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

BlackRock's scale has reached 125 billions, how did they achieve this?

Video Source: 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 Citi Global Banking

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 Citi Global Banking, interviews Larry Fink, Co-founder, Chairman, and CEO of BlackRock. As of the video release, BlackRock's assets under management have reached 12.5 trillions USD. How did Larry achieve this?

In this episode, Larry shares his unique insights on leadership, the themes of his career, and the experiences that shaped his remarkable journey.

ChainCatcher has compiled and translated the content.

Highlights:

• The real game-changer for Wall Street was the personal computer.
• Profound lessons: First, believing you have the best team and market insight but failing to evolve with the market; second, being blinded by the ambition to seize market share when competing with Salomon Brothers.
• The foundation of the company is the development of risk tools; BlackRock's culture is deeply rooted in risk technology.
• Artificial intelligence and tokenization of financial assets will reshape the future of investment and asset management.
• The asset management industry is fundamentally results-oriented.
• Investors need to seek information not fully recognized by the market; old news can no longer generate excess returns.
• If active investing were effective, ETFs would never have risen.
• If the US economy cannot sustain 3% growth, the deficit problem will crush the country.
• As long as assets and liabilities are matched and deleveraged, losses will not spread into a systemic crisis.
• Bitcoin is precisely a hedge against an uncertain future.
• Only by being fully committed at all times can one continuously have the right to dialogue and industry discourse power.

(I) How did Larry's upbringing shape his leadership?

Leon Kalvaria: How did your family background shape your unique worldview and risk decision-making ability, ultimately achieving excellence on a global scale?

Larry Fink: My parents were outstanding. They were socialists, open-minded, and especially valued two things: academic achievement and personal responsibility. They often told me: "If you are unhappy as an adult, don't blame your parents, the responsibility is yours."

This teaching made me understand the importance of independence from a young age. At 10, I started working in a shoe store, which taught me how to communicate and connect with customers. Although few children work so early nowadays, 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 transform into a leader in established companies?

Larry Fink: In January 1976, I saw snow for the first time during an interview in New York. I was a typical West Coast youth then, wearing turquoise jewelry, long hair, and often brown suits. First Boston attracted me the most among many companies; they offered personalized training programs, and several leaders on the trading floor made me feel at home. They directly assigned me to the trading department, which was rare at the time.

Wall Street was completely different then. In 1976, First Boston only hired 14 people. At that time, the total capital of all Wall Street investment banks was only about 200 millions USD, including Goldman Sachs, Loeb Rhoades, Kuhn Loeb, Lehman Brothers, White Weld, Merrill Lynch, etc. (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 on the trading floor, I was convinced I could do the job. After training, the company assigned me to the mortgage and guarantee department, which had only three people, and I was very excited.

(II) Larry's Entrepreneurial Journey

Leon Kalvaria: How did your early experience with securitization fundamentally change your understanding of finance and risk?

Larry Fink: The real game-changer for Wall Street was the personal computer. Before that, there were only Monroe calculators or HP-12C type tools. In 1983, the mortgage department was equipped with a few computers, which, though primitive by today's standards, allowed us to rethink how to integrate mortgage pools and calculate their cash flow characteristics.

Processing real-time data to restructure cash flows initiated the securitization process. Many calculations were still done manually at the time, but derivatives like interest rate swaps were emerging thanks to trading floor technology. Wall Street was fundamentally changed as a result.

A key 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 later leadership at BlackRock?

Larry Fink: Let me talk about my career path. At 27, I became the youngest Managing Director, joined the company's executive committee at 31, but by 34, I became unbearable due to arrogance.

The team-first concept only worked during profitable times. In 84-85, we became the company's most profitable department, even setting quarterly records, but in Q2 1986, we suddenly lost 100 millions USD. This exposed the real problem: when profitable, you are hailed as a hero; when losing money, 80% of people no longer support you, and the so-called team spirit completely collapses.

I learned two profound lessons: first, believing you have the best team and market insight but failing to evolve with the market; second, being blinded by the ambition to seize market share when competing with Salomon Brothers. Lou was fired a year before me for similar mistakes, but I didn't take it as a warning.

I have never forgiven myself for not forcefully stopping the company from blindly adding capital; we lacked risk management tools but took on unknown risks. This failure ultimately became the soil that nourished BlackRock's growth.

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

Larry Fink: That experience did make me lose a lot of confidence. Although it took a year and a half to rebuild my career, during which I received partnership offers from several Wall Street firms, I always felt it wasn't right to repeat the old path. So I began to explore the possibility of moving to the buy-side market.

At the time, two important clients were willing to fund my startup, but I lacked the confidence to start alone, so I proactively contacted Steve Schwarzman. First Boston had raised the first fund for Blackstone (about 545 millions USD), and with our relationship with savings institutions, I helped complete part of the fundraising.

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

After resigning, I held an open house at home that weekend, with about 60-70 people attending to discuss my new plan. I told some people directly: "After I leave, you might develop even better." The company experienced a breakup, some left, some stayed, but this candor helped everyone find a more suitable path.

(III) The Development and Importance of Aladdin Technology

Leon Kalvaria: During the financial crisis, what were the main factors that led BlackRock to be chosen to provide key advice to the US government? Did early investment in Aladdin technology become a decisive advantage?

Larry Fink: Among the eight people at the company's founding, two were technology experts. We invested 25,000 USD to purchase the newly released SunSpark workstation in 1988, which allowed us to develop risk tools in-house at BlackRock.

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

In 1994, when Kidder Peabody under GE went bankrupt, we proactively offered assistance to CEO Jack Welch and CFO Dennis Damerman, leveraging our long-term relationship with GE. The outside world generally thought Goldman Sachs would be hired, but we won the mandate with the Aladdin system to liquidate their bad assets.

I stated that I didn't need a consulting fee and would be paid only after success. After nine months of operation, the asset portfolio turned profitable, and GE ended up paying the highest consulting fee in history.

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

In 2003, we encountered a financial crisis. With the trust of the US government and regulators, we participated in multiple rescues with the same philosophy. During the Bear Stearns weekend, we were hired by JPMorgan to analyze their asset portfolio; on Friday and Saturday, while urgently helping JP assess risk, I was allowed to communicate simultaneously with Treasury's Hack and the Fed's Tim.

At 6 a.m. Sunday, Tim called for support, and I replied that I needed JPMorgan CEO Jamie's permission before switching to government service. To speed up the process, we were directly hired by the US government.

The Treasury Secretary asked, "Will US taxpayers lose money by taking over these assets?" I suggested including principal and interest in the calculation; since the assets had been heavily written down and interest rates were very high, taxpayers would likely recover the funds.

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

(Note: American International Group, abbreviated as AIG)

(IV) What is the significance of the annual letter to shareholders?

Leon Kalvaria: What is the core creative philosophy behind your annual letter to shareholders since 2012? Is it to record key turning points, convey insights to investors, or to make strategic declarations?

Larry Fink: Except for a few core themes, I never tried to make declarations in these letters. If we hadn't acquired BGI in 2009 to become the world's largest index institution, I wouldn't have started writing. At that time, we took on a lot of equity management responsibility but only had voting rights, not disposal rights.

This aligns with what Warren discusses; the core of the first few letters was to promote "long-termism," to think about long-term trends for long-term investors, and that was the entire original intention.

(Note: Larry Fink's shareholder letter is jokingly referred to by Leon Kalvaria as a sister piece to Warren Buffett's letter)

(V) Major Trends Reshaping the Future of Asset Management

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

Larry Fink: Artificial intelligence and tokenization of financial assets. Today, during a lunch with a former finance minister and central bank governor, he privately admitted that the banking industry has already been left behind by technology in many areas.

The innovative practices of Brazil's New Bank are expanding to Mexico, and digital platforms like Germany's Trade Republic are disrupting tradition—these cases prove the power of technological transformation. Combining AI's transformation of big data analysis makes its disruptive power even clearer. For example, BlackRock set up an AI lab at Stanford in 2017, hiring a team of professors to develop optimization algorithms. We manage 12.5 trillions USD in assets and need to process massive transactions, and technological innovation is driving us back to our core responsibility.

Leon Kalvaria: As these tools become available to the public, how do you ensure transparency and accountability while maintaining BlackRock's advantage?

Larry Fink: Early large-scale operators will have more advantages, which makes me worried about society as a whole; only large institutions that can afford AI technology costs will become the leaders.

But when the second generation of AI becomes widespread, competitive advantage will be challenged. BlackRock's current advantage is actually far greater than a year or five years ago. Our investment in technology has reached a huge scale; all operations are based on a technical architecture, including transaction processing, process optimization, M&A integration, and unified technology platforms, all at a scale far beyond external perception.

Leon Kalvaria: How will the three major acquisitions in the private asset sector (Prequin/HBS/Bio) reshape investors' asset allocation in private markets?

Larry Fink: Today's earnings call reiterated the importance of continuous transformation. The 2009 acquisition of BGI (including iShares) once caused market doubts, but the "passive + active combination + full portfolio focus" strategy has been successfully validated—iShares' scale has jumped from 340 billions USD to nearly 5 trillions USD.

In 2023, BlackRock's private business grew significantly, infrastructure investment achieved a breakthrough from zero to 50 billions USD, and private credit expanded rapidly. Customer demand grew beyond expectations, prompting us to take innovative measures, accelerating the integration of public and private markets. Technological advances will promote free allocation between public and private assets, a trend that will cover all institutional investors and even 401k plans.

The acquisition of Prequin cost only 1/3 of industry peers, but it was a key move: by integrating the E-Front private analysis platform with the Aladdin public system, we built a full-chain risk control capability for public and private assets, helping portfolio integration and deepening client dialogue.

Leon Kalvaria: What is the current state 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 number; otherwise, the liquidity risk is not worth taking. Calculated, your portfolio can 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 plan, we manage 50% of the 12.5 trillions USD in retirement-related assets.

(VI) 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 expertise with geopolitical risk assessment?

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, all of which remain strictly confidential in the office. Although there is no formal confidentiality agreement, trust is like my communication with CEOs—the core is that the conversation never leaks. These conversations always focus on substantive issues; I am not always right, but my views are always based on history and facts.

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

Larry Fink: The asset management industry is fundamentally 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 (the third largest retirement management institution in Mexico, the largest foreign retirement management company in Japan, the largest retirement fund manager in the UK), so we always focus on long-term issues.

This influence cannot be replicated; it is built on years of trust. I proactively meet with new leaders of various countries (such as Claudia in Mexico, Kiel in Germany) before they take office to ensure smooth information flow, which is exactly the embodiment of our unique value.

Leon Kalvaria: Looking back at your recent career, who are your mentors and influencers?

Larry Fink: When BlackRock went public in 1999, its market value was only 700 millions USD. We attracted senior directors such as Merrill Lynch CEO Dave Kamansky and GE's Dennis Damerman. The board has always been our core pillar. When we acquired Merrill Lynch Investment Management, we transformed from a US fixed income institution to a company operating in 40 countries globally, during which I repeatedly discussed management models with the board.

Today, the board is still crucial. Cisco CEO Chuck Robbins provides technical insights, and former Estée Lauder CEO Fabrizio Freda contributes marketing wisdom. These cross-disciplinary experts make me continuously rely on the board to drive development.

(VII) Audience Q&A

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

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

But it's like baseball—maintaining a 30% hit rate is already extremely difficult, and achieving it for five consecutive years is even rarer. Only a few investors can consistently win. Most fundamental investors have poor returns after fees, which is the core reason for the decline of the active management industry. If active investing really worked, ETFs would never have risen.

Traditional asset management companies have low market values; many peers who went public in 2004 are only worth 5-20 billions USD, while BlackRock is at 170 billions, precisely because they cannot afford to invest in technology upgrades. Our gap with traditional agents will continue to widen.

Leon Kalvaria: What is the most underestimated black swan risk in the current market? If the US economy cannot maintain 3% growth (even if inflation is under control), what systemic crises might arise?

Larry Fink: If the US economy cannot sustain 3% growth, the deficit problem will crush the country.

In 2000, the deficit was 8 trillions USD; 25 years later, it soared to 36 trillions and continues to worsen. Only by maintaining 3% growth can the debt/GDP ratio be controlled. But the market is skeptical. The deeper risks are:

1. 20% of US Treasuries are held by foreigners; if tariff policies lead to isolationism, dollar holdings may decrease;

2. Many countries are developing local capital markets (e.g., BlackRock raised 2 billions in India, Saudi Arabia launched MBS business), causing domestic savings to stay at home and weakening the appeal of US Treasuries;

3. Stablecoins and currency digitization may reduce the global role of the dollar.

The solution is to unleash private capital and simplify approval processes. Japan, Italy, and other countries also face deficit crises caused by low growth.

Although there may be black swan events in the private credit sector, higher matching rates mean that the current systemic risk in capital markets is lower than in previous years. As long as assets and liabilities are matched and deleveraged, losses will not spread into a systemic crisis.

(VIII) Why did Larry's attitude toward digital assets change?

Leon Kalvaria: What key factors have driven the evolution of your stance on digital assets (especially stablecoins)? Did the rapid embrace of this field by other institutions beyond imagination change your view?

Larry Fink: I once harshly criticized bitcoin when discussing with Jamie Dimon, calling it "the currency of money laundering and theft"—that was my view in 2017.

But thinking and research during the pandemic changed my perception: an Afghan woman used bitcoin to pay salaries to female workers banned from employment by the Taliban. The banking system was controlled, and cryptocurrency became the way out.

I gradually realized that the blockchain technology behind bitcoin has irreplaceable value. It is not a currency, but a "fear asset" to cope with systemic risk. People hold it out of concern for national security and currency devaluation; 20% of bitcoin is held by illegal holders in China.

If you don't believe assets will appreciate over the next 20-30 years, why invest?

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

(IX) Larry's Leadership Principles

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

Larry Fink: You must insist on learning every day; stagnation means falling behind. There is no "pause button" for leading a large enterprise—only going all out; to be the best, you must constantly challenge yourself and hold your team to the same standard. I've worked for fifty years and still strive for every day to be my best.

Ultimately, only by being fully committed at all times can you continuously have the right to dialogue and industry discourse power. This right must be earned with strength every day; it is never taken for granted.