In episode 9 (scroll down to listen), Julie talks to Robert Goldstein, who has been the chief operating officer of BlackRock for 10 years and who started as a ‘green package’ analyst 30 years ago in 1994. Rob, who helped build the iconic green package into Aladdin, the portfolio management system, and BlackRock Solutions, talks in detail about what carries over from the early days of the company to inform what it does now (a lot) and why everyone claims to be a technologist in financial services. He also discusses artificial intelligence, why he still expects to have more engineers working for the company in the future than it does now, and how AI will never be able to do a COO’s job.
But any investor interested in why private equity, private credit, and private everything will become (almost) as transparent as public assets needs to listen to this conversation. Assumptions that managers and investors have made about private equity and similar funds are plain wrong. Rob says there’s just too much money in private markets for investors not to have the information they need to get a detailed picture — particularly of the risks — in their portfolios. “The gap between what investors could get today on the public market side of their portfolio relative to the private market side… is just too big. And that gap is going to be filled,” Rob told Julie.
Many people have long assumed that private markets would stay opaque. (Private is the operative word here.) But BlackRock has always been about portfolio transparency — for good reason. “Because…. if you don’t understand the risk in a portfolio, you actually can’t understand or manage the portfolio,” Rob says. Sounds pretty basic of course, until you think of BlackRock’s history in complex mortgage-backed securities, which were a new invention at the time of the firm’s founding. Naturally, not that many investors or managers understood how these securities worked, had good information on them, or knew how they could fit into their portfolios. BlackRock changed all that and structured products are now mainstream.
Rob stresses that the same will happen in private markets, where information is fragmented, closely guarded in many cases, and not standard. As a start, BlackRock will build on its acquisition of Preqin, which has been collecting data on alternatives. To be sure, more transparency will create winners and losers, but it’s not okay for these investments to have a veil of secrecy over them. “That just isn’t going to happen. That is not how anything in the year 2024 works,” he says.
If your doctor can give you the results of 12 tests on the same day during an office visit, surely investors can get an MRI on 100 percent of their portfolios, including the private equity and real estate funds they own. I think transparency of private markets is likely to be one of the biggest investment transformations of the next decade.
Links to check out with this podcast:
The Tech That Made BlackRock
(Play video on Google’s Chrome) https://www.institutionalinvestor.com/article/2bsw36qhh2lmoegm7paf4/video/the-tech-that-made-blackrock
Rob was part of II‘s Tech 40 for many years. Here’s one from 2017
(As I told Rob in the podcast, II no longer publishes its features on tech leaders and innovators in asset management.)
From 2011, BlackRock Is Remaking the Capital Markets
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About
In Conversation with Julie Segal is a dialogue with the people who have shaped and continue to influence the world of institutional investors. The podcast features both familiar names talking about new ideas and upstarts who want to do things differently.
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