BlackRock: Investing for a New World In the new world, the old ways of investing aren't working anymore. One question is on everyone's minds: "So what do I do with my money?" Learn more about the five practical actions for a more dynamic, diverse portfolio at www.blackrock.com/newworld. Courtesy of BlackRock / YouTube

New York, NY, USA - February 29, 2012


IT’S A NEW WORLD: SO WHAT DO WE DO?

Laurence D. Fink

Speech Prepared for Delivery to Council on Foreign Relations
New York, NY - February 29, 2012


Thank you and good morning.
I’m honored to be here before so many distinguished guests at such a respected forum… and one that couldn’t be more relevant today, given how interconnected we are globally.

As the daily headlines on European debt make abundantly clear, the economic destinies of people across the globe are inextricably linked.

It’s no wonder that for all the recent hopeful signs of economic recovery and rebounding markets, there’s still a gnawing sense out there that things aren’t right.

It's a New World: So What Should We Do? Laurence D. Fink, chairman and CEO of BlackRock, discusses the challenges facing the global financial system. February 29, 2012. Courtesy of BlackRock / YouTube

Every CEO I talk to tells me virtually the same thing: business is better than expected… but things feel really bad. So, lacking confidence in the future, they're continuing to build their cash even as earnings improve…

And from kitchen tables to trading floors to street protests in Athens, London or Manhattan, people are angry, frustrated and confused… they’re worried about stagnant incomes and eroding savings.

They’re worried that government promises of secure retirements are simply impossible to meet.
And they’re looking for leadership… and answers. Fundamentally, a broad crisis of confidence is paralyzing our ability to make long-term decisions.


Information Overload… and Powerful Forces

Much of the problem is our inability to look beyond the latest headlines as they change minute by minute with every blog or website update – whether it’s about Greek debt or rising gas prices.

In today’s wired world, people are bombarded with so much information and news – even if much of it is good – they can’t interpret the good from the bad. It’s affecting the decision-making of everyone from the corner office to the corner drugstore… and having a deeply unsettling effect on the markets… with dramatic swings in trading. It’s shortening time
horizons… not just for investors, but in politics and business.

It's a New World: So What Should We Do? Laurence D. Fink, chairman and CEO of BlackRock, discusses the challenges facing the global financial system. February 29, 2012. Courtesy of BlackRock / YouTube

This fixation on the short-term is also blinding society to powerful forces re-shaping our world.

This New World – if you will – is being defined by three far-reaching and closely intertwined trends that are disrupting markets, economies and many sectors of society.


The Great Aging

The most sweeping – yet overlooked – is the Great Aging. According to the UN, the over-60 age group will roughly triple in size to two billion people in the next 40 years – growing more than twice the rate of the rest of the population.

This worldwide phenomenon is already placing major strains on the entire global system. Living longer should be a blessing, but many older people are now afraid of outliving their savings.

In the U.S. alone, the combined underfunding of Social Security and Medicare over the next 75 years exceeds 40 trillion dollars, according to the programs’ actuaries. U.S. corporate pension funds at year end were underfunded on average by 33 percent, according to a BlackRock analysis.

And around the world, we’re facing an unprecedented simultaneous withdrawal of both financial and human capital from the system.

It's a New World: So What Should We Do? Laurence D. Fink, chairman and CEO of BlackRock, discusses the challenges facing the global financial system. February 29, 2012. Courtesy of BlackRock / YouTube

Look at Japan.
It’s long had one of the world’s highest savings rates – which helped fund government deficits around the globe.
But it also has one of the world’s oldest populations.
So, Japan will soon shift from a net saver to a net seller of assets… with profound global consequences.


The Great Deleveraging

Unfortunately, this Great Aging coincides with a “Great Deleveraging.”
The financial and corporate sectors and households across the developed world continue to reduce debt and derisk in the wake of the financial crisis.
It will shape investment, returns and spending for years to come.

As the “New York Times” pointed out last week, anxiety about assuming long-term obligations is shifting the U.S. from a nation of homeowners to a nation of renters, even as rents rise and home prices continue to fall.

And the global deleveraging is being compounded as governments around the world pursue austerity plans to address deficit spending.
Government won’t be a source of job growth going forward, as it has for years in the U.S.

So, job creation will require a much more meaningful partnership between government and business.


The Great Migration

And further complicating these challenges is a Great Migration of the engines of global growth to emerging markets.

Over time, this shift of economic opportunity will help create a more stable world, but for now it is fueling the global anxiety.

It’s driving growing disparity in income on both ends of that migration.
Those adept at navigating a global economy have adapted and even benefited, while others are left behind.

It's a New World: So What Should We Do? Laurence D. Fink, chairman and CEO of BlackRock, discusses the challenges facing the global financial system. February 29, 2012. Courtesy of BlackRock / YouTube

So, we shouldn’t be surprised by the social unrest it’s caused – whether it’s Occupy Wall Street or the Arab Spring, with its powerful economic undercurrents.

To sum it all up, we’re in a perfect storm right now… aging populations, deleveraging economies, shifting jobs and income inequality… wrapped up in low growth and low yields just when people need those returns and economic opportunity the most.


The Question

In the midst of that perfect storm… with everyone focused on the next change of prevailing wind… with confidence so scarce and volatility so broad…
I get asked the same question wherever I am… in Abu Dhabi, Beijing, Sao Paolo and Zurich, or right here in New York.

That question is simply:

So what do I do with my money?

Whether it comes from an individual, a corporation or a pension fund, my answer is the same: you need to get off the sidelines and get your money working again.

It’s the only way individuals can achieve their financial objectives.
The only way corporations will achieve growth.
The only way pension funds will meet their commitments.
And the only way governments can address the great public policy challenges we face – whether it’s funding retirements, supporting education or rebuilding our infrastructure.
All of that is really only doable if we re-ignite growth.


Savers to Investors

So, to meet our global challenges in this New World, we must… at every level… turn savers into investors.
Worry about the future is driving up short-term savings.
FDIC data shows Bank deposits hit 10 trillion dollars at year end, up from 6 trillion in 2004. They grew three times faster in the first nine months of 2011 than in all of 2010.

In China, despite strong growth, investors are keeping far too much of their savings in short-term deposits.

In the same way, non-financial companies in the S&P 500 held more than one trillion dollars in cash as of the fourth quarter of last year according to S&P – the highest percentage of all assets since the 1960s.
For CEOs, sitting on this much cash will ultimately push down P/E ratios.

It's a New World: So What Should We Do? Laurence D. Fink, chairman and CEO of BlackRock, discusses the challenges facing the global financial system. February 29, 2012. Courtesy of BlackRock / YouTube

So, what do we do?
How do we get all that money working again?
How do we reignite long-term investment and growth?

First, we must help investors adapt to the New World.

It’s in everyone’s interest to bolster confidence in long-term investment.
But, I’ll be the first to say that the asset management industry has not done a great job of helping investors take a long-term view.
We have to step up to offer guidance and provide answers.

To finance longer lifespans, we must convince individuals to start investing now for the long term. Their longevity is an asset to be leveraged, not a curse.
They must understand that there’s a cost to sitting in cash even with low inflation… for individuals and society.

People unable to afford retirement will continue working longer, stifling economic opportunity for the next generation… pushing unemployment rates for young workers even higher than they are today.

BlackRock: Investing for a New World In the new world, the old ways of investing aren't working anymore. One question is on everyone's minds: "So what do I do with my money?" Learn more about the five practical actions for a more dynamic, diverse portfolio at www.blackrock.com/newworld. Courtesy of BlackRock / YouTube

We need to educate investors about confronting the growing gap between needs and resources for retirement.

In particular, companies have a moral responsibility to educate their employees.
Shifting from a Defined Benefit to a Defined Contribution plan doesn't absolve them of that responsibility.

That means getting investors beyond the now inadequate 60/40 portfolio mix of stocks and bonds.

I’ve personally said I would be 100% in equities.
That fits my own risk profile, though, obviously, it’s not appropriate for everyone.
Most investors need a more diversified portfolio, but virtually every investor has to find ways to achieve better returns than they’ll get in cash or government bonds for the foreseeable future.

Possibilities include looking at new sources of income, like dividend-paying stocks or higher yielding corporate bonds… using both passive and active investments… and alternative investments, depending on the risk profile, which are now widely available for individuals through mutual funds and ETFs.

At an institutional level, we need to help public and private pension funds face up to adjustments necessary to meet their obligations to their members – such as revisiting outdated, over restrictive investment guidelines.

The financial community and governments can also help turn savers into investors by finding consensus on practical regulation that increases confidence in markets.

BlackRock: Investing for a New World In the new world, the old ways of investing aren't working anymore. One question is on everyone's minds: "So what do I do with my money?" Learn more about the five practical actions for a more dynamic, diverse portfolio at www.blackrock.com/newworld. Courtesy of BlackRock / YouTube

With Basel III, banks will be even more conservative in their lending, and we'll be even more reliant on the capital markets.

So, it’s vital that the financial community and governments find consensus on practical regulation that promotes confidence in those markets.

For example, new regulations last month by the Commodity Futures Trading Commission to protect the collateral that customers post when centrally clearing over-the-counter derivatives will promote greater confidence in these markets.
In the coming months, similar protection would be welcomed for futures trading.

We need financial products and disclosures that ensure individual investors know what they are buying, including the real risks and costs.
We believe, for example, that in the fast growing ETF sector, better labeling would boost investor confidence.

We need a tax structure that encourages long-term growth, including a capital gains tax regime that rewards investment over multiple years.

The holding period for an investment to qualify for long-term capital gains tax treatment should be extended to three years, from the current 12 months and the rate should decline the longer the investment is held.

BlackRock: Investing for a New World In the new world, the old ways of investing aren't working anymore. One question is on everyone's minds: "So what do I do with my money?" Learn more about the five practical actions for a more dynamic, diverse portfolio at www.blackrock.com/newworld. Courtesy of BlackRock / YouTube

Finally, government too needs to take a longer-term investment perspective.
Just as individuals and institutions should understand that they cannot count on returns in one quarter or one year, governments should consider investments that may not deliver returns for years.

We need government leaders willing to rise above partisanship and make forward-looking investments in crumbling infrastructure and basic research.

And probably the most important long-term investment society can make is in education.
It’s an antidote to today’s short-term preoccupation… a means to filter the day’s headlines and see longer-term patterns… and to adapt to the competitive demands of the information age where even ‘unskilled’ positions require technology competence.


Conclusion

The transformational challenges – and the resulting crisis of confidence – that we face as a global society are daunting.

But, we are better equipped than at any time in human history to respond.
After all, we possess unparalleled knowledge and experience… financial and planning tools… technology and the analytics.
And we are connected across the world in ways previously unimaginable.

In this New World, we can help rebuild confidence, get markets moving again and restore growth by turning short-term savers into long-term investors.
It’s our responsibility as leaders of business, finance and government.

All of us must answer the call.

Thank you.


Laurence D. Fink

Chairman and Chief Executive Officer, BlackRock, Inc.


Source: BlackRock, Inc.

http://www2.blackrock.com/global/home/News/NewsHome/index.htm  


About BlackRock


BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide.

BlackRock is a truly global firm that combines the benefits of worldwide reach with local service and relationships. We manage assets for clients in North and South America, Europe, Asia, Australia, the Middle East and Africa.

The firm employs more than 10,100 talented professionals and maintains offices in 27 countries around the world.

Our client base includes corporate, public, union and industry pension plans; governments; insurance companies; third-party mutual funds; endowments; foundations; charities; corporations; official institutions; sovereign wealth funds; banks; financial professionals; and individuals worldwide.

As of December 31, 2011, BlackRock's assets under management total US$3.513 trillion across equity, fixed income, cash management, alternative investment, real estate and advisory strategies.

Through BlackRock Solutions® — the natural evolution of our long-standing investment in developing sophisticated and highly integrated systems — we offer risk management, strategic advisory and enterprise investment system services to a broad base of clients with portfolios totaling approximately US$10 trillion.

Our firm's ownership structure is designed to maintain the independence we believe is necessary to retain our commitments to client focus and investment excellence.

BlackRock, Inc. (NYSE: BLK) has no single majority stockholder and has a majority of independent directors.
The PNC Financial Services Group, Inc. and Barclays PLC own economic interests in BlackRock approximating 21.7% and 19.7%, respectively, with the remainder owned by institutional and individual investors, as well as BlackRock employees.


Source: BlackRock, Inc.

http://www2.blackrock.com/global/home/AboutUs/index.htm  


Video
BlackRock: Investing for a New World

http://www.youtube.com/watch?v=Oja0KbVw1QQ&feature  


Video
It's a New World: So What Should We Do?

http://www.youtube.com/watch?v=689Z4hwkfuc&feature  



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