Instead of investing for 40 years, too many people put their money in bonds or cash, fearing a selloff, Mr. Fink says. By doing so, investors lock themselves into low returns that can jeopardize a comfortable retirement. The risk grows as more and more people assume responsibility for their own retirement funds, because of a shift from professionally managed defined-benefit pension plans, which pay a set monthly amount for life, to defined-contribution plans that require individuals to pick their own funds and bear the investing risk.
“The individual investor is probably more in a position where [his or her] pension plan is probably going to be more at risk because of fear-mongering, and the short-termism has produced portfolio allocations that are way too short to meet their long-term liability needs in retirement. So they are sitting on way too much cash, way too much bonds.”
Mr. Fink’s watchword is outcomes. Remember what you’re saving for, and focus on that goal. Ignore the ripples. Think about where the water level will be decades from now.
Ask Mr. Fink what he thinks of the latest market-roiling crisis in some faraway nation and you will draw scorn. Forty years from now, an investor looking at a chart of the world’s stock markets won’t be able to pick out the crisis in Cyprus or Ukraine.
“Who cares? It doesn’t matter,” he says, his voice rising. “If you have a 30– or 40-year liability, it doesn’t matter what’s going on.”
But the media make it matter, by focusing on the news of the moment and the trade of the moment. Mr. Fink is particularly frustrated with the lionization of activist investors in the media. Think Bill Ackman, Carl Icahn and others who push for changes that will lead to an immediate runup in the stock price, though Mr. Fink didn’t name names. His letter to CEOs was not about activism specifically – but there is certainly a subtext to be found.
“The media made this into an activist letter. There was never even a word in the letter about activism. It was about focus on the long run.”
Still, activism bothers him. Not all of it, as sometimes what activists are demanding is the right strategy. But it’s clear that Mr. Fink does not see activists who show up demanding that a company increase debt to pay a dividend, or pursue other strategies to goose immediate stock returns, as always fighting the right battle.
“I am saddened in some respects to see how many CEOs are totally frightened of the activist investor,” he said. “What is disturbing to me, when you read and watch the news media, and the business media, they empower the activists. I guess it’s good talk. But is it good for society? Is it good for jobs?”
Similarly, he is critical of accounting rules that push insurance companies to invest in shorter-term assets, rather than long-term projects such as infrastructure. “Everything is leading toward an underinvestment in infrastructure and an underinvestment in capital expenditures.”
One factor behind this underinvestment may be that CEOs don’t stick around long enough.
“The average CEO in the U.S. has a term less than five years. So how long does it take for a capital expenditure to turn into profits? Think about pharmaceutical companies for a moment. It may take 15 years for a molecule to be created, to be proved, and then be marketed. So it takes some boldness of leadership to be focused on these long-term horizons, especially when their terms are so short.”
Mr. Fink, by contrast, is approaching three decades on the job. Now 61, he has run BlackRock since its beginnings as a bond business inside Blackstone Group in 1988. Blackstone sold its stake in the business to a bank, PNC Financial, after a falling out with Mr. Fink over strategy. Blackstone Group founder Stephen Schwarzman has said since that selling BlackRock was a “heroic mistake.”
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