0:02

Bloomberg Audio Studios, Podcasts,

0:05

radio News. This

0:10

is Master's in Business with Barry

0:12

Ridholds on Bloomberg Radio.

0:16

This week on the podcast, I have

0:19

an extra special guest. Samarcone

0:21

is. Wow. What a career. She

0:24

has Chief Investment Officer

0:26

of ETF and Index Investments

0:28

for Blackrock, the investing

0:31

giant that manages ten trillion

0:33

dollars. She's responsible for about

0:35

six point six trillion of

0:38

that. She sits on the Blackrock

0:41

Global Markets Executive Committee.

0:43

She leads a team of portfolio managers

0:46

and traders and platform marketecs and market

0:48

structure developers. Really a

0:50

unique insight into how

0:53

markets operate, how money flows,

0:55

what investors are looking

0:58

for. Just an absolutely fascinating

1:01

set of positions at the

1:03

largest investing firm in the world.

1:06

I found our conversation about

1:08

passive versus active, about

1:11

the bitcoin ETF, and

1:13

about changes in market structure really

1:16

to be absolutely intriguing. With

1:18

no further ado my discussion with

1:21

black Rocks. Samara Cone, thanks

1:23

so much.

1:24

It's great to be here in person with you. Barry.

1:26

Yes, it's great to have you so Last time

1:28

we went pretty in depth into your background

1:31

and education. You have a BS

1:33

in economics, from Wharton and

1:35

a BA in Theater Arts from

1:38

their College of Arts and Sciences at

1:40

the University of Pennsylvania. As

1:42

a refresher, how do you go

1:44

from theater to finance? What's

1:47

the relationship?

1:49

Well, I started with theater, as you said, because

1:51

when I was in high school, I

1:53

loved it. And now I am the parent of

1:56

two high schoolers Berry, so I

1:58

think back to how important it was to me

2:00

to go all in on something that I loved.

2:02

And that's my hope for them that they find something

2:05

they're passionate about. For me, it was theater,

2:07

not film, not entertainment. It was

2:10

bringing people together in a live

2:12

way in an audience to have

2:14

some sort of experience that would maybe change

2:16

them a little bit. And that's big, the total

2:19

big theater nerd, right, And so I

2:22

went to college wanting to pursue that as a major.

2:24

Now in high school, I was also very good at

2:26

math, but it didn't feel like something

2:29

I loved, but it was something I was good at. But

2:31

when I got to college, I had all of

2:33

this credit so that I didn't need to take another

2:35

math class, and to my surprise,

2:37

I found that I missed it. So I

2:40

discovered economics. I heard about a professor

2:42

he was supposed to be good, and felt like

2:45

learning about markets and economics

2:47

felt like math with a purpose to me, and

2:49

so I started pursuing that in

2:52

parallel. That made my parents really happy,

2:54

of course, because I was spending my summers working

2:56

for regional theater companies, so they felt

2:58

secure in the idea that I had a backup

3:00

plan, and I felt like I

3:02

got to live in these two different worlds, which really

3:05

kind of widened my aperture

3:08

on lots of things. And then when

3:10

it was time to graduate, I

3:12

wanted to take my backup plan

3:14

out for a test drive and make

3:16

some money so that I could support myself and be financially

3:19

independent. And I found that I

3:21

really loved markets.

3:22

Huh, that's really interesting. I'm

3:25

kind of intrigued by something you told

3:27

Fortune magazine not too

3:29

long ago. Ninety percent

3:31

of directing is casting, right,

3:34

fascinating conversation. Lots

3:36

of film directors have said similar

3:38

things to that, and the

3:41

world has changed so much that they're even

3:43

now adding a casting director

3:45

oscar, which amazingly hasn't

3:48

existed for years. But I'm

3:50

curious how you think of

3:52

casting in the job

3:54

you have now, where you're managing so

3:57

many different teams and so many different people,

3:59

is ninety five percent of index

4:02

management casting?

4:04

I think ninety five percent of leadership

4:06

Barry is putting the right person in

4:09

the right job and assembling teams

4:11

that build trust and can work

4:14

together and maximize

4:17

their individual strengths. So,

4:19

I guess what felt so specific to

4:22

theater to me when I was doing

4:24

it, and especially when I was directing, now

4:26

feels like a pretty profound lesson in leadership.

4:29

It's less a specific idea to

4:31

theater and instead is really a

4:33

very broad principle.

4:34

I think it's absolutely true. Look, when you're a leader,

4:36

your job is to make the most to get

4:39

the most out of people and organizations.

4:41

It's not what you yourself can do. It's

4:44

how you position other people to do

4:46

their best work. That's pretty much what casting

4:48

is.

4:49

So you mentioned you spend summers doing regional

4:51

theater. There's a lot of technical

4:54

work that goes into that direction.

4:57

Lighting design, set design, There's

4:59

just a ton of background work that goes to staging

5:02

the show. What parallels

5:04

can we draw to asset

5:06

management? How much of the daily

5:08

block and tackling that goes into

5:11

putting on a show, it goes onto

5:13

managing assets.

5:14

So I've often been asked about the theater part

5:16

of my background. I've never been asked that question,

5:19

so thank you, because I love bringing

5:21

back those memories of being in theater, being

5:23

in tech week of a show. And

5:26

I would start by saying, there's lots

5:28

of different types of theater, and there's lots

5:30

of different types of asset management. So

5:32

the place that has the most relevant parallel

5:35

for me was putting on

5:38

large scale musical

5:40

productions during theater festivals

5:42

where you had multiple stages going

5:44

at the same time. In the business

5:46

that I'm in right now, which is the ETF

5:49

business at Blackrock, I would say that

5:51

work is similarly orchestral.

5:53

We like to say it takes an ecosystem

5:56

for our ETFs to really deliver

5:59

to investors, which means really

6:01

being sensitized to all of the different

6:03

places how they work together, and how they work

6:05

together, especially during moments of high

6:07

velocity in markets.

6:09

So let's talk about a moment of high velocity.

6:12

We're recording this twenty twenty four. Twenty

6:14

twenty two was one of those years

6:16

where velocity picked up, volatility

6:19

picked up. It was a big negative for

6:21

equities, it was a double digit loser

6:24

for fixed income, unusual both

6:26

of those in one year. How

6:28

did ETFs hold up and what did we

6:31

learn in that rough year of

6:33

twenty twenty two about the

6:35

ETF complex.

6:36

Well, as you said, twenty twenty two was a remarkable

6:39

year for markets around the world because

6:41

we had declines in both equity markets

6:44

and bond markets. It was the worst bond

6:46

market in fifty years. I will

6:48

say, as someone who has really had

6:50

the bulk of my career in the bond

6:52

market, markets overall, in

6:55

the bond market in particular, are

6:57

much more resilient, transparent, and

6:59

excessive today because ETFs

7:02

are in them. So ETFs have contributed

7:05

in a very important way to

7:07

market structure, growth and development. And

7:10

what we saw in twenty twenty two is

7:12

first a lot of really

7:15

important portfolio reallocation

7:17

decisions being made. All of a sudden.

7:20

Investors really had to think the role of bonds

7:22

in their portfolio, how they were going

7:24

to position for higher interest rates, what

7:26

inflation would actually look like, what was the

7:28

meaning of this new regime. And the

7:31

first place that they turned to to do this

7:33

was off in ETFs. So we saw ETF

7:36

trading pickup. And that's not flows, that's

7:38

just people using ETFs buyers

7:40

and sellers to manage their risk

7:43

and reallocate their portfolios. And

7:45

we did also see ETF inflows,

7:48

particularly in fixed income

7:50

ETFs. So fixed income

7:52

ETFs gathered really over

7:55

two hundred billion dollars in twenty twenty

7:58

two. And the reason for that is the

8:00

bond market has historically really

8:02

lacked transparency and been harder

8:04

to access for individual investors

8:07

who all of a sudden were realizing they probably

8:09

needed a much more significant allocation

8:11

to fixed income than they'd had before, so

8:13

they turned to ETFs.

8:15

You know, it's funny we're talking about this now

8:17

looking back at twenty twenty two. When

8:19

you and I spoke in the spring of twenty twenty

8:21

two, we talked about the

8:23

volatility of twenty twenty and

8:26

you pointed out ETFs held

8:28

up splendidly. If anything,

8:30

there were certain stocks that were halted, other

8:33

parts of the market had structural

8:35

issues. ETFs came through that with

8:37

flying colors. Is that a fair statement.

8:39

That's exactly right. And during these stressed

8:41

markets, high velocity markets, investors

8:44

need some outlet for risk management

8:46

and for transparency. And so if ETFs

8:49

have matured in the market, which has been over

8:51

the past thirty years in the US.

8:54

It has actually improved markets broadly.

8:56

So you mentioned flows. I think

8:59

people assume there flows into

9:01

a particular fund and the prices go up,

9:04

but that it's not always correlated. That easily.

9:06

What we saw into the

9:09

rally in twenty twenty three were outflows

9:11

and the market went up regardless.

9:15

How do you at Blackrock

9:17

and you overseeing all these ETFs

9:20

think about the role of money

9:22

flows into and out of various

9:24

funds and what it might mean for the

9:26

health of those funds and the subsequent performance

9:30

of those funds and the market.

9:32

Well across the ETF complex, As

9:34

you pointed out, there are you know, at

9:36

I Shares we have thirteen hundred different

9:38

ETFs. So being able to

9:40

provide ways for investors

9:42

to quickly change their exposures

9:45

move out of one fund into another fund,

9:47

it's a healthy thing for markets, it's a healthy thing

9:49

for portfolios. I don't

9:52

know if your question is more around the role

9:54

of ETFs and price formation

9:56

and markets just generally.

9:58

So you know, I'm always astonished

10:01

when I flip on the TV and I

10:03

hear someone say, oh, there are a lot of outfunds

10:05

from mutual funds and ETFs. That bodes

10:07

poorly for the market. We sort outflows

10:11

pretty much right from the

10:13

lows in twenty twenty two in

10:15

October straight up to the recent

10:18

highs. It's only recently they started

10:20

turning positive. It seems

10:22

like people are drawing the wrong conclusion

10:25

by tracking flows. I don't know if I'm

10:27

getting into the weeds too much. This

10:30

is too much arkana. It just

10:32

seems that whenever I hear people discuss

10:34

flows, the context doesn't

10:36

always tell the full story.

10:38

I think that's right with respect to direction of markets.

10:40

Now, we actually love talking about our investment

10:42

strategists actually have a piece that they published

10:45

called Flow and Tell, where

10:47

they look to flows which give lots

10:49

of different types of information, but not

10:51

necessarily directional information.

10:54

So one of the things about ETFs is

10:56

because they are trading in trade, they're super transparent,

10:59

they're measured on exchange, they

11:01

actually give us some pretty useful measures

11:03

around investor sentiment, also

11:06

around positioning, around allocation

11:09

decisions, and so there is lots

11:11

of information that can be extracted

11:13

from the transparency and availability

11:16

of fund flow data, particularly

11:19

with ETFs. But to your point, that

11:21

doesn't necessarily translate into direction

11:23

of markets. And just as an example,

11:25

there's a statistic

11:28

that I love to look at. We call it the imputed

11:30

flow statistic, which tells you how

11:33

much flow into or out of ETFs

11:36

was present in a particular

11:38

stock And if I look across the entire US

11:40

stock market, that statistic

11:42

is usually about five or six

11:45

percent. It actually goes down during

11:47

times of market stress that there's actually less

11:49

market flow attributable to ETFs.

11:52

So I think there's a lot of other things going on with

11:54

respect to price formation, but

11:56

there are really important I think sentiment

11:59

conclusions you can draw from, you know, flow

12:01

intel type data.

12:02

I love that name flow and tell

12:04

use it. Sentiment is obvious. I

12:07

think if you suddenly see people selling

12:09

value funds and flowing into anything

12:12

that's tech heavy, clearly there's

12:14

been a shift in investor sentiment

12:16

when that happens. What other data points

12:18

do you look at and flow and tell that

12:21

might surprise people?

12:22

Definitely asset allocation decisions.

12:25

So how people are shifting portfolios

12:27

around.

12:28

Is that from stocks to bonds or is it even

12:30

within the equity market? What sectors are dominating?

12:33

It can be from stocks to bonds, and it also can

12:35

be very interestingly within the fixed

12:37

income complex, and that's been important particularly

12:39

lately given kind of all of the

12:42

focus and you know, potential surprises

12:45

coming out of the FED and direction of monetary

12:47

policy. So you've seen a lot of kind of implicit

12:50

curve positioning happening across

12:52

the fixed income ETF complex.

12:54

Though since the last time we spoke two years

12:56

ago, the ETF space

12:58

has definitely evolved.

13:01

What do you see as some of the bigger

13:03

changes since we last spoke.

13:04

So I feel like, Barry, if you have me back in two

13:07

years, I'm probably going to say the last

13:09

two years have been the most exciting

13:11

years.

13:11

We'll talk about remember that volatility right

13:13

after we had the recording.

13:15

In exact years. But the point is this has been

13:17

a fast moving stream. A lot has been happening

13:19

in the ETF space and in markets.

13:22

What I would say to me has really defined

13:24

the last two years since we spoke are two

13:26

things, and they're both really exciting. The first

13:29

is the move that we are seeing

13:31

around the world with what we call self

13:33

directed investors, but more and more

13:35

invest more and more savers becoming

13:38

investors, and we can measure that globally,

13:41

there were about forty million individual

13:43

investor accounts that have been open in

13:45

the last two years. That's more than the

13:47

past decade combined.

13:50

Forty million individual investors

13:52

coming to the market. Now. When I when I

13:55

say, and I will say this everywhere

13:57

markets are better today, it's

14:00

because to me, a healthy capital

14:02

marketplace is one that has the transparency,

14:05

resilience and agility to bring

14:08

more people off the sidelines so that they

14:10

can save for retirement or whatever

14:12

financial wellness looks like to them. So that's

14:15

theme number one, and the second

14:17

one is the ongoing

14:20

convergence between index

14:22

and active And you will never hear

14:25

me use the word passive barrier. In

14:27

fact, if I ever have my own podcast, it's

14:29

going to be called there is nothing passive

14:31

about ETF and index investing, because

14:34

we've really obliterated that concept.

14:37

There are so many different types of strategies

14:40

and outcomes that are available now

14:42

through index strategies which investors

14:44

buy through ETFs that it gives

14:46

them again much more agility with

14:48

respect to their portfolios and their goals.

14:51

And even the S and P five hundred is

14:53

there are a lot of active decisions. It's

14:56

market cap weighted that's a choice.

14:59

There are rules that determine who can and

15:01

can't be in there. Companies get

15:03

added and subtracted all the time. There's

15:05

a decent amount of active within passive.

15:09

But I want to come back to the

15:11

forty million new accounts. When

15:13

I think of new accounts, I

15:16

kind of harken back to twenty

15:18

twenty in the pandemic lockdown and

15:21

all the kids playing on Robinhood and

15:23

that sort of stuff. Are these

15:25

small fun accounts or are these people

15:28

really saving for things like

15:30

paying for college or retirement or buying

15:33

a home? Like when what are the constitution

15:36

of these forty million new accounts?

15:39

I think it's both of those things. So when

15:41

people had their stimulus checks and there was commission

15:43

free trading, and to your point, they were home

15:46

and learning about all of the things they could do with technology,

15:49

maybe some people got involved more

15:52

to just check out the ecosystem

15:54

and what it felt like. But when you look at the

15:56

data, despite all of the headline

15:59

excitement that meets stock mania

16:01

generated, more people were

16:03

actually buying ETFs than we're buying

16:05

meme stocks. So I think it has been

16:08

a really important moment for investors

16:10

who are coming into the market and coming

16:12

in maybe because they're starting with a single

16:15

stock decision, but actually

16:17

moving and learning about ETFs

16:20

and then participating in a more diversified

16:22

and long term way.

16:23

I would like to see the flow and tel piece

16:26

that looks at potential

16:28

investors looking at some of

16:30

the crazy meme stocks and saying, you know

16:32

what, I'm just going to buy a broad index

16:35

and put it away for a few decades and not get

16:37

sucked into this mania. Do you

16:39

guys track that closely?

16:40

We do. We do track it closely, and a

16:42

few people have done really interesting work,

16:45

particularly Nasdaq has done some interesting

16:47

work on individual stocks versus

16:49

allocations to ETFs and to

16:51

index And this trend that we're

16:53

talking about, the individual investor trend,

16:56

is absolutely across the market. We've

16:58

seen it in options as well, which

17:01

is why ETFs that have some sort

17:03

of embedded options outcome are

17:05

also seeing a lot of interest, particularly

17:07

from the self directed investors.

17:10

Really really intriguing. So let's

17:12

talk a little bit about some interesting news.

17:15

Recently, low cost index

17:18

atfs and mutual funds now

17:20

make up more than fifty

17:22

percent of the fun complex.

17:25

Put a flag in the ground and declare

17:28

victory. Does this mean that

17:30

it's the end of active. Is there

17:32

a ceiling for passive? What does

17:34

that fifty percent line mean?

17:36

First of all, Barry, I am a huge fan

17:38

of active managers and what they can achieve.

17:41

My disclosure here will be that I'm married

17:43

to a brilliant active manager,

17:46

So I like to say that we are an

17:48

alpha beta couple. But

17:50

increasingly active managers use have

17:53

beta allocations. They always have. Of course,

17:55

they might use SMP futures, for example,

17:57

as part of their strategies, and increasingly, really

18:00

all of the biggest active asset managers

18:02

in the world use ETFs for some part

18:05

of their alpha seeking strategy.

18:07

So let's look at two things. Number one, the statistics

18:10

that you gave. This is really about the fund

18:12

market. It's important

18:15

to realize that what is available

18:17

through an index strategy has

18:19

evolved massively over the past

18:22

few years. So we're really not just

18:24

talking about traditional cap weighted strategies,

18:26

which are kind of what you would get in a future

18:29

type strategy like with you know, Russell two

18:32

or SMP five hundred. There are factor

18:34

strategies. There are increasingly

18:37

diverse range of bond

18:39

market strategies across the different subasset

18:41

classes of fixed income, so

18:44

increasingly for us, we like

18:46

to think of that whole new genre

18:49

of index ETFs as almost active

18:51

risk benchmark. Anything that's

18:53

not cap weighted represents

18:55

a decision by the investor to

18:59

take some active risk versus the

19:01

standard cap weoided benchmarks. So

19:03

that's why I really think of index

19:06

and active as a really broad

19:08

continuum, with index being able

19:10

to take on more and more

19:12

types of strategies that importantly

19:15

were never accessible to individual

19:17

investors before. And that's why

19:19

I maintain that today's markets

19:21

as a function of index and ETF

19:24

technology are simply better because

19:27

they're more accessible and diversification

19:29

and more sophisticated strategies. For example,

19:32

like target date funds. For the fifty

19:34

seven million Americans that actually don't

19:37

have a workplace savings account,

19:39

they can now through an ETF access

19:42

target date investor investing where they

19:44

basically make one decision, which is when

19:46

do I think I'm going to retire, and

19:48

then they can allocate to the ETF and

19:51

the ETF will manage their risk

19:54

exposure.

19:54

Their stock bond proportion over time

19:57

automatically adjust it. And since

19:59

it's an ETF rapper, there's no capital

20:01

gains to pay until you finally

20:03

cash that in.

20:04

So it's a victory for investors, and

20:06

it's a victory for those, you know, millions

20:08

of people who are moving from being savers

20:11

to investors, which is incredibly important

20:13

in today's world as we think about you

20:15

know, retirement and what and people

20:17

being able to retire with dignity. And

20:19

then the other important part of your question

20:21

though, and I know you agree with me on this because I've heard

20:23

you talk about it, is we have to look at the

20:25

equity market overall. Right, So that

20:28

fifty percent stat, you know, is

20:30

a little bit misleading with respect to the

20:32

denominator. ETFs are probably

20:34

about twelve or thirteen percent

20:37

of the equity market, not

20:40

fifty percent. And that gets back to these questions

20:42

about, you know, is there a ceiling

20:45

like there is mostly active

20:47

management happening in price formation

20:49

in global equity market.

20:50

The broadest interpretation of

20:53

passive indexing

20:56

that I've seen is of

20:58

the total equity market, about

21:00

seventeen percent can

21:03

be described as managed through

21:05

a broad index, not active

21:07

stock selection. People have argued

21:10

that, well, you can look at flows

21:13

and foundations and sovereign

21:15

well funds are managing stuff

21:17

passively quote unquote, but

21:20

some of the numbers, thirty five forty

21:22

percent seem kind of fabricated.

21:25

You want to say it's twenty percent,

21:29

okay, back of the envelope, we can pretend,

21:31

but there's just no data, no evidence showing

21:33

that it's even that big.

21:36

And when we look at we can add up what's in

21:38

ETFs, we can add up what's in mutual funds,

21:41

and it's a relatively small part of the

21:43

total asset management

21:45

world. Unless you think I'm overstating.

21:48

This, I think you're exactly right. And I

21:50

think additionally, if we agree

21:52

that as a gut check, twenty percent

21:55

of the equity market is indexed,

21:57

right ETFs or otherwise, it's important

22:00

to remember that that is often by active

22:02

managers, who are who have beta

22:05

as some component of their alpha

22:07

seeking strategy. So their decision

22:09

to make a beta allocation through

22:11

some sort of index strategy is

22:15

an active one and as part of the

22:17

broader setup of their portfolio. And potentially

22:20

given the technology, and you know, indexing

22:22

has risen alongside computing power,

22:25

it actually required Actually

22:28

the first kind of commercial microchip

22:30

came about around the same time as

22:33

index investing, because you needed computing

22:35

power to be able to do that and now that

22:37

asset managers can make

22:39

beta allocations, they can focus their

22:41

attention and resources on their highest

22:43

conviction single stock or bond

22:46

opportunities.

22:47

And let's put a little flesh on that, because I

22:49

don't know if lay people are aware of how

22:51

fund managers behave. You're running

22:54

a concentrated portfolio, you have thirty or forty

22:56

stocks, and suddenly this stock

22:59

generates a cels IGNO and you remove it from

23:01

your portfolio, and that stock gets

23:03

taken over by another company and

23:05

it's achieved ninety nine percent of your price target.

23:08

Now suddenly you have a five or ten percent

23:10

slug of cash, which if it's

23:12

sitting around in cash, you're going to be underperforming

23:15

an upmarket. So instead you turn

23:17

around and say, my benchmark is this. Here's

23:20

the ETF that tracks that. I'm going

23:22

to park this cash here so I don't fall behind

23:24

my benchmark. And when I'm ready to actively

23:27

select a replacement for these stocks,

23:30

I'll swap out of one to another. Again,

23:33

fair description of how it works in the real world.

23:35

Totally fair description, But I would say it's a

23:37

relatively modern one

23:40

because even five years ago those managers

23:42

might buy futures instead

23:44

of et apps and what we found when

23:46

we engaged with a lot of them. One of the things we

23:48

did was we built technology to help

23:51

asset managers evaluate the relative

23:54

value between an ETF and a futures contract.

23:56

It really mattered what they were earning

23:59

on their cash had to be earning something

24:02

in order to make it worth the price

24:04

of the futures. Otherwise, the ETF looked quite

24:06

cheap, and as it turned out, remember where rates

24:08

were five years ago, it was much more

24:10

economic for them to move into the ETF.

24:13

So using the ETF for the

24:15

cash equitization has become

24:18

a really standard active use

24:20

of an ETF strategy, but it is a

24:22

more modern one.

24:23

So let's talk a little bit about You mentioned

24:25

market structure, and we're talking about active

24:28

versus passive. Last month

24:30

I had hedge fund manager David Einhorn

24:32

of Greenlight Capital on and he said,

24:35

I view the markets as fundamentally

24:37

broken. Passive investors

24:40

have no opinion about value. They're going

24:42

to assume everybody else has done the work.

24:44

Claused the big Star. Everybody kind

24:47

of freaked out about a little bit. But it

24:49

raises the question, what has been

24:51

the impact of this shift

24:54

towards indexing and passive

24:56

investing. I know you don't love that word on

24:59

overall market, its structure and the resiliency

25:02

of our modern market economy.

25:05

Markets are more transparent and

25:07

resilient as a result of ETFs

25:10

being in them than they have ever

25:12

been in history. Barry and I

25:14

reject the notion that a transparent,

25:17

resilient, and more accessible

25:20

market. Again, look at these forty

25:22

million investors that are coming into the market

25:24

and are only able to do it through diversified

25:26

strategies because of ETFs and index.

25:28

I reject the notion that there's anything

25:30

broken about that. That is a healthy

25:33

market, and that is a market that is better positioned

25:35

for the next decade of growth than

25:37

ever before.

25:39

So let's talk a little bit about index

25:41

and ETF technology.

25:43

What is it specifically about

25:46

that approach that rapper around

25:48

in a stock investment that provides

25:50

transparency and resiliency. How

25:53

is this different than the way we

25:55

used to manage assets twenty thirty years

25:57

ago.

25:58

Well, first, ETFs are literally transparent.

26:01

You always can see what's in the holdings

26:03

of a particular ETF that's available

26:05

on a daily basis. But even more

26:07

critically, ETFs trade

26:10

on exchange all day long

26:12

and provide price formation in

26:15

that way. So one of the things we often see, for

26:17

example, in country fund ETFs.

26:19

Perfect example of it is looking

26:21

at ETFs with China equities

26:24

underlying them over the Lunar New Year.

26:26

They are providing price formation by

26:29

trading on stock exchanges, so investors

26:31

can exchange risk on

26:34

exchange, while those underlying

26:36

equity markets are actually closed. The

26:38

bond market, by the way, you probably know this, I'm

26:40

a bond market veteran, like the bond market

26:42

has a lot of closure days where

26:44

equity markets aren't open. So

26:47

bond ETFs are providing a price

26:49

transparency to fixed income

26:51

markets all of the time. And we really

26:53

saw that profoundly over

26:56

the COVID volatility period where

26:58

bonds, because you know, the bond market

27:00

had largely traded and still

27:03

trades, big parts of the bond market trade

27:05

in a very bilateral voice over

27:07

telephone way, and these traders

27:09

were literally packing up their desks

27:12

and having to go home and reconstruct their

27:14

workstations at home. And so there

27:16

were days where if you took an investment grade

27:18

ETF, its top ten

27:20

holdings might trade thirty five times

27:23

in the day. In the bond market, we can see that

27:25

through trace reporting, while the ETF

27:27

itself traded ninety thousand

27:30

times. So that's an example

27:32

of real time price formation that

27:34

just wasn't available in the bond market

27:37

before the ETF.

27:38

I think a lot of lay people don't realize

27:41

the Russell five thousand is what thirty four

27:43

hundred stocks. Today, there

27:45

are millions and millions of q SIPs

27:47

of specific bonds, different

27:50

credit ratings, different vintages.

27:53

Every municipality has a run of bonds,

27:55

every state, every city, there are tons

27:57

of bonds, hundreds of thousands,

28:00

maybe even millions of bonds. So pricing

28:02

is opaque and it's

28:04

not always current. That's

28:07

not true on the fixed income side. For ETFs,

28:10

it's all day long and you get

28:12

a price whenever you look at the ETF.

28:15

Yeah, so that's totally true. But one of the things

28:17

that gets me super excited, because I am

28:19

just a career markets

28:22

modernizer, is that there's been

28:24

a virtuous cycle and effect back

28:26

on the bond market. Because investors

28:28

have really demanded and wanted to participate

28:30

in fixed income ETFs, bond

28:32

dealers in trading desks have had to develop

28:35

algorithmic pricing capabilities

28:38

so that they could make markets in

28:40

those ETFs, and that has had the effect

28:42

of increasing electronification

28:44

and transparency in the underlying

28:47

bond market, which is why again there's

28:49

been this you know, introduction of ETFs

28:52

as a new bond tool has actually

28:54

had an important modernizing effect

28:56

on that underlying market ecosystem.

28:58

So you guys have in one of the larger

29:02

bond fund managers. Over

29:04

years and in old Wall Street

29:06

there were hundreds of shops that were managing

29:09

individual bond portfolios. What's

29:11

it like when you want to put together a

29:14

bond ETF. I

29:16

would imagine your desk has to

29:18

revert to some form of

29:20

old school, you know,

29:23

picking up the phone and hey, who has these

29:25

bonds? We want to we're a buyer.

29:27

What can you get us? How do

29:29

you marry the old with the new? How

29:31

do you marry the phone with the

29:34

algorithm?

29:35

Well, one of the things we talked about before

29:38

are the challenges of cash management in

29:40

a portfolio, and certainly in a bond

29:42

market portfolio. That's a challenge

29:44

for a manager who doesn't want to underperform

29:46

the benchmark.

29:47

But especially when you have some yield these

29:49

days, that's.

29:50

Right, who has to put cash to work? Now?

29:52

One of the most exciting aspects

29:54

of the ETF innovation is

29:57

the fact that portfolio managers

30:00

ETFs don't have to

30:02

manage the cash. They can if they want

30:04

to, but they can also do what we call

30:07

in kind trades with

30:10

the street or with liquidity providers if

30:13

so. First, if people are buying the ETF,

30:16

number one difference, just to take a step back, is

30:18

that you can go and buy the ETF on exchange

30:20

through your brokerage account. You don't have to write

30:22

a check and send it into a mutual fund

30:24

company. You are buying the ETF on exchange.

30:27

Somebody is selling it to you, and if they

30:29

have the seller on the other side, then

30:32

there's nothing that the portfolio manager has

30:34

to do. The buyers and sellers match off

30:36

on exchange, and that's important because

30:38

on average it's about six

30:40

to eight times as much trading happens

30:42

on exchange as in the actual

30:45

ETF. But let's say that there

30:47

is an imbalance of demand. More

30:49

people want to buy that ETF than sell

30:52

that ETF, so we start

30:54

to see the price of the ETF. Actually

30:57

we traded a little bit of a premium to

30:59

those underlying bonds, So

31:01

then what the market maker can do is

31:04

create more ETF shares

31:06

to meet that demand by buying

31:09

the underlying bonds delivering

31:11

it to me. I will be the portfolio manager

31:14

in this case, and then we give you the ETF

31:16

shares, so I don't have to put the cash

31:18

to work. The market has done that for

31:21

me. They've been incentivized to do that

31:23

because this market maker, she

31:25

has captured the arbitrage

31:27

spread that was available, and I

31:30

didn't have to incur transaction cost

31:32

drag for the shareholders in my fund. So

31:35

that's one of the mechanisms that have made

31:37

ETFs deliver so effectively

31:39

for investors.

31:40

So let's talk about who are

31:42

the holders of ETFs.

31:45

How granular can you get

31:47

in identifying here's who

31:50

who owns our ETFs for

31:52

this fixed thing, hump product, this equity

31:55

product. As a mutual fund

31:58

company, you know exactly who owns

32:00

that fund. Is it the same

32:02

thing with ETFs or is it a little

32:05

fuzzier.

32:05

It's a little bit harder with ETFs. But our

32:08

ability to capture an analyzed

32:10

data just is this much more information

32:12

on everything, even if it's just looking at the

32:14

nature of prints on exchange, we

32:17

are able to derive much more data

32:20

to make assumptions and really educated

32:22

guesses about who owns the ETFs,

32:25

and increasingly we actually do have

32:27

end user information. So really important

32:29

and exciting announcement we may and we're the first

32:32

to do this, is to in our

32:34

SMP five hundred ETF for

32:37

certain investors individual investors,

32:39

give them the ability to decide

32:41

if they want to vote their shares. And

32:44

that's been a really important dialogue in

32:46

the market because as an asset manager, we

32:48

don't own the shares, but for our ETFs

32:50

often the laws say we need to vote the

32:52

share, but our job is to be asset

32:54

managers, and so if clients want us to vote

32:57

their shares for them, we can, but we

32:59

prefer and with our institutional clients,

33:01

we give them voting choice so they can

33:03

tell us Blackrock, we want

33:06

to vote our own shares, or we give them a menu

33:08

of options and they direct us. And

33:10

so we have been until

33:12

now really unable to offer that to individuals.

33:15

But as we get better data and information,

33:18

we're able to expand choices

33:21

to our clients.

33:22

So there's so many things to unpack with

33:24

that. There's been

33:26

a lot of pushback to the

33:28

concept of indexing generally

33:31

as well, look at it's Blackrock,

33:33

Vanguard, and State Street. They

33:36

control almost x

33:38

percent of the market, and therefore

33:41

they're running the world, and we

33:43

should break this up. It seems to

33:45

be a fundamental misunderstanding of

33:47

who owns this stock and what

33:49

the role of the big index providers

33:52

and big etf providers are in

33:55

this space. You're owning these shares

33:57

not on behalf of you or Larry Fans

34:00

or Blackrock, You're owning these on behalf

34:02

of millions of investors.

34:04

Yeah, you're spot on. So the number one

34:06

misunderstanding is who owns

34:08

them. We are a fiduciary, the

34:11

investors own those stocks. And

34:13

then beyond that, it's more of a regulatory

34:15

and technology problem to fix. The regulations

34:18

say that the asset manager votes

34:20

the shares, and so what we started to

34:22

do in our institutional accounts where regulation

34:25

permitted it was just technology and operations,

34:27

was to create a program of voting choice

34:30

that other asset managers actually then went

34:32

and copied to say to institutions, let's

34:34

let's separate the two and if you want to vote

34:37

your shares, go ahead and vote your shares. But

34:39

it's been much harder to do that for individual

34:41

investors. So being able to take a first

34:44

step towards that is a

34:46

really exciting progress.

34:47

I kind of feel like I'm cheating, like I

34:50

brought in a ringer, because this

34:52

is just an exercise in confirmation bias

34:55

for me. You know, it's

34:58

you know, I have read over the

35:00

years that indexing is un

35:02

American, it's Marxist, it's

35:04

a communist plot, there's

35:06

going to be price fixing, just

35:09

every crazy theory

35:11

that you could come up with as to why indexing

35:14

is so bad. And when you trace these

35:16

arguments back, they invariably

35:19

are coming back to people who are

35:21

the ones who are losing market share

35:24

to indexing. And it's

35:26

hard to have a

35:29

legitimate discussion where hey,

35:32

you know, you're talking your book, and again,

35:34

full disclosure for both of us, I'm

35:37

talking my book because I'm a big believer

35:39

in indexers. But you

35:41

guys, of the ten trillion

35:44

you have in assets, how

35:47

much of this is indexed and how much of this

35:49

is more active management?

35:52

Well, remember, even within the index

35:54

category, it's becoming increasingly

35:57

active. So there are index strategies

35:59

that take a lot of design principles

36:02

around how to algorithmically provide

36:04

a strategy right and those are like everything

36:06

as we talked about these active risk benchmarks,

36:09

anything beyond upmarket cap weighted.

36:11

But also importantly, in

36:13

twenty twenty three in the United

36:16

States, twenty five percent

36:18

of new money going into ETFs

36:21

was in active ETFs. So

36:23

in twenty nineteen, actually the SEC

36:26

passed a long awaited ETF

36:28

rule that made it much easier for any

36:30

type of asset manager who wanted to distribute

36:33

their strategy in the ETF wrapper to

36:35

do so. And there was actually a lot

36:37

of questioning at the beginning,

36:39

well, because ETFs are transparent,

36:42

would they do that, would they actually

36:44

want to have to publish their holdings

36:46

on a daily basis, or would they resist

36:48

thinking that that was giving up some sort of secret

36:50

sauce. And as it turns out, a lot

36:52

of managers were comfortable with the transparency.

36:55

There was some experimentation with non

36:57

transparent active ETFs, but as it

37:00

turns out, I think those were pretty easily reverse

37:03

engineered. So going through the trouble of making

37:05

it non transparent didn't help that much given

37:07

how much they trade. But investors

37:10

still want active strategies.

37:12

The question is is that manager

37:15

delivering alpha or excess

37:17

return such that the incremental

37:19

fees justify it, and the transparency

37:22

of return that traditional ETFs

37:24

give investors really holds those alpha

37:27

seeking managers accountable. But

37:29

when they can produce it, people will

37:31

pay for it, and they'll pay for it in an ETF wrapper.

37:34

Really interesting. So let's talk a little

37:36

bit about the bitcoin ETF.

37:39

What are your thoughts on the

37:42

process of getting here,

37:44

What do you think is happening in that space

37:46

now?

37:47

It's been a journey for markets, Barry, I

37:49

think when I first started getting asked

37:51

about bitcoin ETFs it was

37:54

about five years ago, and when I first

37:56

heard about bitcoin it was probably

37:58

about ten years go. And for

38:01

us, the question of whether we should

38:03

provide access to bitcoin

38:06

in an ETF is something that came about

38:08

really in the last few years. There were issuers

38:11

that filed for bitcoin ETFs

38:13

before we did. There were issuers

38:16

that actually launched futures

38:18

based bitcoin ETFs before

38:20

we did, And I think that journey for the industry

38:22

showed us a few things. First, it showed us,

38:24

with respect to the futures ETFs,

38:27

that wasn't really delivering what investors

38:29

were looking for, meaning for a whole bunch

38:32

of reasons, particularly position

38:34

limits. The futures ETF actually

38:36

underperformed spot bitcoin, which is what

38:38

investors wanted now full disclosure.

38:41

When I first got asked a few years ago about

38:43

bitcoin ETFs, and remember

38:45

I am a bond market veteran, so I thought

38:47

to myself, look, I will come

38:49

into the office like all day long. I

38:51

get excited about bringing

38:54

access and transparency to markets

38:56

where it didn't exist before. So the

38:58

high yield market, high you old bond market, for

39:00

example, that's a no brainer to put

39:02

into an ETF wrapper. But to me, it

39:04

seemed like it was pretty straightforward

39:07

to just buy some bitcoin using your

39:09

mobile phone. And so for us

39:11

to really be convinced as to the value

39:14

proposition of an ETF really

39:16

took hearing from investors,

39:18

all types of investors over the

39:20

subsequent years, and this is what we heard. Number

39:22

one. We heard they wanted access to

39:25

bitcoin. Many of them, for different reasons,

39:27

were interested in as kind of an emerging

39:29

asset classet. They wanted some access,

39:31

and they were trying to get access in a variety

39:33

of ways, none of which were fully

39:36

satisfying. Whether they were buying it in a trust

39:38

structure where they didn't have a lot of liquidity

39:40

and high fees, if they were buying a

39:43

futures based product which really wasn't delivering

39:45

bitcoin. If they were buying actual

39:47

bitcoin, they were having to deal with

39:49

a whole new set of infrastructure and pipes

39:52

and custody questions that weren't transparent

39:54

and hard to understand.

39:56

Passwords and anti

39:58

hacking, and what's easier

40:00

than an ETF and what could be harder

40:03

than buying bitcoin? For the

40:06

average mom and pop investor, it seems

40:08

like a natural marriage.

40:09

And we heard from advisors too, who were getting

40:11

asked by their clients and they wanted

40:14

to provide whole portfolio

40:16

solutions to their clients.

40:19

So I think we really became convinced,

40:21

first of all, that investors

40:24

wanted access, and second that

40:26

the ETF would actually provide a better

40:29

access path than was currently available

40:31

out there in the market.

40:33

Why do you think it took so long for this ETF

40:36

to get over the finish line? I mean,

40:38

the SEC has been talking about

40:41

this and having hearings and listening

40:43

to investor input on this. It

40:45

seems like it's been years five years.

40:48

Well, first, I think the narrative

40:51

from investors really grew over

40:53

the past few years. The infrastructure

40:56

in the crypto world was also evolving,

40:58

but regulation and policy has

41:01

been evolving as well and still has

41:03

a long ways to go. So I

41:05

think regulators needed to and

41:07

the SEC in particular needed

41:10

to hear from investors, needed

41:12

to work through the operating model. And then

41:14

also remember, I mean you and I have talked

41:16

about what the past three years have looked like. This

41:19

SEC has a very ambitious

41:21

equity market structure agenda on

41:23

their plate, and that's really been their

41:25

priority. But I think ultimately investor

41:28

demand and desire for access

41:30

in an ETF one out.

41:32

I never had any doubt that it would eventually

41:34

happen. I just had no idea if it was

41:36

this decade next decade. But I'm

41:38

curious as to your experience. What

41:41

was it like going through the process

41:43

of applying for approval. Blackrock

41:46

is such a giant participant in

41:48

the market. I have to imagine that you

41:50

were one of the key firms the

41:52

SEC was consulting with about

41:55

things like security and password

41:57

protection and anti hacking issues

42:00

and all the custody issues that go with that. What

42:03

was it like processing the oh,

42:06

here's a new ETF application. We're

42:08

just going to sneak this in with a big pile

42:10

of other ETFs.

42:11

Look, I think for all types of ETPs,

42:14

as we talked about, it takes an

42:16

ecosystem to make them work.

42:19

Given our experience as a

42:21

market's risk manager in all types

42:24

of markets, we engage

42:26

frequently with all types of regulators who

42:28

are a key part of the ecosystem

42:30

on how things are working with our observations

42:34

around ETFs, around markets, around

42:36

trading, and around liquidity. So with

42:38

respect to the sec our engagement was

42:41

much less about the if

42:43

and much more about the how. Here

42:46

are the ways to provide robust and resilient

42:48

access to investors in an ETF.

42:51

So you guys came out much

42:53

less expensive than just about every other

42:55

provider. Where do you think the

42:58

bitcoin ETF can go this

43:00

scale up to something

43:02

along the sizes of

43:05

any sort of large index

43:07

or is this going to be a little niche

43:09

product.

43:10

I don't know yet, Barry. I'm definitely curious

43:13

your thoughts on that as well. We know

43:15

that there is demand for access. We know

43:17

that there were and are a lot of holders

43:20

in bitcoin in vehicles that

43:22

investors view is less preferable to the ETFs

43:24

that are now out there. So in terms of

43:26

the flows that we're seeing, unclear is

43:28

that new demand? Is that just rapper

43:31

switching demand?

43:33

Sure?

43:33

So I think this is like early stages

43:35

of how the story is going to play out. I

43:37

would say, by the way, though, I think we're kind

43:40

of middle of the pack when we think about

43:42

what investors will look for in terms

43:44

of costs of an ETF, we

43:46

really encourage people to look at what we call

43:49

total cost of ownership, which

43:51

is not just the expense ratio, but

43:53

the liquidity, the spread, the access

43:55

on exchange, the resilience of the operating

43:58

model. So all of those things can tribute

44:00

to total cost of ownership, which

44:02

isn't necessarily all captured

44:05

by the expense ratio.

44:06

So there's so many different ways to go with

44:09

that. First, there's some crazy

44:11

stat twenty twenty five percent

44:13

of all bitcoin. Ever, mind it's lost

44:15

has been good lost, right, the passwords, lost,

44:17

the art drivers. So I think

44:20

people, especially main street

44:22

investors, are looking for a familiar

44:24

name black Rock clearly is

44:26

that. The other thing is all

44:29

of the interim solutions that have come out.

44:31

You described that as rapper migration.

44:34

I have to think that the futures

44:36

bitcoin products are all gonna move to

44:39

ETFs, along with the

44:41

various trusts and mutual funds. It seems

44:44

this is the ideal structure

44:46

to put that in. Other

44:48

than that, I have no guess as

44:51

to where this. If you were to tell me

44:53

five years from now it's one hundred

44:55

billion dollars, I would shrug.

44:58

And if you said, oh, you've never really caught on and

45:00

it's just a couple of billion dollars,

45:03

maybe I'm more surprised by that outcome. But

45:05

it's certainly in the range of possibilities. It

45:07

could be a giant smash, it could be pretty

45:10

good, or maybe it goes nowhere. It's

45:12

hard to judge. If you're decentralizing

45:16

finance. If that narrative

45:18

about crypto is we're going to take

45:20

finance away from the big banks, well

45:23

then the whole concept of an ETF.

45:24

Does right exactly. That was initially

45:27

what we thought when people approached us, like there

45:29

were a lot, We got so many calls

45:31

from you know, various crypto players

45:34

who wanted us to list in ETF,

45:36

and the question we asked, the first question I

45:38

asked, was why do you even want this?

45:41

Isn't this whole isn't the whole point

45:43

like disintermediation, DeFi

45:45

like I'm pretty cefi with this, with

45:48

this you know, etf rapper thing going,

45:51

But I guess, you know, as it turns out,

45:53

it really is that desire buy investors

45:56

for whole portfolio risk management.

45:59

So for me, I guess I think about

46:01

what is the best long term outcome

46:03

for investors, and it's probably

46:06

an integration of these ecosystems

46:08

as opposed to them living separately

46:10

so that you can manage risk holistically.

46:13

But like you, we need to see how it plays out.

46:15

And the other thing that is

46:18

obvious in hindsight the whole

46:20

concept of trustless transactions

46:23

where you don't need to have a trust

46:25

relationship with the opposite party.

46:28

How has that worked out. We've seen all

46:30

the big crypto exchanges implode.

46:33

It seems there's just

46:35

between the criminals and the blackmailers,

46:38

and the just crazy

46:40

run of crypto

46:43

criminals. Doing

46:45

it yourself seems so fraught with risk.

46:48

But if I could say to black Rock, hey,

46:50

I'm going to outsource all of my risk

46:52

management to you. Take care of the

46:55

custody, take care of the passwords, I don't

46:57

want to deal with any of this stuff just

46:59

seems to be so much easier. I

47:01

guess it's laziness. I want the most

47:03

friction free approach to making

47:06

a purchase, and I don't want

47:08

to have to engrave a password

47:11

that's ninety seven letters long on a piece

47:13

of metal and bury it in my backyard.

47:15

That doesn't appeal to me. So what

47:17

are you hearing from others in

47:20

the space in terms of what

47:22

they're looking for in a

47:24

crypto.

47:25

Etf The convenience of ETFs

47:28

is incredibly compelling for investors.

47:31

They understand the ecosystem. Now

47:33

importantly with the Bitcoin ETFs,

47:36

the institutional greed custody

47:39

is really important for investors as

47:41

well. Now to your question

47:43

about the crypto ecosystem separate

47:46

for metfs, I think there's a lot of questions

47:48

there around how that evolves in terms of

47:50

what we've seen so far. Is it the technology

47:53

that's created it, or is it really the fact that

47:55

there have been no guardrails around the ecosystem

47:57

that is built around it. I would say the

48:00

technology has a lot of promise

48:02

in terms of its transparency

48:04

and auditability. This is

48:06

a technology that presumably could

48:08

actually decrease the utility

48:11

for illicit finance. However,

48:13

we would really need a regulatory

48:15

and policy environment supporting

48:17

it, and I think that's where there's a lot of questions,

48:20

particularly in the US, around future direction.

48:23

So we have a bitcoin ETF, what about

48:25

other coins like ethereum.

48:27

We'll have to watch this space, I think. I

48:29

think there's really with respect to what

48:32

we hear from investors, there's one other

48:34

coin right now, and then a whole lot of coins

48:36

that we'll just call them alt coins. Right,

48:39

But the question as to whether investors are

48:41

interested in an ethereum METF, yes,

48:44

we're definitely hearing that they are. I

48:46

think we're early days of bitcoin ETF

48:48

trading. There's a lot of policy

48:50

and regulator change that will probably

48:53

have been in twenty twenty four. We'll

48:55

have to see what happens from here.

48:57

And the Blackrock I shares Bitcoin

48:59

ETF is IBIT, right,

49:02

that's the stock symbol. What

49:04

have the assets flows looked

49:06

like? Where is this is this thought

49:09

of as a successful launch? Where have

49:11

you gone so far in assets

49:13

under management? There?

49:14

So ibit is a little bit over five

49:17

billion dollars.

49:18

In really assets. That's pretty

49:20

quick to five billion considering how new this

49:22

is.

49:23

It is and remember this dynamic

49:25

that we talked about with respect to Rapper

49:27

switching. So we do know that there were

49:29

a lot of you know, bitcoin holders

49:32

that were in rappers that they felt were less

49:35

convenient, less transparent,

49:37

maybe didn't offer them the same sort of you know, custody

49:40

that they have, and also maybe holders who

49:42

are also interested in being able to lend

49:44

out ETF shares where it was

49:46

harder to deploy securities lending

49:48

type trading in underlying cryptos. So

49:50

I think this question that we were talking about

49:53

before, in terms of where does the long term

49:55

demand come out, it really depends on

49:57

on how investors and how advisors think

50:00

about this in the context of portfolio allocation.

50:02

So I'm going to assume black Rock doesn't

50:04

take bitcoin, or do you

50:07

If a client pulls up and says, hey,

50:09

I have a million dollars at my bit

50:12

X custodian and I want to transfer

50:14

it into an ETF, is that something

50:16

a broker can do a custodian can

50:18

do or are we not quite at that

50:20

point yet?

50:21

Oh, we are absolutely holding crypto

50:24

on behalf of our clients in these ETFs.

50:26

I would think of it very similarly to gold,

50:29

where an investor who buys our

50:31

gold ETF or our silver ETF

50:34

we have a custodian who is storing

50:37

silver bars or gold bars

50:40

in their vault. Physically, it's

50:42

the same thing in bitcoin. So we work

50:45

with a custodian who is storing

50:47

the actual bitcoin for our

50:50

investors in cold storage, and

50:52

on a daily basis, we are sweeping

50:54

actual coin into that cold storage

50:57

and that custody and the fact that they

50:59

are actually owning the crypto. That's an important

51:01

part of the value proposition.

51:03

That's really interesting. Since

51:05

all bitcoins are created equal,

51:07

I assume it's not like this

51:10

fund manager or that stockscreen

51:13

or that index. At

51:15

a certain point, it has to come

51:18

down to cost. Given

51:20

your guys expertise scale

51:23

the ability to drive costs down.

51:25

Is this just going to become a race

51:28

to the bottom in terms of fees or how

51:30

do you see this evolving over time?

51:32

Investors care about total cost of ownership,

51:35

Barris, we were talking about.

51:36

So it's not just the fee, it's everything.

51:38

Else that's evolved with It's the liquidity,

51:40

it's the on exchange access,

51:43

it's the diversity of the counterparty ecosystem.

51:45

All of these things you can measure broadly in

51:47

thinking about market quality. Is there an

51:49

options ecosystem on the et ap

51:52

and importantly, the operating model matters

51:54

as well. How is the custody working,

51:57

is it? You know, institutional grade

51:59

custody, And if you really want to get into

52:01

the details, you will start to see differences

52:04

in some of the operating models, as you would

52:06

with commodity ETFs as well.

52:08

So it's not strictly going

52:10

to be a competition based

52:12

on fees. There are other factors there.

52:14

Because you guys have the ability to dominate

52:17

in terms of fees versus smaller

52:19

competitors. You know, my instinct

52:21

is, oh, we can dominate this market

52:24

share by just undercutting everybody

52:26

else. It sounds like you're taking a more

52:28

holistic approach than that.

52:31

We just take a more holistic approach, and I think

52:33

that's what investors ask us for. We're certainly

52:35

seeing this in the fixed income

52:37

ETF complex, particularly in

52:40

treasury ETFs, where there's been a

52:42

lot of interest and attention lately in

52:44

the longer part of the curve. And what you

52:46

will see as is ETFs that

52:48

have much more liquidity options

52:51

ecosystems will actually

52:54

maintain higher price points,

52:56

but from an investor's experience

52:58

perspective, probably a lower total

53:01

cost of ownership and they're bigger.

53:03

Interesting. I haven't seen a

53:05

whole lot of marketing for

53:08

IBIT. In fact, I haven't seen a whole lot of marketing

53:11

for many bitcoin ETFs, although

53:13

they're starting to bubble up online. Is

53:16

this a product that requires a

53:18

lot of marketing muscle or is this something

53:21

that hey, if you want to buy a bitcoin

53:23

etf, you know where to go find one.

53:26

This is a product that was launched in answer

53:28

to investor demand for

53:31

access. So it really is a

53:33

journey of education in

53:36

terms of what access we're

53:38

providing and for investors who want

53:40

to learn more, not just about

53:42

bitcoin, but also it's an opportunity to teach

53:44

investors about ETFs, to get them to

53:46

participate in a market's ecosystem

53:49

that allows them to get diversified exposures

53:51

across lots of different types of asset

53:53

classes. So for us, it's an opportunity

53:56

to talk about access to markets

53:58

in a broader way, and that's it's

54:00

going to bring us the next you know, one hundred million

54:02

of savers into equity and bond

54:05

markets.

54:05

And this is still really very

54:07

early days. Right when did the ibit

54:10

come out?

54:11

Second week of January?

54:12

I read somewhere you were like the fourth or fifth largest

54:15

flows for bitcoin ETFs

54:18

without doing a whole lot of marketing. What

54:20

does that say about where investors

54:23

want to manage their risk, who they're comfortable

54:25

with, who they're familiar with.

54:27

I think that looking at the bitcoin

54:29

ETF flows, you do have to be very sensitive

54:32

to the rapper switching dynamics

54:34

and what's driving it right now.

54:35

For running, were you running

54:37

a Future's bitcoin ETF.

54:41

No, we weren't running it show, So it's not like it.

54:43

Was coming from internally. This is flows

54:45

from.

54:46

Out Oh absolutely, yeah.

54:47

No.

54:47

When I say rapper switching, I'm talking about all

54:49

different types of rapper switching, whether

54:52

it's from a trust, whether it's from a Future's

54:54

ETF, or whether it's somebody who is

54:56

holding bitcoin who actually you know, would prefer

54:58

to hold their bitcoin in any yeah, because they're

55:00

worried about losing their key or whatever

55:02

it is.

55:03

For there seems a much more secure way

55:05

to do it.

55:06

So we were talking earlier Barry about

55:08

flow and tell what do you read

55:10

into from flows? The point that

55:12

I'm just making here is a month in it's

55:14

a little early to extract anything about

55:16

demand for bitcoin. It's very

55:19

clear what investors are saying about ETFs

55:22

and their desire to manage whole

55:24

portfolio risk and the convenience

55:26

of the rapper for the exposures that they

55:28

want, the ETF is the first

55:30

choice, and I think you're going to have to

55:33

just have me back in a couple of years to see

55:35

what the bitcoin journey is.

55:36

So I don't want to put words in your mouth, and I'm

55:38

going to say what you're not saying. We

55:40

already know. Vanguard came out and they said they're

55:42

not going to do it. State Street seems to be

55:45

lagging. I can easily

55:47

see Blackrock being the dominant bitcoin

55:50

ETF twelve eighteen months

55:52

from now, especially because you don't

55:55

have those internal flows that some

55:57

of your bitcoin competitors do.

56:00

And you're still kicking butt. So I'm

56:02

being complimentary and you're kind of being coy

56:04

about it, and I understand

56:06

what your corporate charge

56:08

is. But I think it's a really fascinating

56:11

story and it's going to be interesting

56:14

to watch what happens with Ethereum.

56:16

But really it's come down to a couple

56:19

of coins that serve slightly

56:21

different technological purposes

56:24

and then the rest of the technology around

56:26

it. It feels like We've been talking

56:28

about a bit quinny TF for

56:31

years and years and now

56:33

it's here and five billion dollars in a

56:35

month, is, you know, just kind of bonkers.

56:38

Let's leave the ibit story behind

56:40

and jump to my favorite questions that I

56:43

get to ask all of my guests,

56:46

starting with what are you streaming these

56:48

days? Tell us what you're watching or

56:50

listening to.

56:51

I know you always asked this, Barry. So, so here's

56:53

the secret with me and podcasts. I do listen

56:55

to them. I'm not a regular on any

56:58

My trick is that if there's a topic I want to

57:00

learn about or a person that I'm interested in,

57:02

I search for that and just listen to recent podcasts.

57:04

So I've been interested in hearing how people are covering

57:07

bitcoiny taffs. And I also

57:09

actually currently am listening to a podcast

57:11

with a woman named Randy Brown, who

57:13

we are having speak at Black Rock. But she just

57:15

wrote the new playbook for women at

57:18

work and I'm excited to meet her. I'll

57:20

be interviewing her. So that's how I listen

57:22

to podcasts.

57:23

What about Netflix, Amazon

57:25

Prime, anything like that.

57:27

So my husband is the curator of family

57:29

shows and right now he's going through like a

57:32

zombie series phase. So I

57:35

don't have a current show that I'm super.

57:37

Not a zombie fan, not a big zombie fan.

57:39

I'm not a big zombie fandary.

57:41

Yeah, everybody talked about Walking Dead

57:43

and it's not what I want to see.

57:45

I love Buffy the Vampire Slayer,

57:47

but that's a.

57:48

Whole First of all, it's got an

57:50

element of humor and wit in

57:52

it. It inverts the whole model

57:55

of instead of the pretty cheerleader being killed

57:57

by the monster, it's exactly

58:00

it turns it on its head and she's the vampire

58:02

Slayer from its inception.

58:05

It has a certain snarky

58:07

knowingness that I

58:10

just didn't pick up in The Walking Dead. The Walking Dead

58:12

was just a forwarfit.

58:13

I'm really happy to hear you're a Buffy fan.

58:15

I'm a big sci fi geek, so me

58:18

too. And it's always funny when you discover

58:20

people that you would never in a

58:22

million years guess are like deep

58:25

sci fi nerds. So it kind of comes

58:27

with the math territory. There's a big you

58:29

know, the Venn diagram has a big overlap

58:31

with that. I'm still having an image

58:35

in my mind of I

58:37

don't remember if it was the series of the movie

58:40

where it's Peewee Herban at the end

58:42

where he's impaled on the stake and

58:44

the death scene of him just going ah,

58:48

just slowly dying. It like

58:50

that sort of hilarious parody

58:53

of the genre. If you're a

58:55

film buffer a sci fi you have to really

58:57

appreciate that. It's just sick people,

59:00

you know, don't make movies that way. But it's

59:03

really interesting. I don't remember if last

59:05

time we spoke about

59:07

my two favorite streaming sci

59:10

fi recommendations.

59:11

I don't think so.

59:12

One is Altered Carbon, which

59:15

is this short two season series

59:17

that if you're like a hardcore

59:19

sci fi game, okay, it's amazing.

59:21

I've heard of it.

59:22

And then second on Amazon

59:24

Prime was The Expanse, which

59:27

is insane and just

59:29

it morphs over time and goes in all sorts

59:32

of crazy places. But the

59:35

universe it creates that's

59:38

not a million years in the future. It's

59:40

not radical technology.

59:42

It's far enough in the future that people live

59:44

on Moon, people live in Mars, people

59:47

live out in the work in the asteroid

59:49

belt, and they live out on I

59:51

think Titan, one of the moons of Jupiter.

59:54

And then what are the geopolitics

59:56

of the Belters, the Earthers,

59:58

and the Martians. So the technology

1:00:01

is close enough to today that it's very

1:00:03

believable, and the world

1:00:05

that it creates is just it's completely

1:00:08

mayhem, really really fascinating.

1:00:11

You don't have to build weapons if

1:00:13

you have the ability to just heave asteroids

1:00:16

towards your enemy. It's just wild.

1:00:19

So it definitely takes a couple

1:00:21

of wacky turns in the latter

1:00:23

seasons, but the whole ride is if

1:00:25

you're a sci fi geek, you may appreciate

1:00:28

it. On my list, let's talk about your

1:00:30

mentors who helped shape

1:00:32

your career.

1:00:33

My earliest mentors were

1:00:35

actually in theater. I had my first real

1:00:37

backstage experience being a stage manager.

1:00:40

The head of the drama department

1:00:43

reached out to me. He wrote me a note afterwards,

1:00:45

and he let me follow him everywhere and just taught

1:00:47

me a lot that He wrote me a note that

1:00:50

said, and I kept this note for years. It said,

1:00:52

you've got what it takes tomorrow, thanks for

1:00:55

sharing it with us. And I remember I saved

1:00:57

that note, and even when I was doing things that had nothing

1:00:59

to do with it, gave me a lot of

1:01:01

confidence. So I would say that was kind of my first

1:01:03

real mentorship experience.

1:01:06

You mentioned some books earlier. Let's talk about

1:01:08

some of your favorites and what you're reading now.

1:01:11

Well, now that you said the sci fi thing, I will

1:01:13

share my favorite book that I

1:01:15

read in twenty three. I don't know if you've read this.

1:01:17

It was called Cloud Cuckoo Land, which

1:01:20

is a really cool book. It's I

1:01:22

think six or seven different intertwined

1:01:25

stories that range

1:01:27

from ancient Greece to sometime

1:01:30

in the future, but it's a story about

1:01:33

hope and resilience and space

1:01:35

and time and connections. And

1:01:38

I thought it was just gorgeously written.

1:01:40

And I read a lot of fiction, and I like things that

1:01:42

just kind of expand how I think about

1:01:44

the world. So I would definitely recommend

1:01:46

Cloud Cuckoo Land. And then I'm also a

1:01:48

market's history nerd and I always

1:01:50

will be. So I am reading right now

1:01:53

the Bitcoin Standard, which is

1:01:55

less about bitcoin, I think, and

1:01:57

more about the history

1:02:00

of money and the ways civilizations

1:02:03

have sought to find different

1:02:05

ways to transfer value

1:02:07

across space, across time. That's

1:02:10

fascinating to me, and I think

1:02:13

really instructive and thinking about the future

1:02:15

markets.

1:02:16

Did you happen to read either of the two

1:02:18

big crypto Sam bankmin Freed

1:02:20

FTX books, either Going Infinite or

1:02:23

Number Go Up. They're both

1:02:25

delightful in different ways. Number

1:02:28

Goes Up is a little more horrifying

1:02:31

because you see the cd underworld

1:02:34

of how criminals, yeah

1:02:37

and human traffickers use bitcoin. I'll

1:02:40

use all sorts of crypto, but it's really

1:02:42

a great work of journalism and revealing

1:02:45

and Going Infinite. Anything Michael Lewis

1:02:47

writes is always going to be delightful.

1:02:50

So our last two questions, what

1:02:52

sort of advice would you give a recent college

1:02:55

grad interest in a career

1:02:57

in investing, at

1:03:00

indexing, any of the work you

1:03:02

do at Blackrock.

1:03:04

If they are interested, My advice

1:03:06

would be to go for it. I talk

1:03:08

to a lot of college grads

1:03:10

who are wondering, well, I be good

1:03:12

at this? Should I try it? And look, I

1:03:14

had a theater background and I gave

1:03:17

it a shot. There are so many different ways

1:03:19

to be successful in investing in markets,

1:03:22

and I've heard people say, you know, know your

1:03:24

strengths and lean into your strengths, and sure

1:03:26

that's true in the long term,

1:03:29

but I think college and learning, and again

1:03:31

I'm saying this is a parent of teens. It's

1:03:33

about uncovering your passions and

1:03:35

leaning into those. You have no idea what

1:03:37

you're going to be good at until you try.

1:03:40

So, if you're interested in investing

1:03:42

and in markets, there's so many different

1:03:44

jobs and types of ways to get involved,

1:03:47

whether it's in an asset manager or a

1:03:49

trading firm, or a broker dealer or

1:03:51

a wealth manager. So get your foot

1:03:53

in the door, start to see if

1:03:55

it is you know what you want it to be.

1:03:57

And finally, what do you know about

1:04:00

the world of investing today you wish

1:04:02

you knew thirty years or so ago when

1:04:04

you were first getting started.

1:04:06

The moments that feel the worst

1:04:08

in markets, the scariest,

1:04:11

the most volatile, are the moments

1:04:13

where you can define

1:04:15

the outcomes that you're delivering investors

1:04:19

and define your career. I look across

1:04:21

my career at these moments that I thought, oh my gosh,

1:04:23

we never thought, you know, this sort

1:04:26

of flash crash, this sort of dislocation,

1:04:28

this sort of black Swan event would happen.

1:04:31

But over the course of a thirty year career, which

1:04:33

I've had, there have been many of

1:04:35

those. And what we learn in those moments,

1:04:37

how we stay close in those moments

1:04:40

manage risk for investors, and what we

1:04:42

learn coming out of them are the biggest

1:04:45

contributions we can make from a portfolio

1:04:47

perspective, and I think from a market's

1:04:49

perspective. So it would have been interesting

1:04:52

to have been told that on my first day

1:04:54

of work, which was about thirty years ago.

1:04:56

I love that answer. I have a vivid

1:04:59

collection in the middle of the

1:05:01

financial crisis of

1:05:03

saying to one of the traders a

1:05:06

line from Apocalypse Now the Daval

1:05:08

character. You know, someday this war

1:05:11

is going to end, he says, with

1:05:13

a bit of longing and bittersweet

1:05:16

recognition, that it's a unique

1:05:19

moment in time, and drink

1:05:21

it all in because you're not going to see anything

1:05:23

like this again. And I think people sometimes

1:05:26

don't appreciate that, at least in the mayhem

1:05:28

of the moment. Exactly, really

1:05:30

fascinating take on this. Samaraw

1:05:33

thank you so much for being so generous

1:05:35

with your time. We have been speaking

1:05:37

with Samara Khone. She is chief investment

1:05:40

Officer of ETF and

1:05:42

Index Investments for black Rock. If

1:05:45

you enjoy this conversation, check out

1:05:47

any of the five hundred previous discussions

1:05:50

we've had over the past ten years.

1:05:52

You can find those at iTunes, Spotify,

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YouTube, wherever you get your

1:05:57

favorite podcast. Check

1:05:59

out my new post podcast At the Money,

1:06:02

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experts about issues that

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matter deeply for your

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investing money. At the

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Money, wherever you find your favorite podcasts,

1:06:16

and in the Masters and Business feed.

1:06:18

I would be remiss if I did not thank the crack

1:06:20

team that helps us put these conversations

1:06:23

together. Paris Wald is my producer,

1:06:25

Jan Taurus is my audio engineer.

1:06:28

Sean Russo is my researcher.

1:06:30

Atika al Broun is my project manager.

1:06:32

I'm bat Rdholtz. You've been listening

1:06:35

to Masters in Business on Bloomberg

1:06:37

Radio.