It is no joke that Larry Fink is called »the King of Wall Street«.
As CEO for the world’s largest asset manager, BlackRock, he is the dominant voice in an everchanging financial world, and his words and recommendations carry a lot of weight amongst bankers, investors and other chief executives around the world.
In fact, so much so that he has been listed as one of the world’s most powerful individuals by Forbes every year since the magazine started making the list in 2009.
Since he created BlackRock from scratch in 1988, he has succeeded in building a financial empire with more than 6,500 billion dollars in assets under management – that corresponds to the joint GDP for Italy, Germany, and Denmark. The enormous investment sums mean that Fink and BlackRock play a part everywhere in the global financial markets – stocks, bonds, currencies, commodities, you name it. Can it be traded, then probably BlackRock has invested. That also goes for Denmark – BlackRock is one of the largest investors in Danish shares with 85 billion danish kroners invested in Danish. The largest shareholdings are in DSV, Danske Bank and Novo Nordisk.
Berlingske has met Fink in his headquarters in New York – which is actually not on Wall Street – for a talk about Europe’s challenges, green investments, pension provisions, and the unfailing optimism of mankind.
Europe’s biggest challenge: Innovation
One of the topics we talk mostly about is his concerns for Europe’s future. He does not point to the obvious culprits such as Brexit, Italy’s budget deficit or the ‘Gilets Jaunes’ (yellow vests) of France. No, his biggest concern for Europe is that innovation is too slow and that we do not have enough entrepreneurs and focus on technology to create economic growth.
»The largest single problem for Europe is that it does not adapt fast enough within technology and innovation and does not have the large IT-companies that China, US, and Israel do«, he says.
»There hasn’t been a good foundation for entrepreneurship and when you think about the entrepreneurs of the U.S. they are one of the reasons – despite my uncertainties regarding our government, and where we are heading as a country – that you can still be fairly constructive about the American economy. That is because young people believe that they have the opportunity to change the world, and that you don’t see much of in Europe,« he says.
And Fink is right. Unlike the U.S. and China, the home of IT-giants such as Apple, Amazon, Google, Tencent, Baidu, and Alibaba (to just name a few), the larger European tech-companies are almost non-existent. That is also one of the reasons why the European stock market has lagged behind the American – we are simply lacking the successful IT-shares to drive stock exchanges to new records.
»Europe has done an excellent job in making sure that it is a great home for its middleclass. But it has not focused on how it can secure the foundation of a good home for the next generation,« the BlackRock-boss says.
What would you do to fix the problems in Europe?
»Let me give you an example and the reason why we are so optimistic when it comes to Japan. Japan has even greater demographic challenges than Europe. Japan has all the same issues with savings as Europe does. But Japan has said that if we want to continue as the world’s third-largest economy, then we have to embrace robots and new technologies fully. And if they can embrace it, it gives a higher individual disposable income with fewer people, because efficiency increases through machinery.«
Do you think Europe can handle the problem?
»10-15 years ago you would hear that Europe believed it was one of the best regions for innovation. You don't hear that today. In fact, you hear a fear from so many CEOs instead, that Europe has lost its technological edge. I still believe there is a desire to build a better future for Europe. But it won’t be easy.«
Because even though Japan’s model of embracing the technological development is a good idea, it can also create other problems, Fink explains. Another of his big worries is that governments around the world are not good enough in preparing their populations for technology’s rapid development. That may detach more groups of the population and create more inequality and discontent.
»No matter if it is AI, robots, self-driving cars, or 5G it will change the workforce more and more. It will create more fear in the future and will lead to rising populism. It is not a big problem you have in the Nordics. Being a middleclass Dane is probably the best life on Earth. It is a really good life. The question remains, however, how good a future it creates for coming generations.«
But populism is still a big problem in many of our neighboring countries where they also lead good middleclass lives?
»That's because people are fearful of what it may mean for the future with more migrants. What really caused a large problem in Germany was the whole idea of migration, and at one point more than 50 pct. of all social benefits were paid out to non-Germans. But you must give Merkel a lot of credit. If anyone should receive an award for their humanitarian work, it is her, and it is completely overlooked. I understand that there is rising populism related to ethnic identity, and the consequences in Germany have been dire, but as a humanitarian no political leader in the world has done what she has.«
A green BlackRock in the future?
Generally, Fink is concerned about securing the next generations. Especially within climate and preservation of nature. He, himself, is a board member of The Nature Conservancy, a non-profit organization working to preserve nature in 72 countries. He is also working to make BlackRock’s investment products more climate friendly and live up to the so-called ESG-criteria, which aims at making business more sustainable by treating the environment, their employees and society at large well.
ESG has become a real buzzword in the financial world in later years, mostly in Europe though. Fink tells that he especially sees his customers in the Nordic countries request sustainable investments, e.g. investment funds that are green and will not put the money in “immoral” businesses such as guns, tobacco, or oil stocks.
There are, however, large variations from region to region, he explains. In some states in the U.S., for instance, it is more important to get a higher yield than to make morally correct investments, and there is not enough data yet to prove that a portfolio that lives up to the ESG-criteria is the better investment.
»But we believe that society is changing, also in the US, where ESG will also be a huge part of investments in the future. To really get there we need data to confirm it. And if we have that, all investment strategies in at the entire firm will have an ESG-lens. That would be fantastic,« Fink says.
»We spend gigantic amounts of money at BlackRock to build the analytical tools to support what I believe, and hope is right,« he adds.
Can you afford to live longer?
With his focus on sustainability, one could think that Fink was following the current Danish political campaign closely. And it does not end there. He takes up subjects such as pensions and the healthcare system and warns that most Western societies are not ready for a future where we live longer. He points out that when life expectancy goes up, we need larger savings and pensions as well as more money for caring for the elderly and cognitive illnesses such as dementia.
And that is where it goes wrong in several areas. The retirement age is too low – he does not mention Denmark specifically though – and people are not saving up for an old-age where they can potentially celebrate their hundredth birthday.
»We have to give people a better financial understanding and governments have to participate in that. We have been given so much of the responsibility to navigate our lives, but how do we navigate a life with a high life expectancy? We spend so much time getting better healthcare and making people live healthier, but we do not spend any time asking people if they can afford to live longer,« Fink says.
The eternal optimist
Even though there are plenty of things that worry him, the 66-year-old investment veteran has not become a grumpy old man. Because Fink is generally an optimist. Not only when it comes to the future of the financial markets, which he follows closely, but also when it comes to his general worldview and mankind’s ability to rise above crises.
“I will say that one of the big success stories after a crisis is optimism. Optimism always wins in the long-term except for a few brief moments of our history. Even during the financial crisis of 2008, we held our heads high”, he says.
“There were moments in 2008 and 2009 where I called everyone who would listen to me to talk about what we could do – regulators, politicians, finance ministers, and central bankers. There were moments when we really needed action. During the crisis we saw determination, we saw how focused these men and women were in their efforts to stabilize. That gave me a lot of confidence and that is the ultimate component of my optimism – that when we as humans are focused on solving a problem, as a race we are pretty good at it.«