The transcript from this week’s, MiB: Samara Cohen, BlackRock CIO for ETF and Index Investments, is below.
You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.
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RITHOLTZ: This week on the podcast, I have yet another special guest — extra special guest. Samara Cohen is the Chief Investment Officer at BlackRock where she manages ETFs and index investing. BlackRock is $10 trillion. Their ETF business is over $3 trillion. Their index business is also over $3 trillion. Samara is consistently on everybody’s list of most influential women in finance, but that’s not why you want to listen to this. You want to listen to this because there really are very few people in the world more knowledgeable about managing ETFs, managing indexes, what passive really means, how people should be thinking about the actual engineering of products if you want to have broad market exposure or specific types of beta.
Really, I’m going to stop talking and just say with no further ado, my conversation with Samara Cohen.
ANNOUNCER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.
RITHOLTZ: My extra special guest this week is Samara Cohen. She is BlackRock’s Chief Investment Officer for ETFs and index investments. BlackRock manages up about $10 trillion. The ETF business is about $3.27 trillion.
Samara Cohen, welcome to Bloomberg.
COHEN: Thank you so much, Barry. I’m happy to be here.
RITHOLTZ: I’m happy to have you here. I have so many questions to ask you, but I have to start out with your education, which we usually skim over.
So, you graduated UPenn with a B.S. in Economics and — and Finance at — at Wharton, but you also had a B.A. in Theatre Arts. How has theater training helped in your financial career?
COHEN: First, Barry, when you hear theater, a lot of people might think that — that I was an actor, so I feel like I need to start with the fact that I was decidedly a backstage kid. My love of theater was very much on the production, design, directing, you know, behind-the-scene side, and that has definitely helped me across the course of my career.
But I have to tell you, I came to the University of Pennsylvania to be a theater major, and I left with a dual degree in Finance and Theater. So, finance was something I discovered because I knew I was good at math, in fact, when I started college I didn’t really need to take any math classes because I had all of this credit. And I missed it, and so I discovered markets and economics, and it felt like math with a purpose, so — and I got to combine the financial degree with the theatre degree, which made my parents much more comfortable with the fact that I was spending all of my summers working for regional theater companies basically, but it was a big part of learning who I am.
And — and today in my role, I often remember being told that casting is 95 percent of directing, and putting the right person in the right seat is a lot about leading any business, so it definitely has played a part throughout.
RITHOLTZ: Really interesting. So, you — you end up interning at Goldman Sachs on the trading floor pretty early in your career. Tell us what that was like and — and how theatrical was that.
COHEN: Well, actually I came to Goldman out of business school. I — well, my first job was actually at BlackRock. That’s where I came out of college. I was at BlackRock for four years, went to business school. And part of why I went back to school after BlackRock was in my head I thought, “Maybe I could further combine this love of finance and love of theater. And how might I do that?” And I loved the idea of going back to school. I’m kind of a voracious learner, and I’d work hard and I liked the idea of meeting other people and seeing what was out there after four years of — of working.
And in that summer and actually in the process of figuring out where I wanted to work for the summer, I visited the trading floor. And I walked onto the trading floor, and I thought this is it. It’s a lot like theater. It’s a lot like that like multi-tasking, high-energy collaborative environment where lots of things are happening at the same time. And I thrive in that. And so, actually, the theater — the — the trading floor I found pretty theatrical, and that really worked for me.
RITHOLTZ: Yeah, there’s a — there’s a buzz, there’s an electricity on a big trading floor, which I think is one of the things that’s lost from old Wall Street. You can replace it with more efficient algorithms and technology. But man, when you walk onto a big floor, you just feel there’s nothing like that. And ever …
COHEN: Right.
RITHOLTZ: … have a desire to become a trader? Was that — did that ever appeal to you?
COHEN: Until I walked onto the trading floor, the idea really scared me. And you know what? I — actually, I don’t think I’ve ever told anybody this. I did not proactively send my résumé to the Securities Division. They reached out to me as part of a diversity hiring effort to get more women onto the trading floor. And the reason I didn’t send my résumé was it sounded really intimidating to me. And so, I think that’s just an important thing to — to note is that sometimes if something’s interesting, even if it’s intimidating, it’s worth checking out because I knew. And yes, there weren’t a lot of women on the floor when I walked out there, but it was really clear to me that I would, you know, once I got my bearing and learned to speak the language, it can be an intimidating place at first, but — but I knew it would be a great fit for me.
RITHOLTZ: So, let me make sure I understand the chronology of your career. So, you intern at BlackRock, then you work at Goldman for like 16 years, something like, then you boomerang back to BlackRock. Did I — did I get that right?
COHEN: Yeah, pretty much. I went to BlackRock out of college, and then business school from BlackRock, and then Goldman from business school, and then back to BlackRock.
RITHOLTZ: That’s really, really interesting. I — I heard the phrase BlackRock boomerang. Is this a thing to people like work at BlackRock, leave, and then, you know, magnetically get drawn back? What’s that about?
COHEN: In my case, it was definitely a thing. I don’t know the — like with the total stats are, but it’s definitely true for other people. I mean, people’s careers are marathons and — and not sprints. And — and, you know, part of my marathon — an important part of my marathon actually was that 16 years at Goldman. I think had it not been for that, I wouldn’t have the seat I currently occupy at BlackRock, so I’m pretty grateful for it. But also, I think my — my history with BlackRock and my passion for the firm and its purpose did draw me back as well.
RITHOLTZ: So, let’s talk about that seat you have at BlackRock. You recently were promoted to Chief Investment Officer of ETFs and index investments. That sounds like a pretty serious job, especially when we consider at BlackRock, you know, that’s well over $3 trillion in assets. Tell us a little bit about your new job responsibilities.
COHEN: I’m really excited about the new job. And — and even more than — than me being in the job, I’m excited about the fact that we have a Chief Investment Officer role for ETFs and index. And it actually is broader than the ETF book. It’s our whole indexing book. And in the — and — and what it means in short is that I’m accountable for — for investment performance in our ETFs and index book, which I love telling people because sometimes they look at me and they say, “Well, I don’t really understand that. Isn’t investment performance the outperformance of a benchmark? And aren’t you, Samara, ETF and index person the benchmark?” So, what is investment performance?
And we’ve done a lot of work really in partnership with our clients and articulating what that is. And in the case of ETFs and index, it’s two things. It’s first what we call market quality. What do you expect an ETF? It’s how it trades in the market, secondary market volumes, market quality in stress scenarios, premium discount behavior. There’s a bunch of metrics that we monitor with respect to ETF market quality.
Part of my job is to be accountable for performing on those, and the other part is delivering on those index outcomes, which in a world where what we can index is evolving as more markets and more strategies are indexed. It’s also important that we deliver to investors what they had signed on for with that index objective. And so, that’s what it means to be the CIO of an ETF and index book.
RITHOLTZ: So you mentioned market quality and — and performing within the market, you know, was only less than two years ago we had the big COVID selloff in March, and people were concerned that ETFs were not going to be able to manage the — the pressure, they wouldn’t be able to deal with all of the stress, you know, all the usual criticisms of indexing plus additional criticisms of ETFs. How did ETFs perform during that 34 percent collapse from February to April of — of 2020?
COHEN: The people who were concerned before the COVID bout of volatility had a huge and rich set of data to draw from when we emerge from those volatile markets that show that actually ETFs have really supported stressed markets, added liquidity, added transparency. And that was on a full display over the COVID volatility period, particularly in the bond market, where if you think about what was happening across the world, there were traders who were, you know, setting up their — their home desks, their — their home, you know — you know, hundreds of — that one trading floor that we talked about that came thousands and thousands of — of home office trading floors.
And the bond market, in particular, still has largely operated in an over-the-counter bilateral basis in the bond market for — for that reason and a whole lot of other reasons. You know, and the treasury market, in particular, became very hard to access while ETF, you could see on your phone they were transparent, they were trading.
RITHOLTZ: Right.
COHEN: One of the stats that I love to quote that I think is quite indicative of what was happening over that period is, you know, we had an investment grade ETF that traded on one of those volatile days in March — March 24th 90,000 times on exchange. And, of course, every time something prints on an exchange is price formation where its — its underlying bonds — the top holdings of that underlying bond portfolio traded, on average, 30 times. So, 90,000 versus 30. There just wasn’t price formation happening in the bond market, but it was happening in the ETF market with buyers and sellers meeting on exchange, which meant that there wasn’t a whole lot that needed to happen in the underlying bond market to — to support that.
And so, really — and — and what’s interesting is you can see a whole lot’s been written by policymakers around the world about this supportive role that ETFs have effectively played in — in stressed markets. The, you know, SEC has written about it, the BOE, IOSCO, so it’s been exciting to have this really rich dataset to draw and looking back at that period.
RITHOLTZ: The bond discussion is really interesting, and — and I was referring to equities, but we’ll circle back to that. You know, a lot of people have complained that bond markets are thin. You know, you have a few 1,000 stocks, but there are just countless, countless numbers of bonds — many, many more times of bonds than there are stocks.
It seems like the bond ETF universe handled the crash — or plunged maybe is a more accurate word because it was so short — handled it pretty well. Everybody — we saw a lot of money rotate out of stocks into bonds. As a safe harbor, didn’t seem like there were a lot of dislocations or wild price anomalies or an inability to get an execution. The bond ETF universe seemed to behave really well.
COHEN: The bond ETF universe behaved well. And as a result, the bond market behaved better. And that’s one of the things that I get really excited about because the fact is I’m really a lifelong markets reformer. That’s the passion that I have. I’ve spent my entire career in the markets and — and my desire, at this point, is to contribute to making them better, making them safer, more efficient, more transparent, and we can measure how bond ETFs actually did that in the bond market.
And, in fact, interestingly, as a result of the — the demand for bond ETFs that came out of the COVID period, we had seen the bond market start to trade more electronically big pieces of the bond market portfolios in the bond market. Bond dealers have started to really invest in algorithmic pricing, which creates more transparency, more trading, and more liquidity. So, we’ve written about and we’ve observed this what we call a real virtuous cycle of how ETFs have been integrated into the fabric of — of capital markets across the board. And we can definitely talk about equities, but how in the bond market it has been good for bond ETFs and also good for bonds.
RITHOLTZ: So, when we had the great financial crisis since ’08, ’09, I thought that was pretty much the end of the argument that indexing is problematic for markets or ETFs aren’t going to be able to handle pressure. That — that should have been the last word in that. I was kind of surprised to see those same arguments still hanging around. And then March 20202, the execution seemed to go off without a problem.
There were a handful of individual stocks that’s sort of pricing get a little wacky. But is this the end of the passivist destroying the markets and ETFs are dangerous argument or is there — are they just going to throw this out every time there’s something else to complain about.
COHEN: I love your thoughts on that, Barry. I would hope that it’s a — it’s — it’s closer to the end where we — where we can kind of look forward to — to numerous things that can improve the markets. But look you make an excellent point. I mean, to be fair, in 2008, I was — I was on the bond trading floor actually at Goldman and I didn’t know what an ETF was, like in 2008, you know, in — in the fixed income markets, you didn’t — you know, you — we weren’t talking about what ETFs were.
But to your point, it is true. If we look back at the data during those weeks and months when what was so valued by investors was transparency and was so feared was the lack of transparency when all this information was coming out about bank balance sheets and what was on balance sheets, we did see a real pick up in volume and velocity of ETF trading in 2008 and in 2009. And we have repeated stressed market events like the big energy selloff that happened at the end of 2015, the — you know, what we call Volpocalypse that happened in February of 2018 where we have repeatedly seen ETFs perform well under pressure and actually add support to high-velocity markets.
And yet this still, you know, comes out from time to time, which feels like kind of the language that comes out around any sort of disruptive technology. But I do think like we talked about that the — the data is pretty clear.
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RITHOLTZ: You are definitely responsible for a lot of capital, and that leads me to a quote of yours that I — I need an explanation on. At BlackRock, there is absolutely nothing passive about index investing. Explain.
COHEN: I am on a mission, Barry, to replace the word passive with the word index when people talk about ETFs and index investing because how we manage our portfolios is extremely active. And it goes back to that conversation we had about what investment performance is in the context of an ETF and index investment book. It is delivering the index outcomes, which the reason ETFs and – and index ones exist is that indexes aren’t often easily investable. They could have thousands and thousands of securities in them. And so, depending on how much you — you, you know, are investing, you can’t perfectly replicate the index, and so you need to optimize to deliver that index outcome with as little friction as possible. So that’s delivering the index outcomes. And then there is that huge dimension of ETF market quality, ensuring that the ETFs track the underlying portfolios with, you know, we call it premium discount behavior, ensuring that they’re strong secondary market quality, transparency, and liquidity in the ETFs.
So, we have teams of people, not robots, but actual people. And a lot of them, by the way, are women around the world who are actively managing our market quality and investment performance in our ETF and index book. So that’s why there is absolutely nothing passive about it.
RITHOLTZ: Really interesting. We’ve gone through these periods whether these spasms of anti-indexing sentiment, and it goes all the way back to Jack Bogle and — and the early days of indexing in the 1970’s. Indexing is un-American. It’s — we’ve heard people call it Marxist. It’s going to lead to market crashes. What — what’s your perspective when you hear these things crop up?
The – by the way, the latest one is it’s anti-competitive and it’s going to lead to price fixing and a lack of competition due to all this ownership. How do you respond to those sort of backwater, low review silliness?
COHEN: I — I begin with — and we’ve written on this this year in — in something we call the Investor Progress Report, but we estimate that there’s about 120 million people around the world who are accessing our ETF and index capabilities. There are more people accessing the markets, and investing in the markets, and participating in economic growth on their terms than never before in history. And from my perspective, there’s really nothing that’s more American than that. So that’s how I think about it.
I think ETFs bring markets. They bring the market access. They bring transparency. And increasingly, they bring choice to lots of individual investors who are saving for retirement and thinking about their financial futures with the help of ETFs in ways that they couldn’t before.
And a lot of the — you know, one of the pieces that we — that we put out recently points out to the fact that a lot of the households who own ETFs in the United States have — have median incomes of $125,000. So, you’re talking about investors who simply didn’t have market access before who, as a result of ETFs and indexation, can — can get diversified strategies to manage their risk the way more sophisticated institutional investors have and participate in the markets.
RITHOLTZ: So, let’s talk a little bit about product engineering. Tell us a little bit about what that means. What sort of projects are these teams working on? It’s one of those phrases that definitely resonates.
COHEN: I’m glad that it resonates. It’s something that we’ve been using for — for a few years now. And that team, which is global, there are product engineers in — in really every major region of the world. And they do two things. First, they help design the operating models and the investment process for — for new ETFs, how will creation redemption work, what are the characteristics of the index. What — you know, how will the index rebalance? Those types of things when it comes to new ETFs.
And the second piece of what they do, which is actually really critical, is they continue to manage the structure of the product over its lifetime. So sometimes, we will identify something in one of those market quality statistics that, you know, let’s say it seems to be trading a little bit wide in the secondary market, and we’ll go out and we’ll talk to market makers and ask what’s happening. And they’ll say, well, it’s a little tricky to hedge because of X, Y, and Z. And sometimes, we can change something structurally and how the market interacts with the ETF to improve its investment performance in market quality. And that’s the purview of our product engineering group.
So, I tell all of our teams, you know, I want all of our teams to be able to explain how they contribute to the active management of our ETF and index book, and that’s how the product engineering does by — by identifying the operating model and by continuously assessing and improving it.
RITHOLTZ: So, let’s talk about the rest of your team. You have portfolio engineers, risk managers, platform architects, market structure developers, and product operating model designers. That sounds like some very intriguing job descriptions. Tell us about what a market structure developer does or some of those other really interesting titles.
COHEN: I think they’re all exciting jobs, and I do have to make a plug for — for anybody who is — is considering going into investing. It’s never a dumb question to ask what — what is the job, but because there are so many different jobs. And I remember when I was in college, I was almost scared to ask that. But — but as you just pointed out, and it’s — it’s, you know, fun for me to kind of hear you walk through it, there are so many different types of ways to be an investor and to participate in an investment platform.
So really, we do three things. Number one, we manage day in and day out. We are responsible for the investment performance of our funds, how we’re managing the portfolios through rebalances, through corporate actions, and how we’re managing ETF market quality. That’s number one.
Number two is we are continuously improving our platform in the Aladdin technology that we use to manage our portfolios to make things that can be lower touch — lower touch to give us capacity to spend more time on, you know, new markets and new strategies so that platform architecture piece, how we create scale that’s kind of bucket two of what we do. And the third part is ecosystem leadership.
And you talked about — you know, we talked about how we engage with liquidity providers, with stock exchanges. Earlier, you talked about the — the COVID volatility. And I think it’s really important and — and was a really interesting case study in the U.S. that a lot of the volatility guardrails that had been put in place by the U.S. stock exchanges over the five years preceding March 2020, market-wide circuit breakers, limit up/limit down, like the whole limit up/limit down framework was really only 10 years old had been tested a few times and had its biggest test in March of 2020.
We engaged very deeply with stock exchanges. Remember in the U.S., ETFs are between 30 and 40 percent of daily trading volume, so those volatility guardrails really matter from a market quality perspective. So, focusing on the external environment for our ETFs, that’s what we mean by ecosystem developer.
RITHOLTZ: You mentioned Aladdin. I just finished a couple of months ago the book, “Trillions” by Robin Wigglesworth, and he describes the Aladdin system really as the technological backbone of — of BlackRock from the very beginning and the secret sauce to that successful scaling. Tell us a little bit about — for — for a person who may be not familiar with Aladdin, tell us a little bit about that.
COHEN: Aladdin is how we — we arm our investment managers, both BlackRock’s investment managers and the investment managers who are — who are Aladdin clients outside of BlackRock with best-in-class risk management tool. And it is the — the DNA of the firm. And I can say that actually because as I’ve shared with you, I was at the firm pretty much at its — at the beginning. BlackRock was started in — in 1988, and — and I started there in — in 1993.
And the reason BlackRock was founded really was a group of fixed income markets, specifically mortgage-backed security experts who said, “We can take this technology that’s been built on the sell-side and deliver it directly to clients as a fiduciary to help them create better outcomes.” So, giving — putting better risk management tools directly in the hands of — of clients was really BlackRock’s founding mission. And — and that’s what Aladdin has grown in today. First, it was the system that all of BlackRock’s portfolio managers used, and then it became a system that — that other asset managers wanted to — to access as well, and it is really the — the backbone of how we — we look at risk and we run our portfolios.
RITHOLTZ: Really intriguing. So, let’s talk a little bit about ESG generally, and then we’ll — we’ll — we’ll dig down a little more specifically. Your boss, Larry Fink, famously pens a — a letter each year to Corporate America’s. Tell us a little bit about why we do that and — and what — what’s the thinking behind that.
COHEN: Larry writes a letter to start a conversation, and it’s really a conversation with our clients who are owners in all of these companies across Corporate America and — and what we think are — are the top of mind themes for the year ahead. And it’s a good integration of everything we’ve heard from clients, and how we’re thinking about the markets, and how we’re thinking about risk. And it becomes really a — a point of — of bringing people together us inside the firm and us with our clients to — to take a look at the world and what we’ve learned over the past year, and — and what we want to bring to — to the year in front of us.
RITHOLTZ: Very interesting. Let’s talk a little bit about corporate governance. How do you think about that in terms of affecting risk?
COHEN: The conversation about corporate governance is one we’ve spent a lot of time thinking about because, as — as you know, but it probably bears, you know, speaking to explicitly, in a lot of cases, we vote the shares on behalf of the clients whose money we manage.
RITHOLTZ: Right.
COHEN: And the question is do those clients want to vote the shares themselves? And something we did in December and it’s actually gone live this month or it went live at the beginning of 2022 was work to give our institutional clients and some of our comingled fund clients, but a — a good portion of our assets the option whether they’d want to vote their shares or not. So, it’s early to say are they going to take it us up on it or not, but that will be very instructive to us because our job is to help them create better financial futures, create better portfolio outcomes. In some cases, they may want to participate in the corporate governance process themselves.
In other cases, they may want to intentionally delegate it to us, and we had a very big what we call investment stewardship function where we, you know, were very transparent. We publish the criteria in terms of what we think is important when we engage with companies, but some investors feel like, well, that — that engagement with companies is part of the value proposition that I hire my asset manager for. And some investors may feel, nope, I’d like them to manage my assets, but I want the votes. And we are really hopeful of increasingly being able to give those investors choice.
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RITHOLTZ: Let’s talk a little bit about ESG generally. You know, for a long time, it’s captured a lot of mindshare. People have talked about it, especially with climate change and the focus on the environment, but it doesn’t seem like ESG is captured as many inflows as it has, you know, sort of mindshare. What are your thoughts on that? Is this going to be a persistent gap or are we seeing more people, especially younger generations more interested in ESG investing?
COHEN: I think flows are actually the tip of the ESG iceberg, and what you don’t see below the surface is the integration and evaluation of ESG risk across portfolios. And that has captured a huge amount of time and attention from investors and — and certainly from us. And it’s actually really exciting from — from an investor perspective that reminds me again dating myself here. But when I started at BlackRock, I — it was in — in, you know, 1993, and I think in the five years since BlackRock was founded, interest rates had dropped something like 300 basis points, right, like late 80’s call it 10 percent on the bond to — to seven percent.
And one of the big topics of risk in the fixed income market was mortgage prepayments. And so, figuring out how to model that, articulate that, make that transparent better than anybody else, again a big part of BlackRock’s value prop that it was bringing to investors, and we are doing the same thing today with climate risk and with ESG integration. And we have integrated ESG metrics across our portfolios and transition risk metrics, so we can assess what sort of risks are there. And that’s the really the first step. It’s measurement, and transparency, and then decisions around capital commitment, and — and risk taking.
RITHOLTZ: So — so I want to restate a little bit of what you’re saying. I’ve traditionally heard ESG described as I want to invest in a way that parallels my personal values, but you’re really describing ESG as a risk management tool, as a way to screen out potentially problematic concerns, sectors, companies, whatever. Am I — am I overstating that or is that a fair translation?
COHEN: Both statements are actually true. It’s a spectrum, so what we need to do is give our clients choice and — and clarity, and — and help them articulate because often they’re not even sure where they want to be in that spectrum, but I would say the majority of the conversations that we have right now are much more understanding.
Looking at my portfolio today, what are my ESG risks broadly? What are my climate risks? What are my risks to a net zero transition? And then the second question is how do I want to manage those.
RITHOLTZ: Really, really intriguing. Let’s talk a little bit about no carbon and low carbon. That was kind of a — a hot topic a couple of years ago. I’ve always been a little perplexed by that because if you back out the big carbon producers in the S&P 500 everybody else who’s left are giant carbon consumers. How should we think about something like carbon? Is that the most attractive approach to dealing with I’m concerned about climate change or — or — or global warming?
COHEN: It depends on what your goal is. And again, I think a big part of what our work has been is to offer a spectrum for investors who are trying to do different things. And even more importantly and this has been meaningful to me as a personal investor, offer transparency around what it all means.
So, something we did in December is we published a metric for all of our public index and all of our ETFs called the ITR Metric, Implied Temperature Rise. And the beauty of this metric is it’s really easy to understand. You can pull up anything on our website. You can see the ITR Metric, and you can see is it Paris-aligned or not, meaning is it, you know, 1.5 degrees or lower or is it higher? And — and we show the spectrum of — of bands and ranges.
And — and what you can see is, you know, to your point, 90 percent of — of companies in — in MSCI ACWI are not Paris-aligned …
RITHOLTZ: Right.
COHEN: … but step number one is — is getting transparency in terms of your book, and then deciding do you want to take the first step and move to something that is a screen diversion of — of that index or go much further and — and take more targeted exposures.
And what we hear from clients is, you know, they want different things, so putting out that spectrum and putting out those measurements really, you know, looking to be champions of transparency in this world, which as it emerges can kind of become a Tower of Babel in terms of the different languages and different metrics. So arming investors, both institutional and personal investors, with the tools to understand what does this mean for me, that’s really been the priority.
RITHOLTZ: That’s really interesting, the old Peter Drucker line is if you can’t measure it, you can’t manage it. And having metrics sounds like a great, great start.
So, let’s talk a little bit about what it’s been like the past couple of years with the pandemic, and then last summer delta, it felt like it was ending, and then omicron hit. I keep hearing all these firms are trying to get their staffers back into the office and on the trading desks. Tell us what — what you guys are doing. Are you going to have everybody back in the office? Are you going to be remote? Are you going to be hybrid? What’s your thinking about the world going forward?
COHEN: We are going to pilot a hybrid model, and we actually started piloting it in certain parts of the world, including New York City, prior to omicron. And what it was was you are welcome to back — to come back to the office for five days. If you would like to take two remote days, take two remote days, and — and we’ll see how that plays out. And then omicron happened and we kind of, you know, pulled back on the pilot and — and we’ll put it back in hopefully in a few weeks.
I’m — I’m in the office right now.
RITHOLTZ: I see.
COHEN: I like being in the office. And I think we’ve had a whole bunch of learning. So, I mean, of course, our number one priority is making sure that people are safe and that people are healthy, but healthy doesn’t just mean, you know, being safe from the — from — from the virus. It means being mentally healthy.
RITHOLTZ: Right.
COHEN: And — and one of the things we’ve learned is — is a lot of us really missed the connection with other people. So, creating an environment where you can have those moments of human connection in the office. And, of course, there were moments of human connection that people, you know, particularly with kids of different ages we’re — we’re having at home that they didn’t have before, so trying to take those learnings from the pandemic and employ them in a way that makes people healthier physically and healthier mentally, that’s what the goal is. But I imagine we will be experimenting for a while both based if conditions in the world change and — and as we see how it works in our offices.
RITHOLTZ: Yeah, the — the challenge has been how do you manage corporate culture over Zoom or remotely. And BlackRock has a very specific corporate culture. Lots of other firms are trying to maintain that. Finding that right balance seems to be a work in progress that we’re all going to be dealing with over the next couple of quarters or years for all we know.
COHEN: Absolutely.
RITHOLTZ: So, let’s talk a little bit about the rising demand for ETFs. It seems that lots of institutional traders are driving ETF demand. Can — can you talk to that a little bit? I’m curious as to your perspectives.
COHEN: What might surprise you to hear is one of the biggest adopters of — of ETFs has been other asset managers. So institutional asset managers, you know, like, you know, BlackRock’s own asset managers outside of the index business who are integrating ETFs into their own pursuit as alpha generally to, you know, use ETFs as a cash equitization tool to look at ETFs alongside other sources of market beta like futures contracts or swap contracts, to look at options on ETFs.
Often, we’ve seen — and — and this was actually a very interesting story going into the Brexit referendum, there weren’t a lot of volatility place out there, but there were some U.K. — we had a U.K. equity market ETF and — with options — with options ecosystem around it.
An options open interest went up 1,800 percent …
RITHOLTZ: Wow.
COHEN: … into the referendum because it was a way to play volatility, and sometimes that would be an asset manager’s first experience of an ETF because they were looking for some sort of non-linear payout. And then they would become more interested in integrating ETFs as another wrapper, another tool in their overall toolkit in — in making money. So that has been one of the largest sources of — of adoption of ETF.
RITHOLTZ: I have a very vivid recollection, I want to say 15 or 20 years ago. Hearing certain institutions say — or institutional fund managers say, “Look, we want to get exposure either to broad equity market or to the specific sector, but our due diligence and our research process takes so long that by the time we pick a particular company, a particular manager, a particular investment, the move is half over, I could just use the ETF and get instant exposure to X. Do you still see that sort of behavior or am I going too far back in history?
COHEN: No, we absolutely see that behavior. Often, you know, people will use the ETF as a placeholder as they do that research and figure out where they want that exposure to be specifically. So sometimes they have longer-term horizon, sometimes they have shorter-term horizons, but again, this is actually a key reason why we see that increase in ETF trading during high velocity markets as they are very convenient and transparent way to manage risk and pivot exposures during fast-moving markets. So, you can make quick changes to adapt your risk profile and work into what your longer-term target state might be, and we do continue to see that.
RITHOLTZ: Really interesting. Let’s talk about thematic ETFs. They seem to have exploded in popularity the past couple of years. How exciting is that for you guys to work on? And what do you see coming down the pipe? What — what’s new and interesting?
COHEN: It’s so exciting that we can increasingly index new types of strategies and access new types of markets, and — and that’s really what we’re about, bringing the markets to investors on their terms.
And, you know, one of the things that really brought it home for me with some of our climate-focused ETFs was being able to find something that my kids connected to. My daughter is a big environmentalist. She’s a part of her school’s Environmental Action Committee, and I think she never thought that ETFs were — or investing was particularly relevant to her. And talking to her about a climate-focused ETF, it was a conversation. So, part of how we are bringing more people into the markets is helping them connect to the themes that are important to them and then helping them use those as a way to start to construct the portfolios that will deliver the outcomes they’re looking for.
RITHOLTZ: So, one of the big things that we’ve seen has been the rise of direct indexing. What are your thoughts on that? Is this a challenge to ETFs? And we’ve seen a lot of big institutions buy direct indexing shop. Tell us a little bit about your thoughts with that.
COHEN: Direct indexing is a — is a very important part of the index and — and ETF ecosystem. About half of our book actually is direct indexing versus ETFs. Increasingly actually, there’s also been attention to what — to — to smaller direct indexing opportunities more for individual investors where we — we acquired Aperio to — to offer that service as well. So, I think direct indexing for individuals, for institutions fits nicely into that overall ecosystem.
When you come to those things we talked about around what value the ETF wrapper brings, that secondary market liquidity, the transparency, that’s the role that ETFs play, but there’s certainly a role for a — a very important role for direct indexing, too.
RITHOLTZ: Really intriguing. Your bio mentions that you’re an advocate for employee networks. Can you speak a little bit towards that? I — I know this is like a total subject change, but I don’t want to not get to this question. Tell us a little bit about employee networks, and — and what are they? And — and what role do you play with those?
COHEN: I’ve been a big beneficiary over the course of my career of the networking and visibility that comes from being part of, you know, in my case, women’s networks. It’s an opportunity to meet and connect with people you wouldn’t otherwise know and an opportunity to — to think more intentionally and — and strategically about your career and — and maybe expand your universe of role models. So that’s how I participated in employee networks.
And at BlackRock, one of the things I love about being a — a senior advocate for — for many of the networks is I really believe that you can’t do your best work unless you can talk about your challenges both inside and outside the office. And a lot of times these networks create safe spaces for people to talk about what they’ve struggled with, how they’ve overcome that. And — and — and I find that really inspiring and — and it helps me recruit great people. So — so it’s something that’s very important to me.
RITHOLTZ: So, let’s stay with that topic, finance is notorious for not having a lot of diversity or inclusion. I know BlackRock has a couple of initiatives in that space. Tell us about them.
COHEN: I’ve spent my career, you know, being asked the question of — of, well, what’s it like being a woman in finance. And — and we could talk about this for — for a really long time, what’s it like being a woman, what’s it like being a mother, what’s it like being a parent. And — and it’s always hard when you feel different no matter what.
No matter what the source of the differences, I think it can be very hard to — to feel safe and to feel secure amid differences. And — and that is what we try to sell for, whether it’s with employee networks, whether it’s, you know, creating mentorships and role models, although I’ll have to say a lot of my — my most memorable mentors weren’t necessarily women. But again, thinking about those challenges, which are different for — for different people, talking about them and making people feel safe and raising what they are, that’s what we try to focus on the most.
And — and probably, I think that’s what’s changed the most over the course of my career. I think early in my career I felt the imperative was to, you know, not — not address the fact that there were differences and just get out there and — and try to act like everybody else, and — and that didn’t necessarily work for me. But, you know, it was sometimes hard to talk about that. And so, talking about it like — and having transparency to those things has — you know, has really been the first step and — and one that we have to take again and again. So, I think it’s — it’s not an old conversation, it’s not a dated conversation.
I am incredibly proud, Barry, that the leadership team of the ETF and index platform is majority female. And we talk all the time about how to increase our diversity — diversity of thought, racial diversity, geographic diversity because we think if we bring our differences to the table we’ll perform better.
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RITHOLTZ: So, let me throw you a curveball. You’re short of a bicoastal, New York and Boca. How do you split your time? And — and given what we’ve learned about working from home, can you operate from anywhere you have an internet connection?
COHEN: I — I live in New York, Barry. I live in New York. I’m in the New York City office right now. I have a home in Florida. And — and I’ll tell you a funny story. My — my husband loves Florida, so we’ve always — we’ve had a home in Florida for a while. He — he’s a — he’s an investment manager, a triathlete. He cycles a lot. He plays a lot of golf. He, you know, does some work from down there. But I was always in Florida for vacations and weekends until the pandemic when during that 2020 spring lockdown I spent about six weeks there and — and liked it more than — than — than I had.
So — but now Florida is — is — is really weekends and — and vacations for me. But last night, you’ll like the story. My daughter texted my husband and said, “Hey, dad, I’m wondering. Are you coming home tonight or are you going to be in New York City?” And, by the way, my husband and I were at a restaurant in New York City. So, the kids like to joke that my husband lives in Florida, but — but actually, we are — I am mostly here. And — and between May and November, he is mostly in — in New York City as well.
RITHOLTZ: Really, really interesting. So, I know I only have you for so much time. Let me jump to my favorite questions that we ask all of our guests starting with tell us what you’re streaming these days. What have been keeping you entertained when everybody has been stuck at home?
COHEN: I have three categories of — of things I stream, and I’m sure you’ve heard this before, Barry, the things I watch with my husband, the things I get my kids to sit down and watch with me, and — and the stuff I watch for myself. So — so in each category, my husband and I, we love Ted Lasso. That was one of our favorite things of the pandemic. And we also love Yellowstone.
My — my kids will not sit down to watch the same shows together no matter how much I try. So, with my son, we’re watching Boba Fett and the Mandalorian. With my daughter, it’s been Emily in Paris. They are 15 and 13. And, you know, I’ll tell you for myself, I finished the — the sequel to Sex and the City and Just Like That, and I loved it. It was, you know, women around my age talking about dealing with their teenage kids and finding meaning in their lives. And I know the reviews were — were pretty mixed, but I really loved it.
RITHOLTZ: We talked briefly, but you didn’t give us any names about some of the mentors who helped shape your career. Tell us about those folks.
COHEN: I have had great mentors and sponsors, and I think it’s important to talk about both. I don’t think until more recently in my career I understood what a sponsor was, a sponsor being somebody who will actually work intentionally to — to move your career forward. But the — at Goldman Sachs, I had the, you know, privilege of working with John Rogers who asked me to testify to Congress in front of the House Banking Committee on — to represent Goldman, which was the scariest thing I had ever done. And what John told me, which I will never forget, it — it’s the scariest things that once you do, you are the proudest of — of having done.
Marty Chavez, who I also worked for Goldman, was a tremendous mentor. And I think importantly, as I said, I’ve had — I’ve had some great female role models, but I’ve had some awesome male mentors. I think my high school calculus teacher Judy Conan (ph) probably changed the course of my career. So those three are my biggest mentors.
At BlackRock, my — my boss Salim Ramji, our Head of H.R. Manish Mehta who was the — you know, had this job before me, they’ve been great sponsors. And I think being intentional about providing sponsorship as well as mentorship is something we think about a lot.
RITHOLTZ: Really interesting. I know you read a lot. Tell us some of your favorite books and — and what are you reading right now.
COHEN: I am — I’m sure you are as well, I am a voracious reader and I’m usually reading multiple books at a time. So, the two I am reading right now I kind of usually have something fiction, something non-fiction. The nonfiction book I’m reading is “Digital Body Language,” which in the, you know, situation that we’re in right now, it’s fascinating how — how — how we create a digital body language, how people respond to it and what you need to think about it. That’s my non-fiction book right now.
And my fiction book, I’m — I’m a few chapters in and I’m loving it, it’s called “The Louding Voice,” and it’s about a young woman, a young teenager in a rural Nigerian village who gets married very young, and — and is thirsting for an education because she wants to find her louding voice, and that’s probably a theme in everything I read about women — people in general, but often women finding their voices and using them.
And one of the books I read recently that — that had a big impact on me, a colleague of mine actually gave it to me when I was promoted to CIO, it was Indra Nooyi’s memoir, “My Life in Full.” And I absolutely love that book. She started out by saying, “I intended to write a book about my career as CEO of PepsiCo and not write about my life as a mother and a wife. I didn’t want to write that book. And what I ended up writing was exactly that book,” because when you’re a mom or a parent and a wife and — and how you show up with that to the office, you know, as a CEO weaving all of that together, she did brilliantly and it was really moving.
RITHOLTZ: Really interesting. I have a book recommendation for your daughter. This is a fascinating book called “Windfall: The Booming Business of Global Warming” by McKenzie Funk that describes, since your daughter is interested in ESG investing …
COHEN: Yeah.
RITHOLTZ: … it describes how the entire world to finance slowly started recognizing investment opportunities both at, you know, the individual company level, the ESG level, but also at the venture capital and startup level, and how Wall Street has arms into all these industries that are working on either climate change or, you know, electric cars. And — and — and that book is ready about five years old. So, when they talk about firms like Tesla, they’re still fairly nascent. Maybe it’s seven years old, 2014-2015. But if she’s interested in that, it’s a really well-written book and it’s really fascinating. She may really, really enjoy it.
Let’s go on to our next question. Speaking of younger people, what sort of advice would you give to a recent college grad who is interested in a career in either finance or investment management?
COHEN: Ask all of your questions. Find people, ask your questions. There are no dumb questions. And — and if it sounds interesting to you, it’s worth having a conversation about it.
I wish I had done that more. In a lot of ways, I feel like I — I got lucky. I — I told you I was the product of actually a diversity recruiting effort that led me to the — to the trading floor at Goldman. But if it sounds interesting, it’s worth doing the exploration. And — and networking and finding friends and just saying, hey, can I spend 10 minutes and ask you about your job? Doing that a lot, I think, is an awesome idea.
RITHOLTZ: Really interesting. And our final question, what do you know about the world of investing today you wish you knew 25, 30 years ago when you were first getting started?
COHEN: If you asked me 30 years ago what I thought about the world of investing, I probably would have said Gordon Gekko. I mean, I was really thinking Wall Street. And — and even, you know, when I was in college, that was the — that was the vision that I had. That’s what you had to look like to be — to be an investor.
Now what I know is excellence looks like lots of different things in the world of investing. And, you know, if you’re a woman, if you’re a person of color, it’s — you can be excellent. And, in fact, if you’re a theater major, you can find a path. I think there is a superpower in being different.
And my mother always suggested that to me 30 years ago, so — so maybe I should say that’s what I wish I’d believe 30 years ago when I was told. Now I know it’s true.
RITHOLTZ: Really interesting. Samara, thank you for being so generous with your time. We have been speaking with Samara Cohen. She is the Chief Investment Officer for ETFs and index investments at BlackRock.
If you enjoy this conversation, be sure and check out any of the previous several hundred we’ve done over the past eight years. You can find that at iTunes, Spotify, Google, Bloomberg, wherever you feed your podcast fix. Check out my daily reads at ritholtz.com. Follow me on Twitter @ritholtz.
I would be remiss if I did not thank the crack staff that helps put these conversations together each week. Mark Siniscalchi is my Audio Engineer. Paris Wald is my Producer. Shawn Russo (ph) is my Researcher. Atika Valbrun is our Project Manager.
I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.
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