Fink & Ressler: A Candid Discussion With Two Preeminent Leaders in Finance

Good evening everyone. Great to see you here for a special evening. We're delighted to host a conversation this evening featuring two truly preeminent leaders in finance. This discussion isn't without precedent here at Anderson. Larry Fink has been part of this conversation in the past, previously with Bill Gross, now of Janus Capital, and the conversations were really illuminating. So we wanted to do it again with two leaders in the financial establishment. And I'll introduce them both, but first let me thank everyone at Anderson, at BlackRock, at Ares, at Yahoo who made this event possible, and thanks everyone for braving the traffic.

First, Anthony or Tony Ressler is co-founder of Ares Management and executive chairman of Ares Management, now with 112 billion in assets under management. Before starting Ares, Tony was a co-founder of Apollo Management, focusing on high-yield bonds, leveraged loans, distressed debt, and other fixed income assets. Tony traces his roots back to Drexel, which many of us in this town know many financial leaders from. They traced their roots there, and Tony was a senior VP in the high-yield bond department at Drexel. Tony does a lot in the community. He's the co-founder and former chairman of Alliance College-Ready Public Schools, which is the largest charter school group in California. He's a board member of Cedars-Sinai Medical Center and co-chair of LACMA, the Los Angeles County Museum of Art. Since June 2015, Tony has also been NBA owner, sometimes happy, sometimes not so happy, of the Atlanta Hawks. As a member of the Ares board, I know and admire Tony. He's been terrific, a founding leader at Ares, growing it year-over-year, guiding it with the utmost integrity and astute insights into global markets.

Larry Fink is chairman, CEO, and co-founder of BlackRock, the world's largest investment and asset management company. Larry's led the firm since he and seven partners founded it in 1988, and it went public in 1999. At last check, BlackRock had 6.3 trillion, that is with a T, assets under management. And you say, well, how much is 6.3 trillion? Well, that's the equivalent of a third of the U.S. GDP in 2018 and 50% greater than the size of the U.S. federal budget. That is a lot of trillions. For many years, Larry has been a trusted, influential leader, a voice of integrity and purpose on Wall Street, in boardrooms, and in Treasury departments in every major economy of the world. He's also been an important source of wisdom and advice for various U.S. administrations on key policy issues affecting the U.S. economy.

We, of course, attribute Larry's success entirely due to the fact that he was a double Bruin at UCLA and he learned everything there before founding BlackRock in '88. Larry was at First Boston, where he was a member of the management committee and a managing director. Larry and his wife Laurie are dedicated to many community causes. He's a member of the board of trustees of NYU and co-chairman of the NYU Langone Medical Center Board of Trustees. He serves on the boards of MoMA, the Museum of Modern Art, the Council of Foreign Relations, and The Nature Conservancy. Larry earned his BA in political science from UCLA in '74 and his MBA at Anderson in 1976. We're celebrating the 10th anniversary of the Fink Center, which Larry and Laurie named with a gift for the Lawrence and Laurie Fink Center for Finance and Investments. He chairs its board, and he's very generous with his time, speaking frequently at Anderson.

We're also honored tonight to have a well-known journalist as moderator of the discussion between our speakers. Andy Serwer is editor-in-chief of Yahoo Finance, where he oversees all editorial content. Before that, he was the managing editor of Fortune and worked at Time Inc. for 21 years. He's a regular guest on MSNBC's Morning Joe, CNBC's Squawk Box, and several other prominent TV and radio programs. Andy earned his BA at Bowdoin College. He has a master's in journalism from Columbia and an MBA from Emory. He's also a good friend of ours at Anderson. He's a member of the board and a final judge for the Gerald Loeb Awards in business journalism. The Loeb Awards are the most prestigious awards in business journalism, which UCLA is proud to steward now for over 50 years. So please welcome Tony Ressler, Larry Fink, and Andy Serwer.

Just to be clear, that's Tony Ressler to my far left, that's Larry Fink right there. I'm Andy Serwer, just so you know who everyone is here. These guys are so interesting, lots of questions to ask. I'm going to ask some of them, then we're going to go to the audience. We have some terrific questions that the students have posed. They asked the tough questions, those students, right? So we'll get to that a little bit later on. I want to start off by asking you both the same question, and that is, what does your company do? And I think I know that already, and I think maybe some people do, but it's really interesting, I found, to hear a chief executive or a top executive describe their company. So Tony, why don't I start with you. What is Ares?

What's with the Greek god of war?

I can help you spin it if you want.

All right, Larry, what about BlackRock?

It's pretty similar to how Tony described Ares. We're an investment and risk management organization, and we manage large pools of money. And our job is to make people's financial futures better. None of the money is ours; it's all individual money and institutional money. We have a huge responsibility. We have to earn that responsibility every day. And you know, because we're at scale, we manage asset classes across the whole spectrum. And you know, we do have large commitments from large entities worldwide that trust in us. But so our job is to produce the positive returns that they're looking for every day. Our job is to give them insight. Having the resources that we have, we have unique information, and that allows us to give a differentiated service. But you know, the baseline is very similar. What Tony's and our job is to produce investment returns for people to have a better financial future in their life.

So the 6.3 trillion number is mind-boggling, as Judy said. I remember when you passed a trillion, I thought it was a lot. You get asked this a lot, Larry, but is it too big? And you say it's not your money, it's everyone else's money, but is there a risk inherent in being that large?

Well, we manage to hundreds and hundreds of different indexes or liabilities. I answer the question two ways. Yes, we are too large if we are not doing the job that clients are expecting from us. We're too large if we're not producing the returns or we're not meeting the expectations of our clients. And I would say in the last few years, our growth has accelerated. We're winning more assets because we have been providing the returns that our clients are looking for and the insight. But on a macro basis, we actually shrunk because the global capital markets are growing actually faster than BlackRock. And as long as the global capital markets are growing in China and Europe and other places of the world, I believe BlackRock is in a position to play a role in those different markets. The need for safety for retirement assets is growing worldwide, from China to Malaysia to Indonesia and India, all throughout Europe and here in North America. And if we continue to do our job, we will be a larger firm in the future. But there's not systemic risk there. I don't see how one would say we have systemic risk if you look across all the different liabilities that we manage. It is not for us to determine where that money is being allocated. It is our clients asking us to manage to an index, to an asset class, no different than a small firm and a big firm. We have to sign a contract with every client. And I mean, we do have the scale, I get it, I understand it, but I think in our 30 years, we've earned a lot of trust. And I can tell you today, our relationships globally are deeper, broader than they've ever been in the history of the firm. And I would also say, even with our scale, the opportunities that we see have never been greater.

Tony, starting off, I don't know if you, when you were starting your career, I should say, I don't know if you had envisioned, you know, getting to this business. For the students out there, can you talk a little bit about your career path and what drove you forward and what your thinking was when you were at school and had started thinking about the financial services business?

Interesting. So you gravitated towards what you were engaged, what you found engaging, and then continued along that path.

So Tony made this point, it's like, how do you get to be 6.3 trillion? You got to do a pretty good job. I mean, because you got to earn it every day. I mean, otherwise you're not going to attract the next trillion or even the next billion or even the next 100 million. I don't have that problem. I mean, not many people in this room do, so many people on the planet, right? Exactly. So I want to ask you, Larry, about your upbringing. And it was interesting, you know, you're a Bruin two times, as Judy said. But before that, I think it was reading in a letter that you wrote maybe two years ago about being interested in business when you were a kid and you bought stock in DuPont when you were, how old?

I think I was 13.

13. By the way, the only other person that I've read about that is Warren Buffett. Buying, he said he bought it when he was 11. So he bought DuPont, you know, not too far. He said he bought stocks when he was 11, so he got you by about two years. So I mean, how many people are buying stocks when they're, you know, 13 years old? I mean, so you were just naturally inclined to go into it.

I was following my father. My father, you know, he ran a shoe store in Reseda, before that on Pico. And my father was always actively investing, managing his retirement as a single store owner. And he was constantly investing. And I mean, I was always aware that he was constantly looking at the stock pages and looking at annual reports and studying it. And so it was something that I watched and, you know, I wanted to be a part of that. So it was not, investing was not something that was so foreign to me.

But you kind of knocked around a little bit in school, you were saying. You weren't, no.

Yes, no, I was not, unlike my brother, I was not the most directed of kids. I was probably the one my parents were most worried about.

Wow, really? Yeah, yeah. That's surprising. It happens. They weren't right about that.

I mean, maybe they're right about a lot of, you know, my brother, he's done fine himself. No, look, my parents were incredible parents. They were great nurturers and importantly, they gave us a lot of flexibility. You know, I was able to travel at 15, Hawaii at 17, and back from LA to Mexico City. I mean, my parents were very liberal and they believed, you know, you got to make your own path. No, they were worried about my path, but nevertheless, they gave me the freedom to try to find who and what I am. And I think it was that freedom and flexibility that allowed me to find myself and become who I am today.

And when you went to Wall Street, your biography is you had a pretty famous play, yeah, right? Do you want to talk about that? Because that was a real...

Well, yeah, I mean, I think the, yeah, I was definitely hitting the wall. I had an incredible career, left the UCLA business school, it wasn't Anderson then, went right to Wall Street, first time I was ever in New York City, by the way, when I interviewed there. I took a trading job at First Boston. My concentration in the business school was real estate. They thought I should go into this new area called mortgage-backed securities, which was, you know, one person on the desk, and I became the second. And it worked out really well for me. You know, we were responsible for some of the new creations in mortgage-backed securities, the first CMO, asset-backed security. So we were very involved in the whole formation of mortgage-backed securities. And for three years, we were the most profitable division in the firm. And then in the second quarter in 1986, we lost about 100 million dollars, and we became, I guess, it gets hit in LA, I became a leper. And I was on the desk too. You know, we were rock stars until we weren't. Importantly, and I was on the management committee of the firm and all that, so I was quite dismayed the way the firm treated us like lepers because we talked about partnership, partners, your partnership. And they loved it was a partnership when you make them a lot of money, and when you didn't, there was no partnership. And so I never forgave the firm for that experience. So that was in the second quarter of 1986, and then for literally 19 months, I knew I was leaving. I just didn't know what I was going to do and where I was going to take it. And this is, you know, very few people launch a firm, that was pretty unusual. It was very clear to me that I had to leave, and over time was thinking about what to do. And it was very clear to me that there was a need for an asset management firm that concentrated on risk management. And so myself and I think six or seven people joined, started a firm. We were so excited if somebody ever returned a call, remember those days? I do. And you know, we had no assets, but we had good reputations and we had a great foundation and a great idea. We had four principles that we wanted to live by, and those four principles have guided BlackRock now for the 30 years. And we knew we wanted to be a fiduciary in everything we did. We knew that we wanted to guide the firm by having clients always come first. We knew that we wanted to have an organization that only had one technology platform. And those are the principles of today. And then we also believed that we needed to have one culture, what we called One BlackRock. Those are the four simple principles that we wrote down in 1988, and those are the major principles that are guiding us today with now 14,000 employees in 40 countries. And I think, and I was telling Tony earlier, I mean, I spend 30% of my time today on culture. But once again, it wasn't the firm going bankrupt, but we did a bad job during a quarter and granted some losses. We ended up making money that year, but it was that moment that gave me the fortitude to say it's time to try something on my own. Importantly, it also gave me the idea around why risk management is going to be so important. No one cared about risk until obviously it was too late, almost 20 years later. But you know, the whole foundation of BlackRock was on risk management, and we built from that foundation today, and that's how we became who we are today.

Interesting. Shifting gears a little bit, Tony, and I'll start with you and ask you where you think we are in the business cycle. Obviously, I guess you have to acknowledge that we're long in the tooth in terms of a bull market, but we said that three years ago. So what's your take?

Larry, what about you? How much do you calibrate or recalibrate BlackRock based on your perspective of what's happening in the capital markets?

Oh, very much so. At Ares, we don't, I mean, we're here to provide advice. I think, let me ask you, what's your take on... Let me just say one thing that's really important. I think we were way too preoccupied whether the market goes up or down. Most people save their money for retirement. It doesn't matter what's going on today or yesterday. If you're a 30-year-old and you have a 40-year liability, okay, we are so preoccupied in this concept of what markets are going up and down, and we actually are forgetting what the responsibility is. The responsibility is to try to have an investment that will compound over 40 years, that at the time you retire, you have, you know, sufficiency, so you have financial integrity. And most people in this country are not going to have financial integrity when they retire because they've been so preoccupied about markets going up and down. And unfortunately, we just spend way too much time with that. But back to the economy, having said that, we've had, we have an enormous tax cut. We expanded our budget on top of a tax cut by 300 billion dollars. We have the largest, we're going to have the largest deficit in a time when we have economic strength. Generally, when you have, last time we had 4% unemployment rate, we had a budget surplus. And so we have provided so much gasoline to this economy, and the economy was at the late stages, and there are many indications of a late-stage economy. And I'll get into a big one in a second. But I think this fuel in the economy is going to keep the economy going at least in the United States for the next year or so. The administration and Congress approved this tax bill with a notion that not only is it going to elevate the economy for one or two years, it's going to be very elongated. I don't see that at all. And so I'm much more worried about the impact of higher rates because of our deficits. And at the same time, we're aggravating some of our trading partners, and it may be the legitimate right thing to do, but we are, the big anomaly for the United States structurally is 40% of our deficits, possibly going to 50%, are financed externally. No other country in the world has it. And so, you know, when you start raising your deficits and agitating your trading partners, it could lead to very bad outcomes. And I think that's what the market is digesting now. I mean, as Tony said, the economy feels good, corporate earnings were fantastic, and yet the market is really struggling with itself now. And people are trying to determine is the economy going to grow to the full potential of what all this fuel in the economy is doing. In 2017, we had probably the most synchronized global growth that we've seen in tens of years. You know, from Japan growing, and China still growing at 6-8%, and political unity with the Macron election, you had Europe growing at the high twos, well almost three. And now it's all starting to turn a little bit. You have Japan in the first quarter announcing a negative 6.6% economy in the first quarter. You're starting to see, possibly because the euro rallied so much, you're starting to see in Europe the modest slowdown from the growth rates of 2017. And then I would also cite a late-stage economic indicator is the record amount of M&A. CEOs do M&A generally when they know their business is slowing down. They do it and they try to merge so they can bring out costs. And we are now sitting in a moment, I think their equities are trading at records, right? Yes. And so every time you see this type of record amount of M&A, it generally indicates a late-stage economy. Now, on the other hand, this tax cut has lowered corporate tax rate on average by 18%. Free cash flow is enormous. And maybe it's not late-stage maneuvering, it's just I have so much free cash flow, I'm going to buy my competitor. But so, you know, Andy, I don't know. I mean, I would say right now the economy would be fine for the next 12 to 18 months, but it's not acting fine right now. And so I'm waiting to see more data, more indicators. But psychology should be better at this moment than it is. And so I would say there should be some, you know, the market is saying maybe we were at a late stage. And otherwise, the corporate tax cut, again, I'll defer to others that are better economists. I don't think there's a great debate. This has definitely helped our economy and helps us compete globally.

And the trade policies?

Your infrastructure is frustrating because when you talk to Democrats and Republicans, they all agree, but then it's the devil's in the details and the implementation. It becomes, well, you're going to build this rail system here, that's a red state, and the blue states don't like it. And so you have problems like that. Well, what we could have done to make it easier and may streamline permitting. During the financial crisis, the Obama administration created Build America Bonds, and it was a debt that, this is where when municipalities had limited access to the credit markets, and the federal government gave a 2% subsidy on any financing for these municipalities to finance it. So it offset the federal spend on it that those financings were taxable, so they weren't tax-exempt like other. In one year, we raised 185 billion dollars of Build America Bonds. That all of that went to already proposed, approved infrastructure, and much of it went to building out the broken-down bridges that had all the deferred maintenance issues. So we could have done things like that really rapidly. But we, you know, the president has spoken a lot about deregulation. This is one area where we need to be streamlined. We have, you know, I'm told projects in China take a fifth of the time to be approved than it does here, and sometimes it may be a tenth of the time. We have a process that is so long. We have multiple agencies. We need to find ways of streamlining the approval process to allow these opportunities to grow and build and make America more productive. You know, and there's a lot more to talk about in that particular issue and a whole bunch of other stuff, but I do want to get to some of the questions that the students have put forth. And so I am going to be calling on some of them. The first question goes to...

The first question goes to... the wrong law? That's right there. Now wait for the microphone, sir. And let's have this question go to Tony first.

Just another basketball question. Yeah, exactly. So thank you, Andy, Larry, and Tony. Appreciated the talk. And my question is kind of in line with what's already been shared as far as political risk. So as administrations are changing, we talked about trade wars and all the different kind of elements that are going on in our economy. We think about the energy infrastructure, we think about kind of the space also with Russian, Crimea, hacking, when it goes with kind of like, you know, how are we dealing with Facebook, the integrity there. So when you're deciding your investment strategies or when you're looking at opportunities, how do you actually quantify that risk? What are some methods to help quantify that? Thank you.

Governmental jobs availability?

Anything you want to add, or you want to go?

Tony answered it in a macro basis. Let me answer the question in a micro basis. As you mentioned Facebook, I write these corporate letters every year, and this year I wrote something about purpose. And every company needs a purpose because we, 80-plus percent of our assets are index assets for the ultimate long-term investor. We own a company as long as they're in the index. And so our whole outlook has to be long-term. And we're not interested in the bobs and weaves. We're interested in trying to have companies with great sustainable profitability over a long period of time. And in my corporate letter this year, I talked about companies need to have a purpose to have sustainable long-term profitability. And to have a sustainable profitability is having a purpose that your employees understand, can relate to, feel good about. Having a purpose in which the clients of the company can connect what they do with a company and feel good about doing business with that company. And then importantly, companies have to have a purpose in the communities in which they operate. And I believe more than ever, more and more companies are going to have to focus on their purpose and the communities in which they operate. And that means, you know, as a global company, in Mexico we're Mexican, in China we're Chinese, in Japan we're Japanese, and we're American in a big way in America. And so every CEO, every board has to focus and navigate their company for long-term outcomes. We're not interested in bobs and weaves of quarterly returns because there's nothing sustainable about that. But we're trying to, you know, so what we're doing now is asking companies to describe how they're going to create sustainable returns. What is their long-term strategy? And importantly, how are you going to show purpose with your clients, with your employees, and the community in which you operate? And I think that you mentioned Facebook, that there's a very good example of a great, great company that now society has questioned and related to their purpose. And to me, the demands on public companies now are becoming greater and greater and greater. And to have that sustainable profitability, if you don't think about a purpose, if the leadership of a firm doesn't focus on the purpose of a company and its role in a society, that company will lose its license to operate. And I think the CEO of Facebook did a very good job in Congress. I may question Congress's questions, and we could raise a lot of questions as Congress adapting fast enough to understand how technology is changing the world. But these are issues that we have to look at. I mean, we have to live with the macro circumstances. I mean, basically how Tony is talking about how they operate, they look at it by company, by company, by company. And you know, we all have to live in the macro environment we're living in. And obviously there are bobs and weaves of that. But I would just say, and I firmly believe this, if you are a long-term investor, unless you believe humanity will totally screw it up, which by the way they haven't yet, being an optimist is the right long-term strategy. That doesn't mean we don't have short-term calamities, but it is the process of having short-term calamities that makes long-term opportunities. And this is getting back to this whole, Andy, when you asked about what the market are going up or down, that's not the conversation. The conversation is helping people navigate that 40 years. And if you believe that humanity is not going to screw it up, you know, it is about focusing on the long term. And this is why I think it's imperative that we refocus the dialogue to the long term. But to accomplish everything that what Ares does and what BlackRock does, no question we have to focus on the micro strategies of every company to get the long-term results. But for the investors, for all this, whether it's Russia today or somebody else, we'll be fine.

Yeah, I would say though, Andy, I received 800 letters back from different CEOs.

Say that again.

I received 800 letters back.

How many did you send out?

Let's say 1,500. Yeah, probably 1,200. I'm just trying to think. Okay, there's the S&P 500, there was 500, and a lot of, for my math, that's not so good. Yeah. But we received about 800 letters back, and we've read a lot of annual reports now. And companies now are much more transparent on the long-term strategy. They are describing that they reviewed their long-term strategy with their board of directors. In almost every letter today, each company is talking about how they see their purpose in the society in which they are.

Well, I know you put a ton of work in this, Larry, and I think a lot of us applaud you for that. And the bar is higher, there's more transparency, you can't, there's nowhere to hide. And but I think it's good that you're calling people out and asking good questions.

Because I get a lot of hate mail from this too, though. Not all those 800, you know, some of them were pretty nasty.

I'd love to read some of those.

Yeah, the Breitbart didn't like me.

Oh, we have got time for just one more question. One more question here, I think from Briana Hammer. Both of you are very much involved individually and otherwise in community impact and engagement. You're on several boards of nonprofits, and both you and your wives are very giving of yourselves and your leadership to good causes and institutions. At UCLA Anderson, many students and faculty are more and more interested in putting purpose behind all of what we do. What motivates each of you in this regard? It sort of speaks a little bit to what you guys are just talking about, but maybe philanthropic and just the whole universe of what you do.

Well, for me, I was raised in a family that giving back to the communities was a part of my family's life. I didn't know, I didn't think it was anything special, by the way. I thought it was something you do. And so I believe I've always had, and my wife, we both had that foundation. Then when you have the ability to give back to the communities, you do it. So we started that very, very early. Now, as Tony said, you know, I learned an immense amount of being on these organizations. I learned a lot of good and bad, by the way. It actually taught me how to be a better CEO. And some of the boards that I was on, more for the bad reasons, but not that their work wasn't good, but behaviors. But importantly, for BlackRock, we have a massive social responsibility. I mean, as I said, we manage more retirement assets than any organization in the world, and that is a huge responsibility. But more importantly, it is, you know, I am trying to instill the consciousness that giving back has to be something that is a part of the ethos of the organization. And many cultures, charity is not part of their culture, and it's a very, very difficult concept. In some cultures, you give to families. You know, I'm not saying what I learned is right or wrong, but I believe whether it's financial or time, being part of your community, not just embellishing and helping your families, is very, very important. And so, you know, at BlackRock, we believe being engaged in all our communities is not just having a good business and being part of the community, but also being engaged in the community in a philanthropic way. So when we talk about being involved and being part of a community, that means we have to be involved in philanthropy in Mexico and Japan and China, in the United States. And so we, you know, we created a BlackRock Foundation. We match, we get people involved, we do many things focusing on people's time. And it has to start at the top level. And so as Tony said, I'm proud that all of our partners are giving a lot of money and a lot of time as a part of their commitment to the organizations that they fully believe in, but also they believe in the ethos of being part of the community where we have a responsibility.

Great. All right, I think that is an excellent note to end on. I want to thank all of you for coming tonight, everyone here at UCLA, in particular the students. I want to thank Judy Olien so much for hosting, and congratulations to you, Judy, on a terrific run here. And most of all, I want to thank these two gentlemen for a terrific conversation. Tony Ressler, Larry Fink.