WHEN: Today, Friday, January 12, 2024
WHERE: CNBC’s “Squawk Box”
Following is the unofficial transcript of a CNBC interview with BlackRock Chairman & CEO Larry Fink on CNBC’s “Squawk Box” (M-F, 9AM-11AM ET) today, Friday, January 12. Following is a link to video on CNBC.com: https://www.cnbc.com/video/2024/01/12/blackrock-ceo-larry-fink-on-gip-deal-the-future-in-private-markets-will-be-infrastructure.html.
All references must be sourced to CNBC.
ANDREW ROSS SORKIN: Hey, good morning Becky. We do have some breaking news. It is breaking literally right now, BlackRock making the biggest changes to the firm in more than a decade. It’s acquiring Global Infrastructure Partners in a cash and stock deal valued at about $12.5 billion. In a memo, Larry Fink saying that the infrastructure deal and infrastructure itself is one of the fastest growing areas of our industry over the next 10 years, was largest asset manager also announcing a big reorganization. Its iShares business will now be embedded inside BlackRock and there are share, there are changes to the structure of the company as well, its international business BlackRock also out with its Q4 results this morning, adjusted earnings coming in at $9.66 a share, that’s a lot better than the street had anticipated. 8.4, 8.84 was the consensus revenue of 4.63 billion in line with estimates total assets now officially under management growing 16% compared to last year to $10 trillion, that is with a “t” for the full year $4.5 billion returned to shareholders including 1.5 billion to share repurchases. Joining us right now first on CNBC interview is BlackRock CEO Larry Fink as this news is just crossing the tape. Good morning to you.
LARRY FINK: Good morning, Andrew. Happy New Year. Happy New Year to Becky and to Joe.
SORKIN: Let’s talk about that what’s happening here. There has been speculation for months, there will be a major transaction in the future of BlackRock. A lot of people have speculated you would buy a private equity firm. This is a very different deal. You’re sort of zigging where others may have been zagging us. This is going to make you probably one of if not the largest infrastructure investors in the world.
FINK: And it’ll put us in the top few. Well, thank you. Let me be clear. We were not looking at any private equity firms. We believe the future in the private markets is going to be infrastructure. If you think about BlackRock, over 65% of our clients are retirement assets. What can be a better asset than long duration assets, high coupon inflation protected and then you overlay the needs of governments and companies. I’ve been long advocating that deficits matter. And the future of government’s funding their deficits on their own balance sheet is going to become more and more difficult. And we’re in conversation with many governments of doing more public private type of transactions. We are seeing more and more corporations instead of selling divisions. They’re selling blocks of assets, not beta, sometimes 100%, sometimes 50% and going into partnership as they build out their infrastructure. We all know the need of recalibrating our power grid as we digitize everything. We all know that more and more countries are focusing on energy independence, and some of them are focused on decarbonization, all across these investments, we’re talking trillions of dollars. And so we believe that big macro trend in the future is going to be much heavier reliance on private capital, retirement assets, to coinvest with companies and governments and infrastructure. We have had a long relationship with GIP, Bayo the founder and I have—
SORKIN: Bayo Ogunlesi, the First Boston days.
FINK: We were part of the First Boston diaspora. We all left First Boston. We were partners together at First Boston, we’ve known each other and this came together really rather quickly. We had dinner together in September and we saw the merits of it. We had our key partners together in October and we move forward very rapidly—
SORKIN: I should mention Bayo Ogunlesi has been lead director at Goldman Sachs and he’s gonna be stepping down as part of this.
FINK: So at the time of closing, and right after closing, Bayo will be joining BlackRock’s board and at the same time, he will be standing down from the Goldman Sach’s board. He’s been the lead director but he’s been on the Goldman Sach’s board now for I think approximately 12 years and and I know he’s sad to leave a great firm but I think he’s very happy to be part of the new his new firm.
SORKIN: How does this change BlackRock? There was a transformational deal you did with BGI brought in AI shares years ago, that was a transformational transaction. You have put this from what I was reading in that same kind of bucket that same kind of context.
FINK: Well, I would put in the same context when we bought BGI and iShares was part of it iShares had $290 billion. Today iShares has 3.5 trillion. These are just long-term trends that we see long-term trends in how we see the markets are going to evolve. Much of this we’ve made a fundamental belief that the world’s capital markets, and this is very good for CNBC, that the world’s capital markets going to become a larger and larger component of economic activity across countries across the globe. And as I said, if we are going to really elevate our infrastructure as a world and the need for stronger, better airports, power grids, infrastructure as an asset class is going to, must grow. And we believe that we are seeing that and so we are making a large statement that we believe in the private markets for the future growth in infrastructure going to be faster than almost any other—
SORKIN: And the bet that you can grow this business I imagined by bringing on all the investors who have historically backed you before to put you in a place to compete against the Brookfields of the world.
FINK: Our investors already have been notified, they are really excited about this transaction. They see the merits combined BlackRock’s infrastructure team and the GIP team. We will now have over $150 billion in infrastructure and we see more and more opportunity. We’re working right now with two or three major companies that are looking to restructure themselves. So we’re talking four or $5 billion of equity needed to do these infrastructure deals. And we’re in conversation with the government right now that they’re looking to transform some of their power grids. And so all of these things are acquiring not a few 100 million but a few billion dollars. So the need is going to be greater and the power of GIP and BlackRock really allows us to be in the front of the—
SORKIN: How should investors think about this this morning in terms of alternatives, how big a piece or small piece on a relative basis this is going to be to your overall earnings picture in the future, what kind of multiple they want to apply to this kind of business relative to the iShares business. It’s a complicated picture.
FINK: Well, it doubles our fee related revenues related to our private markets. It’s gonna put us over a billion and a half dollars, which is a big block when we I mean, it’s still small to an 18 plus billion-dollar revenue platform, but it really is giving us a larger engine. If you add what we’re doing now in iShares, iShares crossed over, a one and a half billion in revenues. So it is these platforms that really in my in my mind identify the strength of BlacRock that we’re able to bring the totality of investment ideas with investment technology. And this gives us a much bigger conversation beyond public public securities, public equity, public debt, investment technology, the utilization of ETFs across all the spectrum, and then now being a large player in the infrastructure, private markets business.
SORKIN: I want to talk about ETFs. I actually want to talk about crypto ETFs in just a moment, but let’s talk about the earnings picture first, you’re now back over $10 trillion in total AUM. What do you see happening right now in just the broad based both retail and institutional investor business, if you will, given where the markets are?
FINK: Let me frame it. In the last five years, clients awarded us $1.9 trillion. No other firm has come close to that type of organic growth rate. We’re winning more share a wallet with more clients, more clients are looking to us to help them out. Another reason why we believe that the structure will be part of that conversation. I’m pleased to say retail and the new generation of investors, they’re actually more excited about investing in new ideas. They’ve been, they’re much much more active in the markets than my generation or your generation. And so they’re excited about being in the markets. That being said, there’s huge pools of money still in cash. In fact, in the fourth quarter, we saw because of the big rally in fixed income, we saw people sell fixed income to go back into cash after that significant rally seeing 10 Year go below 4%. And now we’re right around 4%. And so but overall, I think if you could look back over the last two years, obviously 2022 was the worst market since 1980 with both bonds and stocks falling dramatically. Those who ran away from the markets really missed a major opportunity in 2023, where both bonds and equities were backed up. And so what we are trying to advocate our our wealth management clients that you need to be in the market the whole time. And you need to be focusing on the macro themes that we’ll be working over 5, 10, 20-year period of time and I’m pleased to say, you know, more and more clients are looking to re-risk, that was one of the big events in the fourth quarter where we had $96 billion in net inflows.
SORKIN: There’s a lot of risk now on the table. The question is should there be risk on the table given by the way some of the inflation numbers what we saw yesterday, for example.
FINK: Well, that inflation numbers not a surprise to me. I think it’s gonna be very hard for us to get below 3%. You know, we have most CEOs I talked to are still in need of hiring talent. There is still some wage pressure in many parts of the country.
SORKIN: So you don’t think, you think the 3% number if you don’t believe we get to 3%, what does that mean, though, for what Jay Powell has to do and therefore, what the markets are expecting is going to happen?
FINK: Well, you know, I think the, our central bank is now talking about employment. They’re following employment a little more inflation is, is down quite a bit from the high levels of where it where it was. And I don’t find that to be a troublesome fact that if inflation stays around three to three to four, and we see less wage pressure, we see less commodity pressures, I think that will be fine. I do believe the Federal Reserve is going to be more accommodative. I am not a believer that we’re going to see three easings coming up this year.
SORKIN: So you think the expectation right now is they’re easings. There’s more coming as early as March.
FINK: And I would, unless we have some real significant change in economic data, I think we probably should expect it by June, the first type of easing.
SORKIN: But you think there’s one, there’s two, there’s a need it will there be a need for an easing? Because part of the argument is—
FINK: I don’t believe there’s much of a need, but I believe the conditions are far better than they were a year ago. Could they ease a little bit and just see what happens does that—
SORKIN: What does that mean for the equity market though? Because the equity markets have been keying off of Jay Powell the whole time frankly.
FINK: At the same time, the equity market is resilient because we have become the dominant country and new technology. I mean, the transformation of medicine and drugs that you know that are weight reducing, that that slowed down dramatically Alzheimer’s, I actually believe we are spending way too much time on the negatives, and not enough time on the wonders of these of what technology and the good side of technology. And there are many great things that have happened over the last year that are truly inspiring. And this is why I spend more time talking about hope. Unfortunately, we live in a world where more people want to talk about hate and fear. And I think, I do believe those who are investing and invest over the long term hope—
SORKIN: You’ve always talked about hope but I was gonna say we’re all headed to Davos next week, a place that you historically have gone there’s usually a lot of hand wringing more than hope. And this year in particular, given what’s happening in Israel, given what’s happening in Ukraine, given questions about China and Taiwan and everything else. What gives you, what gives you the hope right now?
FINK: What we know about these problems, and so they’re not a surprise now they were surprised earlier in the year. We’re going to hear from President Zelenskyy in Davos. I know the Israeli President will be there. I mean, I think they’re great opportunities to talk to reduce some of the tensions. So, you know, the negatives are known. And I have a belief over the long run some of these negatives will be resolved. Every we have more we have more elections in the world at any time in our history. To win elections is not about fear. It’s about hope. And I do believe through these through this year, we’re going to be able to do.
SORKIN: What what about the politics here in the United States? We have a lot of fear on both sides.
FINK: And I do believe that if if I’m wrong about inflation, it’s because a dialogue around election of hope, excuse me, of fear and hatred that will slow down consumption. We know when people are frightened they slow down consumption when people feel good about themselves—
SORKIN: How does the election play into that in your mind?
FINK: I think we’re gonna have to understand what the dialogue and say, and I think this is why Chairman Powell has, he has a much harder job than most people think because the election is going to shape economic activity. If people feel very frightened about our future, they’re not going to consume more. And we’re going to see the economy really sinking. If we can talk about the good things that are going on in the economy, the opportunities we have than I do—
SORKIN: But come next fall, where do you think the U.S. economy is?
FINK: U.S. economy in the fall is going to be positive. It’s gonna be fine. It’s, but it’s not going to be growing at a robust pace that we need to do to overcome these horrific deficits.
SORKIN: But let me pivot to another topic that has been in the news. It’s the first time we’ve had an opportunity to talk to you about it, which is Bitcoin, the Bitcoin ETF, we’re gonna be talking to Gary Gensler, the chair of the SEC who made that decision, reluctantly, maybe even begrudgingly, which was announced just two days ago when we talked a lot about yesterday on the broadcast. How big a deal was that for BlackRock, and this was for you a big switch as well, because you were a naysayer for a very, very long time.
FINK: Probably switched to the first three years of thinking about I was a naysayer, and about two years ago, I switched and I’m, I’m actually you know, as I said, in the last few years, I’m a big believer.
SORKIN: Are you a believer personally, meaning is the Fink family a Bitcoin buyer or a buyer of this new ETF?
FINK: Well now I could do that. I cannot, you know, I don’t want to compete with our clients so I don’t buy single assets. I’ll buy mutual funds. I’ll buy single ETFs so I have an opportunity to do that now. But I’m a believer in it because I do believe it is an alternative source for wealth holding. I don’t believe it’s ever going to be a currency. I believe it’s an asset class.
SORKIN: You don’t believe it ever becomes a currency?
FINK: No, I think we’re going to create digital currencies, we’re going to use a technology for it. We’re going to use a blockchain.
SORKIN: How important is that though to then the long term value proposition—
FINK: Of Bitcoin?
SORKIN: Of Bitcoin if it’s not something that ultimately becomes a currency if it’s simply we’ll call it digital gold? It’s an asset of some sort. What does that mean?
FINK: It means—
SORKIN: In terms of price.
FINK: I believe, you know, I believe it goes up as if the world is more frightened, if people have fearful geopolitical risks, they’re fearful of their own risk. It’s no different than what gold represented over thousands a year as it is a asset class that that protects you. And unlike gold, where we manufacture new gold, we’re almost at the ceiling of the most of the amount of Bitcoin that could be created.
SORKIN: What do you think when somebody like, when you hear somebody like Cathie Wood, who was on our broadcast yesterday say that her base case, base case is that this turns into a $600,000 a Bitcoin valuation base case and a million plus, in a super optimistic case. Are you anywhere in her realm?
FINK: I haven’t thought about it. To me that what we’re trying to do is offer an instrument that can that can store wealth. I think if it gets even close to that high gold will represent even a bigger value. And let’s be clear, if you think it’s digital gold, there’s going to be a reference point between gold and Bitcoin. But let me get back to what happened yesterday. You know, a part of our announcement that you mentioned in the opening that we we changed the architecture of our firm, and much of it has to do with how we think about iShares and ETFs. When we bought BGI, very few people believed in that acquisition, and we were pretty mistreated for a couple years and then we because we said, active and passive can coexist. Obviously, we were right in that too. We said the fixed income market will be transformed through ETFs. That has now happened. Yesterday, we had the first day of Bitcoin ETFs and our reorganization is taking that ethos of what has happened over the last 10 years. We believe ETS is a technology that’s going to transform every asset class. We believe everything will be done through ETFs. And so we believe this is just the beginning. And we need to embed ETFs across the—
SORKIN: So what does that mean? If you’re Rick Rieder who we’ve had on – for years.
FINK: Rick is now doing more ETFs in his active space now. There’s a great example of of how we are taking what a very active investor and now and putting that into an ETF platform. Let me be clear, I think ETFs are step one point in the technological revolution in the financial markets. Step two is going to be the tokenization of every financial asset. And to me, this is where we believe it’s going so we’re looking at Bitcoin, we’re looking at ETFs in the same manner, these are technological changes that can allow us to move forward.
SORKIN: What did you see yesterday, by the way, in terms of inflows as it relates to Bitcoin?
FINK: We were very happy with the flows it appears that we received about 40% of the flows yesterday. I mean, one day doesn’t make—
SORKIN: Are these new customers or these people who are coming out of other funds. I mean, Grayscale was the biggest player in this space right now. Are you trying to take take share from them in terms of taking those clients over? Or you’re trying to create a new class of customer?
FINK: Primarily we’re trying to create an opportunity for new customers can invest in this financial instrument. Over the long run, do we believe, just think about the fee differential between an ETF in some of these trusts? These trusts are like 120 basis points—
SORKIN: They’re expensive. We were talking with the head of Grayscale yesterday, and it’s still an expensive product.
FINK: And these are 20 to 30 basis points in the ETF wrapper.
SORKIN: Well, it’s expensive, by the way for if you’re a Grayscale customer to sell your shares, very tax—
FINK: Yes, this is what the big issue with the SEC this is something you may want to ask Gary. The industry asked to transfer inkind into an ETF and that was denied by the SEC, that’s fine.
SORKIN: Let’s put a fine point on that. The industry meaning companies like yours, ask the SEC to allow folks who may owned shares via a Grayscale to transfer those in kind to a BlackRock, Fidelity or whomever—
FINK: And so there would be no tax ramifications. That was denied. They wanted to really just create from scratch cash only which we all respect the SEC reasoning.
SORKIN: It creates an opportunity actually for Grayscale to keep those customers for much longer time.
FINK: It does but I think over the long run when when you start adding up the fees and adding up the fees, people are going to start thinking about redeeming and then ultimately going into ETF.
SORKIN: Longer term, do you now expect other cryptocurrency ETFs meaning do you think that Gary, and we’ll talk to him later, Gary Gensler, will have to approve an Ethereum ETF and is that a function of something that the SEC has to do or do you think that all these things have to go to court first.
FINK: I couldn’t respond to that. I see value in having an Ethereum ETF. As I said, these are just start stepping stones towards tokenization. And I really do believe this is where we’re gonna be going we have the technology to tokenize today. If you want to talk about, think about this, if you had a tokenized security and you have a tokenized identity, you Andrew, the moment you buy or sell an instrument it’s known it’s on a general ledger that is all created together. You want to talk about issues around money laundering and all that, this eliminates all corruption by having a tokenized system.
SORKIN: Jamie Dimon disagrees with you on that but, at least to some degree, let me ask you this before we let you go which is there has been a massive backlash as you know around ESG, you have said that the phrase ESG has been effectively weaponized politically. However, there are real things happening in this country that are pushing back on ESG in the context of DEI but also in the context of how consumers are buying different products. You’ve been a big advocate around climate change and new climate products. Just this week, we saw Hertz selling EVs that they had bought because—
FINK: There’s not enough demand.
SORKIN: There’s not enough demand. And that’s a real economic issue that it’s not about that’s not a philosophical issue. What do you think of that given the position that you’ve taken on these issues?
FINK: There is more money going into decarbonization than ever before. More companies are talking about it. What we just announced with Occidental. Occidental has the leading technology for air capture. And, you know, we just coinvested in one of their projects with $550 million on air capture. The amount of demand from client money in investing in two things, energy security, and decarbonization. I think you can—
SORKIN: Are they, I guess the question is, are they good investments meaning what— years, people have been talking about climate investing a lot of money has gone into that space. And yet it’s not always clear that as an investment they’ve been, they’ve been great investments. A lot of people took their money from the from from the firearm industry and it turned out that if you were purely investing on the economics of it, you should have been investing the whole time.
FINK: Same thing with cigarettes, way back when. I can assure you, every investment we made was for economic purposes, there was never a notion of social issues around any of those investments. Two, the type of investment we’re making, we have floors of 9% and a couple of the investments we made because the the companies that are doing this, they are so constructive on the technology and the opportunity. They’re giving us an 80% off take and that means we have a floor of a 9% return. And they’re so bullish on some of these opportunities, they’re asking for a ceiling because they think they’re going to have much more upside. And in some of the investments we have a 9% floor and a 15% ceiling. Now how good of investment is that over for a retirement asset? So I would argue, yes, there are there’s a there’s been a lot of money chasing some directionality and infrastructure at the same time. We’re seeing more and more demand more and more money. I can tell you the amount of money coming from sovereign funds now that are going into more decarbonization within its air capture, potential of hydrogen, and we’ll see how this all plays out.
SORKIN: And do you worry about the politics at the cross currents of getting money from a sovereign wealth fund on one side that wants to do this and maybe a state in the United you know, that may be on the other side of this politically.
FINK: Look at Texas. It is the biggest energy complex country estate in the United States. It is the largest wind and largest solar state in the United States. It is about having energy independence. So it’s, this is how every political leader that I talked to, they’re focusing, how do we get how do we become more self-reliant on our power? You know, when you think about India, the growth of India eight, 9% a year the power needs to continue that growth rate, they have to continue to grow the demand that they’re focusing on wind and solar in India alone is unbelievable. At the same time, they’re using coal. And so what I’m hearing and this is this was not part of the conversation three years ago, what I’m hearing from more and more people, the most important thing is energy independence. At the same time, they are not they don’t own much energy in their country. They may have coal, they’ll be using that. But in the long run, they want to become more energy independent through decarbonized technology. Larry Fink, thank you for joining us.
FINK: Andrew, thank you.
