Blackstone 1Q16 Earnings Call Notes

Stephen A. Schwarzman – Chairman, Chief Executive Officer & Co-Founder

The market tantrum resulted in lots of dislocation

“The market tantrum in the first part of the year resulted in lots of dislocation, some of which has normalized, some of which has not. For example, many hedge funds were caught wrong footed in a classic short squeeze when the markets rebounded in March. Segments of the debt market still remain under considerable pressure. Investment sentiment is fragile and characterized by significant caution around choppy economic data, negative rates, political rhetoric and other factors.”

Not seeing any softness

” Secondly, on the assets we’re selling, I would say the bids are still very good. We’re seeing no softness whatsoever. We’re seeing no turn in rents or occupancies. So, it all feels good to us.”

Only buy prime real estate

“I’d say that we’re not big buyers in Real Estate in secondary and tertiary markets. And one of the reasons we’ve been able to have really remarkable results in Real Estate is you have to pick your asset class but you got to pick your regions where you’re doing things. So, I would say, we are dramatically underrepresented in secondary markets and I don’t know of any part of our Real Estate business that even touches a tertiary market from like being involved with approving all the deals. So, our business is not Real Estate across the board, everywhere. ”

The biggest risk in real estate is over building

“I think the biggest risk in Real Estate are over building. And when you get excess supply, and particularly if demand turns down, that’s when you get crushed in Real Estate and we don’t see that happening right now.”

Michael S. Chae – Senior Managing Director and Chief Financial Officer

Deals are coming back

“with the sort of revival of the markets in the past few weeks, deals are coming back. And GSO had an investor conference yesterday, and we’re talking about how their pipeline has never been stronger actually. They’re really, really excited, chomping at the bit around the market opportunity Steve and I talked about. And the pipeline and the backlogs are picking up, and the pricing in terms available to them are quite attractive. ”

Hamilton E. James – President, Chief Operating Officer & Director

We have to be able to add value in the investments that we make

“Yeah. Well, in general, remember that when we buy a company, we’re supposed to bring value added. And I’ve said before, if we can’t bring value add and we can’t – there’s not enough opportunities out there that the world’s overlooked, and we’re not enough smarter than other people just to find them and make a lot of money on huge amounts of capital. That’s not really – that’s not a sustainable business model. So what we have to do is buy companies and make them better run, higher margin, faster growing, better invested, better management teams, more productive, et cetera.”

Blackrock 1Q16 Earnings Call Notes

Laurence D. Fink – Chairman & CEO

Smart beta is a priority

“The second priority is smart beta, BlackRock is investing in factors and factor products that we believe will become increasingly important as asset allocation tools and alternatives through traditional beta or lower outlook capture active strategies and BlackRock now manages more than $125 billion across a range of factor based solutions.”

DOL fiduciary rule will have an impact on our business

“Last week the Department of Labor published their Fiduciary rule which has implications for our clients and our own business. While we’re currently reviewing the final role to thoroughly assess its implications, we are likely to see changes in our distribution partners’ accounts and fee structures, their product preferences and importantly their use of technology, to both build portfolios for clients at the manager increased risk and most importantly their compliance needs.”

DOL rules may give investors more confidence which would be good because they’d invest more

“If they believe the DOL rules will give them better transparency, better certainty that we are treated like, and they invest more money for the long run. It’s better for the country, it’s better for their financial future and it’s really very good for the entire industry. And I think that message is totally lost in the conversation.”

The need for more technology to manage risk is greater than ever

“can’t underscore enough how the ecosystem is changing, that’s going to require more of capital market participants of your insurance company or asset managers, they are going to — the need for better risk management technology is slowly increasing. The need for better interfacing with clients is only going to be more and more important”

The utilization of fixed income ETFs is going to be larger and larger in the coming years

“As ecosystem of bonds and secondary bonds and liquidity continues to be changing and we are seeing phase of more illiquidity. The utilization of ETFs has a mechanism to find liquidity and to have the ability to navigate the factors that impact valuations of fixed income whether that’s duration or in subsidy or credit, a navigation with the utilization of ETFs is going to — it enhances the opportunities for returns and so we believe as I said in my prepared remark, the utilization, the implementation of fixed income as a fixed income ETFs as a component of the fixed income strategy that clients are employing are going to be larger and larger in the coming years.”

Gary S. Shedlin

Everyone focuses on adjusted results

“I’ll review our quarterly financial performance and business results. As usual, I will be focusing primarily on as adjusted results.”

Remain extremely expense aware in current environment

“we remain extremely expense aware in the current market environment, and we will continue to be prudent with our discretionary G&A spend.”

In challenging markets, need to be smarter about decisions

“we’re all mindful that in challenging markets as Larry and I both have said that we need to make tougher and smarter decisions especially when it comes to reallocating those invest dollars.”

Clients are not going to be able to meet their liability needs in this interest rate envrionment

“negative rates, if you think about 70% of our clients more, our pension funds, I was some form of retirement and insurance companies. We hear worldwide how negative interest rates or low interest rates have been impactful in how they are actually harming their objectives of attaining an asset base to meet their liability needs. In fact last week, we were with one of the largest New York State funds, a U.S. State funds, not in New York State funds, one of the largest U.S. State funds it happened to be in New York City after our meeting we had and they were in the top deciles of performance last year and because of lower negative interest rates and their discounting rate, they actually deteriorated their asset and liability gap. We’re hearing this worldwide, we’re hearing from savers worldwide they’re not going to meet the needs of building their pool of savings to meet the needs of retirement. We’re hearing some insurance companies that they’re going to have a really hard time meeting their liabilities.”

We need a fiscal policy response

“I believe a lower negative interest rates has served a great purpose in the short run. But I don’t believe lower negative interest rate was supposed to be a permitted feature of the investment landscape. We are now entering the eighth year, and I believe that we are going to have a stronger more robust economy and the IMS has lowered their forecast even more, all right. I think the fifth time in a row we are going to need a policy of responses by governments. And I think the dependency on Central Bank behavior is one of the problems that we have in the world and we need policy of response by governments related to fiscal policy.”

It’s incredible the amount of money that’s sitting in cash earning zero

“I think it’s actually quite incredible the amount of cash that’s sitting in banks today, earning zero and that money has typically vanished from the fixed income market. ”

Robert S. Kapito

Smart Beta is a way to add alpha

“Well when there are you know when we have this type volatility people are looking to add alpha in other ways. And the smart beta category is one of these ways. We have made some very substantial hires in this area. “

Blackstone 4Q15 Earnings Call Notes

The Blackstone’s (BX) CEO Stephen Schwarzman on Q4 2015 Results

We do not see a recession in the US but do believe global GDP growth is slowing

“It’s always possible that a market correction becomes something more significant, we at Blackstone do not see a recession in the U.S. We do believe that global GDP growth is slowing, we’ve seen a slowdown within certain sectors and regions in our global portfolio as a result.”

Stock price decline is not indicative of the fundamental value of our assets

“our stock price decline is reflective of what’s happening in the public markets and the mark-to-market movement of certain of our assets, which we do not believe is indicative of their fundamental value as measured by their operating results and their prospects. This temporary decline in value should normalize overtime.”

Right now you’re getting Blackstone on sale

“right now you’re getting Blackstone on sale. As I’ve shared before, we’ve done an implied stock price analysis for the next 10 years. Based on what we believe to be conservative assumptions of AUM growth of 8% to 12%. By the way, last year was 16, but we just like — we’ve some numbers for you, at 8% to 12% as well as lower than historical returns for our drawdown funds in the mid teams instead of higher and mid-single digit returns in our liquid strategies which has historically has been much higher. The implied total value for Blackstone shares over that 10 year period would be in a $100 to $125 per share area. That is including distributions and using what I believe is a reasonable yield of 5% to 6% on our cash flows. That $100 to $125 per share value equates to a multiple of money to U.S. investors of between four and five times today’s stock price.”

We’re not doing buybacks because I like cash

“the question is why aren’t we doing a massive stock buybacks now and one of the reasons is that I like cash, I like it like a lot of entrepreneurs like cash whether it’s the Microsoft people or the Google people or the Apple people, you like cash because it gives you the opportunity to take advantage of opportunities and what happens is”

There are no brave old people in finance because they get wiped out when they’re younger

“And for us to actually buy something there has to be a fit of values and culture and risk aversion because what I figured out is that there are no brave old people in finance, usually it get wiped out by being brave when you are younger. ”

Purchase opportunities come in adverse market cycles

“we found some really terrific opportunities and more of this stuff comes out of the woodwork when you have adverse market cycles than when you are at tops. At top everybody is self confident and happy and then when the tide goes out you see who is wearing bathing suits or whatever and maybe I was like, to have to be wearing them, but we are seeing some activity now, we will see what happens with it.”

I think the concerns about China are a bit overdone

“I think it’s sort of the — it’s always hard to know what everybody thinks, but sort of from trying to feel the consensus has been very negative towards China.”

” if you have half of your economy growing at 10+ and the rest is a mixed picture, you’re not in a world of hard landings other than the fact that people have lost confidence in some of the policy directions in the market place. So, I think that’s a bit overdone.”

It’s not the end of the world

“it’s not the end of the world. If you look at the stock market, I mean, you have to conclude, it’s like the world is ending. Well, I don’t think the world is ending. I think we’re going through an adjustment and people like ourselves who own long-term things and add enormous value end up at the end of the day being mega winners'”

Tony James

The longer oil prices stay low, the higher they will be in five years

“we could survive these prices for several years with the investments we are making and still we expect prices to be 65, 75 in four or five years and we will make some very, very nice returns. So, when we look at energy investing we look at surviving a long time where prices are today and then still getting very, very nice returns if we get back to prices 60 or above which are well below prior peaks. And ironically, the lower prices go today the higher they will be in five years from now because the more other new drilling and what not get shut off. So yes, we think it’s a very interesting time to put money out now, there is a lot of companies that desperately need capital, you can come at the top in some cases top of the risk stack, top with capital stack and still have equity like return and other cases great companies with good assets just have no alternatives. And actually, I think as the cycle unfolds it will get better and better and better because the prices start to move up the activity level will pick up quite quickly and so I think it will actually even get better as prices move up, it is the way to deploy capital.”

People are over reacting to the stock market

“I think people are over reacting to the stock market. I mean, we had whatever a seven year ball market without a correction. We were like just statistically got to be a way overdue for correction. And the backdrop of the S&P companies’ net income is weak, it’s been zero. So, fees have got high, I mean. And people look at the average S&P, that’s kind of a distortion. Look at the median company in here because the average has dominated, because it’s market evaluated by Apple and a few huge names. Look at the median P, and P is high. So, we had a correction, big deal. There’s enough going on. I think people are overreacting to that.”

Blackrock 4Q15 Earnings Call Notes

Laurence D. Fink

The Fed’s action led to the end of a historic period for monetary policy

“The Federal Reserve’s action to raise interest rates for the first time in nearly 10 years marked a end of a historical period of monetary policy, a combination in the U.S and the beginning of an extended gradual tightening cycle. All of these factors are leading to a much more divergent world in 2016, while higher levels of volatility ahead, as already witnessed in the first few weeks of the year. And as the investment landscape changes, our clients need change as well.”

Investors are searching for income and capital appreciation

“In a more fragmented investment landscape impacted by continual low rate, modest beta driven returns, investors will search for income, they will search for capital appreciation, through a combination of both active and alternative investments, factors, smart beta strategies, and hybrid solutions.”

Widening spreads is blessing for insurance clients. Seeing huge demand

“the widening in spreads is a blessing for our insurance clients. That’s first and foremost. Insurance companies are adding to their fixed income exposures now. As I’ve commented in the past, the whole insurance industry or a good part of it is short-term liability duration and are hoping for higher rates. We haven’t seen higher rates; obviously, we are sitting here with a very low 10-year Treasury rate, but we most certainly have seen a widening in credit spreads. And I think as evidence of a few large bond issues that went public this week, we saw huge demand. And so, as spreads widen, we expect to see more demand institutionally.”

Not seeing dramatic outflows as of yet

“some of the widening of spreads are the fears if higher rates are going to produce some selling possibly from retail, but we haven’t seen anything dramatic yet. We haven’t seen really any dramatic outflows on iShares yet. So, I don’t think there is any real massive change yet.

Rebalancing happens in February and March

“And I think one thing you should be aware Craig, at this time, this is when you have the institution sitting down on their net, this year’s asset allocation. You’re going to start seeing behavior changes probably in February and March when they start doing their reallocations maybe. And so most recently one would think, in some cases some pension funds because of the decline in equities they’ll rebalance out of fixed income back in the equities as they, if they want to have consistent asset allocations.”

In volatile years you’re going to see companies lower their dividends

” let me just add one more thing related to our dividend. I think in the volatile years especially if you look at some of the high paying dividend stocks today, I think you’re going to see quite a few companies are going to have to lower their dividends. One of the histories of our platform, we never lowered our dividends ever even in the financial crisis. And so, to me it’s about a discipline, it’s a commitment. ‘

Gary S. Shedlin

We’re not managing to a margin target, but we are committed to delivering operating leverage

“I know you’re tired of hearing me say this, but we really aren’t managing the business to a margin target either quarter-to-quarter or year-to-year. We are absolutely committed as part of our financial framework to growing and delivering operating leverage.”

Blackstone at Goldman Sachs Conference Notes

Blackstone Group (BX) Presents at Goldman Sachs US Financial Services Brokers Conference

Steve A. Schwarzman

US is slowing a bit but not tragically so

“the way we see things is the U.S. slowing a little bit, not tragically so and we have interest rates going up in the currency, looks like it will be going up for while and that sort of impacts U.S. economy a bit, It’s harder to export. So those types of companies aren’t doing as well and it also hurts the general stock market, because to the extent that you have earnings being translated from outside the United States that slows down growth rate, because the translation. But the U.S. is moving ahead on a pretty orderly basis and all probably have set increase in December and future increases I would assume will not be too robust, because that would slow the economy too much which I don’t is the Fed’s objective.”

We exist to buy things and add value

“The reason why we exist is to buy assets and do something do them rather than watch them and that’s what is called adding value, and if we’re good at it, we will end up with super performance and for our major product we earn about double the stock market over the 30 years. ”

We know oil prices are going to be somewhere in the range of $20-$120

“I had a funny conversation with ahead of to give this person some protection. The head of one of the largest companies in the world in the energy business and any business and I asked him what he thought about energy prices, he said “well we plan for somewhere between $20 and $120” and he said “I know it’s going to be some more in that range” and I said well that’s very precise.”

Over the last 26 times that rates went up the value of houses went up too because of inflation

“Well 25 over the last 26 times in history when interest rates went up the value of houses went up almost nobody. You have got a smart group here, yes, a third of you thought that but two thirds of you didn’t. And that’ the way it works. Why? Because you have inflation or you have people making more money with the economy growing and that tends to push up the value of houses. So that’s like the standard concern, oh, interest rates are going up, your real estate assets must be collapsed.”

We’re not guessing. When we buy an asset we have access to inside information

“it’s not like a trading business we are guessing. When we buy an asset, we have access to inside information. We study this stuff, we get consultants and we can accelerate the growth of these businesses and we can put some leverage on top of it which amplifies that a bit but it’s basically the improvement over business.”

People usually fool themselves that they want to buy value. They really want something that’s going up

“People more or less only fool themselves that they want to buy value. Basically they just want to buy something that’s going up and because they are looking for physiological comfort of things going up, things at bottoms people hardly ever buy”

This is an art form

“So I think somehow I must be a tragically bad communicator and somebody thinks this is some little business that somehow gets lucky. I mean we have 800,000 people just working in our private equity area. This is an art form, this is a business and people will see it as such when maybe we get somebody better than me explaining it, but it’s really a wonderful, wonderful business and it’s growing at quite a rapid rate and customers can’t get their money back as a rule because these long-term commitments. So it’s infinitely better than any kind of mutual fund complex or anything like that.”

Investment analysts are behaving in the exact opposite way of capital allocators here

“what’s fascinating to me is that people like yourselves who are looking at our stock are behaving just the opposite as the people who give us these monster amounts of money where we’re penetrating every asset class. ”

At some point people who don’t own this will wake up and say what was I thinking

“at some point in the next ex-years people will wake up and say, what was I thinking, what was I thinking and the smart people like you, who own it, you will be heroes and the other people will say, “yes, yes, yes I know I should have bought it.” So that’s demand.”

Eaton Vance FY 4Q15 Earnings Call Notes

Eaton Vance’s (EV) CEO Tom Faust on Q4 2015 Results

Custom Beta separate accounts

“Our custom beta separate account initiatives seeks to build on the success that we’ve already had with Parametric’s tax-managed core and EVM’s later municipal bonds separate accounts, the custom beta concept is to provide access to an underlying benchmark of market exposure through direct holdings of individual securities with customization to meet individual client needs and preferences. This is our answer to index investing, low cost, benchmark based separate accounts customized to fit the individual client”

SEC is studying what went wrong with ETFs on August 24

“As many of you are aware, the extreme dislocation and ETF trading that occurred on August 24 of this year has caused market participants and regulators to ask hard questions about the trading efficiency of ETFs, particularly during periods of market stress. Two SEC commissioners have recently issued calls to re-examine the entire ETF trading ecosystem, seeking to determine what went wrong on August 24 and how better to protect investors. We know this is an area of intensive current focus at the SEC”

Had a lot of money flush out of bank loans that was expecting higher interest rates

“we had a lot of money move into the bank loan asset class in 2013 and anticipation at that point of rising interest rate. Maybe those investors weren’t really fully informed or fully committed about what this asset class was. I think there is a lot of that money is now been flushed out of the asset class.”

It does feel like the economy may be slowing a bit but not seeing that in bank loan prices so much

“we have seen a little bit of a sell-off in bank loan prices, which is consistent with your observation of more concerned about credit. Most of those credit concerns in the U.S. have generally been focused on the energy sector. There is not a big energy component of the bank loan market, so that’s not much of a factor. We tend to be of the view that credit conditions remain benign for the U.S. economy probably. It does feel like the economy might be slowing a little bit, but we’re not really seeing that in bank loan prices, a little bit of that, but not a lot of that.”

It feels like there may be a healthy pause here

“It feels like a may be a healthy pause here, I don’t know. Things can certainly worse. There is a lot of uncertainty in the world, but could cause a slowdown in the economic activity. We’re not seeing it yet.”

JS Conference Call Notes: Brookfield Asset Management

Brookfield Asset Management (BAM) CEO Bruce Flatt said they are selling some of their holdings and realizing gains in what they believe to be excellent valuations

 

“On investing, we continue to see opportunities to recycle capital by selling mature assets at excellent valuations, while in tandem utilizing our competitive advantages to put money to work at attractive returns.”

 

They are seeing continued interest from Asian investment managers

 

“As an example of something occurring in the Asia, there are couple of things occurring in the Asian markets. I’d note that we recently sold a property in Shanghai at 2.5X acquisition cost a few years ago and continue to see strong interest in real assets from Asian investment managers.”

 

Brookfield Asset Management (BAM) CEO Bruce Flatt said they are redeploying capital from sectors where they’ve had significant gains over the preceeding years into areas of distress in sectors such as commodities, energy, and emerging markets

 

“In North America our view is that valuations on real assets are excellent and we’re using this environment to recycle capital by selling mature assets, and selectively putting money to work where our competitive advantages allow us to do that. By the time we’re done with this process, we expect to sell in our real estate business, for example, a few billion dollars more on properties at very good valuations.  From a deep value perspective, we’ve been investing in India, Brazil, and around oil and other commodities. For example, in Brazil we’re in the process of buying a portion of the airport in Sao Paulo and the subway system in Rio from a construction company that ran into tough times. There are strong headwinds in Brazil, as most of you know, but we’ve seen this situation before. We believe that Brazil’s emerging middle class, the strong corporate base, the abundance of resources, and believe that it makes it a compelling place to invest for the long-term.”

And the company continues to benefit from increased interest in real assets from pension consultants and sovereign wealth funds

 

“The real asset business being the allocations that institutional client’s sovereign funds are making to real assets are dramatically more than they were ten years ago.  So the numbers continue to ramp up because they need to earn out decent return on their capital versus holding treasuries at 2%.”

State Street at BAML Conference Notes

State Street (STT) Presents at Bank of America Merrill Lynch Banking & Financial Services – Conference
Ronald O’Hanley – Chief Executive Officer, State Street Global Advisors

There’s a shift to outcomes investing

“this is the only industry I can think of where you can actually show up in a meeting and actually have lost the client money and saying good news, we outperformed. Right, it’s just a bizarre way, if you think about it that we’ve grown to serve our clients over the years. There is more and more towards this outcome and solutions investing. You’re seeing it started in the institutional space and you’re seeing it more and more even in the retail space as you think about packages that are aimed at and packaging that’s aimed at achieving a desired outcome, and not just putting together different products.”

Many states and municipalities are functionally bankrupt when it comes to their pension plans

“Many of these States if they were measured, but certainly the municipalities if they were measured on any kind of a GAAP accounting are functionally bankrupt and at some point there will be the situation where States and municipalities start to challenge some of these obligations or simply can’t meet the obligations that will accelerate the move from DB to DC, but what that’s done is, if you think about it at its core, it’s shifted risk from the professionals, a small number of professionals to a large number of people that don’t know what they’re doing and have no idea that they’ve taken this risk on.”

Smart Beta is an area of growth

“Second area of growth is what I called earlier, this beta revolution. Alternatives is not near term for us, we’re doing a lot of the R&D there and we see two or three years out. Lots in that, but smart beta, we’re the leader in that. 20 billion in new smart beta assets over the last 18 months and that’s without really being able to tell our story in a coherent way, we’ve done that, we’re at the point now, we’re both on a customized and packaged basis, we can put more of that out. So, I see growth in that and then some of the areas we’ve already talked about.”

KKR at BAML Conference Notes

KKR’s (KKR) Management Presents at BAML Conference
Scott Nuttall – Head, Global Capital & Asset Management

We like having extra capital at this late point in the cycle

“We actually get quite excited because we have lots of capital. So when things get cheaper we have the ability to stuck into the void. And so we really like the change in the capital management policy at this point of cycle where relatively late in the cycle and we think we now have an ability to move even quickly into those voids which as we think over the next several years will allow us to create even bigger outcomes for all of us as shareholders.”

Deals are starting to get pulled, not in larger transactions, but it could happen if volatility continues

“And so we are seeing some deals, some newer transaction deals get pulled. And that’s going to start to change behaviors over time. We haven’t seen impact here in terms of underwriting yet on newer, larger or private equity transactions. Although if the volatility we’ve been seeing last several days continues, I think that may happen, but we are not there yet.”

It is impacting behaviors at the small and middle end of the market

“Where we are seeing it impact behaviors is at the smaller and middle size end of the market so the mid market. Deals are getting to be more expensive. The flex terms in financings have gone up significantly. And our pipeline in private credit so mezzanine, direct lending, and special situations opportunity are up significant as a result of some of the dislocation we’re starting to see.”

Liquid credit markets are seeing interesting dynamics currently. There’s a significant reduction in liquidity

“What was become interesting more recently is what’s happening within the liquid part of the leverage credit markets. So the bank loan, leverage loan market the high yield market where we think there is several dynamics happening at once that really are quite a bit different then what we see in prior cycles. The first thing I’d point to is a significant reduction in liquidity. Okay, so what happened post crises is that dealer inventories in those markets are down somewhere between 80% and 90%, so it means the banks aren’t actually holding inventory in those names. So if you see a screen price, it doesn’t necessarily mean that that’s achievable on any volume whatsoever and that is creating quite a bit of interesting tension in the markets. So if anybody has to sell, there is a very interesting buying opportunity if you have cash because there is not a lot on the other side of that. And that’s a new dynamic. We didn’t – have not had that until this more recent period and that’s something that we’re keeping a very close eye on.”

It’s very week to week

“So there is some weeks where you can get a deal done and literally the next week you might not be able to at all and we’re having one of those weeks right now. And so it’s very week to week, so that’s also a new dynamic.”

Blackrock 3Q15 Earnings Call Notes

Laurence Douglas Fink – Chairman and Chief Executive Officer

We’ve made several recommendations with respect to equity market structure based on what happened on August 24

Extreme market volatility resulted in a disjointed market open on August 24. Lack of pricing clarity, widespread delayed in stock openings and an unprecedented number of trading halts impacted a large number of both U.S. listed single name stocks and equity ETF.

We’ve spoken with many different market participants and based on our own experience and these conversations we have made several recommendation with respect to U.S. equity market structure in a viewpoint article titled “U.S. Equity Market Structure Lessons from August 24th”, which we published on our website last week.”

Asia has been dominated by 3 or 4 large institutions moving around, the whole ecosystem

“there are some very large movements from some clients that are actively moving out of government securities into more risk oriented securities that’s pretty well advertise without me going into the specifics of that. We have seen some clients because of cash needs have been selling products. So I think Asia-Pac has been dominated more by three or four large institutions moving around. I think I’m talking about the whole ecosystem of the markets.”

Let’s not make retail products less competitive than institutional ones via regulation

“The one cautionary thing we would say to any regulator. Let’s not make retail products less competitive than institutional products. So, for instance if they suggested that a mutual fund product should have a higher cash buffer and that would probably mean most institutional clients would move to a separate account, we may not achieve what we’re trying to achieve. ”


Robert Kapito – President

People are buying ETFs for precision and liquidity, not just price

“we are the leader in U.S. ETF in the smart beta area. But just to step back on the price, please keep in mind that prices are only one reason why people buy ETF. They are looking for precision or what you’re discussing a new approach in smart beta or factored investing, they’re certainly looking for liquidity, which means, you have to have a fund and have some sort of size depending upon the type investor they could get core investor which we call it buy and hold or they are looking to be more active.”

Real clients are going to use the opportunity of higher rates to buy longer dated assets

“As interest rates rise, if they rise, I think they will rise one day. We are actually going to see an accelerated movement towards clients buying longer duration assets. And that’s I mean, I’m not talking about trading strategies, but clients that are pension fund oriented or long dated insurance type of products, they’re going to use this as an opportunity to buy different long dated assets. ”