Dialogue with BlackRock CEO Larry Fink: AI and Asset Tokenization Will Reshape the Future of Investment

Original Title: Legends Live @Citi with Larry Fink, Chairman and CEO of BlackRock

Guest: Larry Fink, Co-founder, Chairman, and CEO of BlackRock

Host: Leon Kalvaria, Chairman of Global Banking at Citi

Compiled & Translated by: LenaXin, ChainCatcher

ChainCatcher Editor's Summary

This article is compiled from the latest episode of Legends Live @Citi, where Leon Kalvaria, Chairman of Global Banking at Citi, converses with Larry Fink, Co-founder, Chairman, and CEO of BlackRock. As of the video's release, BlackRock's assets under management have reached $12.5 trillion. How did Larry achieve this?

In this episode, Larry will share his unique insights on leadership, the themes of his career, and his experiences in creating a remarkable journey.

ChainCatcher has compiled and translated this content.

Highlights of Key Points:

The personal computer truly changed Wall Street.
Profound lessons: First, believing one has a top team and market insight while failing to evolve with the market; second, being blinded by the ambition to capture market share when competing with Solomon Brothers.
The foundation of the company is developing risk tools, and BlackRock's culture is deeply rooted in risk technology.
Artificial intelligence and the tokenization of financial assets will reshape future investment and asset management.
The essence of the asset management industry is results-oriented.
Investors need to seek information that the market has not fully recognized; old news can no longer create excess returns.
If active investing were effective, ETFs would never have risen.
If the U.S. economy cannot sustain a growth rate of 3%, the deficit issue will overwhelm the country.
As long as there is asset-liability matching and deleveraging, losses will not spread into a systemic crisis.
Bitcoin is a hedge against an uncertain future.
Only by being fully engaged can one maintain the qualification for dialogue and industry influence.

(1) How Has Larry's Growth Experience Shaped His Leadership?

Leon Kalvaria: How has your family background shaped your unique worldview and risk decision-making ability, ultimately leading to excellence on a global scale?

Larry Fink: My parents were exceptional. They were socialists, open-minded, and placed great importance on two things: academic achievement and personal responsibility. They often told me, “If you are not doing well as an adult, don’t blame your parents; the responsibility lies with you.”

This teaching made me understand the importance of independence from a young age. I started working in a shoe store at the age of 10, which taught me how to communicate with customers and build connections. Although children today rarely work at such a young age, that time made me mature early and learn to take responsibility. It wasn't until I was 15 that I truly began to plan a more purposeful life.

Leon Kalvaria: How did your West Coast academic background help you transition to a leader in a traditional company?

Larry Fink: In January 1976, I saw snow for the first time during an interview in New York. At that time, I was a typical West Coast youth, wearing turquoise jewelry, having long hair, and often dressed in a brown suit. First Boston was the most attractive among many companies; they offered personalized training programs, and several leaders in the trading department made me feel welcomed. They directly placed me in the trading department, which was rare at that time.

Wall Street back then was completely different from today. In 1976, First Boston only hired 14 people. The total capital of all Wall Street investment banks at that time was only about $200 million, including Goldman Sachs, Lehman Brothers, and Merrill Lynch (excluding commercial banks).

Investment banks operated like family workshops, taking on almost no risk. The expansion of balance sheets only began after 1976.

In my first month in the trading department, I was confident I could handle the job. After training, the company assigned me to a mortgage and guarantee department with only three people, which excited me.

(2) Larry's Entrepreneurial Journey

Leon Kalvaria: What fundamental new understandings of finance and risk did your early experiences in securitization provide you?

Larry Fink: The personal computer truly changed Wall Street. Before that, we only had tools like the Monroe calculator or HP-12C. In 1983, the mortgage department was equipped with a few computers, which, by today’s standards, were rudimentary, but allowed us to rethink how to integrate mortgage pools and calculate their cash flow characteristics.

The process of securitization was initiated by restructuring cash flows through real-time data processing. Many calculations were still done manually at that time, but the derivatives field, such as interest rate swaps, was born from the application of technology in trading. Wall Street was thus fundamentally transformed.

The important opportunity for founding BlackRock was that sell-side technology always led the buy-side.

Leon Kalvaria: What was the most unexpected lesson you learned? What insights did you gain that may have shaped your leadership at BlackRock later on?

Larry Fink: Let me talk about my career trajectory. I became the youngest managing director at 27, joined the executive committee at 31, but by 34, I had become unbearable due to arrogance.

At that time, the team-first philosophy only applied during profitable periods. In 1984-85, we became the most profitable department in the company, even setting quarterly records, but in the second quarter of 1986, we suddenly lost $100 million. This exposed the essence of the problem: When profitable, you are hailed as a hero; when losing, 80% of people no longer support you, and the so-called team spirit completely collapses.

I learned two profound lessons: First, believing I had a top team and market insight while failing to evolve with the market; second, being blinded by the ambition to capture market share when competing with Solomon Brothers. Lou was fired a year before me for similar mistakes, but I did not take heed.

I could never forgive the company for blindly adding capital when I did not strongly oppose it; we lacked risk management tools and took on unknown risks. This failure ultimately became the soil that nourished BlackRock's growth.

Leon Kalvaria: What made you still believe in the success of entrepreneurship under the dual pressure of widespread skepticism and personal setbacks?

Larry Fink: That experience did indeed make me lose a lot of confidence. Although it took me a year and a half to reorganize my career, during that time, I received partnership offers from several Wall Street firms, but I felt it was not suitable to repeat the old path. So I began to explore the possibility of shifting to the buy-side.

At that time, two important clients were willing to fund my startup, but I lacked confidence to go solo, so I proactively contacted Steve Schwarzman. First Boston had raised the first fund for Blackstone (about $5.45 billion), and with our relationships with savings institutions, I assisted in completing part of the fundraising.

Through an introduction by Bruce Wasserstein, I met Steve and Pete. They were very interested in my proposal; in fact, Steve believed in me more than I did myself, and I eventually became the fourth partner at Blackstone.

That weekend after resigning, I held an open house at home, and about 60-70 people attended to discuss my new plan. I directly told some people: “You will actually do better after I leave.” At that time, the company was experiencing disintegration, with some leaving and some staying, but this honesty found a more suitable path for everyone.

(3) The Development and Importance of Aladdin Technology

Leon Kalvaria: What were the main factors that led BlackRock to be chosen to provide key consulting to the U.S. government during the financial crisis? Did the early layout of Aladdin technology become a decisive advantage?

Larry Fink: When the company was founded, two of the eight members were technology experts. We invested $25,000 to purchase the SunSpark workstation that had just been released in 1988, which allowed us to develop risk tools independently at BlackRock.

From day one, the foundation of the company was to develop risk tools, and BlackRock's culture is deeply rooted in risk technology.

When Kidder Peabody, a subsidiary of General Electric (GE), went bankrupt in 1994, we proactively offered assistance to CEO Jack Welch and CFO Dennis Damerman due to our long-term partnership with GE. The outside world generally believed Goldman Sachs would be hired, but we were entrusted with the Aladdin system to handle the liquidation of its bad assets.

I stated that I did not need a consulting fee; payment would come after success. After nine months of operation, the asset portfolio became profitable, and GE ultimately paid the highest consulting fee in history.

I hoped my investment team could stand on their own success and capabilities, and I wanted Aladdin to compete and win against anyone. We decided to open the Aladdin system to all clients and competitors.

In 2003, we encountered the financial crisis. With the trust relationship we had with the U.S. government and regulatory agencies, we participated in several rescue operations with the same philosophy. Bear Stearns was hired by JPMorgan over the weekend to analyze its asset portfolio; while urgently assisting JP in assessing risks on Friday and Saturday, I was allowed to communicate with Treasury Secretary Hack and Fed's Tim simultaneously.

On Sunday morning at six, Tim called for support, and I responded that I needed to get permission from JPMorgan CEO Jamie before transitioning to government service. To expedite the process, we were directly hired by the U.S. government.

The Treasury Secretary asked, “Will American taxpayers incur losses from taking over the assets?” I proposed to include principal and interest in the calculation, as the assets had been significantly written down and the interest rates were extremely high, making it likely that taxpayers would recover their funds.

After that, we were subsequently hired to handle the restructuring of AIG and crisis responses for the governments of the UK, Netherlands, Germany, Switzerland, and Canada.

(Note: American International Group is abbreviated as AIG.)

(4) What Is the Purpose of the Annual Letter to Shareholders?

Leon Kalvaria: What is the core creative concept behind the annual letter to shareholders you have been writing since 2012? Is it aimed at documenting key turning points, conveying insights to investors, or making strategic declarations?

Larry Fink: Aside from a few core themes, I have never tried to make declarations in these letters. If it weren't for the acquisition of BGI in 2009, which made us the largest index institution globally, I wouldn't have even started writing. At that time, we took on a significant amount of equity management responsibility but only had voting rights and not disposal rights.

This aligns with the philosophy discussed by Warren, the core of the initial few letters was to promote “long-termism,” encouraging long-term investors to think about long-term trends, which was the entire original intention.

(Note: Larry Fink's shareholder letters have been humorously referred to by Leon Kalvaria as a sort of sister piece to Warren Buffett's letters.)

(5) The Major Trends Reshaping Asset Management in the Future

Leon Kalvaria: From your perspective, what major trends do you believe will reshape your future investment and asset management?

Larry Fink: Artificial intelligence and the tokenization of financial assets.** Today, during lunch with a former Treasury Secretary and central bank governor, he candidly mentioned that the banking industry has been left behind by technology in many areas.

Brazil's New Bank's innovative practices are expanding into Mexico, and digital platforms like Germany's Trade Republic are also disrupting traditional models, demonstrating the power of technological transformation. Understanding how AI can revolutionize big data analysis highlights its disruptive nature, such as BlackRock establishing an AI lab at Stanford in 2017, hiring a team of professors to develop optimization algorithms. We manage $12.5 trillion in assets and need to process vast amounts of transactions, while technological innovation is driving us back to the essence of responsibility.

Leon Kalvaria: These tools will be available to the public. How can we ensure transparency and accountability while maintaining BlackRock's advantages?

Larry Fink: Early-scale operators will have a greater advantage, which makes me concerned for society as a whole; large institutions that can bear the costs of AI technology will become the dominant players.

However, by the time the second generation of AI becomes mainstream, competitive advantages will face challenges. BlackRock's current advantages are indeed far greater than they were a year or five years ago. Our investment in technology has reached a massive scale, with all operations based on a technological framework, including trade processing, process optimization, mergers and acquisitions integration, and a unified technology platform, which is far beyond external perceptions.

Leon Kalvaria: How will the three major acquisitions in the private equity space (Preqin/HBS/Bio) reshape investors' asset allocation patterns in the private market?

Larry Fink: Today's earnings call reiterated the importance of continuous transformation. The acquisition of BGI (including iShares) in 2009 raised market skepticism, but the strategy of “passive + active combination + full portfolio focus” has been successfully validated—iShares' scale has surged from $340 billion to nearly $5 trillion.

In 2023, BlackRock's private equity business has seen significant growth, with infrastructure investments achieving a breakthrough from zero to $50 billion, and private credit expanding rapidly. Customer demand has exceeded expectations, prompting us to take innovative measures, accelerating the integration of public and private markets. Technological advancements will drive the free allocation of public and private assets, a trend that will encompass all institutional investors, including 401k plans.

The cost of acquiring Preqin was only one-third of that of peers, yet it is a key strategic move: by integrating the E-Front private equity analysis platform with the Aladdin public system, we have built a comprehensive risk control capability for public and private assets, facilitating portfolio integration and deepening client dialogue.

Leon Kalvaria: What is the current status of retirement funds?

Larry Fink: If you can earn 50 basis points over 30 years, in the long run, your returns in the private market will exceed that figure; otherwise, the liquidity risk is not worth taking. In total, your portfolio could increase by 18%.

Four months ago, BlackRock held a retirement summit in Washington, attended by 50 members of Congress and the Speaker of the House. As the manager of the federal government's retirement plans, we manage 50% of the $12.5 trillion in retirement-related funds.

(6) Relationships with Global Leaders and Strategic Impact

Leon Kalvaria: When global leaders seek your personal advice on financial and geopolitical issues, how do you combine investment insights with geopolitical risk assessments?

Larry Fink: Building trust is fundamental.** Since 2008, central bank governors and finance ministers from various countries have been accustomed to having in-depth conversations with me, and all discussions remain confidential within the office. Although no formal non-disclosure agreements are signed, trust is akin to my communication with CEOs, where the core principle is that the dialogue never leaks. These conversations always revolve around substantive issues; I am not always right, but my views are based on history and facts.

Leon Kalvaria: You have long served as a mentor to many leaders, and this unique communication channel is quite rare.

Larry Fink: The essence of the asset management industry is results-oriented. We do not profit from capital turnover or trading volume but rely on actual results. We are deeply involved in global retirement systems (Mexico's third-largest retirement management institution, Japan's largest foreign retirement management company, the UK's largest retirement fund manager), so we always focus on long-term issues.

This influence is irreplaceable; it is built on years of trust. I proactively meet with newly elected leaders from various countries (such as Claudia in Mexico and Kiel in Germany) before they take office to ensure smooth information flow, which reflects our unique value.

Leon Kalvaria: When you reflect on your recent career, who have been your mentors and influencers?

Larry Fink: When BlackRock went public in 1999, its market value was only $700 million. We attracted seasoned directors like Merrill Lynch's CEO Dave Kamansky and GE's Dennis Damerman. The board has always been our core pillar. When acquiring Merrill Lynch Investment Management, we transformed from a U.S. fixed income institution into a global enterprise operating in 40 countries, during which I repeatedly discussed management models with the board.

Today, the board remains crucial; Cisco's CEO Chuck Robbins provides technological insights, and former Estée Lauder CEO Fabrizio Freda contributes marketing wisdom. These cross-disciplinary experts allow me to continuously rely on the board to drive development.

(7) Audience Q&A Session

Q: How will artificial intelligence reshape future investment paradigms? How do you think different investment strategies (individual investors vs. institutions) will evolve? What direction will future developments take?

Larry Fink: Every investor needs to seek information that the market has not fully recognized; traditional information (old news) can no longer create excess returns. Artificial intelligence generates unique insights by analyzing differentiated data sets. Our systematic equity team has outperformed the market for 12 years, with its AI algorithm and big data-based thematic investment strategy beating 95% of fundamental stock pickers over the past decade.

But this is like baseball; maintaining a 30% batting average is already very difficult, and achieving that for five consecutive years is even rarer. Only a few investors can consistently win. Most fundamental investors see dismal returns after fees, which is the core reason for the shrinkage of the active management industry. If active investing were truly effective, ETFs would never have risen.

Traditional asset management companies are struggling with low market valuations; many peers that went public in 2004 have market values of only $5-20 billion, while BlackRock stands at $170 billion, precisely because they lack the ability to invest in technological upgrades. The gap between us and traditional agents will continue to widen.

Leon Kalvaria: What is the most underestimated black swan risk in the current market? If the U.S. economy cannot maintain a growth rate of 3% (even if inflation is controlled), what systemic crises could arise?

Larry Fink: If the U.S. economy cannot sustain a growth rate of 3%, the deficit issue will overwhelm the country.

In 2000, the deficit was $8 trillion, and 25 years later, it soared to $36 trillion and continues to worsen. Only by maintaining 3% growth can we control the debt-to-GDP ratio. However, the market is skeptical about this. The deeper risks lie in:

20% of U.S. Treasury bonds are held by foreign entities; if tariff policies lead to isolationism, the amount of dollars held may decrease;
Many countries are developing local capital markets (for example, BlackRock raised $2 billion in India, and Saudi Arabia launched MBS operations), leading to domestic savings being retained in their own countries, weakening the attractiveness of U.S. Treasuries;
Stablecoins and currency digitization may reduce the global role of the dollar.

The solution lies in releasing private capital and simplifying approval processes. Japan, Italy, and other countries also face deficit crises triggered by low growth.

Although there may be black swan events in the private credit sector, the higher matching rate determines that the current systemic risk in capital markets is lower than in previous years. As long as there is asset-liability matching and deleveraging, losses will not spread into a systemic crisis.

(8) Why Has Larry's Attitude Toward Digital Assets Changed?

Leon Kalvaria: What key factors have influenced your evolving stance on digital assets (especially stablecoins)? Has your perspective changed due to other institutions embracing this field at an astonishing speed?

Larry Fink: I once harshly criticized Bitcoin during a discussion with Jamie Dimon, calling it “the currency of money laundering and theft,” which was my view in 2017.

However, reflections and research during the pandemic changed my understanding: a woman in Afghanistan used Bitcoin to pay salaries to female workers banned by the Taliban. The banking system was under scrutiny, and cryptocurrency became a way out.

I gradually recognized that the blockchain technology behind Bitcoin has irreplaceable value. It is not a currency but a “fear asset” that addresses systemic risks. People hold it out of concern for national security and currency devaluation, with 20% of Bitcoin held by illegal holders in China.

If you do not believe in asset appreciation over the next 20-30 years, why invest?

Bitcoin is a hedge against an uncertain future; the high-risk and rapidly changing environment requires us to keep learning.

(9) Larry's Leadership Principles

Q: What are your core leadership principles? Especially when facing dramatic changes in the industry and needing to adjust strategies flexibly, how do you maintain consistency in leadership?

Larry Fink: One must commit to daily learning; stagnation means falling behind. There is no “pause button” in leading a large enterprise; you must give it your all. To become a top performer, you must continuously challenge yourself and hold your team to the same standards. I have been in this industry for fifty years, and I still strive for each day to be my best.

Ultimately, only by being fully engaged can one maintain the qualification for dialogue and industry influence. This right must be earned every day through strength, not taken for granted.

Disclaimer

The content of this article does not represent the views of ChainCatcher. The opinions, data, and conclusions in the text reflect the personal positions of the original author or interviewee, and the compiler maintains a neutral stance and does not endorse their accuracy. It does not constitute any professional advice or guidance, and readers should exercise caution based on independent judgment. This compilation is for knowledge-sharing purposes only; readers should strictly adhere to the laws and regulations of their respective regions and refrain from participating in any illegal financial activities.

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