Looking ahead: A conversation with BlackRock’s President

Zach Buchwald:   Thank you Tom and thank you Speaker Ryan. The Speaker’s comments on the dynamics in our nation, calling for greater levels of empathy and understanding, they really resonated. Between the health crisis and the attention on inequalities, and many of us are asking, what kind of world do we want to emerge from this crisis? We at BlackRock are working hard to think about our place in this and how we can contribute to a more level playing field.

Speaking of creating a better world together, our next speaker is someone who has dedicated his career to that, Rob Kapito, the President and Co-founder of BlackRock. I have traveled the world with Rob, and I can tell you firsthand, nobody in the business connects better, human to human, than him. He might tell you it’s his investing acumen, or maybe his comedy that took him so far, but those of us that know Rob will tell you it is his extra big heart. If you’ve got a story about Rob you’d like to share, please do it now in the chat. I’ll join you in there shortly.

So now it is my honor to welcome Rob Kapito. Hello Rob.

Rob Kapito:  Hello Zach, how are you?

Zach Buchwald:   Very well thank you. I was about to ask you how it’s going working from home, but I see you’re in the office today.

Rob Kapito:  Well, we have planned to start to come back, and before I would ask my employees to do something, I want to make sure that I would do it. So, I lead by example, so I am in the office today. It’s very different, but we’ve set up all the safety procedures that we can, but we’re going to be learning as we go, and modifying as we go to make sure that all our employees are safe.

Zach Buchwald:   That’s great to hear. I can’t wait to be back in the office. But how’s it been going the last four months, working from home, you and the family get to have lunch together now?

Rob Kapito:  Well, you know, I have been on the phone and videos from 6:30 in the morning to 6:30 at night, we are a global firm. There seem to be fewer breaks, no meetings to walk to, and these videos can be exhausting. It’s a different type of exhausting, which I am sure that all of our clients are feeling as well. But, on the other side, I am seeing my kids and my grandkids every day, so there is certainly a silver lining. My wife has her hands full with the grandkids, so when I feel like I’m working too hard, then I look and see what she’s doing, and I just stay in my home office.

Zach Buchwald:   Any new hobbies you’ve developed?

Rob Kapito:  Well, the one thing is I’m drinking my best wines first. Apparently, my kids thought I would leave it for them to drink, but if you can learn anything in this pandemic, it’s why save the good stuff for later?

Zach Buchwald:   True words. And what are you looking forward to when the world starts getting more normal again Rob?

Rob Kapito:  Well, for me, you know that I travel half the year, so it’s the ability to travel, visit our people in our offices, and most importantly, our clients to get an understanding of what they need, how we can service them better, and I would love to have a good Italian meal outside of the house.

Zach Buchwald:   That sounds great right about now. Listen, let’s get a little serious. You know, one of the themes that’s come out through the first several speakers this morning, is that the post-COVID world, we all know, is going to be quite different than the pre-COVID world. What do you envision are the big changes that we should all start preparing for?

Rob Kapito:  Well, certainly this is going to change how we operate in the future. We won’t go back to normal as we knew it. It’s going to be a new normal, and certain industries will be completely reshaped and a new business will be formed. Revenue models are going to have to be looked at, and many will have to change. The virus has raised fundamental questions about the resilience of supply chains, and this is going to force many companies to reconsider cost as the optimizing function for making choices.

Companies will reevaluate their reliance on outsourcing of markets, on international travel, on the importance of digital capabilities. But certainly, life is going to be different, but we’re starting to live much of that right now.

Zach Buchwald:   Right. Now Rob, I know you’re on the phone a lot with investors in lieu of seeing them in person, how do you think investors are, or should be approaching portfolio construction and asset allocation differently now than they were before the crisis?

Rob Kapito:  Well, we have seen a shift towards whole portfolio investing over the last few years, and this most recent crisis highlights the importance of that approach. Investors need to look across their investments and understand their risk appetite and make sure they are diversified. Over the last few months, we have helped clients reevaluate their portfolios and bucket their investments into three categories.

Must have, like technology, AI, etcetera, need to have, biotech and healthcare, and would like to have, travel and leisure. These categories are important to think about as you build a portfolio for the future. So, this crisis has accelerated several trends we were already seeing, of course, the need for technology, but also investment interest in sustainable assets and private markets. These are not new trends, but they demand, and they will continue to demand more and more scrutiny.

I think that the demand will also increase, and I think we’ll also see deliberate country diversification here, as globalization begins to take a backseat. And this has also validated ETFs as a critical portfolio construction tool, rather than just for tactical or temporary exposures. We especially saw this with fixed income ETFs, as liquidity, price discovery, usage, and transaction costs were severely challenged across multiple asset classes in the bond markets. It was the long-awaited test and fixed income ETFs passed, and we think usage will only go up from here.

Zach Buchwald:   Thank you Rob. I want to ask you about what’s been going on in the markets, because the recovery has been pretty extraordinary, but there’s still a great deal of pessimism out there. How do you envision this plays out as we’re starting to see second quarter earnings come through, you know, parts of the economy are reopening, but then other parts are reclosing? How does this play out?

Rob Kapito:  Well, unfortunately, I think there is volatility ahead. Until there is a vaccine or a treatment, there will be a continued threat of needing to pause the economy again, or at least keep it reduced. That constant uncertainly doesn’t lead to a smooth ride. So, no matter what the experts say, I can assure you of one thing, it’s going to take longer. So, we need to prepare, we need to make sure that we can meet our cash flows. We should make sure that our employees are safe for the long term, not the short term, and we have to work very closely with our clients to make sure that we could meet their long-term objectives.

Zach Buchwald:   What are the biggest challenges that you foresee for our clients in the next year, and what’s the advice that we should be giving to our investors?

Rob Kapito:  Well, you know, this is not our first rodeo. I’ve gone through 10 crises during my tenure. This is the first health crisis though. And the one thing you learn from all of these is you must maintain a long-term mindset. We will come out of this but sitting on the sidelines has always been a mistake. We’re going to see volatility. You know, it’s easy to put your money in a mattress when that happens, but there’s so much cash sitting in accounts doing nothing, just waiting for that right opportunity.

But on behalf of the individual pension recipients, retirees, clients, foundations, family offices, and endowments you each represent, you can’t afford to do nothing when rates are where they are today. So, I always say you can’t invest for the future in the future. And I would keep in mind, there is so much cash that is sitting on the sidelines, it actually dwarfs the assets that are available to invest in.

So, this is going to keep a bottom on the markets, and I think there is more opportunity, but they really need to analyze your portfolio, look at the sectors, bucket those investments, keep a long-term mindset, and invest today for the future.

Zach Buchwald:   Speaking of investing today, Rob, one last question, which comes from our audience, what are doing in your PA right now? Any trades you’d like to recommend to our audience?

Rob Kapito:  Well, I have had a barbell trade on for a very long period of time. I am long BlackRock stock because I believe in the company, and I am long municipal bonds, primarily New York municipal bonds, because this is where I live. No matter what we do, and all of the forecasts you make, I think taxes have a higher probability of going up than they do down. Municipalities are going to need money, so they’re going to have to issue into the marketplace, and this is in all growth, in infrastructure and other things, so I think municipals represent one of the few abilities to tax manage your accounts. So, I like that market, I have for a long period of time.

Zach Buchwald:   Listen Rob, thank you very much. I enjoyed our time together. I have we can do it real soon face to face next time.  Our last keynote today will be hosted by Frank Cooper, BlackRock’s Chief Marketing Officer, to explore how companies are evolving in this new world, and how companies need to think about aligning the needs of all of their stakeholders. Over to you Frank.