Rob Goldstein is the chief operating officer of BlackRock, the world’s largest asset-management firm with $5.7 trillion under management.
He heads BlackRock Solutions, the unit responsible for Aladdin, the firm’s signature operating system combining risk analytics, portfolio management, and trading.
Goldstein also leads the firm’s fintech effort, overseeing several recent acquisitions and investments.
- BlackRock’s acquisition of Cachematrix, which simplifies the cash-management process for banks and their corporate clients.
- A minority stake in Scalable Capital, a Europe-based digital investment manager.
- A partnership with UBS on Aladdin Risk for Wealth Management, an adaptation of BlackRock’s institutional Aladdin platform.
- An investment in iCapital, a fintech platform providing access alternative investments for high-net-worth investors and their financial advisers.
- The acquisition of FutureAdvisor, a digital investment manager.
BlackRock is also a huge player in developing passive investment products – funds like ETFs that passively track benchmarks at a much lower cost than actively managed funds.
Business Insider recently met up with Goldstein in his Manhattan offices at BlackRock headquarters to get a sense of where he thinks fintech and passive investing are headed.
This interview has been lightly edited for clarity and length.
Rachael Levy: Do you think that the robo advice, or wealth-management space, in terms of using these new tools for risk management and transparency — do you think that it’s becoming crowded at all?
Rob Goldstein: No. Just so you know, I’ve never been asked that question before. I don’t believe it’s becoming crowded at all. I believe that — I don’t think we should underestimate how much opportunity there is.
The way I look at it, if you think about, who’s the best in the world at something? In today’s world, if you just said, who’s the best in the world at building portfolios? At managing money? The reality is, it will likely be institutions and the opportunity to democratize tools, democratize data, democratize capabilities; that’s what technology is all about. I think we’re in the bottom of the first inning or the top of the second.
When you look at these cycles, there are a lot of companies that get flushed out in every inning, but I don’t think it’s at all crowded relative to the opportunity — forget about the financial opportunity — just the opportunity to help really bridge that gap. It’s tremendous.
Levy: The reason I ask that is I know there are several that come across my radar. You know, there is Personal Capital trying to expand into that space; Ellevest is specializing in targeting women. There are others I could rattle off, but that’s why I wonder on the consumer side if there’s ever maybe confusion with “What are all these new brands coming to market?” and “Why should I choose FutureAdvisor versus Ellevest, which I saw on TV?”
Goldstein: I answered, “Is it crowded from a business perspective?” If I said from a consumer perspective, it’s confusing from a consumer perspective, and I believe the winners will be people who have both established brands and have other services.
It’s confusing from a consumer perspective, and I believe the winners will be people who have both established brands and other services.
And we shouldn’t underestimate the importance of, if you are managing your investment portfolio, it’s sort of helpful to get a checkbook type of thing as opposed to each of these are stand-alone.
The reality is, from a consumer perspective, this is all one thing, which is, this is your money and how do you leverage your money to both live and achieve certain outcomes you are striving for? And I think that the more the various elements of that can be brought together, the greater the value proposition from a consumer perspective.
Levy: How does active management fit into this? If more people — you know, mom and pop, Main Street, however you want to call them — have access to better tools now, is there any role for an active mutual fund or a bond fund and how is it going to play out for active money managers essentially?
Goldstein: I actually believe better tools make it better for both funds that are trying to generate alpha as well as people who are trying to use index products to try to generate alpha.
Risk transparency doesn’t favor one investment strategy. It’s a concept that extends across all investment strategies. What’s interesting is that, in many regards, if you look at something like an ETF, it is a technology to just give you very efficient, cost-effective exposures. But even the way that people use ETFs are in the context of making active decisions.
And as we look at these capabilities, we think it helps to build portfolios blending the two because we believe very strongly it’s not a one-size-fits-all model in sort of one direction or another. We actually believe that it’s a fund debate, but it’s not a portfolio-construction debate.
Levy: So this doesn’t necessarily change money flowing to one type of strategy over another necessarily?
Goldstein: I don’t believe so. I think that the nature of risk transparency and technology, what it should do — and this is a point in time statement — if you look at this unprecedented liquidity, the numbers are staggering. Seventy trillion dollars. I don’t know what the most recent number is, but the last I’ve heard is sort of $70 trillion in sort of cash. It helps people migrate that savings to investment and, again, it’s very hard to achieve most financial outcomes through keeping your money in cash.
And if anything, if you look at the period from the financial crisis, and you know next year will be the 10th anniversary, for example, of Lehman Brothers, if you look at those that put their money on cash for that period or those who kept in their investments, I’m not saying the risk taker who bought a bank the next day. I mean, just if you kept at it recognizing investments are a long-term game, and particularly for retirement savings, longevity in terms of being able to invest, being able to save and invest over a long period of time is your greatest asset. The people who stuck with it relative to the people who didn’t have dramatically different outcomes.
Levy: And all the losses they would’ve remade and more, right? If you look at 2008 forward.
Goldstein: But even if they wouldn’t have had such a good outcome, you know the outcome has been extraordinary, but it still would’ve been — over a 10-year period — it still would’ve been greater than keeping it in cash. So I picked a good 10-year period because it’s the most recent 10-year period, but at the same time, just relative to keeping it in cash, over a long period of time through a cycle, that’s the right thing to do.
Levy: Can you speak to how BlackRock views active versus passive more broadly?
Goldstein: Sure. It’s incredibly simple in terms of how we view it in that our goal is to construct portfolios that achieve our planned outcomes. And we believe that often, in building those portfolios, you’re blending active management and you’re blending index product. We actually believe one of the greatest misnomers is this word “passive” because we don’t believe any investment decision is a passive decision. You could buy an index fund but you’re not doing that passively. You are making a judgment about asset allocation and other things that impact your portfolio. So when we look at it, we look at it really from, “What is the objective the client is striving for and how do you build the most efficient portfolio to get him or her or the institution to achieve that objective?” Most of the time, you see a role for both active product as well as index product in constructing that portfolio.
Levy: So you don’t think there’s going to be a “death of active” necessarily?
Goldstein: Not only do we believe there’s not going to be a “death of active” but I think quite strongly, we’ve been investing in our active businesses and we’ve been quite transparent and vocal about some of the investments that we’ve made.
Levy: In the sense of expanding them?
Goldstein: So for example, we’ve been very focused on how we could leverage — funnily enough, this could be its own technology discussion — but we’ve been very focused on how we can leverage technology, big data, and other concepts to generate more alpha in portfolios. That’s been a huge thrust of what we’ve been focused on.
Levy: In actively managed portfolios?
Goldstein: In actively managed portfolios, and obviously technology has changed so many things. I mean, look, you’re recording this on your phone. The whole thing is amazing, where the world is. If I would’ve told you 10 years ago you would have a device that does all those things, you would’ve thought I was crazy. And the irony is that when you look at the devices on “Star Trek,” what you have is actually cooler than many of the devices on “Star Trek.”
When you look at one of the major changes, it is this combination of the data that’s now available, the technologies that are available to analyze the data, and access to computing power at the price points that you can access computing power and put them together, the opportunities that creates to identify themes, trends, market paradigms is just — it’s limitless.
My sales pitch is very simple: BlackRock is a growth company. BlackRock is a growth technology company and we’re growing our technology functions. We have a very ambitious plan that we call “Tech 2020.” And as part of that, we are looking to extend the 2,000-plus technologists we already have within BlackRock. And we’re really excited about the opportunity to take a company like BlackRock, which is already, I’d say, at the forefront of technology in its industry, and, if anything, keep expanding that.
Levy: Do you anticipate buying more wealth-management-type startups? How do you see that being implemented?
Goldstein: It’s a great question. I see it implemented in a variety of ways. First is, hiring and building the current capabilities that we have. Engineers, analytics, financial modeling. The second is we will continue to look at opportunities to expand our technologies through acquisition. And lastly, we have actually taken, made investments in firms that we believe have interesting technologies that we think the notion of having some sort of partnership with can accelerate client outcomes.
Levy: Are these asset-management firms?
Goldstein: No, these would be — I’m in fintech land — so, for example, we’ve taken an investment in a company called iCapital, which is trying to democratize access to alternative investments. We’ve taken an investment, we’ve made an investment in Scalable Capital, which is the leading digital advice platform by far in Europe, so leveraging all three of those capabilities or tools, I guess, leveraging all three of those tools in terms of continuing to accelerate our technology capabilities.
When we see interesting capabilities that we think we could help the capability and they could help us, that’s what’s exciting to us.
Funny enough, I wouldn’t call it diversifying. I would call it extending our capabilities.
Levy: And would the common thread be that they all somehow cater to the Main Street investors versus the institutional? Cash Matrix is institutional, but the other three?
Goldstein: The other three, yes. The other three would be more on the wealth-management side.
I would just say that the starting point on the wealth-management side is such that there’s so much more opportunity to help relative to the institutional side. I think they’re in very different parts in terms of what the starting technology point is.
Levy: And that’s just because historically retail clients have been underserved?
Goldstein: No, I don’t think it’s so much underserved. I always had this saying, which is, in my career, I saw on the institutional side risk go from a nice-to-have to a must-have to a must-have-the-best. I saw that cycle on the institutional side. I think that on the wealth-management side, risk, they’re sort of in that middle bucket. It went from a nice-to-have to now it’s becoming a must-have.
And to be clear, it’s a harder problem in many ways on the wealth-management side because there are many more objectives that people are trying to fulfill. There are many more portfolios. There are many more constraints that you have within the portfolios. So it’s just a harder problem. I believe the new technologies that have emerged over the past two or three years — you know, the ability to access compute power at different price points — just a variety of new technologies have really unlocked the opportunity to do it at scale in a whole new way. It’s just a different scale factor.
With assistance from Raul Hernandez. This article was originally published on Business Insider. Copyright 2017.
Here’s the thing about how digital transformation will impact your business
Here’s the thing about digital transformation: Everyone knows it’s happening.
But it’s hard to know which new technology or innovation is going to be the one that upends your industry, opens up massive opportunity, threatens your company, or forever alters your role.
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We call this our “Here’s the thing about…” service. Teaming up with the DX Journal, we leverage journalists, analysts, researchers and strategists to help your company get a full picture of:
- What is likely to impact your industry
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- An in-depth look at major developments you need to pay attention to
Here’s how it works:
This service is designed to give perspective on how digital transformation will impact your company. We present our findings in an easy-to-understand format breaking down trends for multiple departments and for every skill set with documented takeaways and action items.
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Let’s start by clarifying that digital transformation is not just an IT problem. Our clients are often leaders who are not technologists. In fact, many companies we speak with are surprised to learn how many areas of the business are impacted by DX, including marketing, HR, IT, sales, operations, legal, and others.
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To get started, please contact the DX Institute.
Morgan Stanley launches robo-advisor to attract young investors
Morgan Stanley has announced a new “robo-advisor” service to help young investors get started with small portfolios.
As Computer Business Review reports, the robo-advisor is tailored specifically towards younger investors who have “less complex needs.” It comes with a 0.35% advisory fee that’s designed to reflect its aims of helping new investors manage their first portfolios.
Built entirely inhouse by Morgan Stanley, the fully automated system is available online and comes with several customization options.
Robo-advising is set to become much more common over the next few years, making it easier for new investors to get started. Increasing amounts of wealth will be overseen by digital agents, with Business Insider predicting the figure will reach $4.6 trillion by 2022.
By launching its own service with a specific target audience, Morgan Stanley also positions itself to remain relevant as robo-advising becomes more prolific.
In the near-term, technological and human advisers are likely to coalesce to deliver more timely information to investors. An investor might retain traditional advice options for when they need to make major financial decisions or engage with large portfolios. Robo-advisers will allow investors to get real-time details using a smartphone, enabling more rapid responses to changes in their portfolio.
The introduction of digital assistance services could make investment more efficient and allow participants to create higher returns. This will eventually lead investors back to companies like Morgan Stanley, seeking advice on how to manage increasingly complex portfolios. Morgan Stanley’s new robo-advisor is designed to step towards this scenario, where the use of digital tech brings about new opportunities for investors and financial providers.
The service requires a $5,000 starting investment, which Morgan Stanley believes will be accessible to young people interested in seriously investing. Users can follow the service’s advice to invest in specially-designed portfolios, including options built around sustainability and emerging technology. The company hopes the seven themed portfolios will have enough appeal to attract investors by matching their interests.
Morgan Stanley intends the service to diversify its client base by allowing it to reach young customers sooner. People who start to accumulate wealth through the robo-advisor will be able to transfer to the company’s main advisory services.
The program will allow investors to start small, learning how to make decisions by engaging with socially responsible portfolios. As their needs become more complex, Morgan Stanley will be prepared to sell its more lucrative advice services. The strategy lets the company access a new demographic by using digital technology to upsell young clients to more expensive services.
KPMG says blockchain ‘critical’ to industry, joins advocacy group
KPMG has joined the Wall Street Blockchain Alliance as a corporate member and has declared blockchain as “critical to the industry,”
Blockchain is gaining momentum across different industries as its benefits start to become clear. The concept of a distributed and transparent ledger gives businesses a way to improve efficiency, cut down waiting times and open new revenue streams.
KPMG is the latest major firm to publicly commit to furthering adoption by joining a working group.
The Wall Street Blockchain Alliance (WSBA) is a non-profit trade organisation that’s working to advocate the introduction of the blockchain in financial services markets worldwide.
KPMG said it’s joining the group so it can work with leading blockchain experts and help to promote use of the technology within the finance industry. It’s pursuing several long-term goals, including an improved customer experience and reduced operating costs.
“Blockchain is maturing toward the production phase and it is clear that it has the potential to dramatically impact financial services by improving outcomes critical to the industry such as cost of operations, capital consumption, customer experience and in some cases new business models and revenues,” said Eamonn Maguire, global leader of KPMG’s Digital Ledger services.
KPMG’s decision to join the WSBA will give the alliance more visibility as it develops standards for blockchain use within the financial markets. A common set of standards will allow for those within the industry to collaborate on a shared blockchain platform.
Existing corporate members of the alliance include Calypso Technology, RiskSpan, OTC Exchange Network, BlockEx and blockchain analytics platform Blockchain Intelligence Group.
The addition of KPMG will provide a direct bridge between the predominantly tech-centric existing members and the industry that the alliance intends to transform.
“We look forward to collaborating with them, as our global members and indeed the world, begin to implement blockchain innovations across financial markets and beyond,” said Ron Quaranta, Chairman of the WSBA.
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