A conversation with BlackRock’s head of the Americas
JOE GARDYASZ May 15, 2018 | 8:54 pm
8 min read time1,858 wordsBanking & Finance, Business Record Insider, Insurance & Investments
Although Greater Des Moines boasts a number of world-class financial services companies, it’s a particular honor when a top executive from an industry-leading company from outside of Iowa reaches out to our publication. That was the case recently when Mark McCombe, a senior managing director with global asset manager BlackRock, arranged to stop in at the Business Record office during his first visit to Des Moines recently. Insurance and financial services firms of all sizes in Iowa are clients of BlackRock, which is the world’s largest asset manager, with more than $6.3 trillion under management as of year-end 2017.
As head of the Americas region, McCombe is responsible for BlackRock’s businesses in the U.S., Canada, Latin America and Iberia, which represents nearly two-thirds of BlackRock’s assets managed. Before joining BlackRock, he was CEO in Hong Kong for British financial services firm HSBC and chairman of HSBC Global Asset Management (HK) Ltd. Prior to that, he was based in London, where he was chief executive of HSBC Global Asset Management.
A member of BlackRock’s Global Executive Committee, McCombe was previously the chair and global head of BlackRock Alternative Investors, global head of BlackRock’s Institutional Client business, and chairman of BlackRock’s Asia Pacific region. He has been with BlackRock for six years and since last summer has been based out of the firm’s San Francisco office. He graciously shared his views about the markets and investing in between meetings with clients in Des Moines.
What brings you to Des Moines?
I spent much of my career in Asia, and joined BlackRock to run their Asia business, which I did for three years before moving to New York. I ran all of our institutional business globally until last year when I moved to California, and that was because we wanted to build out a much more regionalized client business. So I look after all of the Americas now; I’m based on the West Coast because we have a lot of business and run a lot of money from the West Coast, but also because we think it’s very important to keep an eye on and be part of the ever-evolving technology landscape that is so rooted in that market. So it’s much easier for me to cover some of the states that we typically haven’t.
We have a great business [in Des Moines]; we have many clients based here, both at the institutional and retail level. Obviously, to a non-American Iowa is very influential in the American political agenda, so it’s always a place I’ve been fascinated to come visit.
What are the biggest market concerns your clients have?
I think it’s fair to say that the equity markets in the past few years have been very positive, and we’ve seen strong growth across most major indices and most sectors, powered by things like technology. That continued through January, and in February and March we’ve definitely seen a much more bumpy ride for equities, and the introduction of much more volatility. What I would tell you is that the large institutional capital owners are very long-term investors; they are very clear and smart about how they think about their sector of exposures, and we certainly haven’t seen anything that would cause us any concern.
How does BlackRock view the stock market currently?
You can see by our results just announced that we are asset gathering — by definition that tells you that people are still in an investment mode. Definitely the volatility has caused people to ask whether the market is overvalued. There have been a lot of good opportunities within specific sectors, and as we all should be long-term investors, it’s really about focusing on the long term, not trying to time the market.
I like to tell people, step back and take a look at your personal situation. If I said, “Do you think the value of your home in 40 years’ time will be more than it is today?” the vast majority would say “yes.” The same should apply to your investment philosophy — good companies paying good dividends with good business models will continue to power the U.S. and the global economy and international economy for years to come.
What sort of relationships does BlackRock have with Des Moines’ insurance industry?
We’re the largest manager of insurance assets globally — we manage $500 billion or so in assets for the insurance and insurance-related sectors globally. Obviously we work with the largest and most sophisticated companies, as well as many regional insurers across all different sectors. The way that we work with insurance companies is twofold: We help them think about and bring to market particular capabilities for their end clients, such as variable annuities that would be sold by these insurance companies.
Secondly, we help companies manage their general account. They might be looking for a particular manager to give them exposure in fixed income or equities or alternatives. That’s a very big business for BlackRock. I would say that Des Moines has a very, very strong reputation, particularly for the talent that is homegrown here. One of the things I find quite compelling when I visit places like Des Moines is that the depth of the talent you meet illustrates that this is a place where people feel good about that industry and working here.
What efforts has BlackRock made to take the lead in addressing the retirement saving gap?
We believe that one of the greatest multicultural challenges facing America today — and the world, but let’s talk about America — is the lack of adequate retirement savings. It is imperative that we [the industry] address it collectively because the further we kick the can down the road, the more pressure it puts on the next generations as they come down the road. We view our responsibilities as multifaceted. But at its core, it’s about education. The way that I like to put it, and I think it encapsulates the issue, we have to educate everybody about the power of compounding and the power of long-term [investing]. I know that when I was 25, the word retirement filled me with dread and I would therefore ignore it. I think that’s true today — most people don’t like to talk about retirement. And by the way, the definition of retirement in society is changing. If we can convince people of the power of compounding and the value of using the long term to your advantage, then that’s the first thing we can do.
The second thing we can do is make sure people engage — that people really participate in the market. That they save for the future, that if an employer offers a 401(k), to really participate in it fully. And to take the appropriate level of risk — if you’re going to live to be 100, you don’t have to worry about this quarter or that quarter, you need to worry about what’s going to happen in 10, 20, 30 or 40 years. … At the end it boils down to capitalism, but if we don’t get it right, the consequences are effectively a greater burden on the state, people having to work longer and not being able to retire with the dignity that we think they should.
Are asset managers getting the message that they need to make it more automatic for people to save for retirement?
There’s plenty of data that shows that people don’t take nearly enough risk [with their retirement portfolios]. They sit on the sidelines, they’re more conservative, and that’s because individuals are more risk-averse when it comes to their savings and retirement. What you really need to have is much more alignment of the institutional and individual to an opt-out policy to ensure that they’re invested, and by doing that you hopefully start to bridge that gap.
We’re very big believers in building portfolios out of very transparent building blocks that allow the end investor to understand what they have and, most importantly, the fees they’re paying associated with whatever they have. I think the use of digital to deliver so people get more access [to their investments] so they can see it all — we think certainly for the younger generations, that’s how we get them engaged and excited about investing.
There are a lot of studies showing that actively managed funds may not necessarily outperform index funds and may actually cost investors more. What’s your opinion?
We are by far the largest manager of ETFs [exchange traded funds], and one of the largest managers of the entire passive indexing and ETF funds combined. But we also have a very significant active investing business. Do I believe that broadly speaking, more transparency, more indexing and more building blocks for the big main indices that exist make a lot of sense and will continue to grow? Absolutely. We like to say that even passive investing is an active decision. And the active decision is how you build a portfolio and do your asset allocation. So even if your underlying building blocks are all passive or ETFs, you’re still making an active decision on what you want your exposure to be.
We still believe there is a role for active management. One, there may be markets where it makes sense to be active because you’re getting the smartest minds involved on some of these more niche markets. The other way you may want active management, if you feel, as we do, that there is still opportunity to create additional value through using big data techniques that really look at … analyzing the performance of companies. It’s a small part of the market, but it’s what some clients want. In the long run, do I believe there has been a shift away from the individual who has been a stock picker for the last 30 years? That has definitely changed, and will continue to do so.
Are asset managers steering clear of the types of risky derivatives that got them into trouble prior to the Great Recession?
A couple of things are different. The financial industry is much better-regulated today than it was going into the crisis, which is ensuring that the use of some of these derivative instruments is more effectively controlled. Secondly, the financial industry has been forced — and should have been forced — to put much greater focus on capital liquidity management and scenario planning for different outcomes. There is certainly less leverage from a relative point of view within the system.
And also, with the benefit of hindsight, we don’t have this incredible building bubble in the subprime mortgage space and how that was being used. The good news is that the industry is generally in better health. But it doesn’t mean there aren’t products that aren’t getting companies into trouble. … It goes back to the basics — really understand what you’re investing in, hold it for the long term, try to be as patient as you can because we’re all going to be around for a long time, which is great — but we all have to think about our retirement as well.