In his well-read annual letter to investors on Wednesday, BlackRock chairman and CEO Larry Fink shared more than 9,000 words about a wide range of topics.
“Republican” was not one of them, even though BlackRock has borne the brunt of a politicized debate over ESG investing principles. Republican-controlled states have already pulled at least $4 billion from BlackRock’s management over the past 12 months and proposed legislation is forcing institutional investors to boycott certain companies.
Instead, Fink used the letter to remind investors that BlackRock intends to stay the course.
“Our fiduciary duty is to serve each and every client by seeking the best risk-adjusted returns within the investment guidelines they set for us. The powerful simplicity of our business model is that when we deliver value for our clients, we also create more value for our shareholders,” Fink wrote.
“Part of supporting our clients includes speaking out on issues important to their investments. I’ve long believed that it’s critical for CEOs to use their voice in the world — and there’s never been a more crucial moment for me to use mine. I will do so whenever and wherever I believe it can serve the interests of our clients and the firm.”
Fink also highlighted BlackRock’s success in attracting hundreds of billions of dollars from investors last year, repeated the company’s stance on sustainability, shared his thoughts on markets, and the failure of Silicon Valley Bank.
In 2022, a year in which many of its peers had outflows, BlackRock attracted nearly $400 billion in long-term net new assets, including $230 billion in the U.S. A record $192 billion of the total inflows were from institutional clients outsourcing investment management to the asset manager.
“We’re seeing very strong demand from clients looking to partner with BlackRock for outsourced solutions. In the past two years, we are honored to have been entrusted to lead a number of outsourced mandates totaling over $300 billion in AUM, spanning existing and new clients and capabilities. These clients are choosing BlackRock because of our scale, resources, and expertise to take on the challenges of the markets, and we expect this to continue into 2023,” Fink wrote.
Investing with sustainability in mind remains a focus at BlackRock. Investing for the long-term requires a long-term view, Fink said, including one on demographics, government policy, technological advancements, and the transition to a low-carbon economy. “In the near term, monetary and fiscal policy will be the major driver of returns. Over the long run, investors also need to consider how the energy transition, among other factors, will impact the economy, asset prices, and investment performance,” he wrote.
The transition to a low-carbon economy is also on the minds of BlackRock’s clients, according to Fink. Some clients want to “invest in ways that seek to align with a particular transition path or to accelerate that transition” and some don’t, but BlackRock will continue to offer them a choice and manage their assets according to their guidelines, he said.
“I wrote last year that the next 1,000 unicorns won’t be search engines or social media companies. Many of them will be sustainable, scalable innovators — startups that help the world decarbonize and make the energy transition affordable for all consumers. I still believe that. For clients who choose, we’re connecting them with these investment opportunities,” Fink said.
Fink voiced his continued support of fund investors doing their own proxy voting, but he cautioned that “democracy only works when people are informed and engaged.” As more asset owners choose to direct their own votes, Fink said they need to make sure they are dedicating enough time and resources to make informed decisions on critical governance issues.
“Proxy advisors can play an important role. But if asset owners rely too much on a few proxy advisors, then their voice may fall short of its potential. I certainly believe that the industry would benefit from more proxy advisors who can add diversity of views on shareholder issues,” Fink said.
“Amid these shifts, companies will also need to find new ways to reach their shareholders who choose to direct their own votes, and robust disclosures and advances in the proxy ecosystem will become even more important. How the voting ecosystem changes over the next decade can be a transformative force that reshapes corporate governance.”
Commenting on the markets, Fink raised the possibility — after the Fed’s rate hikes and recent bank failures — of a third “domino” falling. “In addition to duration mismatches, we may now also see liquidity mismatches. Years of lower rates had the effect of driving some asset owners to increase their commitments to illiquid investments — trading lower liquidity for higher returns. There’s a risk now of a liquidity mismatch for these asset owners, especially those with leveraged portfolios.”
