The transcript from this week’s, MiB: Mark Wiedman, Blackrock’s Head of Global Client Business, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube, and Bloomberg. All of our earlier podcasts on your favorite pod hosts can be found here.
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You are listening to Masters in Business with Barry Ritholtz on Bloomberg Radio.
I’m Barry Ritholtz You are listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Mark Wiedman. He is BlackRocks head of Global Client Business. The firm helps oversee about $10 trillion in assets as of the end of the year in 2023. Full disclosure, my firm, OLTs Wealth Management, not only owns ETFs and mutual funds from BlackRock, but last year we purchased a division of the company called Future Advisor, which is an online digital platform that is now called Good Advice. Let’s talk a little bit about iShares, which, which I have argued could be the Stealthiest and greatest corporate acquisition of all time, certainly relative to to the cost.
Barry Ritholtz: So tell us a little bit about the division iShares and Index Investments that you were running from 2011 to 2019 when its growth exploded.
Mark Wiedman: So if you go back to 2011, what you’d see is a world where the ETF, the
exchange traded fund, which is nothing other than an index fund bundled up as a stock, was a small part of many people’s portfolios. It was small in or non-existent in most, most wealth portfolios. Most advisors weren’t using ETFs. Most institutions weren’t using ETFs back then. Some were, but most weren’t. And what happened over the coming decade is pretty simple. Two forces drove the growth of ETFs and of the iShares business. The first was low cost investing. The basic recognition as Warren Buffett has said quite publicly, most people are probably gonna be better off just buying the S&P 500. And the cheapest way to do that is buying an iShare, not what he named another product, buying a simple ETF that gives them access to the capital markets at a low price.
The second force, and this is much more inside baseball and technical, but is actually really interesting if you’re in the capital markets, is that it allows you to trade risk between a buyer and a seller without an investment bank being in between. So the market that has been revolutionized by the ETF, it’s actually not the equity market ’cause that actually agency trading on exchanges has been here for a long time. The market that ETFs revolutionized was the bond market. The bond market was always an over the counter market where you went through a dealer always. And what the ETF does by bundling up risk in effectively like a set is you can sell that set of bonds to somebody else out there in the world who wants that risk, but not have to go through a bank. And what that means, especially is that in times of stress or as banks get smaller and smaller as they are in their trading books, what that means is you can trade risk efficiently with a transparent price on exchange in a way that 15 years ago was literally impossible. So it was those two forces. The securitization of risk in bundles combined with low cost indexing, that’s driven the iShares business to three and a half trillion dollars today, up from about 350 billion when we bought it, when the firm bought it back in 2000 9, 10, 10
Barry Ritholtz: That’s really, that’s really quite amazing. So you’re talking about bonds, but
in my own practice at, at my firm, the fascinating thing is the superiority of ETFs to mutual funds,
especially in non-qualified accounts, taxable accounts, because you get these phantom capital gains
from mutual funds that you don’t get in ETFs. And we found our best practices are mutual funds are
great for 4 0 1 Ks or IRAs or any tax deferred vehicle, but for a taxable portfolio, it’s hard not to go all
ETFs.
Mark Wiedman: So one reason that people that buy ETFs is they’re cheaper than a traditional mutual fund. Sometimes there are great mutual funds with great managers and they may be worth holding on that basis alone. But generally, clients have shifted out of active mutual funds and they moved into ETFs ’cause they get better value from money. But you’re getting at is that you also avoid paying taxes. You postpone paying taxes effectively until the moment that you sell. Right? The way it basically works is along the way with a mutual fund, you’re paying all the taxes incurred by the underlying pm, underlying portfolio manager. He or she’s generating the tax gains or losses. The gains is what we’re worried about. They come through and you pay them that year. As opposed to if you’re holding ’em for 15, 20 years, you pay the capital gains. When you ultimately sell the fund, the ETF takes those gains and puts it off to the future. And of course, there’s always the happy story where you die and your base gets stepped up. It’s a joke. You don’t wanna die.
Barry Ritholtz: So arguably you’re compounding more in identical ETF versus identical mutual fund.
Mark Wiedman: And in theory, if, because of the tax basis step up at death, ultimately you may be limiting all those capital gains to boil it down. You don’t get those annoying capital gains charges at the end of the year for a fund you didn’t buy or sell. Right. You take control over the the sale, the timing and the timing of the taxes.
Barry Ritholtz: I totally appreciate what you were saying about the bond side and towards that end, BlackRock has become one of the biggest bond trading shops on the street. The bond side of BlackRock. I know most people think of iShares, think of equities, but you guys are every bit as huge in bonds as you are in stocks.
Mark Wiedman: We do a tremendous amount in bonds in ETFs. We do it in active strategies, which are still very popular. And we actually manage huge sums of money for institutions. So there’ll be huge insurance companies that will come to us and say, you know what? We think it might be more efficient for you just to manage our balance sheet for us, the asset side. So we’ll take over the entire balance sheet and manage all the bonds, the corporate bonds, the treasuries, the agencies that sit on those, those books. All that gets managed in outta one big central book. And we get maximum efficiency for our clients as we trade because there’s really no other beast on the street that’s bigger. And so therefore you can get the best possible returns for your clients. So
Barry Ritholtz: You’re now the largest asset manager in the world, but there are a lot of big competitors in low-cost indexing and ETFs. What does BlackRock do to distinguish itself, to differentiate itself from other lowcost ETF or index providers?
Mark Wiedman: Clients never buy from you because your firm is big. They buy because your product is good. So it’s gotta be, each individual product has to be the best that the client can find. Now part of that is the A brand they trust. So we recently, recently launched the Bitcoin ETF. We’ve raised about six and a half billion dollars more than anyone else. So why? Because it’s a brand that clients trust the pricing was also quite attractive. That’s another part of what you have to be thinking about always in every product, but especially in the UTF world. And then last, you have to be thinking how can you help clients build portfolios? Many financial advisors turn to us to help us figure out how to build their overall portfolios for their clients. We’ll work with them on asset allocations. We’ll give them what we call model portfolios. It’s basically literally a model filled with ETFs, active strategies, ours and sometimes other people’s all in a mix. And it allows them to actually focus on what they do best, which is working with their clients.
Barry Ritholtz: A research report outta Morgan Stanley last year predicted in five years, BlackRock’s AUM would be $15 trillion. That that’s a 50% gain. Pretty heady numbers, pretty substantial. How do you get there? Is this by growing market share? Does the overall pie get bigger? Some combination? How? How do, how do you fulfill those heady expectations?
Mark Wiedman: You start by recognizing how small we are relative to the universe. You talk
about $10 trillion. I’d actually think in terms of revenue. Revenue is where you’re getting clients’ attention. Okay? We are only 3% of global asset management in almost any other comparable industry like sales and trading and investment banking. For example, the leader there would be 15 or 16%. We’re small. We’re a small fish in a very, very big ocean. So how do you get there? You recognize, one, you’re still small. Two, you’ve gotta figure out the products your clients need in every individual market. And it differs. What clients wanna buy in Switzerland is not going to be the same as what they wanna buy in Tokyo. And third, you figure out how do you bring the strengths of the firm, our knowledge for global brand, global economies of scale all together to serve clients. How do you figure that out and yet make each client feel like she or he’s important as an individual financial advisor or a pension plan or a sovereign wealth fund.
Mark Wiedman: So you sound like the head of global client business. [Well, I hope so!] So
what’s a day in the life of the head of global client business at BlackRock like?
Mark Wiedman: So the passions I have are the things that make me get up in the morning. I love seeing clients, I love seeing teams, and I love working on problems that are really pretty interesting. So what do I mean? Today I sit down, for example, with the chief investment officer of a big global insurer. I might be sitting down with somebody running even actually interesting competitors. A lot of competitors use our products. I learn a lot from talking to them. I actually think the top job of any executive is actually building great leaders behind him or her. And then the last part is something I’m very interested in is investing in the transition to the low carbon economy. What I mean by that is for various forces, macroeconomic, microeconomic policy, consumer preferences, we are slowly decarbonizing our economy in the United States, in Europe and Japan actually also in China.
And what’s happening is the day by day small investment decisions are moving future hydrocarbon expenditures. In other words, spending on oil and gas in some future state. Moving it today in terms of capital investments and this transition to a low-carbon economy is one of the biggest trends in the whole investment world. It will consume trillions and trillions of capital. Doing it thoughtfully, consciously. It’s why we just recently bought a company called GIP. It’s a big infrastructure firm. It’s our biggest acquisition in 15 years. ’cause we see this trend of clients investing in infrastructure, especially around this transition to a low-carbon economy. That’s the place where we wanna work with clients. I love that stuff. I love figuring out new products, new teams, new things we can do with clients.
Barry Ritholtz: I want to talk about some of the trends that have been changing that have to be a challenge for your clients as well as BlackRock. How do you help clients navigate market environments like we’ve seen?
In 2022, we have inflation stocks and bonds down double digits. 2023, we have disinflation and the NASDAQ is up 50%. The S&P is up 25%. That throws a monkey wrench to a lot of people’s thoughts about the future.
Mark Wiedman: So we’ve just gone through the biggest rate shock of our professional careers. If you live and work in finance, the first principle, the most important thing is what’s the discount rate? What are the cash flows in the future worth today? That’s what interest rates are. As that transformation happen in the last couple of years where the rate shock from and from central banks is inflation served. That has totally altered client’s portfolios. In 2022, stocks and bonds were both down about 20% globally, huge drop. What that led to is clients going into almost a shock. And actually for thelast couple of years, if you look net global clients, global investors have, at least from what we can see in funds, actually invested negative amounts in equities. Now, somebody obviously bought some, but broadly the broad investor has actually reduced his equity position. He’s even, he’s moved some into ETFs, but a lot into cash, A lot into cash.
And so where clients have moved his into cash and saying, when do I come back in? Now, ironically, actually, the market was up, s and p was up hugely, largely fueled by the AI boom in the LA in the last year. So mo many clients of ours miss that. The question is how do you help ’em? It’s the biggest challenge that their wealth manager like yourself faces. How do you help clients stay invested when they get afraid? That’s one of the biggest questions we have, is how do you work with them and figure out when to be in the markets and when not to jump outta the markets because they’re a little, little, little nervous.
Barry Ritholtz: Let’s talk a little bit about the BlackRock Investment Institute, which publishes this wonderful bit of research on the mega forces that are affecting everything, big structural changes that affect investing now and will be felt far off in the future. This creates major opportunities and risks for investors. Let, let’s talk a little bit about this. What led to looking to identify mega forces?
Mark Weidman: Barry, if you look around anywhere, every newspaper, every bank, they’ll give you lots of guidance on stocks up, bonds, down, who knows, maybe this stock up, whatever the question is for a long-term investor building a portfolio, where are there underlying economic forces that are shifting where value is created in an economy? Can you keep an eye on that? That doesn’t mean you’ll make money on it ’cause you have to actually also think it’s already priced in. But understanding what are those big drivers? And we came up with a few that are driving the world. Clearly, central bank activity is huge. That’s not what we mean. What we mean is something that has a 10 20 year horizon. So we’re talking about the aging of societies all over the world. Huge impact on productivity. We’re talking about the transition to a low carbon economy and the huge capital sums that will be involved as we ultimately move a lot of future expenditure on oil and gas to actually investing in things like heat pumps and batteries.
Today we’re talking about de-banking and we’re talking about here, banks actually getting smaller, their balance sheets getting smaller due to regulation, especially Basel three. And therefore actually, where does that credit go? And we’re talking about artificial intelligence, which we do see as a transformative technology that ultimately will give the rise of new industries. So these are the kind of forces where does capital go to work? And then also geopolitical fragmentation as we see supply chains moving away from high dependence on China to, in a minimum, having an alternative. And in some cases actually saying, let’s invest much closer like in Mexico to a core market like the United States. These are forces that are actually like transforming our world, but they’re day to day, they’re not shocks, they’re step by step. So when we talk about mega forces, we’re talking about things that are changing our world’s day to day. But you might miss it if you just pay attention to today’s headlines.
Barry Ritholtz: A little bit of Hemingway’s suddenly then all at once, right? You don’t see it happen until, hey, what? Look how the world’s changed.
Mark Weidman: That refers to bankruptcy. Yeah, happily, we’re talking here about long-term capital appreciation. But yes,
Barry Ritholtz: It refers to bankruptcy, but it’s applicable to so many other things. I have so many examples where you don’t notice the change and then suddenly you’re in a different place.
Mark Weidman: I think the toughest thing for a reader or a listener to media like this is sorting out what is today’s hot topic that tomorrow people won’t even be talking about. And where are there underlying seismic shifts that other people haven’t paid a lot of attention to?
Barry Ritholtz: The late great Laszlow Barini used to put out this bound book of newspaper headlines and stories from the previous year and things that you read in the moment that are so emotional and so important, you look back a few months later and it’s ephemeral, empty nonsense. You just, it was the emotion that grabbed you, not the the line underneath it was it? It’s one of my favorite publications. ’cause it, it forces you to completely reevaluate how you think about things. It’s really amazing.
Mark Weidman: Sometimes I think of markets like Dory, the fish with a very short term memory, right? Dory can’t keep much in her head at any one time. Markets are a bit like that. They’re very focused on rates right now. Two years ago, no one was talking about rates. Suddenly everyone’s talking about rates. That’s the nature of markets. I think it’s relevant to be thinking about to unbe, you have to know what’s in happening in the flow. But a long-term, great investor is thinking about the trends that are a little bit below the waterline that actually fundamentally are where the boat is moving the current that’s shifting the entire fleet, right?
Barry Ritholtz: You can’t be a dog thinking squirrel, which is often how the markets react. It’s like just total squirrel, right? Squirrel. It just totally distracting.
Mark Weidman: You talked about distractions. I think that much of the investment universe is set up to actually attract, like look at the shiny ball. Look at the shiny ball, right? Because a lot of long- term investing is actually not that interesting day to day, right? It’s putting aside a diversified portfolio and holding and not freaking out. If you do that over the long haul, especially in US equities has worked out pretty well
Barry Ritholtz: To, to say the very least. Let’s talk about some of these 10 to 20 year mega forces, starting with digital disruption and artificial intelligence. Where on earth is that going?
Mark Weidman: So artificial intelligence is got to be the single biggest exciting, zesty thing of the day. We’ve got an active debate inside our firm on this question. On the one hand, artificial intelligence is a generalized technology that can spread throughout the entire economy quite quickly. ’cause of internet access, it
Barry Ritholtz: Already has. I mean, it’s been used for so long, people just didn’t see the front end of it. Well
Mark Weidman: Actually, it’s already been used for, it’s been used for many years actually in our own quantitative strategies. So large language models in investing is nothing new. Okay? We and competitors have been doing this for a long time. But how people interact and how we’re facilitated by using AI that is new. We’re gonna see what the impact is. There’s one school that says it’s going to completely change the world very quickly. And that’s of course why stocks like Nvidia have had a huge run. There’s another school which says, take the long view that whether it’s electricity, the telegraph, the telephone, the airplane, the car, the fax machine or the internet. It took decades for these technologies to actually really change the real economy and to actually have a real impact on how people work with each other. How they make things, how they trade. We’ll see big debate. There is a, there is a view that actually while exciting, there is a view that investors are overemphasizing some distant fantasies around ai. When actually the real applications are gonna take a long time for companies to figure out, we don’t know.
Barry Ritholtz: So there’s a contingency of people who insist on calling AI a bubble. What would you say to them if you know they’re, they think it’s just another shiny object.
Mark Weidman: Time’s gonna tell. I don’t think it’s all nonsense. Importantly, we do see the transformation of the economy through AI is a real long-term force. When we saw a huge crypto boom a few years ago, our, my view was we’re in the midst of a bubble. I wanna start growing some tulips like the Dutch in the 17th century. This is different. The question is, when do the cash flows start moving for data centers, for processing, manufacturing, processor manufacturing, when this start getting applied in real businesses and how they change their own operations, the answer is actually data centers are booming everywhere. People are trying to figure out how to use these chips. Whose businesses will rise and fall. Will firms like Bloomberg or BlackRock be disrupted by some attacker who uses AI as a attack vector? We don’t know. We’ll see. So there can be a lot of early enthusiasm, maybe even hype, but I wouldn’t call it a bubble. To me a bubble sounds like you’re selling tulips. I don’t think that’s what’s going on here. We’re seeing a transformation, but we’ve also saw with the railroads in the 1840s, fifties, sixties, seventies, that as they started to transform continental economies, a lot of money was lost as investors got very excited. So it’s a real economic transformation. What are the right investments? That’s a much trickier question.
Barry Ritholtz: And people sort of lose sight of that, whether it’s automobiles or internet companies. Even if you know, hey, this is gonna change everything. It doesn’t mean you know which is the company that’s gonna be the winner from it.
Mark Weidman: You don’t know which company and you don’t know when to buy. The railroad was obviously a transformational technology. Clearly I don’t think anybody really disputed that. The question is how do you make money from it? That’s not so obvious. Hmm. Going back to the.com boom. The internet was a transformational technology, but many of the companies that sprouted back then were complete failures. On the other hand, there was one small company called Amazon that did actually manage to get out of just book selling into something slightly larger.
Barry Ritholtz: So sometimes it’s just bad timing. pets.com famously blew up, But, but a few years later, chewy is doing great and it’s essentially a variation of the same business model.
Mark Weidman: The tough part here. You can be really right about the long term trend, but if you get in at the wrong time too early or too late, you can miss it. That’s the tricky part in what we do. It’s also what makes it fun.
Barry Ritholtz: So let’s talk a little bit about geopolitical fragmentation and economic competition. You know, obviously Russia, the eu, China, big aspects of the global economy. But what about South America or Africa, which seems to have been left behind in the the economic competition. And when you talk about fragmentation, what does that mean in terms of global trade and and relations? So
Mark Weidman: For global investors, the big question is how do you build a global portfolio in a world that is fragmenting five, seven years ago, even as recent as that, you built a global portfolio and you could be an individual financial advisor, an individual investor or a giant sovereign wealth fund. You built a global portfolio, diversifying, looking for opportunities everywhere. And you didn’t think much about political risk. Today a global portfolio has to put political risk at the center of his or her portfolio.
You’ve gotta be thinking, is this market actually too risky for the current price because of geopolitical events, whether it be war, we all live through a pandemic. These are forces that have rent at the globe. Fabric of global trade and of global investments. So five years ago, China, China was the second hottest bell at the ball. First was the United States. Today global investors, they have no bid for China, right?
00:38:43 Why mostly domestic issues in China, but also US Chinese trade tensions, technology conflict. These are reasons where global investors are saying, Hmm, perhaps I don’t want to invest in China. They weren’t thinking about political risk five, six years ago, seven years ago. Now it’s front and center, not quite as big as as interest rates, but almost there. And so the question is, how can you actually invest to make money from this? We’re seeing clients around the world interested in investing in infrastructure and the winner countries who are the winner countries from China’s ultimately losing some of its almost monopoly status on manufacturing. We’re seeing Mexico, Vietnam, Indonesia, we’re seeing India. All of these countries are trying to figure out how do they capture it. Some of that mantle, I think as US investors looking at Mexico is particularly appealing. It’s nearby. It is relatively politically stable and they have privileged access to the US markets and lower cost of production for stuff that would otherwise have been done in China. And we’re seeing lots of clients wanna invest into Mexico to actually participate, whether in infrastructure or manufacturing. We’re seeing companies wanting to move investments there because it’s close to the great American market, but it’s not China.
Barry Ritholtz: So I’m kind of fascinated by outside non-domestic Chinese investors. So US investors, European investors investing in China, public stocks over the past 20, 30 years, returns haven’t been great. At a certain point it’s gonna become attractive, assuming outside investors are, are not treated as second class citizens with the BS shares the way they have been over these years. But at a certain point China’s gonna become screaming by it. We’re just nowhere near that point yet.
Mark Weidman: So by definition you never know when the bottom is right. What I’d say is, and perhaps this is a buy signal, when I talk to global investors, sophisticated investors with major investments in China, they’re scaling back. They’re not scaling up. When I talk to our own teams in China, the general mood there is pretty dark. Again, it’s mostly dark for domestic reasons. Property crisis, the wealth effect of declining property, prices on consumption, consumer sentiment is terrible. And you see increasing concerns for young people getting jobs. These are actual things that dampen people’s investment appetite and they tend to actually go to cash or bank deposits. And so what we’re seeing is very little bid for, for example, Chinese equities from either inside of China or globally. However, at some point the falling knife hits the floor. And the question is, when do you buy? Great question. I’d keep an eye as a global investor on that question. ’cause at some point China does actually become an attractive buy. Hmm.
Barry Ritholtz: So, so you were hinting at demographics. Let’s talk a little bit about that. We see China, not just China, but Japan and Europe with flat or negative, negative growth rates. The United States growth rate has slowed but is still barely positive. How do you look at aging populations around the world? What does this mean for investors off in the future?
Mark Weidman: So everywhere that is rich women want to have fewer kids. Even in the United States, if you take out immigration Barry or actually have a declining population, right? And in countries that don’t have immigration or have much lower levels of immigration, Japan being most extreme or South Korea or China, you’re seeing birth rates plummet. So for example, in China today, the birth rate is approximately one baby per woman. And replacement rate is more like 2.2. So we’re going
to see a future where China, in the end of the century will probably have, I’m gonna guess fewer people than the United States. ’cause the US population will continue.
Barry Ritholtz: Wait, what? By the end of this century?
Mark Weidman: By the end of this century that’s, we may live in a world where there are, let’s say 600 million Chinese, do I think there’ll be 600 million Americans in 2100? Probably possible. Sure. So you’re, we’re living in a world where these demographics are changing the long-term destiny of nations where having enough kids is actually like a long-term question of productivity of staffing. Now it’s not all bad. If you look at GDP per capita, not just GDP, you’d see that actually the Japanese have done just fine for the last 10 or 15 years. But it does mean that you’ve gotta look to a future where not only will there be fewer kids per adult, but also where robots are gonna have to pick up some of the work. That’s why I think robotics is being driven by demographic change is actually one of the most attractive places for long-term investment.
00:43:21 Because one thing we know is demographics is destiny. If you have fewer babies today, you’re going to have fewer workers tomorrow. This is a huge force we have to look at as relative among nations. There are some countries that still have demographic growth. India is the most prominent among them. Africa, I put in a different co Sub-Saharan Africas in a different category ’cause there’s still continued population growth that’s well over above replacement rate. The problem is there isn’t actually any feasible path for economic growth to match that. That’s a problem for the future. But for investors, looking at the companies, the robotics companies that will serve the elderly Japanese of the 2050s, my peers, I hopefully of that age, who are those companies? How will they make money? I think that’s a really interesting trend. The second healthcare, healthcare for all these folks. And then also, which societies figure out how to either attract through immigrants or through automation are able to elevate their productivity and which ones can’t, will actually help distinguish countries that actually have economic growth. Those versus those that shrink.
Barry Ritholtz: So let’s talk a little bit about the future of finance. We’re in a unusual world. So not only did zero interest rate policy and QE end, but at the same time we’ve seen the rise of decentralization, all sorts of interesting apps taking place in the world to finance. I could Venmo you money without a bank in between. That was unimaginable. I I, I built a car in South America and I was using Remitly to send cash to Columbia. That was unthinkable. You know, five, 10 years ago you couldn’t, you couldn’t do that. So, so you talk about as one of the five mega forces, the future of finance. Where do you see this go and and how does private credit fit into that?
Mark Weidman: A couple of big forces, one of which is the relentless growth of the capital markets relative to banks over time. This is largely different by regulation Basel three and ArcHa arcane term. But it just means that banks have to hold more capital. One of the things that regulators did after the financial crisis is say yeah, we’re not letting that happen again. And actually I give ’em big credit, most big banks hold lots of capital. That’s where despite an energy shock, a war in Europe and a huge rate shock. The biggest in 40 years, actually no major bank failed of that. We had a few smaller banks that were under-regulated in the United States, but the large global banks, which caused such a mass spec in 2007 and eight actually came through fine. The problem is the credit that they create is gradually having to move somewhere else.
00:46:00 It’s moving into the capital markets. And one of the winners in that is what I would call private credit simply instead of actually in bond form we’re talking about a pension plan, an insurance company or an individual investor, a wealthy individual investor who’s invested into a so-called private credit strategy, which simply means lending money out to some ultimate user, usually a company. And that money ultimately is a replacement for what otherwise probably would’ve been a bond. So insurance companies buy a lot of this and where’s, why is this happening? It’s because these loans are coming off of bank balance sheets and they’re coming into this private credit strategies. This is gonna be the big driver of the next five years of how the banks shrink and the capital markets grow. Private credit, I think your payments is something big. It’s not where we directly participate as a firm, but payments I think is the place where you have massive revolution. And you already mentioned the possibility of intercountry transfers. That’s a place that is massively inefficient. If you think about all of those immigrant workers, legal immigrant workers who are actually remitting funds back to their home countries. Many of them are getting scalped on the way out. Imagine a world where instead of paying seven, 8% to some chain of intermediaries, instead they’re actually paying almost nothing directly to transfer the funds back to their parents, their families, whatever. I actually think that the payments efficiency, that’s a stor, that’s a step forward in human liberation.
Barry Ritholtz: So our last question on mega forces is let, let’s get into the details on the transition to low carbon. How, how’s that going? I know that a lot of the solar panels and wind turbines are made in China. We’re not really competing there, but it does seem we’re making progress with coal and other things. Tell us about the transition to low carbon.
Mark Weidman: It’s pretty simple, Barry. If you look back at the energy system, what we’re seeing is because of the simple efficiency of renewables and batteries, just the simple efficiency, not doing god’s work, just simply efficiency, lowest cost production. We’re seeing that coal plants are coming out of production very rapidly here in the United States a little bit less quickly in Europe. We’re seeing them being replaced by a mixture of natural gas, which is lower carbon emitting and batteries with wind and solar. And this combination is actually just simply cheaper than operating a coal plant. That’s why coal plants, which are very, very carbon intensive, are disappearing. We’re seeing in transport cars that as EVs get more and more efficient, that they actually, and the cost of batteries drop step by step. We’re seeing for example that in China today, more than 25%, almost a third of all cars sold last year were actually EVs. [Wow!]
Europe is trending in that same way. US actually charges fewer lower gas taxes. Right? And so actually it’s slower here, but it’s still growing. So what you’re seeing are all these steps that are actually moving hydrocarbon intensive activities. In other words, things that burn or use oil and gas and actually shifting things to something that is electrified and lower carbon. So that transformation consumes a lot of capital investors around the world wanna participate. But it means building pipelines. It means building, deepening the electric grid, putting up battery storage. We actually built the largest battery in the world as in Australia. It’s a grid stabilizer outside of Sydney. We’re working with clients who wanna invest in startup companies, growth equity companies to build something like a heat battery. I didn’t even know this existed. A heat battery is for industrial, industrial processes often use a lot of heat.
Typically the only way you could do that is burn oil or gas right there to get that kind of intense heat. Very hard to do with electricity. A heat battery takes the heat generated through renewables, electric electricity coming in, converted into heat, stored away as a heat sink and then releases the heat as needed directly into industrial processes. We just invested in a small company that actually builds these batteries. If somebody can figure out how to do that at scale, perhaps this company, it’ll actually transform a whole bunch of industrial processes that today have no alternative to using hydrocarbons. And one of the advantages, especially for non-Americans, because America has a lot of oil and gas, if you’re a European or a Japanese, if you can find ways of actually reducing your dependence on imported oil and gas, you increase your national security. So these are all like coming together as forces that are decarbonizing the economy and investors can actually make a lot of money along the way.
Barry Ritholtz: Last decarbonization question, we all always focus on transportation ’cause it’s so visible, but what is that 15% of our, our emissions and and private cars are half of that. So really, you know, even if everybody goes ev, great, it’s 7%. What about agriculture? That seems to be a really big source of, of carbon emissions and other problems in that have environmental impacts.
Mark Weidman: Barry, super astute question. Agriculture is the most underappreciated aspect of where we as a society emit lots and lots of carbon and methane. So the question is how do you decarbonize agriculture? Massively fragmented by definition. Fields for pasture are using up land that otherwise would be for trees or other carbon stores. A lot of people encourage eating less beef. Frankly, I find that hard love beef. But that is one piece. What we’re finding is there are ways of capturing the methane emissions from cows, for example, and actually using those methane emissions to actually create energy elsewhere. So we’ve invested, for example, in a company that picks up cow chips, Barry Long Island, we didn’t have cow chips, but that means cow dung. And you actually figure out how do you actually take that cow dung, pick it up, basically a nuisance for the farmer, turn it into a biom methane, and then ultimately you can use that methane that otherwise just simply would’ve emitted you burn it to create electricity, to create heat. That is an example of the ways that we can decarbonize agriculture. But you’re absolutely right, agriculture is the trickiest part of the global economy to decarbonize.
Barry Ritholtz: So let’s jump to our favorite questions. We ask our all our guests, our speed rounds and we’ll we’ll get you outta here in a couple of minutes. Starting with what’s keeping you entertained these days? What are you watching or listening to either on Netflix or podcasts or whatever?
Mark Weidman: So I am listening to Dune, the 1960s novel by Frank Herbert because it’s still one of my favorite books. And Dune Emperor is coming out in just a couple weeks. [I didn’t know, think of you as a sci-fi head. [Is that your genre?] I confess to a big science fiction and fantasy enthusiasm.
Barry Ritholtz: Tell us about your mentors who helped shape your career.
Mark Weidman: I think my biggest mentors were Peter Fisher, who was my boss of the US Treasury. Sue Wagner is one of the founders of BlackRock. And Larry Fink has actually played a pretty big role in kicking me around and growing me.
Barry Ritholtz: Let’s talk books. What are some of your favorites? What are you reading right now?
Mark Weidman: Well, my favorite business book of all time is a book called My Years with General Motors by Alfred Sloan. He’s the man who actually really built the modern General motors and actually really the modern global company. I’d recommend reading that for anybody, anybody interested in business. I am meant re reading Dune and I have to say Pride and Prejudice, one of my favorites. Reread it during the pandemic. Always great that Mr. Darcy,
00:54:02 [Speaker Changed] We’re down to our final two questions. What sort of advice would you give a recent college grad who is interested in a career in either investing or finance?
Mark Weidman: Be curious about the world. Read the Economist. Learn about something bigger than the micro technical thing you’re being asked to do long term. That pays off in having a broader mind. ’cause fundamentally finance is nothing other than thinking about the future and the cash flows in the future.
Barry Ritholtz: And our final question, what do you know about the world of investing today? You wish you knew 30 or so years ago when you were first getting started?
Mark Weidman: Investing in public markets involves two separate mental moves. The first is thinking about where ultimate long-term value is gonna be created. And then second, thinking about who’s gonna pay for it tomorrow. And those are very different things. The first is really a private investing question. The second is what makes great public investors great. And understanding that distinction I think actually is, we talk often in investments as if actually it’s just the first one. But the truth is that second one is actually what drives a lot of portfolio returns. When you get in and out of a security, understanding that from the beginning, I think that would’ve been helpful to understand better.
Barry Ritholtz: Really, really interesting. Thanks Mark for being so generous with your time. We have been speaking with Mark Weidman. He is BlackRock’s head of Global Client business. If you enjoy this conversation, well check out any of the 500 plus discussions we’ve had over the past nearly 10 years. You can find those at iTunes, Spotify, YouTube, wherever you find your favorite podcast. And be sure and check out my new podcast at the Money short, 10 minute conversations with experts about issues that matter for your money, making it, spending it and investing it at the money. You can find it in your Masters in Business Feed. I would be remiss if I did not thank our crack team that helps put these conversations together each week. Sarah Livesey is my audio engineer. Atika BR is my project manager. Sean Russo is my researcher. Anna Luke is my producer. Sage Bauman is the head of podcasts at Bloomberg. And I’m Barry Ritholtz and you’ve been listening to Masters in Business on Bloomberg Radio.
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