The Savior of the Western World
A few days ago I wrote about my startling realization about ESG as both a corporate policy and investment philosophy driver. That realization was that the corporate world is very quickly coming around to the view that ESG is no longer a “nice to do” and has turned convincingly into a “need to do”. And that tectonic shift in investment approach is forcing boards to take ESG and all that comes with it as seriously as a heart attack, as they say. I explained how I had been made aware of this change and had it explained to me that its about the changing concerns of the new Millennial and Gen Z investors who are starting to accumulate great wealth through a combination of the tech value chain and, most notably, the massive wealth transfer that is underway and expected to move ownership of over $12 trillion in the coming decade. In professional investment management timeframes, a decade is a mere blink of an eye. I know, I ran several of the biggest money management firms in the world not so very long ago. When I was at the helm, we certainly knew about the coming wealth transfer boom, but the ESG issue barely rose to our attention as the driver it has now proven to be. Things are moving very fast.
Back when I was running money management businesses (1993-2007), I had the benefit of running one of the three largest passive management operations. That means indexing. The other big players in that arena were Vanguard, State Street and Barclays Global. But Bankers Trust was one of the originators of the art of passive management and there were still very few of us. The high profile guy in the space was really John Bogle of Vanguard. He was grandfatherly and occupied the sacred high ground of running a business that was less focused on building shareholder wealth than building investor wealth. Vanguard was and is almost a cooperative for investors and Bogle was outspoken about the wisdom and power of the art of passive management. He was almost an anti-Hedge Fund guy, which is pretty funny since many of the quantitative hedge fund big boys got their start as passive managers since indexing and the tilting of indices was one of the early effective quantitative strategies and those strategies have for a long time been a big part of the hedge fund industry.
By contrast, Larry Fink was a guy who had come out of the First Boston mortgage-backed securities industry and while he is two years my senior, he and I started as young MBA’s on Wall Street the same year in 1976. His real estate orientation pushed him into the mortgage business and he went to a real investment bank while I went the corporate route at a commercial bank that soon transitioned into a merchant bank, which became a more true investment bank as the regulatory walls of Glass Steagall came down. While he was a big contributor to the profits of First Boston right from the get-go, I would argue that by the last few years of the 80’s we were similarly positioned with top notch firms. But that is when he shifted gears to asset management at Blackstone and then presided over the spin out of Blackrock as sits CEO. At that point his course was set. In 1992 I did join him the asset management world and while I was reasonably senior at my firm in that role, Larry was already headed into the stratosphere. The rest of his career journey is legendary even though it was all at Blackrock. When he orchestrated the purchase of Barclays Global (BGI) in 2009 he became the undisputed king of the asset management hill. By the way, while I ran three big asset management firms during those years, I bet Larry barely (if at all) remembers my name as he began playing in the biggest of leagues.
Larry sits there today and, like the rarefied few, has become a global force in the finance arena as well as in the global political arena. He sits on the board of the Council on Foreign Relations and the World Economic Forum (Davos). If you think Jamie Dimon of JP Morgan or James Gorman of Morgan Stanley or perhaps David Solomon of Goldman Sachs swings the biggest bat on Wall Street, you would be wrong. Wall Street is comprised of both sell-side (investment banking) and buy-side (investment management), but most Wall Street firms are relatively young in the latter. Larry Fink and Blackrock so dominate the investment management arena in ways I could expound on ad nauseum, that he actually dominates over the investment banking side of the arena. His control of the passive management (index) funds of BGI is a huge part of that power base since it is their securities that form the basis of the equity derivatives arena, a lot of the hedge fund arena and by right of his power to control the voting on massive blocks of shares of listed companies, on corporate America.
And here’s the thing, Larry Fink, while some would say he is a power hungry and egotistical guy (not labels I would attach to him), he is a complex thinker, a fantastic businessman, a fiscally responsible member of the highest order of the establishment and, a solid human being who leans strongly in the direction of liberal democracy. He was taunted as the likely Secretary of the Treasury under a Hilary Clinton administration in 2016. While he is too shrewd to declare himself an outright Democrat, most people understand that his political views drive his business views and that his business views border on progressive my many Republican standards even though I’m sure that he would say that his views reflect fiscal intelligence. He believes ecological concern by corporations is good business. He believes that enlightened and inclusive employee policies that sound very employee-favorable are not so much progressive as they are smart in light of the growing tentativeness of employee loyalties. He thinks that paying attention to ESG is not just the right thing to do for morality purposes, but that it is the right thing to do for sound business practice. That is startlingly insightful and, in my opinion, spot on.
The intelligent and educated youth of the world can easily see what so many of my older brethren cannot see because they grew up in a different era and were trained to ignore the issues that are now vital to NOT ignore any longer. I have often said that what separates red from blue is the ability to think through complexity. Most reds are simple thinkers who have been well-served by thinking clearly and simply to maximum profitability. Most blues have a habit of thinking more broadly about solving societal problems rather than next quarter’s profits. That has not always been an easy road because the trade offs were too great. Now that equation has changed. Larry Fink gets it. He is a complex thinker AND a solid fiscally astute business leader. It is always a mistake to put anyone on a pedestal, because as soon as you do, they do something stupid or unworthy and you have egg on your face. I don;t think that will happen to Larry Fink. He is, in my opinion, possibly the savior of the Western World. What I mean by that is that he speaks both the language of the conservatives and is well-studied in the modern needs of our world in terms of things like ESG. And here is the real winning formulae that makes this work…he had the power over assets to make his sensible views effective public policy and thereby change the course of the world at this delicate moment.