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Chapter 1: What is the main topic discussed in this episode?
Hello, I'm Stephen Carroll. I'm in Brussels, where many of Europe's biggest decisions get made. And I'm Caroline Hepke in London. We're the hosts of the Bloomberg Daybreak Europe podcast. We're up early every weekday, keeping an eye on what's happening across Europe and around the world.
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Hello and welcome to another episode of the Odd Lots Podcast. I'm Traci Alloway.
And I'm Joe Weisenthal.
Joe, when I think about the world of finance and what I would describe as mega trends of recent years and decades, there are definitely two that spring to mind, maybe a third trend, although I don't know if it's mega or not. Probably is. The first is definitely the rise of the buy side.
So this idea that it very much used to be all about the banks, and those were the ones that we kind of obsessed over. And then you have this extraordinary growth in the asset management industry. The second megatrend has to be technology, right? Think about the rise of electronic trading, electronic risk management, model-driven risk management.
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Chapter 2: What are the megatrends shaping the finance industry?
I hope so. So is it true that like the foundational culture of BlackRock is very much tied to technology? Because the story that I always used to hear was about a Sun workstation and Ben Golub.
Yeah. And Ben is still a close friend and mentor, Ben being one of the founding partners of BlackRock. I think if you zoom out a little bit, because I think the history of BlackRock is very reflective of what the past 30, 35 years have been in terms of the companies that have been most successful.
And if you look at the founders of BlackRock, they were a group of people who were pioneers with regard to structured products and the evolution of the mortgage market. And what they realized is that banks at the time, the sell side, as you guys sort of laid the groundwork, banks at the time were using supercomputers, and they were very expensive computers. to structure things.
And then the way they were selling those products was literally by faxing yield tables all over the world. And I know when I say this to 20-something-year-old, 30-something-year-olds, including my own children who are in their early 20s, a lot of the people back then didn't even have computers. Computers were like there was one for a group of people as opposed to everyone had one on their desk.
So the thesis behind forming BlackRock was that we could actually build models
that would help provide risk transparency for those type of instruments and help the end asset owner, we could build those models and through the Sun Workstation as the innovation, if you were reasonably clever, you didn't need to be a genius, but if you were reasonably clever, you could buy 10 Sun Workstations for $10,000 each
and link them together and effectively do what previously only supercomputers that cost millions of dollars could do. So the founding thesis of BlackRock was really about how do we bring those technology capabilities which were not really available on the buy side, how do we use them as the core of building an asset manager? That was the founding thesis.
And I think one of the real success factors, and I think that when you look today, what I'm about to say seems like very odd, but I guess this is odd lot, so it's perfect. But when I started at BlackRock in 1994, when we had roughly 80 people, $19 billion in assets under management, I was in the data and analytics team. I was effectively a data analyst.
And like today, data, technology, analytics are where the cool kids are. Back then, it was not where the cool kids are, trust me. And the whole concept of recognizing very early on that the asset management business at its core is an information processing business today is so obvious. But if you rewind back 10, 20, 30 years ago, that was a very unique, novel concept.
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Chapter 3: How has BlackRock integrated technology into its operations?
So the ability to go through that to-do list, the velocity of that is off the charts. The second component, and this is one of the challenges of these enterprise expert systems, is that the number of times I've been in a meeting with a client where they say, why doesn't Aladdin do this? And I'm like, hmm, I think Aladdin does that. But let me, I don't want to like blurt it out.
Let me sort of follow up and then I'll leave the meeting. I'll call the people smarter than me. And they'll be like, Aladdin's done that for seven years. And you're like, okay, the ability for people to keep current in technology is very hard. And as much as we like the technology, most people, their goal with technology is to just interface with it to do their jobs and then go home.
So the ability to take an expert system that today requires a lot of knowledge and keeping up with it and instead just type in what you want it to do And an agent will be the ultimate real-time user of Aladdin that will then do those activities. All the same controls will exist. The four eyes principle, all of those controls will exist.
But that ability to have users, to have clients access all the untapped capabilities that today they... don't know about, I think the value enterprise technology is going to provide going forward, Aladdin and other enterprise technology, is actually going to be much greater than at any point previously.
It's extremely exciting to me because there's nothing more frustrating than being in a meeting where someone is complaining you don't do something when you actually do it.
This must be a thing for a bunch of enterprise software, right? Because no one, we've talked to other software people and no one uses all the specs and no one uses all the features. No one knows all the features, et cetera. But you said something that is something that's kind of one of my hobby horses.
If it's the agent that's using Aladdin rather than the sort of inhuman, does that change how you think about UX?
Yeah. It's a great question. We debate this a lot. And I'll tell you about something I saw yesterday. But I think it has to. But at the same time, I think there will be people who will want to do it themselves. I think there will be people who want to do it themselves.
You know, it's interesting, even in this age of everything being on the phone, you still need a website that people could access. So I think there still will be people who want to do it themselves. I saw a demo yesterday of a tool from one of these AI companies that, I hope I could articulate it well enough, but it will look at a website and it showed it looked at one of our websites.
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Chapter 4: What role does AI play in BlackRock's risk management technology?
But no one listens to a podcast and then goes out and buys the stock, by and large. But it's because once it's out there in the digital world, it's kind of priced in already. So there's going to be an intense hunt for information that truly has not been put into the model yet.
You're such an EMH purist. I am. It's amazing.
But right. Like the value of people who can find information that has not turned into trade training data yet for a model. That data is going to get like super valuable and maybe more valuable and more reason to like just like get out on the road and stuff like that.
No, I largely agree with that. The other thing I thought was really interesting, and it gets to your last question, was the sort of melding of public and private markets. And it's also what I was kind of getting at with the whole portfolio thing.
If all these private assets are tokenized and treated in the same way in a portfolio, or at least visible in a portfolio in the same way as a public asset would be, it seems like that distinction starts to get really, really blurry. Oh, totally. Right?
Not to go back to a point that I just made, but on this, like, I think we're actually already seeing it.
I'm sorry. I moved on too quickly.
No, no. This just clicked to me, too. But it's like, OK, where are we? Maybe there'll be more value in, like, people who go out on the road and get information that's not in the model. We saw this recently with all the people going crazy for Citrini's analyst in the Strait of Hormuz.
And this idea that like field trips out to the world to collect information that has not been digitized yet is going to be where all the action is. Like, it feels like that's going to be a big thing.
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