Laurence D. Fink, Founder, Chairman & CEO, BlackRock, 2/13/18

it's a pleasure to welcome you to the first dinner of the new year and in doing so I want to put a question to all of you I think we can all agree that a corporation has a duty to maximize returns for their shareholders was it but does a corporation also have a duty to society that is a question that is at the heart of a letter our speaker recently sent to all of the major CEOs in the United States and others around the globe in the letter he says that the public expectations of your company have never been greater he closes with us with a subtle but unmistakable warning to hold them accountable for not only doing well but also doing good now not everyone can credibly make the threat but our speaker tonight is Larry Fink the CEO of Blackrock which is the largest financial asset manager in the world with six trillion dollars in assets under management now I want that to really sink in six trillion dollars that's considerably larger than the proposed federal budget the president just released today it's more than the entire gross domestic product of Japan which is the fourth largest economy in the world now because of its size Blackrock has been called the Amazon of Wall Street but you see I'm in the same business as Larry a little bit smaller but in the same business and I think of Amazon as the Blackrock of retailing now we don't want to say that to Jeff Bezos because we all really want Amazon to come to Chicago right Larry grew up in California where his mother taught college and his father owned a shoe store he attended UCLA for both undergraduate and graduate school earning an MBA in real estate before beginning his storied career at first Boston which I learned today he was in the class behind both at graduate school and the first class of his career at first Boston behind Bob Marley who's on our dais interesting coincidence at first Boston he was a pioneer in developing an obscure financial product that was pretty much under the public radar until we had a little event called the Great Recession I'm of course talking about mortgage-backed securities while still in his 20s Larry made a lot of money for first Boston was even being talked about as the future CEO of the company but then he suddenly lost some money in the scheme of things not a lot maybe a hundred million dollars but it was enough to turn him from in his own words a star to a jerk he and first Boston parted ways and that led to a partnership with the Blackstone Group another tense battle ultimately ensued there's a story and the creation of Blackrock happened in 1994 he's building that company building that company at an amazing rate ever since staggering rate his open secret to success is a massive computerized system called Aladdin which can instantly monitor millions of trades and analyze outcomes for millions of portfolios based on even slight shifts in the economy among other things this gave him a lot of insight into what went wrong during the financial crisis and as an expert on mortgage mortgage-backed securities he was called in to help and to clean up with people like Hank Paulson and Jamie Dimon and Tim Geithner on speed-dial Larry Fink helped engineer a remarkable rescue for the financial industry and that is not an overstatement in any way I read a note that said there was a day in which Geithner called him 21 times and it Leary is here tonight at an unusual moment in history for money managers we all know the stock market has more than tripled in the last 10 years an astonishing bull by any measure even if it's been a little bit volatile lately which we'll talk about Blackrock has made a lot of money for a lot of people but in a recent appearance in Davos Larry raised a concern that too many people have missed the party keeping most of their retirement savings and low interest bank accounts out of fear for the future he said we are not addressing the issue of inclusion and he challenged his fellow business leaders to help quell those fears part of Larry's answer has been at the center of my work for years and that is financial literacy too many people in our country says and in the world simply do not understand investing compounding saving these are very important issues and they don't have confidence to participate Leary is also spoken about the responsibility of business leaders the responsibility business leaders have to encourage long term thinking in the public sector for example he sees a real threat and neglecting in infrastructure that could limit economic growth by and here's that word again trillions I don't get to use trillions a lot in speeches so I'm really making the most of it these days there are so many important questions not just for governments but also for companies seeking to locate invest and expand so it'll be good to hear from Larry about how the business sector can help meet these challenges reduce fear and extend prosperity to more of our fellow Americans and to people around the world so it is with my great pleasure that I invite Larry Fink to join us for a discussion I have to tell you how hard he has to get everyone works on Larry Fink everyone wants him to speak and I happen to be at a speech where he was after me and I quartered him in the green room and I begged him to come and I also said that not only will I not accept no I'm asking you to call your assistant right now and put the date on your calendar and he actually did in the backstage of the deal book conference and that brings us here tonight so Leary I you know this and we talked about it I've read everything I could read about you and about the company and one of the things that I think is just not a story that's very well told or really understood is the remarkable story of entrepreneurship that is your company that you went from zero zero dollars under management to six trillion dollars basically in three decades we'll have a 30th anniversary in two weeks so 30 years old zero to six trillion dollars you told me your compound compound at return for your stock is in the high 20s since your inception so this is a stunning story what do you think really drove your success if you could put pinpoint what made this work in such a stunning way what was it well let me just say first thank to Chicago Economic Club it's it's a real honor to be here and I don't have any idea what we're going to talk about because that introduction was so nice melody so thank you very much and so I've been thinking about what made us successful over the last thirty years we actually had a town hall yesterday to talk about black rocks purpose for the next thirty years to all our employees and I would say probably the most important thing that we did from the first day we started the organization was we we framed every question we framed everything that we were doing on behalf of what the client needs and that sounds kind of hokey and phony but everything in terms of our acquisitions or mergers away we've framed the company well we designed our technology it was all done in the framework of what does a client need and in addition I must say now in 30 years I mean this is a probably the most amazing feat that I could talk about in my career that in these last thirty years I never looked backwards the trust that we have with our partners the organization the spirit of the firm and the culture of the organization to try to constantly improve grow stay in front of the needs of the clients focus on the totality of the firm not any silos after 30 years I could proudly say we've been focused forward every day for 30 years we're pretty close to 30 years and and I believe that relentless focus on the client and client needs trying to anticipate what the client needs has given us the ability to build I would say as deeper relationships in our business with with our clients worldwide than any other firm we're not in we're not a product pusher we're talking about outcomes we're talking about solutions we focus on the client's needs whatever its their liability what their focus is what they're trying to do and more importantly at Blackhawk we never talk about six trillion dollars because it's a meaningless statistic we actually focus on what is in need of every one of our clients and we have to serve that Klein who has a thousand dollars with us as much as that that you know a couple defined contribution plans we managed over three hundred billion dollars for one very big one in this country one client now it's for a lot of individuals but if we treat that one client who has a thousand dollars with us or that very large client any differently that we're not serving that client and so the key is making sure that you're serving the client is obviously as best you can you're trying to deliver a solution you're trying to work for that organization or for that individual and you're trying to have them focus on the large long outcome I get that when you have a hundred two hundred three hundred people a thousand when you have thirteen thousand in a hundred countries speak a hundred languages yes how do you train because people are they are yes I think they inherently want to do the right thing but they are also thinking about their own futures and their own outcomes and their own paychecks and how they can maximize their own you know but it gets back to my letter I mean at Blackrock if employees believe in the purpose of an organization if they believe in our mission and I do believe our 13,800 employees that I by and large believe in the mission so to achieve what we're trying to do is it's about talking about culture every day there's not a day in my job there's not a business trip where I visit where I don't focus on culture and and all the other leaders do that and we obviously try to live that culture that we talk about so II it's not some BS conversation that says done a wall it is it's how we live every day but probably the key characteristic to be in a hundred countries that means in Japan and we're the largest pension manager in Japan we have to be Japanese we're not a US firm in Japan where a Japanese from now the principles of the organization are the spirit of the organization we have to everybody in Japan have to feel that understand it they have to understand what are the proper behaviors and what are not the proper behaviors how to deal with a client relentless focus on education and re-education to stay in front of all the needs of the clients in Italy we have to be Italian in the u.s. we have to be American in Mexico where we are now becoming we just did an acquisition we're gonna be the largest asset manager in Mexico we have to be Mexican we have to be connected with society we have to work with society to build a better future for our clients in Mexico and if we try to do try to part a an American ideal in Mexico we're not serving our clients in Mexico and but probably the most important thing you mentioned Aladin what's so important about a lot of for us was we have one technology pipe worldwide that connects everything we do at the firm so when you think about firms and how they grew and especially if they did acquisition they bolted on technology they really did not have a good connectivity within the within the organization as the organization grew every time we did an acquisition within a period of a few years or shorter every component of that firm that was acquired it wasn't bolted on it was it was it became part of blackness and everything from client connectivity to all risk management worldwide is under one common platform having one singular pipe 100 countries worldwide I'll allow and everybody believing in having one pipe and that's important that everybody culturally believes that we have one connective tissue that's connecting the whole organization and information that actually builds culture - and people believe in that and so you know by having one connective pipe it actually breaks down silos because it's the information is all fluid and and and so I would say what was so what made us what we are today is the resiliency of our technology but more importantly the steadfast view that we could only have one pipe and when we acquired Melin in 2006 we were surprised that it had 18 operating platforms and and that's Merrill Lynch investment management yeah and it took some time and then we acquired in 2009 PGI and it was considered one of the preeminent investment firms ice shares was a part of that it had over a hundred different technology platforms because every little business had its own a little silo and technology and they didn't connect and that took a that's why it took a little longer than two years to get it all connected onto one common platform but I can't underscore enough I've been by insisting on one platform one connective tissue really does allow us then to speak to talk that we're trying to create that culture and then understanding worldwide and and I think I'm not here to tell you we were perfect I don't my dear to tell you we don't screw up and but having one pipe allows us be better connected than those firms so it sounds like technology ended up being a real driver of this six trillion dollars it was one of them melody we went we would not even be who we are today it was worth the technology I read something from one of your former partners at First Boston that said this is a guy who always wanted more than he had he was the guy whose nose was pressed against the window he you could sense his ambition what was driving you this whole time because you were you got big pretty fast I mean after I hear you're not saying that you talk about six trillion dollars but it's there any that's not me but it's not a it's really an unimportant statistic it really is it's a big number but it's not something we should be focused or suddenly three I think it would bug you you're right right we got to constantly grow and evolve we got to stand in front of the needs of their clients and we stay in front of the needs of our clients who have executed on behalf of our clients if we help our clients and I think we are one of the great I mean I got a step back for a second when we bought BGI in 2009 first of all we lost 150 billion dollars of assets from clients they were so pissed off at us people clients said we weren't focused are you worried about that decision we actually budgeted that okay but it came true I would say eight out of ten commentaries then said it was a stupid merger a stupid merger primarily because you can't marry active and passive which I want to talk about okay but it's a rich subject okay well good the reality is our clients have active and passive they have and it was my belief that focusing on the client if clients have both products we could actually deliver it comprehensively both products well they're not as much an active you know they're much more passive and it actually became true clients have looked to us to provide them with it with a comprehensive outcome oriented type of relationship building with them many of our clients are here and we have those type of relationship but I want to get back to when I get the client at some point would feel pretty satisfied in the accomplishment and I don't get a sense that there's any easing up there is in terms of your support is it then that you wake up with the desire to fulfill I mean you say it's 10 trillion or no there's actually no number I have a desire to improve every day that's but just it's a personal thing to drive and improve and try to grow and learn how do we measure a few or know if you're improving you know you know it it's like you know look at your foot you know you look at yours in the mirror you know if you're fat or not so you know you look at yourself you know you can look in the mirror know that I keep eating so I mean how do you know that's true I have a drive that it's pretty intense that to try to believe that I'm self improving every day do wear people out where's my chief of staff do I wear people out there good way good answer she's clearly very smart yes he is no I I think people you know I I think I helped drive many of my leaders and the next generation leaders that be driving themselves I think I have been a great role model for so many of the next generation leaders of the firm and I don't have to tell them the drive they're driving just as fast as me they're working just as hard for the improvement of the organization every day I actually believe that is one of the great and that's one of the fun things for me to see watching these young people now you know adults and and serious leaders of the firm today watching them drive their careers drive themselves succeed and build and now they're driving and they're people too in a way that I think we're all proud of what we're accomplishing but I would say today despite our size I see more opportunity today for black work than I saw 10 years here so let me ask you a question and I don't mean this to be I'll be whatever anything untoward Steve Jobs was fired yeah Jeffrey Katzenberg was fired yeah you were fired yeah well I wasn't fired but I was I quit before I was near fired if you had stayed you wouldn't have had the job yeah but I've no I quit but there's a different story I know I know for you you know the the 100 million dollar event happened in the 80s 86 and I left in 88 okay so I stayed around because but I knew I was leaving at that moment the way how the firm did that drive some of this to know I was so angry at myself now it drove you were angry with yourself I was just mortified of myself because and this is one of the experiences I talk about this experience all the time because let's be clear the failure wasn't anybody else's but mine so you owned it I totally owned it and I in the firm one of the fire a bunch of people for that loss and I told the firm you need to fire me then and then if you're gonna fire them fire me and they wouldn't do it to everybody state by the way but I did believe that because I was ultimately responsible for that position I mean and but the probably the most important thing I learned and this is one of the great lessons we learn and one of the foundations of our risk management system we should have been fired a year ago and a quarter ago before the loss we were making so much money and we had no idea why we were making so much money we had just extraordinary risk and we were you know and there was no risk systems and and nobody bothered to ask us how you making so much money or I never asked me with the money yes and and I never forgave myself and that was a key element that drove and were you not forgiving yourself for not understanding the risk at that point yeah okay yeah and it was ultimately my responsibility and the firm gave me a lot of responsibility at a very young age and for many years I achieved what they asked me to do and then I didn't but it took me a year and a half to try to search what I wanted to do and it was very clear during that year and a half not only did we don't understand there were so many other companies that really didn't understand the risky and most importantly the buy-side the investors had no idea the risk they were taking and there was a great need for a company that starts off with a high concentration and risk analytics and and principally in the fixed income area that there was a lot of analytics and equities back then but nothing in bonds and and so it took us took me a year and a half to assemble my thoughts and and I told that I told the story to Steve Schwarzman and Pete Peterson and they loved it and they had more confidence in me than I had myself they wanted to go right ahead and we did that and we actually started making money and within two weeks I mean the outpouring of our competitors friends clients that I had for my years at first Boston okay so I want to talk about the letter because there's a lot there you write yeah and when you write I read someone said you're a modern-day EF Hutton people listen you get a lot of press about your letters a lot and they are provocative in this most recent one about the duty of a company to society has gotten a lot of attention you believe a company should be run to the benefit of all stakeholders not just shareholders so that affair well let me put in the context everything's done in a context and everybody compares that letter to Milton Friedman and they don't talk about the content when he wrote that so I could talk about that too but this is the fifth letter I've done these for five years and the context was as I said in 2009 we bought BGI which was the largest indexer you know it was ice shares well and and over the time that we took ownership ETS started to really grow dramatically when we buy PGI aisha's with 340 billion and now it's 1.8 trillion so you give you an example growth of that one sector and so it actually took me a few years to really understand what what indexing is about and what are the responsibilities and I'm ashamed it took me three years to really come to grips with what it was but way back you know seven eight years ago people called index money dumb money they you know they're just passive they don't do anything well if you're focusing on the needs of the clients and the investors who are trying to earn a long-term return you do have responsibilities even as an indexer inactive management as you know if you hate a company you could sell the company you don't have to own the stock we have no choice but to own a company we have to own these companies forever as long as they're in index and that means we own a lot of bad companies because an index is a bunch of good companies and bad companies and that's what in indexes mmm-hmm and then obviously over the last five to seven years the the tremendous success of some of the activists and some of the positives and negative effects they're having but in many cases we were watching activists by companies or by threatening company companies made some changes stock realities thirty percent the activist sells and we're holding the bag of the index are owning the company forever and ever and the company could be impeded let's say by excess debt because they bought back too many shares or they did something strategically that was probably good in the short run but impeded the company in the future so all these experiences gave me this view that you know we have to be louder we have to be involved so over the last five years we built up our our corporate stewardship team and then through the years I've been running these letters saying we have to focus a long term we're their ultimate long-term investor what is long-term hmm in your view it well long term is not defined by my view is defined by each company in their industry therein so for a great Chicago company like Boeing long term is ten plus years that's the cycle for airplanes so long-term has to be associated with the business each company's in and their product cycle you know Pharma but as long-term I don't know it's probably more than 10 years is it 12 years of the 14 years you tell me how long a product cycles last and with and with product development so every industry should identify and every company should identify that what they're what long term is but clearly long term is more than a few years and depending on the industry and the cycle of a company long term is really a is connected to a company and the company's strike so we own these companies forever we can't sell the shares the only power an indexer has the power of their vote and so over the years we started building on our team we have the largest corporate stewardship team which is still very small 35 people we've committed now to have it 70 so I'm giving you the context for this year's letter and then last year and I repeated it this year because I saw too much evidence where management and there were management changes maybe at the CEO level or president level and I didn't see any changes at the board level and I actually believe there was less accountability at boards and there should have been in a in global companies and so what we've now been asking companies please describe your long-term plan you tell us what long-term is but most importantly please just tell us that you reviewed your long-term strategy with your board that's a little simple thing but what we've there was just not enough accountability so if there is a problem and a problem with management team well why isn't there questions about that board - the board is responsible for accepting that strategy and in some of the European companies where there's a separation of chairmen and and and and CEO when there was changes of CEOs they bring in a new CEO and they turn their strategy 90 degrees and the Chairman still there okay that's just acceptable so I'm just trying to give you the the backdrop and then watching the changes in this country understanding how I would say as a lifelong Democrat how I think Democrats lost the voice of the families who were left behind by globalization and I think President Trump had a better ear and certainly I did in understanding that that that issue and and certainly a better ear than many of the Democrats and there is a greater need to do more and I know under the fiduciary standard rule in the United States for the Department of Labor the only requirement of a pension fund is to maximize return so we live on that so then I said in this year's letter which you know I'm trying to get to your answer over a long horizon I believe a company to have strong financial performance still the number one paramount requirement a company has to have a purpose and a purpose that connects its employees a purpose that connects its clients to the company and so a company can have a long but I don't financial performance let me add one more thing and in addition clients come the companies need to be more connected in the societies where they operate and be part of that and I think we lost that I think we we've misuse and overuse this concept the only responsibility is profits profits profits because I do believe when you're connected with your clients when you're connected with your community over a long horizon you will produce those those above trendline profits when you're not connected when you're disassociated if you have a purpose that does not connect your employees you have a purpose that does not connect your clients or the communities in which you operate over a long horizon you're gonna fail do you think that some people misunderstood your intent because to hear you say this it's very different than how some of the the response came back at you and I mean I'll just quote an exact line from your letter every company must deliver not only financial performance but also show it makes a positive contribution to society so I think a lot of companies would say they could say that they are connected to their community by saying I have youth companies that have hundreds of thousands of employees and because I have hundreds of thousands of employees I'm therefore connected connected to society I think you are suggesting because and you say the role of a company has never been greater well I inferred by I think governments and I'm saying plural not singular in this governments have more have unfortunately been more focused in the short term so you and I believe I believe companies can and must play a bigger role and I believe the best companies and the most the companies that perform the best I'm talking about financially our companies that are thinking beyond that profit of the moment but there's been more kr more connected with a society in which you're operating they're serving a purpose and when it when when that company is that connected with its with the society in which they operate beyond just having employment but serving a bigger role in the community they will have so give long term they will have long term financial success so is that philanthropy is that benefits is that what is what is that it's it's education yes yes it depends on the need of the client of the company the role the company plays we're not saying if you're in hydrocarbons get out of it okay we're not saying that and and but we have you know we've been much more impactful I believe with many of the companies that are in the energy area to start focusing on their impact on climate change and how were they navigating their company the last thing we want to know as a long-term investor that they're going to ultimately have a lot of stranded costs or stranded businesses and so probably the most important thing that we are trying to do with and what we're trying to ask everybody is to trust your shareholders be more and be more transparent in your strategy help us understand your purpose and how you see what's right for you and your company and your role in your society we're not telling you what you should do should to be an education or philanthropy what we're asking companies to think about their higher purpose and we want them to be more open about how they are trying to and a purpose is not selling more things well that's an outcome that's an outcome if you are selling so your purpose is to have cleaner bodies okay and the outruns that I'm showing you so our purpose has been at Blackrock for the last thirty years has been to try to improve the financial well-being of our clients worldwide so let's say that in terms of the I hear you I understand it you're an indexer as well as an active manager is gonna say what about what put eight trillion active you own thousands of companies when do you vote against them man because I read in proxy voting 91% right 91 a percent of the time you're voting with me and I'm proud of it so a vast majority of the time you're voting wind no-till one of the things that have asked in the letter and we've and there have been many changes what we are asking loudly in every letter be engaged talk to us the whole time and we are we've had there's not a day that dealing about where we don't have many companies in our offices worldwide engaged with us talking about what they're trying to do their strategy there if they have an issue related to where they think they're going to need a vote in the proxy have you established the non-starters we just will not vote for that I don't know if there's any non-starters so I'm not aware of that but we have a whole independent team I'm not involved in any singular vote I'm part of a policy committee where we set up the policies they execute but I'm not involved in anything so when a CEO comes in wants to see me and a lot lobby me for how we're gonna vote I have my proxy team there so can you give an example of any companies and maybe you don't want to do this so I don't want to put you on the spot that you think this is what I'm talking about this is but I would say Chevron is a very good example where a few years ago we voted against them and how they're positioning their organization and John Watson came in many times he stepped down as CEO now but over that year to hear what we had to do we worked with them we were engaged with them and we voted with them last year and we believe their disclosure was appropriate it was very public we and we we did not vote alongside Exxon and I'm proud to say we've had many dialogues with Darren wood and his board subsequently since then and I have no idea what's gonna happen because I'm not part of that but I but we have engaged dialogue so the reason why I'm proud of 91 not here to be a police against these organization we want companies to improve and the best way we believe we could help companies improve is by being engaged out of the news quietly privately working with them not and that's what we do and you know and so you're not an activist in that regard I think we're we are becoming a more active inclusive shareholder we're not an activist that is not what we want we have voted last year we voted 38% of the time with activists so some of them actually have good policies some of them we believe probably are pushing companies that need to be pushed then other times well the majority of times we vote against them what are the areas that I read that you do spend a lot of time on is you talked about boards diversity these are issues that you say are important to you near and dear to me this issue of diversity why are you focused there well that's just one component of good governance why don't people do that better well I don't have any idea I mean it shocks to me first of all when we talk about diversity one thing that is under spoken it's very very clear I think more and more companies are focusing on gender diversity still not enough everybody's focusing on ethnic diversity what is not being discussed enough because it's an intangible and it's harder to if you don't get diversity of mind you're probably in as much trouble as any component of diversity I actually believe too many business people probably academics and on and on and on and any other profession Doc's and everybody else they like replicants around them they like people who think act to do exactly what they do and that's the ultimate failure of any organization now you generally get diversity of mind through gender through you know ethnic backgrounds race but I mean the one thing that I'm really rigorous on now I make sure that now you know we hire 450 young people every year you know I'm trying to get away from Ivy League's I'm trying to get to more state schools I am trying to really make sure that we get you know people from different backgrounds different things and ultimately most important thing you know I know we don't do this but if I if I was King I would never hire a business major undergraduate I would never hire a business major because because trying to think alike no because anybody who's getting a business degree as an undergraduate and I'll tell you why I'm wrong in this but - who get a business degree as an undergraduate that means they're focused on money not focusing on learning I believe the MBA plays a good role after you had a purposeful undergraduate degree it'll teach you how to think and act now there are many young people who they may be first-generation college educated and they believe the best way to get a great job to be better than their parents is through a business degree so what was your render graduate degree it was political theory so anything but business you say yeah anything but business you could be an economics I mean but come on please take an accounting 101 as an undergraduate please excuse me that's my you know we all have conscious biases this is one of my conscious biases that's all at least you're aware yeah that's why I said I'm aware of this very house yeah yeah it would be worse with some unconscious bias and I did all that you know that work to your peers about this issue do you think that this resonates because you talk about the energy around it but the actual numbers don't move a lot no that's what I know first of all I mean I could speak about our firm ten years ago we were not that focused on it we screwed up we're actually terrible today as a firm and having women in our investors groups okay we are focused now it could be a 10-year venture a building from the bottom up young women as investors you have to be purposeful we now at Blackrock make the diversity of every business a component of the leaders comp we're people okay with that they had no choice but we are seeing real behavior change it works okay yeah what you inside you have to be sometimes you just got to be blunt and I don't believe that people were consciously biased I do believe people recruit like types of people right I mean I actually believe people have these unconscious I think you know when we do all these unconscious bias trainings at Blackrock and we find women are just as biased at times against women as men so these unconscious biases are terrible that we all possess and the key is learning about your unconscious biases and and so you need sometimes blunt instruments to change behaviors and you're not afraid to be appointed well cop is a great blunt instrument yeah but you'll use whatever instrument you need to use I mean a lot of people don't do so the dilemma I have is Co in writing this letter if we don't if we don't live the life of what I'm asking everybody to do we are gonna be you know we'll be a great target it will be so easy it's just like so visible and so I will tell you even when we when I write this letter and it takes months to do I you know constantly check with HR we're doing this you know what does it sharpen up the purpose by doing melody it but also before this letter is sent out my entire leadership team reviews of my board reviews it before it goes out so forbid CEO we have a common friend he reads it and reviews as it and everybody has the ability to give me their opinion does do the opinions matter most of time I love the fact that you're honest about well I don't have to agree with everybody's opinion but I'd like to hear it and it's the letters on my name so it has to be what I believe it's an institution and you've gotta be a big deliver yeah and so no I want everybody's input and I'm you know and everybody knows but that you know you're gonna be listened to I may not change and that's okay but I'm I welcome everybody's opinion I want to pivot to two important subjects there please super important okay one you say that there's a retirement crisis in this country what can we do about it talk about it but talking is how would you weep no but we can we talk about it Congress doesn't care about it it's well let me step back for so we have a retirement problem worldwide in China the average Chinese today says forty five percent of this multiple income can you imagine a Chinese economy if they only save 30 percent how strong it would be the reason why they say there's no safety net retirement those safety nets for healthcare one-child family the rising middle class couple they're saving now for their parents retirement they don't have enough so the savings is incredible in Europe 80 plus percent of all personal savings is in a bank account so we're seeing the fear of the future in so many areas in the United States and the UK and Netherlands we don't save enough right it's like health care we were talking about it earlier in health care most people know what good behaviors are many people don't live it I think most people the same phenomenon people know that they have to save but they don't do it and so another hitting is it a function of not wanting to or we don't learn about investing in school in this country we don't the nomenclature is incredibly intimidating you know we don't call it a retirement account we call it a 401 K B a tax law know that this is easy yeah but I think the crisis really occurred when we change moved away from DB to DC do you think that was a bad thing the outcomes horrible I agree because people do not invest so here's the issues of tension so and I learned this in the UK from George Osborne who at that time was the Chancellor of the Exchequer George knows that black ocular Georgia that black cross talk about your George we're talking about now I know I know George Osborne I like all Georgia oh good ok and he you know he obviously he was anti brexit they lost the hit of he got booted but he believes what they missed and okay he and David Cameron and it was a one of the Tiffany meetings I ever had about this issue he said in the 1980s when the UK economy was collapsing jobs millions of jobs were being lost people left with a DB plan so they lost her job but they had hope and security with her DB and he said after the financial crisis in the UK when millions of jobs were lost they left with a DC plan they had no clue how to navigate it how to manage it they didn't have a financial literacy and he believes that created the anger and the uncertain in the future that led to brexit mmm-hmm and I think that's exactly the same situation here in the United States so for financial accounting purposes and liability purposes corporations wanted to rid themselves of that responsibility we created a trying contribution plan and there's some really good defined contribution plans I'm not trying to suggest they're all bad we intend it to be supplemental not the whole retirement select but what we have not done is educate people about the virtue of compounding the virtue of long term ISM in fact for the average individual saver who should be outcome oriented for investing for that 40 year outcome called retirement 50 year outcome call the retirement they don't understand that and they don't understand that what's happening in the world today really doesn't matter so how do we get them there well unfortunately for that 50 year olds it's hard to get them anywhere and they're just gonna have to work longer and I think that's the anger that we have in this country today it's that what happened Here I am 50 years old or 45 years old I don't have enough in savings which is one of the big problems and we haven't decided and now they're forced to work longer but 50 today is not fifty thirty years ago we haven't educated people on the merits of longevity and the opportunity and you know as I said we the advancements in medicine and longevity has been fantastic we have not made longevity a blessing we're making longevity a burden and you're gonna outlive your money you're out living your money and so if I don't have a good solution for that 40 or 50 year old other than you're gonna have to work longer but gosh if we don't create better financial literacy for that 20 year old and 25 year old you know we're not serving we're not serving our country we're not serving our community in which our purpose is supposed to be helping people have a a bright financial future this is critical and we are this is why we're investing so much money in technology and we're spending so much time you know we've acknowledged e-platform now it that we have the ability to provide that at the individual level so we're trying to get more education we're doing a lot more and robo-advisor just just it's all about financial literacy hopefully with greater financial literacy and and also I do believe one of the issues that I believe is going to be impactful let's be clear where we've made immigration more difficult in this country really yeah I'm not shotgun we made that good or bad it's horrible well I'm a globalist so so if immigration has been challenged so immigration has been challenged we're actually made it harder are even in the stem areas for those young people to get it to get it just to have a job here we made it harder we reduce the amount of work visas you know they are the h-1b visas right we have four ish percent unemployment we're making immigration harder or Hart making it harder for the even the top college graduates for Nationals to work here that we educate them so it is my view and I've had conversations with even some Chicago companies today about this it's harder to get the top talent today and I believe that's going to lead towards a new conversation about retirement at the corporate level - people won't be that won't be needed longer well I actually believe I was talking to one of the two tech companies about and they're having a harder time differentiating so I actually believe there's gonna be a a bigger dialogue in the future about how to maybe a hybrid DP or a hybrid DC whatever you want to call it where you're gonna have more engagement by the company I actually believe we're gonna there's gonna be a return of because it's at this low it's it's not working we're having a harder time and more importantly we need to be retaining our people more I mean the you know you talk to the average company how much turnover people and how costly that is and they're selling out of those plans when they leave the company but I got to get to issue the volatility doesn't help how do you feel about this current volatility it's long overdue yeah it's fantastic great because it creates opportunity no it it creates realism okay and realism is important look if the market kept on running I love the sugar high as much as anybody it's fun okay it's great you think you're geniuses but it's not real it's not real and look at we only seen the Vall and equity and you saw a lot of bad behaviors perking up you had a lot of hedge funds a lot of investors shorting volatility to add income to their product and you had a spike in volatility and you had massive demand to sell equity assets as volatility spiked up so you you know unravel those idiotic products that were created some people were hurt by it that's all good but it reminds us that the markets are volatile and we're gonna have issues we have not seen that spike in volatility the bond market please people I should understand many bond managers see the short volatility all the time as an income provider you're gonna have the same problem in the bond market all the way but the key what the market is saying is for a fork we're the largest debtor nation in the world 40% of our deficits are financed by other countries the countries mostly that we're going to have trade fights with now you generally don't yell at your bank when you borrow money but you know we're you know that's just not a good technique we're doing a good job of that and so we should be alarmed what's going on Congress in my mind should not have had a budget that increase the deficit by three hundred billion dollars if the tax code had happened well I have many ways of saying there was many good parts of it in many bad parts of it you know my Republican friends and they do have Republican friends will say if you just like what President Obama said about health care and we broke it are you the pros and cons in both but when you can get health care you get it done when you get a tax corporate tax reform done you get it done at any time was this an opportune time to do tax reform probably not because it just is gonna force the Federal Reserve to tighten faster you know Goldman Sachs came out today saying that the 10-year Treasury sometime this year will be at three and a half percent if ten years of 30 years 75 basis points spread four and a quarter corporate spreads or five five plus we're gonna get to the corporate bond market where it's gonna be a threat to valuations and equity market but the probably the most important thing that we are not calculated we're gonna have a 1.2 trillion dollar deficit in fiscal year 2019 the biggest deficits we have ever had in good economic times historically a 300 billion dollar deficit would be a obscene deficit that's how much they just increased it in this last budget and so here we are at the same time the Federal Reserve is unwinding is unwinding their four trillion dollar balance sheet we're creating these record record deficits and at the same time we're shaking our trading partners who own close to 7 trillion dollars of our debt and are they going to continue to roll in on that I mean it's it's gonna lead us to a to probably higher interest rates faster which is not good so let me ask one last question we're out of time let's just pretend for the moment that you cannot walk into your office tomorrow I'm not well you're walking into another yes but you're doing the bidding of your company yes let's pretend that tomorrow you cannot do that Muppet you're done there would you go and do I'm not frightened of that outcome I don't know but there'll be a lot of opportunities so one thing I could say with absolute certainty my my legacy is not about will not be about the moment about the time I was leading the company my legacy will be got how well the company does after me not not while I'm there and so that is really important and so I'm sticking around longer than I probably otherwise thought I was going to stick around to make sure that next generation is ready and when I believe they're ready I will be out and so I don't know you know I I never i don't plan i never planned what this outcome of what Blackrock is today I am absolutely excited about other opportunities and I know I have one more gig so whatever that next gig is I'll be here I'll be around ladies and gentlemen Larry [Applause]

Channel: The Economic Club of Chicago

Views: 27,762

Keywords: The Economic Club of Chicago, EconClubChi, Economic Club of Chicago, Laurence D. Fink, Letter to CEOs, BlackRock, Mellody Hobson, Larry Fink, A Sense of Purpose, CSR, Corporate Social Responsibility

Id: pn2F-XkCLMg

Length: 58min 12sec (3492 seconds)

Published: Mon Feb 26 2018