BlackRock, Inc. (BLK) Earnings Call Transcript & Summary

Hello, and welcome to the Milken Institute's 2020 Asia Summit Panel discussion on the future of finance. Now our panelists today, will, I am sure bring deep and diverse perspectives on the impact of the pandemic in shaping the finance industry, their navigation of the changing competitive and regulatory landscape across the region. And how they are thinking about their organization's role in society and beyond. We'll cover a lot of topics in the next 40 minutes. With that in mind, I'd like to give a very warm welcome to our panelists, Peter Barbej, who is the CEO, Asia Pacific of Citi. Geraldine Buckingham, who is the Chairperson and Head Asia Pacific of BlackRock; Paul Hamill, who is the global Head of Fixed Income, Currencies and Commodities Distribution at Citadel Securities; and Helman Sitohang, who is the Chief Executive Officer Asia Pacific of Credit Suisse. So a great set of panelists. Only one of them, in addition to me, went to the finest university in the world. We'll have to discuss and guess who that happens could be.

Now moving on from that question, let's get to the serious stuff, where I am going to pose a question to all of our panelists just to get us going, which is in the aftermath of the pandemic -- which we're not quite there yet, but in the aftermath of the pandemic, what are the major opportunities and challenges that you see emerging for finance in Asia? And maybe, Peter, we could start with you.

Sure. Thank you, Kevin. And I'm still puzzling over which university you're talking about, but we'll figure it out.

One we both went to. It's not the one you went to.

I knew that. So look, I think it's still tough to talk about COVID creating opportunities, but the fact of the matter is that it actually has. And obviously, we're all hoping that it passes quickly. But one thing that COVID has done is actually accelerate a development that was underway, but really happened much faster than it would've without the pandemic, and that is engaging with our customers in a digital format which we have been doing for a long time, but not nearly to the degree that we can now, right? And to be honest -- and I think ud probably agree with this, we surprised ourselves in terms of how effectively we could do that in a very short period of time. So one very good takeaway from COVID is that it actually corroborated that technology and going remote and digital for financial institutions. It's not just the way of the future. It's something that we're doing as we speak. And so for us, really, what it's done is broaden the ways in which we can support our customers. We're not a particularly physically dependent institution to begin with, so a lot of our value-add really resides in the network that we have and the insights that we have across the globe, and delivering that and our financing capabilities in a digital format is extremely efficient. And that includes, on the consumer side, obviously, mobile banking, which has evolved dramatically over the last 8 months or so; it includes, on the network side, connecting with customers through APIs, which is really efficient and broadens a lot what you can do together. And it also means partnering with other industry participants, and Geraldine's firm is a great example. FI has come in very different shapes and sizes and flavors, and there's a lot of things that we can do together. So I think from that perspective, 2020 really has been a very challenging but a very seminal year. So there are some great opportunities coming out of it. I think the challenges are different and equally great. And I'm setting aside for a moment the massive social disruption that we're grappling with, but also technology itself presents challenges for us. So for instance, we're now operating with a much more distributed technological footprint. And that, by its nature, increases the risk of cyberattack, increases the risk of things going wrong from a compliance perspective, from a conduct perspective, et cetera. So as much as we're focused on doing things to take advantage of the post-pandemic opportunities, we're also very focused on actually managing the risk that comes with that.

Thanks, Peter. Challenging and seminal year, that feels like a way to encapsulate 2020, which isn't over a yet for those of you still looking for the year to end. Maybe Geraldine, I'll go to you next, maybe same question, but opportunities and challenges that you see in the post-pandemic period.

Okay. Sure, thank you, Kevin. Look, I think Peter really touched on one of the critical points here, which is that COVID, when I think we look back at that, will be seen to have not necessarily changed major trends in our industry, but actually accelerated a number of them. And technology is undoubtedly one. If I could perhaps focus on [Audio Gap] I'd talk around sustainability. This is a theme that we have seen a growing momentum all around the world. Europe is a growth area of sustainable assets. And I can certainly tell you in client conversations I've had across the region, sustainability is absolutely a key theme. I think what we've seen through 2020 is, firstly, the performance of these sustainable strategies. 51, 54 sustainable Morningstar indices have outperformed their conventional benchmark over the course of the year. That's resulted in incredibly robust flows. So sustainable products have remained in flow across the course of the year, which certainly, when we look at months like March and April earlier this year were very surprising in comparison to the more traditional counterparts. So I think we've seen incredibly -- incredible resilience in performance. We've seen dramatic growth in flows, which BlackRock has also seen for our sustainability products. And I think that this is a trend that, as I said, was coming, was growing, but has really been accelerated by this. But [ I think if ] there's been a growing focus on environmental factors around the world, it has done. It's social. How companies are participating in their community, how companies are looking after their employees. These have become themes that investors are more focused on, and so we're really now seeing the ES&G of sustainability all getting scrutiny. And I don't think that will slow down. I think that sustainability is going to be a persistent theme, one that's been accelerated. And I think that presents a lot of opportunities for participants in the financial services. If I could focus then on one challenge, and there's obviously -- BlackRock being an asset manager, a great key to our business, we've been talking about rates being lower for longer -- for what seems like now an incredibly long period of time. But rates are now even lower, and it's looking like going to be even longer. And that creates incredible challenges for investors and savers around the world. And so what we're really seeing is that what has sort of been the traditional thinking around asset allocation and how investors can meet their long-term financial goals simply don't hold up in a world where yield is as low as they are. And that's leading to growth in areas like private assets. It's meaning discussion of the whole portfolio is becoming increasingly important, not just the elements of it, but how do you actually put together a portfolio that can reach -- that can help someone reach their needs. And so I think it's a real challenge for investors, both institutional and retail to reach their financial goals, in some cases, match their liabilities with yields where they are, but also an opportunity for our industry to do things differently and help investors meet those critical needs over time.

Thank you, Geraldine. I'm sure we will return to both points of sustainability and also the impact of lower rates and how we think about that going forward. But now, I am going to go to a fellow Glaswegian, Paul, and ask you the same question. And the answer to the question, of course, is Paul and I both went to Glasgow University. I knew you knew that was the finest of institutions. You didn't know he was actually going to talk from there. But Paul, opportunities and challenges post-pandemic world.

I think similar vein around seeing opportunities, thinking about it from the perspective of Citadel Securities, we're one of the largest market makers in the world, so I'll talk to the questions through the context of capital markets. I think it was very clear during this period of extreme stress and volatility which markets performed the best and which markets performed less well and left some room for improvement. And it's fairly clear to everyone that markets with a technology-driven nature vastly outperformed those that were slower, more manual and voice-driven in nature. Now I think what the opportunity that, that will present going forward dovetails with a topic I think we'll cover shortly, which is regulation. I think we will see global regulators and market participants look back and reflect on what worked extremely well, what didn't work so well and where there are opportunities to leverage the best core strengths of those markets that performed most resiliently through the crisis and transposed those and think about how we can make all markets function more efficiently. And that is where I think the big opportunity is coming out of this.

So we will return to that, as you suggest. And last but by no means least, Helman, same question, opportunities and challenges post-pandemic.

Yes. So for us at Crédit Suisse, as you know, we're very focused on our 2 large businesses components, which is the private banking, the wealth management as well as the investment banking. So in Asia, in particular, we have seen actually obviously various shifts. I think some of my colleague panelists had mentioned that. But I think the key part for -- at least for us here in Asia Pacific is we see 2 kind of bipolar clients, what you call, situations. One, obviously, was more affected and has obviously came to some challenges on the operations, one of those in the real estate and retail and so on. And then you have the other one, which is kind of on the technology side and a few other sectors who are doing well, right? And it's obviously, we, as a firm, who provide advisory and financing solutions and so on to these 2 clients, we need to make sure that we kind of adapt to both. Those that are kind of in a more difficult situation, traditionally have been very strong and very supportive throughout the difficult times. We are doing the same here. That's an opportunity for us. We have built some of our greatest franchises here by staying very close and committed to our clients during the difficult times. We are doing the same. And those who are doing very well, obviously or doing better, just because they are in the right industry and right sector or have been prepared better for this, obviously, we are also very actively working with them in various deals throughout the region. So actually, interestingly, for us in the region, actually, our revenue actually went up quite nicely during this period. And I think that shows -- that's been actually with very minimal travel. So I think to the point of the opportunity, there's clearly opportunity to simplify some of the operational part in accessing the clients and working with the clients and delivering solutions to them. I think we're going to talk about -- in a second about the remote advisory opportunity or technology implementation, but also, I think cost can be brought down. At the same time, that time that's being saved from traveling and other things that were probably kind of -- can be transformed into most time spend with clients, more times to thinking about kind of how to analyze the data for the certain clients that we need to and so on. So I do think that, clearly, this pandemic have accelerated a lot of things. I agree with Peter on that. At the same time, I think there are a lot of opportunities as well, how do you respond to the client. And for us, the clients are at the center of our focus, so we need to adapt to our clients. So we're constantly evaluating how the clients, because I don't think that the pandemics over yet. Vaccines are coming, but we will see how it responds. Nobody really knows, I think. And I think we need to be prepared how we constantly adapt to the changes and the challenges, opportunity, which I think is an ongoing process.

Maybe let's pick up on some of the points you made, Helman. And particularly, you talked about simplifying and the role of technology. So how are you and other financial institutions responding to the need for digital transformation, especially if there's competition also coming in the form of new technology entrants?

Yes. Very good question. I think, look, I do believe that every institution, and it's kind of interesting that in the funnel, we have I think kind of quite diverse -- different type of financial institution or financial players in the industry here. For us, I think, in particular, we actually have a very small amount of clients. We are very focused on, obviously, the large -- few large institutional side on the investment banking and the market side. Then on the private banking side, on the particularly in the ultra-high and the large entrepreneurs. So I think, for us, the technology drive is much more focused on data, delivery, clearly, but because our model does still require to drive decent amount of interface with clients given we have much smaller number of clients, which is probably little bit different than Peter's model, for example, which he has probably millions of clients in Asia, we have less than 20,000 in Asia, clients, right? So our focus is obviously much more tailor-made. It has to be tailor-made. It's much more using the technology to analyze the data, as I said, to analyze the opportunities, delivering some of the solutions to that. But it's kind of really focused on the client needs much more -- in a much more tailor-made, and that's how we use the technology here.

Maybe I'll go to Peter, because Peter actually kind of started by making the observation and gauging digitally was one of the realities that the pandemic has accelerated and broadening ways to serve customers, massive franchise. What's it meant for you, Peter, in this moment, and in a part of the world where some would say it was a head or a leak could be had in the digital space? And what are you doing? What are you seeing?

Yes. Look, it's a great question. I agree with what Helman said, which is technology is a critical tool, right? But at the end of the day, our business is about the client. So what we start with is what does the client need? What can we do to actually enable the client, whether it's financing, whether it's helping them with their operations, transfer of funds, custody funds across the globe. And it really sort of starts with that. And if we can use technology to make all those things better and easier and more streamlined, then that's what we need to do. And it's absolutely critical now because technology used to be a nice thing to have for financial institutions. Now it's actually a core competency. And we have to be careful the way that we think about it because we're not Google. We're not Amazon. And yet, getting the technology part right is essential, right? And things are moving very, very quickly and faster in Asia than anywhere else. And we've got companies that are emerging here that are the category killers over the next 20 years. And they're regional and local now, but they're going to be global in just a few years, right? So there's a lot happening here that I think is setting a path and an example to the rest of the world. And so to us, it's critical to get technology right, it's critical to get it right in Asia, right? And so the other thing I would say about technology is it's moving so fast that yesterday's innovation is the legacy system of tomorrow, right? And so you're never done. It's a perpetual process. We need to constantly innovate. We see it in our consumer business, where our interface has changed tremendously just in the course of the last 6 months. But equally, in the institutional business, there's things that are emerging much faster than they would have in the past. And so it's a fluid environment, and we're extremely focused on getting it right.

Paul, you touched on this when you talked about the markets that emerged going through this moment with the greatest acceleration where those that were more technology-driven rather than voice driven. From a distribution point of view, I mean what are you seeing as this role of technology going forward and the changes we can expect?

Well, I think that one of the things -- and we can use crisis as a very good example -- the most recent crisis, sorry, as a good example is, you watch what clients and investors do and what they try to do during periods of extreme volatility and stress when they need to trade, when they need to invest and they need to move capital. And when you see the kind of slide towards those markets that have the greatest transparency, ease of use, ability to interact largely because of the electronic way in which they foster the interaction between, say, a market-maker and a client or an intermediary of some sort. So I think the thing that we see most is when you see -- and it does come back. I thought about it through the lens of preparing for the panel in the context of regulatory questions as well. When we look at those markets that have the strongest regulatory foundation, it starts with one that focuses on safety and resilience, but also one that focuses on competitiveness, a level playing field, greater competition and fairness. That's where new entrants can come in to the market, and I think we are a relatively a good example of that in both the swaps market and the treasury market in recent years. And when you're a new entrant and you come into the market, you have to find a way to compete. You have to find your edge. And in those markets, we have found that leveraging and deploying our core competency, whether it's predictive analytics in terms of pricing or superior risk management, allowed us to do things like, for example, be the first market entrant to device all swaps life. Firm pricing on swaps and treasury is very unique. It remains a unique thing. Those kind of innovations, so firstly, create the opportunity for new entrants to come in. Those entrants -- new entrants come in. They raise the bar for what it means to compete in that market and others must keep up, and that's something we've done several times over. We've also seen our competitors try to keep up with it. The ultimate end beneficiary of all of this is the investor because you move from this kind of status quo world to one where the developments in the market, whether it's regulatory or investor driven, foster innovation, foster investment and development and the end beneficiary, of course, is the investor.

Maybe we'll pick up the notion of regulatory change fostering opportunity. Maybe if I can turn to you, Geraldine, how do you think the evolving regulatory landscape, particularly in markets such as China? I think you're speaking to us from China, how does that present opportunity for foreign institutions?

Absolutely. I mean I think one of the things you can say without doubt is that the last -- and it really is the couple of years. It hasn't just been 2020 during the period of COVID. We've seen pretty dramatic moves by the Chinese government, as an example, to open up their markets to foreign participation. And this has been right across the financial services landscape. But certainly, in asset management, it's been around things like, for example, allowing 100% wholly foreign-owned mutual fund manufacturing companies. There's been pilot programs around partnerships between banks and asset managers to increase the capability of asset managers in the market. There's been removal of quota around key product -- sorry, processes like [ QT and RQT ] to try and increase capital flows into the country. So I think there's a very determined effort to open up the markets to foreign participation. And I think to the point around level playing fields, competition, et cetera, I think that's important. I think it underscores the need to see some degree of commonality in regulations across markets. So I spoke about something like sustainability earlier. We see many regulators making moves to try and increase disclosure, et cetera. I think it would be very good for the industry if there was some commonality in those regulations around the world so that people are speaking a common language. But I think there's no doubt that there's been a regulatory push in China is probably the clearest example because of the scale of the opportunity. But we are certainly seeing the value -- regulators are recognizing the value of foreign participation, competition global best practices, et cetera, being deployed, and that undoubtedly creates opportunity for the industry participants.

Helman, the same question to you, as you look at the regulatory landscape evolving, particularly in China, but elsewhere, too, how do you look at the region from that point of view?