Larry Fink On Q1 “We saw extraordinary new winds in our technology business”

CNBC Exclusive: CNBC Transcript: BlackRock Chairman and CEO Larry Fink on CNBC’s “Squawk Box” Today

Larry Fink Clients In Those Communities

WHEN: Today, Tuesday, April 16, 2019

WHERE: CNBC’s “Squawk Box

The following is the unofficial transcript of a CNBC EXCLUSIVE interview BlackRock Chairman and CEO Larry Fink on CNBC’s “Squawk Box” (M-F 6AM – 9AM) today, Tuesday, April 16th. The following is a link to video of the interview on CNBC.com:

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ANDREW ROSS SORKIN: BlackRock, the world's largest money manager, just out with quarterly numbers moments ago. Earnings of six dollars and 61 cents per share. Now that beat the consensus estimate of 613. Revenue was in line with Wall Street forecast and Blackrock also increased its quarterly dividend by five percent to three dollars and 30 cents per share. Larry Fink is with us, Chairman and CEO, and he joins us now exclusively. The stock didn't look like it was moving in the pre-market on that news. But it does seem like it was in line given the headwinds of 2018-2019, it’s a better situation.

LARRY FINK: Well, you're right Andrew. Last year global equities were down 13 percent. Global equities came back about 11 percent throughout the quarter. And so, the – absolutely, the circumstances are quite different. We grew our total asset base by nine percent so we grew over 525 billion dollars in assets. Sixty-five billion was organic. The rest of it was market movement. So, we're back over six and a half trillion. But the mix of AUM was quite extraordinary. We had 80 billion of inflows in fixed income, so you saw many people putting money to work in fixed income. But global equities you saw, as an industry, huge outflows. So, the trends have not really changed. But, you know, for us, we had, as I said, 65 billion of net inflows. We saw extraordinary new winds in our technology business. We had a record quarter of raising six billion dollars of illiquid alternatives in the quarter. And so, we saw money being put to work but I would not say investors were just jumping in all in. And the marketplace, with the market rally as large as it is, I would clearly tell you at this moment, most investors are exposed by being underinvested at this time.

ANDREW ROSS SORKIN: So, you think they're underinvested? – Okay, so it's two questions. One is: to the sense you're pulling new money in where are you pulling the new money in from?

LARRY FINK: I would say it's – well it’s, you know, the one thing I could talk about—a little more public is our iShares franchise where we had 32 billion of inflows and it was pretty, pretty concentrated in Europe and the US about 17 billion in the US and 15 billion in Europe. Very little out of Asia in the first quarter. So -- but in in our institutional business we sought from Asia, we saw it from the Middle East. So, we're seeing some money to be put to work. Money from cash to fixed income. We're not seeing money being put to work rushing into equities.

MELISSA LEE: What are the trends that you're seeing in terms of flows into the core iShares versus the mutual funds? To give us an idea of your fees and some pressure on fees.

LARRY FINK: Well, for the quarter, our fees actually went up two-tenths of the basis points. So, we went from 18 average basis points to eighteen point two. So overall, I'm talking about the whole franchise --  the whole franchise, and some of that is because we're now winning more and more in the alt space, so that that's certainly helping, and we did see some a reversal 2018 in high-yield. In the iShares business, it was a pretty good mix of both core, which is a lower fee versus the non-core. which is more institutional and more for liquid market where we have options associated with some of those ETFs. And so, we have not seen any real pressure in terms of a huge shift into only core. So, we're seeing a pretty good mixture of both core and non-core.

ANDREW ROSS SORKIN: You just commented, before you answered that question, that that you believe people were underinvested—

LARRY FINK: Globally.

ANDREW ROSS SORKIN: --globally—

LARRY FINK: Yeah, globally.

ANDREW ROSS SORKIN: But make the case why you think that? And are you saying that in terms of the equity market? Or are you saying that just broadly?

LARRY FINK: Broadly and you know and some people are going to continue –

ANDREW ROSS SORKIN: Is that a good call?

LARRY FINK: That is a market call, yes. Is that what you're asking for? Yes. I think we have a risk of a melt up, not a melt down here. Despite where the markets are in equities we have not seen money being put to work, we have record amounts of money in cash, we still see outflows and retail in equities, we still see outflows institutional. I'm talking about-- it is industry now and so and when we have something that's a unique or special, whether it's in our infrastructure business or something else the demand for that at these assets are extraordinary. So, and, in fact we have clients almost arguing with us they want a bigger allocation

ANDREW ROSS SORKIN: But explain why you're bullish. Because you've come on this program many a times when you have been bearish or at least lukewarm on where things are.

LARRY FINK: Yeah, and it's just because I think we're struggling in this time, especially now with Central Banks who are, if anything, more dovish than ever, they're not changing their behaviors related to QE anymore. There is a shortage of good assets.

JOE KERNEN: We've had a couple people in recently that -- Katie Stockton, we had someone else recently that said that this huge move from January to March has been met with very little excitement--

LARRY FINK: Right.

JOE KERNEN: --by investors and you're just you've got the you know you would know with yeah you know trillions of dollars under management. And you're not seeing the -- it's all -- in previous tops you've probably seen a lot more excitement, haven’t you?

LARRY FINK: Right. Well, we're seeing huge excitement in fixed income—

JOE KERNEN: That’s weird.

LARRY FINK: No, but, right. Many people thought we were going to be in a period of rising rates.

JOE KERNEN: Right.

LARRY FINK: We were not.

JOE KERNEN: It didn’t happen.

LARRY FINK: -- and we saw huge under investment. And people had a rush in to invest in fixed income. We have not seen that in equities. That's what I'm trying to say. We have not seen when I would say that -- that ‘I missed that and I'm running in.’

ANDREW ROSS SORKIN: Can I ask you about this, what I've been think of it as sort of an enthusiasm gap and we've been talking about Lyft and this sort of series of IPOs—we’ve got Pinterest this week and obviously Uber is coming out later. How do you think investors are thinking about that and do you think about the IPOs in the context of this enthusiasm issue or enthusiasm gap?

LARRY FINK: I think everybody is looking for a new story. And so, when you have these IPOs it's a new story. And those who are not investing in the -- in the private markets of equities and in the venture capital or in the angel investing or the--, they're there for the first time able to see these stocks. Some of or big retail names now like Bill –

ANDREW ROSS SORKIN: Right. What is the Larry Fink view of this vintage of IPOs?

LARRY FINK: It really depends on what type of -- you know, it depends on their business models. I, you know, we happened to be actually a large investor in Uber from their early days. And so, we're, you know we're obviously actually watching how it's going to trade.

ANDREW ROSS SORKIN: Is the response to the way Lyft is trading make you anxious?

LARRY FINK: No. No, not at all. I mean I'm not focusing on one stock or another --

JOE KERNEN: --make you anxious—

LARRY FINK: Well, no, but I’m not – we shouldn’t focus on one company.

ANDREW ROSS SORKIN: No, but to the extent that Lyft would be a proxy for Uber, if you think it is at all. Some people say that they're completely different businesses, given the mix of things that they're doing. The international scope of what Uber is –

LARRY FINK: Uber is – right.

ANDREW ROSS SORKIN: --trying to do, relative to Lyft. But I was just thinking to myself, if you look at where Lyft is today—

LARRY FINK: But if I could make why those companies are important and translate that back to asset managers because we just finished a leadership retreat where I spoke to all of our leaders related to the macro trends that are impacting our clients So our clients all want more transparency.

ANDREW ROSS SORKIN: Right.

LARRY FINK: Everybody is looking for a company that provides them more convenience. Okay? Those are the two macro trends that are affecting from Taxis to purchasing on the internet, anything you're talking about. In financial services, most companies are not providing transparency and certainly not providing convenience. So, I believe those are the two key elements that are changing the asset management and the investing market. And that's translating into lower fees, that's translating into a still a great demand for higher returns if you can get it. But more importantly, it's translating and I want you to focus on my outcome and so if so I asked all of BlackRock leaders, those five trends ‘How is your business going to be impacted?’ And I actually believe we're going to see huge changes in our industry, huge changes in financial services, like we saw in the in the Taxi business or retailing. People need and expect more transparency. Society's expecting more of that. And people want much more convenience and we’ve got to translate that into asset management.

JOE KERNEN: I want to mention Jamie. He's concerned. He's watchful. He's wary. But you don't get anxious. When’s the last time you were anxious? Maybe when you started BlackRock. You haven’t been anxious in years, have you? You're not an anxious – you’re not anxious—

LARRY FINK: I’m not an anxious person.

JOE KERNEN: --you’ve got trillions of dollars.

LARRY FINK: Well, no. It's not my money, Joe. As you know.

JOE KERNEN: So, you are anxious, about other people – OPI. Let me mention, Jamie--

LARRY FINK: I’m concerned.

JOE KERNEN: Concerned. Wary. Watchful. I would even call you, it's more than calm. I would even say serene. Yeah, you just have a presence. You just have a serene presence. In addition to that, over time you are, I would say, one of the people that speaks their mind about the conscience of Wall Street and capitalism and business in America. And last time you were on I just thought it was kind of interesting when we were talking about Khashoggi and that situation with Saudi Arabia, I asked you flat-out, ‘Would you end doing business with Saudi Arabia,’ and you said, ‘No, absolutely not,’ and you were very honest about it. And here we are with a bond offering where everyone basically came around I think to your point of view and I didn't see anyone say ‘No, I'm not going to take any of these fees for the for the bond business or participate in the offering.’ So once again, common sense-- it's the real world, right? I mean there are certain things you have to just sort of hold your nose and move forward.

LARRY FINK: Well, I wouldn't even say you have to hold your nose. As I said, I think, when we spoke about Saudi Arabia, you know, we do a lot of work there. We manage money for the social security fund. We do-- we manage money for many fine people in Saudi Arabia. We still don't know the conclusion of the awful tragedy. Obviously, a lot of fingers are being pointed. But, when I write -- in my CEO letters, I talk about: you have to be local in every community you work in. And you know there is not any community in the world that is perfect there are many extremes in every community. But in every community, you need to be working with little local community, be part of that community. And that's why we concluded we're going to continue to do business there. We did not go to that one conference. I've been back to the Saudi since. I am -- I will be going there shortly again, among many other countries I'm traveling to. And so, you know, you have to be deliberate, you have to be open, you have to be forthcoming. But I do believe what we are doing in Saudi does not go against what we talked about in trying to have corporate purpose.

JOE KERNEN: Agreed. And China. You’re there a lot, too.

LARRY FINK: I am.

JOE KERNEN: I mean, things aren't perfect in China.

LARRY FINK: And they're not perfect in most countries. There are extremes in many countries. And our job is to try to navigate around that. But also, to have a conscious, too. So, I'm not here to suggest we are we are not evolving and changing because we all are. Because I do believe society is now asking more and more from companies.

ANDREW ROSS SORKIN: But here’s the question. For companies to be a forcing mechanism, if you will, on some of these issues, how does BlackRock think about that itself in that context in a place like Saudi Arabia or in China? Is it so much around navigating around these issues or is it around acting as a forcing mechanism in a place like Saudi by –

MELISSA LEE: --accept full responsibility--

ANDREW ROSS SORKIN: -- to the extent you're going to do business there, to somehow using your voice there to say to them, ‘Look, we're going to do business with you but under these conditions,’ or ‘we're going to do—’ whatever it is.

LARRY FINK: In every community we work at, and in Saudi or China or the US or Mexico or anywhere else in Europe, we have to stand by our clients in those communities. And we have to be working with those clients in those communities. If you're truly going to be an international company and have businesses throughout the world, you cannot impart, let’s say US or whatever, you have to try to find ways of working within the community and try to help that community change. There are things that we are -- we have global principles that we're not changing. One of the global principles we are working towards having at least 50% women so gender neutrality worldwide. Compensation is the same between women and men. It doesn't matter where we operate. So, we as a firm are trying to evolve and change and move forward and we're trying to be a principled organization working with all the communities we are in. In countries where there are issues, I don't want to name any one -- I've had private conversations about what we, you know, what we think they need to do to move forward. And they can or can they may or may not listen to us but we do have voice our concerns. But I think the fundamental issue is society is changing, and I wrote this in my last letter, Millennials are asking more of companies they do business with. Millennials are focusing on where they work. And so, if you're going to be a company that is trying to attract the finest talent, a company that is that is reaching more and more of society, you have to be more mindful. And I do believe we are you know we're in a very deep political debate right now. And I do believe the role of public companies is going to become larger and larger. And I do believe the leaders of public companies are-- with their boards—are going to have to have to have a stronger voice. And I do believe that stronger voice will lead to stronger profits.

MELISSA LEE: Does that mean that you take the stand? Or does that mean that you vote with your shares and take a stand?

LARRY FINK: It could be either. But BlackRock is standing up and taking – you know, we are, I have—representing BlackRock employees, BlackRock clients, BlackRock, all our stakeholders and shareholders— we have a louder voice. We are also asking other CEOs, other chairs, other boards to have a lounder voice. I do believe we have to be mindful and again, you're hearing this from Jamie Dimon, you're hearing this from Ray Dalio, you're in for many people now that there is a need for I would say more conscious capitalism. There is a need for more inclusive capitalism. And I said in my last two letters, society is frustrated that government is doing less for them.

ANDREW ROSS SORKIN: Let me ask you a question real quick on that though. Because you saw Jamie Dimon was asked about it at the bank hearings last week about wages. You saw Jeff Bezoscome out last week with and sort of throw down the gauntlet on wages to Walmart. If all of these companies increase wages at the expense of their profits at least in the short term, how does a Blackrock think about that? It may be good for society but know it may be bad for the stock.

LARRY FINK: No, but, you – but, in the long run, if you're able to track better employees and have more productivity. I mean, I can't answer the question with a limited information. But if they believe they're raising wages and are able to track better employees or the same employees but are now willing to work a little harder, they are more involved -- if the output is better productivity, it may not deteriorate their margins. But, once again, if you do that also and if you raise the consciousness to your clients and that produces more demand on your products, that may all turn out fine. So, the question is if you are just raising wages with the idea that it's not going to have any impact on your employees, not any impact--

JOE KERNEN: But these are private companies. If you all of a sudden legislate in Seattle that you're going to $20 and suddenly businesses leave, it could be bad for society.

LARRY FINK: It could be—

JOE KERNEN: It's not always good for society that happens. It could be bad for the company—

LARRY FINK: -- the society where they are—

JOE KERNEN: What’s bad for companies aren't always good for society. And it could be bad for society if there was a nationwide minimum wage of twenty dollars could be actually bad for society.

LARRY FINK: But I would say, very loudly, over the long run, having more engaged employees, stronger clients—

JOE KERNEN: --a private company.

MELISSA LEE: Larry, thank you.

ANDREW ROSS SORKIN: Larry, thank you so much for being here. Appreciate it.

LARRY FINK: Thank you.



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver