and great to be at this conference. This is really one of my favorite BlackRock events of the year, and I really look forward to doing this in person with all of our partners from the region. I am delighted to be here today with Dan Restrepo. Dan is a longtime colleague and friend of mine. He is one of the leading experts to the United States on Latin America and as Axel said, has advised presidents and companies and everybody else who is looking for real insight on Latin America and the United States. He and I have had the opportunity, as I said, to work very closely together on matters with respect to Latin America. It’s a tumultuous time in the world, it’s an especially tumultuous time in Latin America, I think, and I hope we can discuss some of these issues today, particularly in light of the new administration that’s come into office over the last 100 days.

President Biden, whom Dan and I both know, is a - has a significant history in Latin America. It’s not really commented upon as much, I think, in his public profile, Dan, as it probably should be. He’s traveled to Latin America as vice president I think 16 times when he was vice president in the Obama administration. He was really President Obama’s chief emissary to the Latin America and the Caribbean. He engaged with leaders especially on the Northern Triangle issues in the second Obama term, and, as I said, he’s traveled throughout Latin America, and really I think it’s fair to say for modern presidents, I think he’s really as expert and knowledge about Latin America as anyone we’ve had in the office. So, I wanted to start with talking about the new Biden Administration and about Biden himself. They’ve already made some significant changes with respect to policy from the previous administration towards Latin America. So, Dan, again, you were principal advisor to President Obama on Latin America policy for six years. It's a three-part question to start broad.

What do you see as the most urgent areas for the Biden Administration in Latin America at this point? What do you see kind of longer-term as the issues that might arise going forward here, and I guess it’s early but it’s always time for an assessment -how do you think the Biden Administration is doing. So why don’t we start broad with your views on the key issues that the United States faces and kind of an early assessment as to how President Biden and his team are doing.

DAN: Well, first of all, thanks a lot for the invitation, Tom. I’m glad to be here with you, and with all those who are joining us for this conversation. And look, I think the administration, as you rightly point out, we have a president who’s perhaps has more background on the Americas than any modern U.S. president has had. And that’s a very good thing given the level of challenge that exists in the region. The administration has started, I think, on the most critical item, the most pressing item that faces them vis-à-vis the Americas, and that is migration.

Mind you, the second largest migration that’s going on in the Americas right now, right? The biggest migration event that’s going on in the Americas right now is actually coming out of Venezuela, and we can touch on that as we talk, but there’s also a significant migration event taking place out of the countries of Northern and Central America and primarily Honduras and Guatemala with some from El Salvador at the moment, but less than we’ve seen over the course of the last couple of decades. And that is kind of been priority number one. In it’s – they’re trying to pull off something that is actually quite challenging, right? They are trying to move from a framework of thinking about migration as something you can prevent and deter, to, rather, something you can mitigate, manage, and order, and doing so with an infrastructure that’s designed to prevent and deter.

I think they’re off – given that – I think they’re off to a pretty good start in terms of getting their arms around the challenges at the U.S.-Mexico border. Understanding and kind of assigning the tasks to, in some ways to be Biden’s Biden to Vice President Harris to engage with the countries of Northern and Central America and Mexico, to start doing the work to deal with kind of the acute causes of migration -people are on the move because of hurricanes that hit the region in November of last year, they’re on the move because of COVID, and it’s devastating impact. They’re also on the move for a whole set of root causes that are going to take a little bit more time to get their arms around, but all-in-all I think they’re off to a good start on the most important issue that they face, and, one kind of last thought here, they’re also starting to engage on COVID, which I think is kind of the other major pressing issue in the region. Latin America has been devastated by COVID, even on a - even by global standards, and the U.S. is in a position, thankfully, now to have surplus, high-quality U.S. manufactured vaccines. And as the administration looks to start sharing those internationally, they started with our most immediate neighbors, Canada and Mexico, and I think they’re going to continue to understand that those vaccines also need to go to our near abroad, the countries if Central America and the Caribbean because we’re so deeply interconnected.

TOM: Great. I’d like to drill down just for a minute more on COVID, which, of course, has been the, one of the principal trends for the last year in the world, and there’s a divergence in the world that’s developing as the macro trends in the world where normally the developed countries, including the United States, have been able to really get a, to put a foot forward here and get their vaccination distribution programs underway, and it’s had multiple effects, including obviously on the health outcomes of the United States, but also on the economic outlook for the United States.

China has a similar dynamic where they were able to get ahold of the COVID pandemic, and then they had obviously quite a strong economic year building this year, and probably next year as well. –What do you - reflect a little on what you see as kind of the broader impact of COVID on the economic future of Latin America. Because we really do see, in my view, kind of a disturbing divergence, right, and you commented a little bit about the things the states can do to mitigate that. How do you - what are you thinking about its impact on the economies and what can they - it's also been differentiated inside Latin America as well, and what can Latin American countries do to take this on going forward?

DAN: Yeah, I guess I’ll start on the last point. Obviously, any conversation of Latin America is an over-simplification, right? This is impacted differently in different places. But unfortunately, for the region the biggest countries have been the hardest hit. In part, because of how badly they’ve been managed in kind of the COVID-denying sort of way both in Mexico and in Brazil by the respective presidents of those two countries. I think we’re only beginning to understand the impact of COVID in Latin America. We’ve seen kind of the macroeconomic impact, and it’s been quite alarming. You’ve also seen kind of the attempt at response by governments across the region has kind of smoothed out a little bit the, kind of the initial economic shock, but it’s also created enormous debt burdens for a number of countries across the region, pretty much all of the countries across the region. And – and I think this is the most important piece –it’s exacerbated kind of the pre-existing political conditions in the country. You already had a lot of disillusion with democracy in some really important kind of previously stable countries, right? Chile, Peru, Colombia. Places that had been seen as kind of steady state, reliable partners with reliable politics over the course of the last – in Chile’s case – several decades and Colombia’s the last decade. And we’ve seen, kind of, as countries emerge and we’ve seen it actually play out in real-time in Colombia as the government kind of tries to get its fiscal house in order, you’ve seen real discontent spilling out on to the streets again that have made the Duque government have to step back from a fiscal reform. I think that’s going to be kind of a telling sign for countries across the region as they try to figure out how to kind of get their fiscal houses in order, kind of how much traffic the politics will bear, and I think the politics are going to bear very little traffic. I think we’ve also seen that in kind of the polarization in the first round of the Peruvian presidential election. So COVID’s impact I think we’re only beginning to feel, and I think it’s going to manifest itself in a lot of popular unrest and in an intensification of popular unrest in some of the most reliable economies in Latin America.

(1:40)TOM: Thank you. So you see an impact here, we’ve seen developing. And there was some of this building before COVID.

DAN: Right.

TOM: We have a flurry of elections coming up over the next year or two, and you see that some, or, sounds like some political unrest, domestic unrest in some of the countries as the stresses kind of show themselves here.

DAN:I think the, kind of, again, COVID just as it does in the human body exposes pre-existing conditions. And there was a kind of an erosion in the faith of the ability of democracy to deliver in a number, an increasing number of countries across the region. There was an increasing polarization that we’ve seen everywhere in terms of the politics of the region, and I think COVID’s going to have served as an accelerant to both of those trends. And I think that means we’re in for some rocky times kind of politically and as a result economically in a number of these key countries in the region.

TOM: Really interesting. So, let’s take kind of a step, take a step back and look at the geopolitical aspect of this. China has become Latin America’s largest trading partner outside of Mexico, and that’s affected the vaccine nationalism, the vaccine diplomacy, if you will, and they’ve been aggressive stepping up with a distribution effort in Latin America, outpacing the United States to date. I think you pointed out in your first answer though Dan, that the U.S. has an opportunity as it gets its house in order here and as the production capacity in the United States fills with real opportunity for the United States as you, I think correctly and interestingly pointed out. Let’s talk about China generally in Latin America. Again, it was a big topics prior to COVID, that people were focused on from a geopolitical perspective. President Biden in his first speech to the Congress the other day talked about the contest, if you will, in the world between the United States and democracies and more authoritarian regimes, single party regimes like China in terms of who can provide best for their people. So, there is this contest at kind of going on in the world, and one of the locations of that contest, I think it’s fair to say, correct me if I’m wrong, has been Latin America. How are you thinking about China and Latin America, particularly in the wake of kind of the vaccine diplomacy competition that we’re, that I think we’re about to see?

DAN: Yeah so I think a couple of things are really interesting here, Tom. Like first, you’ve got this – you’ve got the Chinese who are trying to be very present, right? And we saw it kind of first, if you will, in the PPE diplomacy, and now vaccine diplomacy where the Chinese have been very present in kind of this moment of significant need throughout Latin America at a time when the U.S. was absent particularly on these fronts. But you also, and I think there’s kind of an interesting lesson to learn from that.

Two lessons. One is, the Chinese are clearly interested in competing, and you’ve talked about, kind of from a trade perspective, they’re obviously much more competitive and much more present in Latin America than they were historically. But you also see the limits to China’s ability to influence and kind of the inherent advantage the United States has to compete. And what do I mean by that? Because now that the U.S. is in a position to compete on vaccine diplomacy, despite China having been very forward-leaning, you see countries are now turning very deliberately towards the United States, right? Towards quality.

Chile’s got the best vaccination program in Latin America on the back of Chinese developed and Chinese manufactured vaccines that are proving to not be particularly effective. So Chile has this paradox of both high levels of vaccinations and high levels of infection. And part of that is the reliance on Chinese vaccine that perhaps wasn’t as good as advertised. And you see this kind of flight to quality, which is the United States, and that also speaks to kind of the difference in the economic relationship the United States has to vis-à-vis the region.

But the U.S. also competing with China is challenging. I’m actually reminded of an experience that you and I had when we traveled with President Obama to Brazil in the spring of 2011, and President Obama engaged in a conversation at the time with President Rousseff in Brazil around kind of the exploration and commercialization of deep water oil reserves off the Brazil’s coast. And it became apparent in the conversation that a very sophisticated politician like Dilma Rousseff, who had been visited by the Chinese shortly before, and who China, kind of, the Premier of China could promise direct investment, could direct the Chinese -- a Chinese state-owned oil company to invest in Brazil as a political instrument, it almost seemed that she didn’t understand that the president of the United States wasn’t in the same -- kind of similarly situated.

There is no state-owned oil company that the U.S. president can direct. It’s about market conditions, it’s about creating the incentives, and as President Obama kind of explained these things to President Rousseff, who, again, is a sophisticated player, you understand that this competition is very asymmetric. The countries in the region right now don’t want to be put in a position of having to choose because the economic relationship between themselves and China is very much commodities-based and themselves in the U.S. is kind of at a higher value chain perspective.

And so, but I think there’s nervousness in the region that they may have to choose. And particularly kind of in light of China being at this competition with China being kind of a central organizing principle for the Biden foreign policy, and I think one of the things that I think everybody needs to be clear on is if some of these countries are forced to choose, they may very well choose China. Because of their dependence, particularly the commodity exporting countries their kind of basic dependence, their basic economics depend on China as a buyer of commodities, which is something that the United States simply cannot replace. We don’t need the commodities that a number of these countries are selling. So, China's presence is certainly rising, but it’s also viewed with some skepticism in the region, and the region still has this kind of this habit, this kind of hard wire to look to the United States, to look to quality and the U.S. needs to figure out how you leveraging that piece of the relationship as we compete with China.

TOM: Interesting. A big item on the agenda for Vice President Harris as she kind of really turns to the region. And do you think that the quality issue is broadly seen on the vaccine? You mentioned more intervention. Is there a broader story in the region? That provoked, by the way quite a –

DAN: We’re starting to see it, I think you’re starting to see - look, the Argentinians just asked for help on the vaccine front. And Argentina asking the United States for help kind of openly on just about anything and particularly the kind of Peronista government and Argentina doing so is kind of telling, right? There’s – and these are countries that both – because it hasn’t actually just been the Chinese, right? There’s plenty of Sputnik V vaccine bouncing around the region. But now that folks see that the United States is going to have this excess supply and is thinking about where to deploy it people realize that this is a better – this is a better product on offer, and are turning to the United States.

Look, and the U.S. isn’t going to be able to meet all of the demand, obviously. But it is an instrument, and there’s a really self-interested reason for doing it too, Tom, in terms of the United States. Right? These countries, particularly countries if you will, in our near abroad kind of in Mexico, Central America, the Caribbean, kind of northern and South America are so deeply interconnected with the United States that kind of what goes on in these countries might as well be happening in the United States, and so from a public health perspective in the United States helping vaccinate these, kind of our closest neighbors, makes a ton of sense just from a kind of getting ourselves up and running and protecting ourselves from variants and from a return of the virus.

TOM: Yeah, and that’s the first move to be made in terms of exporting in the region as well. Let me go to the probably the most sensitive issue, because I want to keep an eye on the time here. I want to make sure we get through the key issues. So, the situation on the southern border, our southern border with Mexico, obviously is – we’ve seen significant increase in migration to the border, particularly unaccompanied minors in light of some of the changes in policy that the Biden Administration made with respect to children at the border. And some say that this is going to be one of the most complicated political issues that President Biden faces. And it’s a real foreign policy, national security, and health issue. How do you see things here? What do you think the principal drivers are of the migration, and, again, if you were advising President Biden on what is really one of the most complicated combinations of policy and political pressures that he faces, really, in his first year in office, how would you advise him? How has this evolved since the Obama years? What do you think’s driving this and what do you think the right steps are for the United States and Biden to take now to address this issue in an effective way that’s politically sustainable?

DAN: So, a couple of thoughts, and I’ll actually start with the politics. And the politics here are fundamentally -- the political enemy here is not actually the number of people migrating. It's images and a sense of disorder and chaos. And so there’s – there are a handful of things that quite frankly the administration has started to do that they need to continue to ramp up, which is to build out the processing capability infrastructure within the United States that people who are legitimately arriving at the U.S.-Mexico border to claim asylum, don’t kind of stack up either in border patrol stations or in ICE facilities and are rather, kind of, smoothly absorbed into a system to address their asylum claims to adjudicate those asylum claims quickly, but fairly, and to return those who don’t qualify for asylum and to integrate into the United States those who do. So, part of doing - being able to do that is also to relieve pressure on the border itself. Right? Because right now we have a one door -- kind of one place, one door problem. The only way to legally enter the United States from these countries, from northern Central America, and southern Mexico, is to physically get yourself the U.S.-Mexico border, go between ports of entry and claim asylum. But people are on the move for a whole host of reasons. And so you need to start addressing the host of reasons people are on the move. And this kind of breaks down into three quick buckets. One is the acute causes, right? These storms that hit the region and COVID. You need to, as the administration is doing, ramp up food assistance. There’s five and a half million people who are on the verge of acute food insecurity in northern Central America. Those people will be on the move, and they will be on the move north if you don’t start addressing that need quickly.

Similarly, you can put those folks to work rebuilding their communities in ways that promotes rootedness. You also need to start creating alternative pathways. You need to create alternative pathways for family reunification, like we’ve done in other instances in Cuba and Haiti and the Philippines., because that’s a big reason a chunk of these folks are on the move. You need to create protection mechanisms closer to home for the people who really are fleeing violence and insecurity. And then, fundamentally, you have to go after the root causes. And this is the work that President Biden started as vice president and that Vice President Harris is now focused on.

And here the trick is to understand that these countries, at least they’re rigged, if you will, by a small number of people who have dominated these countries for a long time, and they view a lot of their fellow countrymen as an export commodity. And so, the U.S. needs to be really intentional, and I think more intentional than we’ve been in the past to disrupt those power structures. To kind of promote anti-corruption and good governance and transparency and, quite frankly, market-based economics rather than these kind of cartel-driven economies that view a significant portion of the population as folks to send out elsewhere so they send back cash and there’s less of a social safety net burden on the local economy.

So you gotta, and you have to do all of that and you have to do all of that while the other party here in the United States is trying to politicize this issue and to try kind of driving this issue for electoral benefit with an eye towards the midterm elections. It’s hard work, I think they’re off to a decent start. But it’s work that kind of needs to be done comprehensively in a way that I think we started during the Obama administration, but I think there’s a greater understanding that you need to do things here at home at the border and in the region simultaneously if you are going to get your arms around this.

TOM: Great, Dan, that sounded like a number of the briefings I’ve seen you give the presidents. So, we’ve got three minutes left on the clock. I wanted to do kind of a lightening round through a couple of issues I think our colleagues and partners in finance will be interested in. First is one you know quite well, again on our southern border, which you know is one of the main policy initiatives of the Obama administration was to move towards and establish diplomatic relationships with Cuba. There was obviously a dramatic change in policy during the course of the Trump Administration, I think it’s fair to say. How do you see bilateral relations between the United States and Cuba evolving over the next four years, you know, especially in light of the final exit of the Castro’s? It’s still complicated political issues in the United States, so I want to try Cuba, and then I’m going to go to a couple of economies.

DAN: So, Cuba, so I don’t anticipate a lot happening on the Cuba front. Both because the Cubans aren’t particularly interested in it, and I’m not sure the Biden team given the other challenges that we’ve been talking about here see this as a place to spend a whole lot of the time. I think you’ll see the president make good on his campaign promises in terms of allowing greater travel and remittances to the island, particularly by Cuban-Americans, but I don’t see this being a focus as it was in the closing years of the Obama Administration.

TOM: Interesting. Ok, and to close out, a couple of high-level points maybe on the prognosis - economic prognosis, political prognosis - for Brazil and Argentina.

DAN: Complicated in both. I can do this -- I can do this quick. Complicated on both, right? The Brazilian economy is going to be slower to recover because of how badly it’s handled COVID. That slowness in recovery is going to set the table for what is likely to be a very polarized election potentially between Bolsonaro and Lula next year and the uncertainty around that election, I think, is going to give pause to a great number of investors, and that’s also going to be a drag on the Brazilian economy in ‘21 and ‘22.

In Argentina, and similarly because of politics, right, they’ve got to renegotiate with the IMF. That renegotiation isn’t really going anywhere right now because the current government, given the social strains created or exacerbated, in this case, by COVID in Argentina doesn’t want to cut back on social spending, doesn’t want to cut back, kind of do the normal with the IMF, if you will, ahead of midterm elections that they face in August. So I think we’re in a holding pattern, vis-à-vis the IMF. It’s going to be an uncomfortable holding pattern, it’ll have fits and starts. But, and then once we’re on the other side of that, depending on how the elections go, Argentina will either cut a reasonable deal with the IMF or kind of will further radicalize and kind of go - lurch back towards what we experienced, you and I with the Cristina Fernández de Kirchner government, one that was more than happy to be cut off from the global financial system. I don’t think that’s how this story ends this time, but I don’t think we’ll have much of a steer on where Argentina is headed economically until after their midterm elections in mid-October.

TOM: Thank you Dan. That was really just a spectacular tour of the horizon, really appreciate it. And thank you for being with us today. Great to see you.

DAN: Certainly. Thanks for the invite. Great to see you, Tom.

 

What a Biden Administration Means for Latin America

Tom Donilon, Chairman of the BlackRock Investment Institute, speaks with Dan Restrepo, Founder of Restrepo Strategies, about President Biden’s approach to Latin America, with a focus on the effects of COVID and vaccine diplomacy in the region, migration and the crisis at the U.S.-Mexico border, climate policy, and more.

Thank you, Kate. Thank you, Rick, for your insights this morning. Whether it is monetary or fiscal policy views or inflation views, strategic or tactical bets-- ETF are important instruments for clients in the region to implement all these views. Whether offshore wealth clients or the pension funds in the region that use ETFs for strategic allocation and to implement tactical views or for the international trend we are seeing pie local banks with asset management arms and well distribution platforms and very recently the growth of Brazil rapid movement of asset from local to international.

ETFs are the center of client's portfolios in Latin America. About 30% of international assets in the region are invested by ETFs. If the following session grow with ETFs, we have two important leaders. My pleasure to introduce Armando Senra.

Introduce you to Henry Fernandez. Chairman and CEO of MSCI. Henry led the firm for over 2 decades position today as a premier provider of indices portfolio construction and risk management tools. Armando and Henry, I notice you have something in common despite your different accents in Spanish. Both born in Mexico. Lived there for a little while. Took different paths that have taken you here to New York. Armando and Henry, welcome to the forum, it is a pleasure having you here.

ARMANDO: Thank you.Hi, everybody.Hi, Henry.Great to have you here with us.

I was excited to do the session with you because we share a lot in common

except the accent.We were both born in Mexico.Your father is -- was named

Armando.We both migrated from Mexico.Now we live here in the U.S.

Of course, you are the CEO of MSCI.And I'm not the CEO of BlackRock.I'm

excited to have you here with us and jokes aside, I wanted to begin with a

little bit of your journey from an immigrant to a widely successful CEO of

MSCI.

Now, this is a world of much debate on diversity, equity and inclusion, I

think although the experience of immigrating is -- immigrating is different

from joining an organization. It gets to the heart of the same issues we were talking about the other day. How do we become both a citizen of a community, whether it's a country or an organization, while at the same time we maintain our personal diverse perspectives and leverage those unique views to help advance the greater collective, whether it's the nation as a citizen of the U.S., in this case, or our organization.

Can you share with the group a bit of your journey in what lessons your own journey as an immigrant have taught you in terms of how we can create a more diverse, equitable, and diverse organization?

HENRY: Thank you, Armando, and it's a real pleasure to be here with you in this special event. We also are very proud of the partnership that we have between our two organizations and all the wonderful things that we're doing together. I think global. I think -- when I think about my own journey as an immigrant in America, I think about my roots, both being born in Mexico, but more importantly, growing up in Nicaragua. In a different country, especially in Latin American country, things get volatile sometimes. There are a lot of crisis all the time, whether it's political or otherwise. You learn how to deal with uncertainty. You learn how to deal with a great deal of change. I made a promise to embrace a new culture, a new world. That was critical. A lot of my friends stayed rooted in the past in what they could have been, or they would have done. I decided that I needed to move on, and I needed to embrace a new world, and that world for me was both living in America and embracing the great values and opportunities this country has to offer. In addition to that, becoming a global citizen. I wanted to make sure that what I learned in my growing up years and my travels was going to be for the benefit of the whole world. Not just one country or one culture or one race. That defined me a great deal. To me, to what I did.

The other thing was I came to New York, and I wanted to make sure that I made it in New York. I thought that if you can make it in New York City, you could make it anywhere. It's all about talent, execution on what you can achieve, so that's what defined me. Very importantly, to me and my family, it is to be proud of being in this country that offers so much. That offers opportunities to a diverse group of people. We know we have our challenges in this country and the rest of the world in terms of diversity and equality and inclusion. A lot of it is what we can do together to give opportunities to people like me who came to this country with an education and a dream.

ARMANDO: You said something interestingly that I had in my notes. When I think MSCI, I think global. I think talking with you before, you are a true globalist. What is interesting to me, if I go back to 2008 and we were talking about this the other day, the world came together during the financial crisis, but that has not happened at the start of the pandemic or even now. At the same time, we've seen globalization threat at a time that probably we needed it most during the global health crisis.

Climate change requires a global approach and a global action plan. One of the things that is really interesting is I know that sustainability is a top priority for you at MSCI. Of course, you have heard from Larry at BlackRock. Let's talk more broadly about sustainable, and also, going deeper into climate, and that's something that I know is top of mind for you. I was at a separate conference. I'll leave the group with a couple of thoughts. John Kerry said that climate represents the single largest market opportunity since the industrial revolution. I really felt I was listening to Larry. You told me the other day that in ten years all investment products will have a climate metric. It's important that all portfolios are climate-adjusted. A couple of thoughts to go deeper there. One is there hope for globalization. That would be a broad question to ask you and then going deeper into sustainable, how do you think the sustainable investment framework compared it other transformations that we've seen in the past?

HENRY FERNANDEZ: We are definitely in an era in which the independent nation states continue to be very important and very relevant, but even more important is the problems of the whole planet and the whole world. We don't have a global governance of any sort. What we have are certain mechanisms and organisms and organizations that try to achieve consensus among nation states in the direction of our economy, in the direction of climate in this case, and other big and important issues.

 It is a position, for sure. It is -- it can be a messy one, and it could have significant accidents along the way, but we hope and the two examples are the financial crisis and COVID crisis. During the financial crisis, says there was a coming together of all the large countries in the world to try to deal with the effects of that crisis. That worked well. In the COVID crisis it was the opposite. It was pretty much every country for themselves. Not only that, but there was a lot of finger-pointing between countries. There was not a large amount of coordination among the various countries as to what to do, and everyone, to a large extent, was very selfish in their approach.

Even today with respect to the distribution of the vaccines. The reason why a nation, a lot of that in COVID is because I hope that, and I think the world is learning that we cannot approach the climate crisis under the same approach that we just did. I think there is a realization of that beginning to happen. As I said, climate is what's going to define this generation and future ones in the world. There will be a re-allocation of assets in the world and a repricing of assets in the world.

Similar to what happened from the transition to the industrial revolution. A lot of assets and money that is invested in -- that started migrating rapidly into the industrial world. There is a similar reconstruction of the global economy, and as Larry says, you know, climate risk is investment risk. If we narrow our view only on the global investment industry, we have to understand that this coming of reprising of assets and reallocation of assets are going to have a significant impact on portfolios of every kind, and there will be significant opportunities, but there will also be large risks that need to be taken into account. This is happening a lot faster than we thought it would. This is a big year because of the Biden administration's focus on this, and a lot of industry participants, sump as Black Rock and others have begun to have a call to action within ourselves, so this is going to define a large part of the global investment industry in the years and decades to come.

ARMANDO SENRA:Do you feel that the role of the investment society has evolved, Henry? I mean, as -- do you feel that there's been a change, especially as we enter into topics like sustainable? What is the role of the investment industry?

HENRY FERNANDEZ:That's a great question, Armando because when we look back 50 years and we say where were the big financial institutions of the world, we would normally say that the word -- the banks and the life insurance companies. When we look today and we ask what are the big financial institutions of the world, we can say banks and life insurance companies, but we can say big patient funds, large asset managers are even bigger than many banks in the world. That's very good because banks and life insurance companies typically were only fixed income lenders, and they had a lower risk profile. In the case of the banks it was short-term fixed income on lending, and in the case of life insurance companies it was a little longer term, but it's still low risk. The global investment industry is about risk capital, and it's about allocating that risk capital from savings to productive investments to create economic growth and prosperity. That industry is going to be very critical in the continued growth and prosperity of the world and, therefore, the industry has an enormous role to play in the channeling of savings to investments in an asset location form to create economic growth that's what needs to happen, and that industry needs to modernize, needs to build scale, needs to build efficient SIs, to lower cost or at least get higher return for the unit of cost of investments and playing the role of capitalism. As we know, capitalism is the free market of capital and the global investment industry is the industry that makes that happen.

ARMANDO SENRA:Let's take the conversation closer. The ETF and, you know, firms like you working with us, we have played a very significant role in Latin America in terms of becoming -- the ETF becoming an instrument of choice. Particularly to diversify local exposures in Latin America. Of course, recently in Brazil with the introduction of the cross-listing platform, that just is going to really propel the amount of vehicles options for the local investors to diversify outside of the home country. The ETFs have played a very significant role there. How do you see home bias as evolving globally as investors become more aware of their need to diversify their portfolios and international diversification is also made more accessible to investors? This is primarily for LatAm, but also in other places around the world.

HENRY FERNANDEZ: Like you, Armando, I have been around Latin American markets for quite a few decades, and early on in that period many of the countries wanted to keep their savings only to be invested domestically. Over time I think the governments realize and the industry participants realize that there were limited options to just take savings from the citizens of their societies and invested them only locally. What they needed to do was two things. What they needed to release those savings to be globally invested for better returns to the fiduciaries and the participants in these pension funds, for example, and, secondly, the countries that need to open up their markets for foreign investment even more so. They've denied a great job in doing that, but they still are significant caps and red tapes and bottlenecks in that process. It is going in the right direction, but it is still not where we wanted to see it, and Brazil is clearly the country that probably has to do the most in this area compared to the Spanish-speaking countries. ETFs can play an enormous role in this process because a lot of asset allocators, their main job basically to allocate assets and to do it in an efficient and effective manner, and an ETF provides a ready manufacture made vehicle for a data set of location that can look at the world and invest in anything through ETF.

They're actively traded, and they can reallocate, and I think you can either -- you can either hire home-grown ETF or cross-listed ETF or ETF that traded in another market, and that is an incredible vehicle for easier asset allocation and easier diversification. I see this growth that we have experienced in E.T.F. in Latin America continuing to grow and to grow even more so. Not only from the normal indices that we have, but the new generation of indices that are being created.

ARMANDO SERA: The explosion of growth that we've seen has been incredible. We will continue to see more users of the ETF and more users around the world both institutional and institutional space and in the wealth space globally. Let me ask you one of the things that I think it would be interesting to touch on is precisely the -- how do you think of the evolution of index investing? The other day we were talking about your views of moving beyond cap-weighted indices and then within that we also touch on a capital -- very significant growth theme for the future that you have in mind. China and more broadly in terms of the growth in thematics and the thematic space and the role of thematics for investors in Latin America and also around the world. How do you see the world investing and evolving over the next ten years, and then we can touch on these two themes, if you want?

HENRY FERNANDEZ:There is a major revolution in the transformation happening in indices. We started -- when I created an MSCI out of various products that existed at the time, most of our focus was on market cap indices, equity market cap indices, and we had an incredible -- have had an incredible run with BlackRock and other partners of ours in creating a large variety of investment vehicles on the market cap indices all over the world from emerging to developed to regions of the world like China. You know, to Europe and other places, right? Latin America, et cetera. That continues and most of our product development efforts are nonmarket cap indexes, you know, indexes for ETF and for other investment vehicles. It started with factors in equities, says and that has continued. Then we moved on to ESG and climate, and we're now going to thematic investing with three big areas that we're very focused on thematic investing and that's biotech, high-tech, and clean energy and renewable energy. We believe those are going to be among the three biggest generators of capital appreciation in the world. Those three sectors. We want to create indices that can slice and dice in every country.

Geographically China is a major focus for us. It's a large market. A very diverse market. Therefore, we are applying those three consents. How do we take the high-tech, the technology market in China and slice and dice in a lot of different ways? How do we take the biotech industry, which is increasingly becoming one of the largest in the world and eventually the clean energy industries in China. Then what we've done also is began to look at all of that innovation in fixed income working with partners as well as other index providers. We are looking at the entire fixed income universe and applying factors, applying ESG, applying climate criteria, and reweighting the securities on the basis of a lot of that. We believe that this is going to be a major area of growth and expansion in the investment industry, and we want to be right there with you on your clients in doing that, and the benefit of all of this is that we can then take a lot of areas that in the past were only available through active investing and turn it into index investing. That's not to say that the indices cannot be used for active investing. Obviously, in the context of index ETF, we will be talking about index investing, and that will provide an incredible amount of opportunity and choice and diversification in an ETF format for major areas of investing in the universe and the world.

ARMANDO SENRA: Just touched on fixed income, and that's one of the areas where together with sustainable we believe it's one of the largest opportunities for growth that we have. Really as a replacement of bonds for fixed income ETFs, and we saw the utility of the fixed income ETF last year where the market was distressed, and investors were able to find equality and price transparency through the ETF vehicle. I guess you also see that evolving and a continuation of the growth and the use of fixed income ETFs among whether it's asset managers or wealth clients but extending that to factors and ESG.

HENRY FERNANDEZ: We were typically index-focused, and we have turned that focus into a fixed income because we believe there are large opportunities. Especially in all the issues weighted indices in fixed income. Starting with ESG, that has been a major area of expansion for us, and a lot of success. We're now overlaying climate criteria on fixed income, and in thematic themes are going to be very important in fixed income. I believe that there is a new transformation or revolution coming in fixed income ETFs that go beyond the issuance weighted ETF to ones that have a lot of the overlays and the like, and that's not even to mention some of the different currencies and even digital currencies.

I think this is an area in which you are absolutely right, Armando. I know it's a big strategic goal of Black Rock to be a major provider in this space. It's going to grow. Even despite, you know, global inflation and interest rates rising, there will be plenty of opportunities to put capital to work in this area.

ARMANDO SENRA: Well, Henry, I think we're getting to the end. It's been a true pleasure. Truly inspirational to hear your comments, for everybody to get to know you a little bit better, to get to understand also how you think of the biggest transformation in priorities that we are seeing in our industry and in your industry and how that will impact a lot of the clients that are listening to this conference right now, and so with that, thank you, again, for joining us. Thank you for being such a great partner of BlackRock, and we hope to see you soon next time in person. I hope we can get to do this person-to-person again. Thank you so much.

HENRY FERNANDEZ: (Speaking Spanish) Muchas gracias Armando, mucha suerte en todo.

ARMANDO SENRA: We have a five-minute break, and then we be will back. Thank you, everybody. Thank you.

Transformational Forces: Grow with ETFs

Armando Senra, BlackRock’s Head of iShares Americas, joins Henry Fernandez, MSCI’s Chairman and CEO, to discuss transformational forces in the investment industry. Henry and Armando share their thoughts on diversity and inclusion, the role of international diversification and large disruptors such as Sustainable and Fixed Income ETFs.