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A long-term investment approach while focusing on core principles
MY earliest lessons on the importance of investing came from my parents. My father owned a small business, a shoe store, and my mother taught English at a local university. They earned a solid income and their hard work created many opportunities for us, but we certainly weren't rich. I remember all the times my brother, sister and I would ask our parents whether we were saving for a bigger house or a new car. My father would just tell us we didn't need those things. Instead, my mother and father worked hard to save money - and to consistently invest for our future.
Without even knowing it, I was quietly absorbing these lessons from my parents on a daily basis. I started saving at a young age, earning money helping my father out at the shoe store. I bought my first stock, DuPont, when I was 13 years old. I continued to work, save and invest all throughout high school, college and grad school. And with each year, I grew to understand the power of investing in the markets.
By the time I moved to New York to work in finance, I realised how grateful I was to my father - and how lucky I was that he taught me such vital lessons about the importance of investing and about preparing for the future. He taught me that investing isn't just about tomorrow - it's about decades of tomorrows.
Reflecting on 2017, it is easy to get wrapped up in the remarkable performance of markets. A lot of people made a lot of money. But much more importantly: a lot of people didn't. And that's not because they weren't savvy enough to invest in the "right things" - it's because they were not invested at all.
Around the world, savers are struggling with low interest rates as well as obstacles to better investing behaviours. A culture of short-term focus in markets and the media - an obsession with second-by-second movements and prices - drives fear and discourages smart investing. Talking heads may sweat with excitement at each record market close, but one day or even one year of growth doesn't build a future. And so even as equity indices tick higher, too many individuals aren't enjoying the benefits. And that disconnect is driving significant anger, frustration and fear around the world.
BlackRock has a tremendous responsibility to help solve this challenge. We need to use our role as a fiduciary, our expertise in investing, markets and technology, our knowledge of and ability to empathise with investors' needs - to drive action. And one of those ways is to fulfil our purpose: to help more and more people experience well-being through the creation of wealth - to promote a system that helps more people participate in financial markets and build more secure futures. We are in a position to achieve these goals by using technology to drive better investing behaviours; by developing new investment solutions, and by advocating for better, stronger retirement systems. As an investor, adviser and innovator, I believe we have a vital role to play in society.
As BlackRock celebrates its 30th anniversary, we've all had a chance to reflect on what has driven our success - and what will continue to play a role over the next year, the next five years, and the next 30 years.
Just as we advocate for the importance and benefits of clients consistently investing to create better financial futures, we also believe in investing in BlackRock with that same long-term approach.
There are a variety of trends reshaping the asset management industry, including: rapid advancements in technology, heightened regulatory scrutiny, and changing priorities of investors, who are demanding better performance and value for the fees they pay. BlackRock is uniquely positioned to respond to these challenges and transform them into opportunities by creating solutions that meet our clients' needs. That focus on clients forms the foundation of our two-pronged strategy to drive the future growth of the business.
First, we are focused on being a market leader in the areas of greatest client demand - those markets and investment opportunities that will generate the highest growth in the future. Some of these areas of growth are those in which we are already a market leader and will need to continue executing with our current business, such as ETFs and factor investing, while others are areas in which we have lower market share today, but see tremendous growth opportunities in the future, such as illiquid alternatives.
Second, we seek to leverage the full capabilities of our platform with broader participation across the investment ecosystem - embedding ourselves more deeply at different steps of the value chain. This includes continuing to invest in enhancing efficiency between custodians and asset managers, growing our digital wealth presence, and reaching more individual investors through tech-enabled intermediary relationships.
We are also keenly focused on several large-scale longer-term ambitions that have the potential to dramatically reshape our firm and our industry over time: Retirement, Technology and high-growth markets such as China.
GLOBAL RETIREMENT CHALLENGE
Despite having a long and clear line of sight into the escalating global retirement crisis, governments, employers, insurance companies and wealth and asset managers have failed to widely implement solutions that ensure access to a safe and secure retirement for everyone. While the challenges vary around the globe, there are a few key areas that impact a great number of investors: insufficient savings, lack of access, improper investing, lack of guaranteed income, and pension shortfalls.
Some individuals are partially invested but hold too much cash. Others aren't invested at all - even if they earn sufficient income - out of fear, or because they lack the tools or the advice to invest effectively. And then there are those workers who have no retirement savings or have no access to retirement plans at all - individuals who are excluded from building a secure retirement through investing.
Demographically, we are at the beginning of a seismic shift. Between 2017 and 2030, the world's population aged 60 years or older is projected to grow by 46 per cent to 1.4 billion. As people live longer and longer, the world's retirement systems come under more and more pressure. We are already at an inflection point: the deep populist sentiment around the world is driven by frustration and fear about the future, including the prospects for a secure retirement. We must find a solution. We cannot accept a system that excludes so many individuals from the benefits of investing, and political lethargy is not an acceptable excuse for leaving billions of human beings unprepared for retirement.
We must continue to improve education and sentiment around investing so that older workers can mitigate the pressures of underinvestment, and so that as younger workers enter the workforce, they understand the importance of compounding returns and investing early in order to prepare for retirement. At the same time, we have to rebuild public and private retirement systems so that they cover more individuals and maximise returns more effectively. We should more broadly incorporate behavioural tools such as auto-enrolment, which automatically enrols individuals in workplace retirement plans, and auto-escalation, which can help individuals enhance their savings by periodically increasing contribution levels.
BlackRock is committed to being part of the solution. A key goal is to help more people begin investing - for example, by building technology that makes it easier for them to learn about and understand the virtues of investing. We are also committed to innovation in areas that span both the accumulation and decumulation components of investing for the future, by building more transparent and flexible guaranteed-income products. And we are focused on partnering companies and governments to improve existing retirement systems and, in particular, help build solutions for workers without access to retirement plans. Technology will play a significant role in those solutions.
Rapid changes in technology - including the exponential growth of data collection, the rise of artificial intelligence, advances in computing power and consumers' greater interaction with technology for daily tasks - have the potential to transform the asset management industry. In pursuit of technology-enabled growth, BlackRock continues to focus on opportunities to accelerate internal innovations and adopt external technologies.
In the near-term, our ambition is to bring the tremendous capabilities of Aladdin to more investors and clients. As part of our "Tech 2020" transformation, we are opening the Aladdin platform to drive further development and engagement, and we are simultaneously going beyond Aladdin to leverage data science, machine learning and artificial intelligence to find new sources of alpha for investments, leverage BlackRock's scale in our operations, and build a more data-driven feedback loop in the sales and product development process.
To enable this transformation, we are systematically investing in resources commensurate with our ambitions - including growing our population of technologists by attracting, developing and retaining top talent across the organisation.
In recent years, BlackRock has taken important strides to build our digital wealth business - connecting to distribution partners and ultimately end investors through technology that drives better investing behaviours and outcomes. In 2017, we established a Digital Wealth group to build on this progress and deepen our relationships with wealth management partners through technology, as well as drive internal product development and explore investment opportunities.
OPPORTUNITIES IN HIGH-GROWTH MARKETS, INCLUDING CHINA
One of the most critical priorities for BlackRock today and into the future is increasing our presence and penetration in high-growth markets around the world, particularly in Asia and especially China. Demographic, economic and regulatory shifts - including high savings rates and rapid growth in household financial assets in these markets - will create significant opportunities for BlackRock over time.
Our presence in China has historically been restricted. However, recent developments - especially in the regulatory environment - present significant opportunities for future growth. In November 2017, the Chinese government announced that foreign asset managers can own up to 51 per cent of a domestic Fund Management Company, with the option of full ownership after three years (previously capped at 49 per cent). This latest regulatory opening, together with other recent market developments, could significantly expand the prospect of growing our footprint in the market.
BlackRock also obtained our Private Fund Management registration in 2017, which allows us to both manufacture and privately distribute investment products in China to qualified onshore institutions and high-net worth individuals.
While we believe China is a significant long-term opportunity for BlackRock, it will require time and patience as we continue to watch this market evolve. In the meantime, we are preparing to bring our expertise in investing, risk management and technology, as well as our ability to understand the needs of local clients, to bear if and when the market opens further.
FOUNDATION FOR THE NEXT 30 YEARS
Six years ago, just before my father passed away at the age of 87, he and I discussed for the first time the outcome of all of those years he spent putting away money and investing for the future. The power of time, conviction, confidence and compounding had left him with roughly 70 times what he and my mother would have earned on a gross basis in an average year.
Just as I learnt from my father to invest each day towards a long-term goal, that has been, and will remain, our approach both within BlackRock and in the way we strive to serve our full set of stakeholders: our clients, our shareholders, our employees and savers and investors around the world.
We achieve that by living our principles every day. We achieve that by embracing our social purpose and contributing to the world in which we operate: The environment and communities that we call our home. The people who we serve and the people who work to serve them.
The strength of our culture is what makes our platform more capable and better positioned for the future than it has been at any time in our history. It's what drives performance. It's what drives us to relentlessly innovate and stay ahead of our clients' needs. As I think about the next year, the next five years and even the next 30 years, it is that unwavering focus on our principles and embodiment of our culture by our people that will propel BlackRock and its clients forward for years to come.