%THE DOW JONES BUSINESS AND FINANCIAL WEEKLY www.barrons.com AUGUST 15, 2011 CEO Spotlight LarryFink The Bond Guy Says Buy Stocks by Lawrence Strauss

(The following has been excerpted.)

If it’s Tuesday, it must be Beijing or ernment,” he says. “We did not see lead- Tokyo or London or Rome. Or maybe ership world-wide.” Zurich, this time, for Laurence Fink, the Washington’s protracted brawl over indefatigable, globe-trotting head of New the U.S. debt ceiling and deficit reduc- York-based BlackRock, the largest money tion “truly showed how dysfunctional our manager in the world. Fink is everywhere government has become,” Fink added. these days, visiting with clients, counsel- “We lost one of the main foundations for ing governments and central bankers and investing—the certainty of good govern- managing a sprawling business that over- ment.” And the problem hardly is con- sees $3.7 trillion of assets. All this has fined to the U.S.; European leaders, he given him a unique perch from which to says, need to “create confidence” for in- analyze and help shape the global finan- vestors, not turn to short-term fixes for cial markets. the European Union’s worsening debt As those markets gyrated last week— woes. the S&P 500 fell 6.6% on Monday, wiping That said, this former mortgage trader out around $1 trillion of value—Fink was prefers stocks over bonds. “Do I believe vacationing with his family in Colorado, equities here represent a good opportu- where he has a home. At least that was nity?” he says. “Absolutely. You have com- the plan. “I wouldn’t call it a vacation, panies trading with dividend yields above unfortunately,” says the BlackRock CEO, 5%. With interest rates as low as they one of Wall Street’s biggest power play- are, equities are a very powerful alterna- ers. “This week, I’ve been on the phone tive for income, long-term inflation pro- heavily with government officials, finance tection and price appreciation.” ministers and central bankers.” On Thurs- In particular, he points to General day, he headed back East for meetings in Electric (ticker: GE), which he deems a Washington. good fundamental company whose shares Fink also spent some time last week have been so beaten down that they yield talking with Barron’s, resuming a conver- 3.8%. Chevron (CVX) with a 3.3% yield, is sation we had begun some weeks before another. Ten-year Treasuries, in contrast, in BlackRock’s sleek midtown Manhat- yield just 2.3%. BlackRock tan headquarters. The market’s turmoil, Former bond trader Fink prefers divi- he says, has left him discouraged about An L.A. Boy dend stocks to Treasuries. governments around the world, and their Fink, who founded BlackRock’s pre- ability to do the right thing. “The mar- decessor firm in the late 1980s after a kets world-wide are unsettled because of fabled—and somewhat notorious—career inaction and really bad results from gov- as a trader of mortgage-backed securities,

(over please)

The Publisher’s Sale Of This Reprint Does Not Constitute Or Imply Any Endorsement Or Sponsorship Of Any Product, Service, Company Or Organization. Custom Reprints (609)520-4331 P.O. Box 300 Princeton, N.J. 08543-0300. DO NOT EDIT OR ALTER REPRINT•••/ REPRODUCTIONS NOT PERMITTED #44378 ! IN THE SPOTLIGHT Age: 58 BlackRock On Investors: “They need to look Education: public schools; BLK- NYSE beyond the volatility and the noise. They UCLA, B.A., political science, 1974; M.B.A. $300 should be re-risking,” not de-risking. Weekly close on August 11 1976 On Competitiveness: “I don’t even CEO since: 1988 care about what my competitors do. What Corporate Boards: None 150 Ido care about is that, if we do our job Affiliations: University, NYU well for our clients, we will be fine.” Hospitals Center, The Museum of Modern Advice to CEOs: “We have to look at Art, Anderson School of Management at the fundamentals of the company and 0 UCLA avoid the temptation of getting caught up ’07 ’08 ’09 ’10 ’11 First Job: Mortgage trader, First Boston, Source: Thomson Reuters in the minutiae of the day-to-day markets.” 1976 Admires: Lee Kuan Yew, prime minister Interests include: Hiking, fly fishing, Price $161.98 of Singapore, 1959-1990: he turned Singa- American folk art and wine. 52-Week Range $139.2 -$209.8 pore into “one of the most powerful capi- Economic Outlook: ”Our economy is Market Value $29 billion talistic societies that is totally based on a going to be growing anemically for some meritocracy of education and hard 2010 Revenue $8.6 billion time. It is crucial that our politicians recog- work”;and Chicago Bulls and Los Angeles nize that the partnership between govern- 2010 Net Income $2.1 billion Lakers coach Phil Jackson, who won a ment and businesses is really important, 2010 EPS $10.55 record 11 NBA championships: for leading because government is shrinking. If we Est 2011 EPS $12.74 “groups of young men who, in many want growth, we need to really empower Est 2011 P/E 12.7 cases, were taught when they were the private sector.” Dividend Yield 3.4% younger only about individualism.”

has earned the respect of those he advis- most profitable groups. But his star faded clays Global Investors for $13.5 billion, in es because he tells it as he sees it, and he quickly after his group made a bad bet on June 2009. sees almost everything. “With Larry, you interest rates in 1986, losing a reported Formerly a fixed-income shop focused get two important things: candor, and he $100 million. “I was not the trader, but on institutional clients, BlackRock gained doesn’t just talk his own book,” says Jim the desk reported to me. I was the cap- expertise in equities and a retail clientele Wilkinson, chief of staff for former U.S. tain of the ship. It was my responsibility. in the deal. And with the addition Treasury Secretary Hank Paulson. “You You have to go down with the ship as the of Barclays Global Investors, which Black- get advice from him based on his views captain.” Rock scooped up at an attractive price of the global financial system and what In early 1988, Fink, then still in his when Barclays needed cash to shore up he’s seeing.” mid-30s, launched his own money-manage- its balance sheet, the firm became an in- The son of a shoe-store owner and a ment shop. Known as Blackstone Finan- stant leader in passive products, including college professor, Fink hardly seemed cial Management, it was affiliated with the index funds and ETFs, and quantitative destined to become a consummate Wall Blackstone Group, an elite private-equity strategies, complementing its fundamen- Street insider, much less a consigliere in firm led by Peter Peterson and Stephen tal approach. “In our two big mergers, capitals around the world. He didn’t even Schwarzman. The two entities went their there were very few redundancies,” he arrive at First Boston, his first employer, separate ways in 1994 after Fink and his says. “And that’s where other firms went as a freshly minted Harvard or Wharton colleagues had a dispute with Blackstone wrong: redundancy on the product side.” M.B.A.—a typical path to the Street—but over getting enough equity to become full Another common thread in the deals as a graduate of the business school at partners in a combined organization. was that BlackRock acquired asset man- UCLA. That separation was hardly cordial, but agers that “were trapped in large finan- Fink grew up in Los Angeles, attended Fink had learned plenty from Schwarz- cial-services companies,” he says. “We are public schools and had “a very middle- man and Peterson. “I learned from Steve in asset management and risk manage- class upbringing,” he says. That included that when there is a problem you have ment; that’s it.” selling shoes when he was 10. “I wasn’t to be relentless in trying to cauterize aware of it at the time, but what I learned that problem,” he says. He learned from Beware Bureaucracy and Bloat was an ability to communicate at a young Peterson how important it is to have a BlackRock, which was launched 23 age, and responsibility,” he says. strong connection with clients. years ago with fewer than a dozen peo- Arriving in New York in 1976, Fink BlackRock (BLK) went public five ple and zero assets under management, quickly mastered the intricacies of trad- years later, in 1999, with assets under now has 9,700 employees in 26 countries. ing mortgages at First Boston, at a time management of about $165 billion, less And that has Fink working hard to fight when few investors understood them. “I than 1/20th its current size. Since then, the trappings—notably bureaucracy and had to educate my clients,” he recalls, Fink and his team have built an asset- bloat—that often hobble organizations as “because no one knew about mortgage management colossus, in part through they grow exponentially. securities.” the shrewd acquisitions of Merrill Lynch “We need to prove to our clients that A rising star, Fink built mortgage- Asset Management in exchange for 49% scale is a virtue, not a detractor. The only backed securities into one of the firm’s of BlackRock’s stock, in 2006, and Bar- reason scale could be a virtue is if we con- nect all of the global information that we and $1.8 trillion, respectively, as of Dec. Ten-Year Plan have,” including billions of asset flows. 31, according to trade publication Pen- Fink says he’s working harder today To accomplish that, BlackRock invest- sions & Investments. than he did in his First Boston days, criss- ed heavily to bring the combined orga- About half of BlackRock’s assets are crossing the globe two weeks a month to nizations together on a single technology now in passive strategies, but Fink is “in- visit clients. Still, it’s a bit surprising that platform—a challenge that Fink called different with my clients in terms of ac- when the subject of retirement comes “very expensive.” But worth it. Using tive or passive,” he observes, adding that up—often a sore point when it comes to one platform, he says, makes it easier for it depends on what the clients need and successful founders and CEOs—Fink says employees to share information, making on their risk orientation. that “it’s entirely probable” that he won’t BlackRock better at investing and provid- As the biggest asset manager around, be working at BlackRock in 10 years. “I ing “better information to our clients.” BlackRock is a major target for rivals, be am not a person who wants to be here That, in turn, has translated into eye- it Vanguard in the ETF market or Pimco and run it until I die,” he continues. “I popping returns for shareholders. Since in fixed income. “I don’t focus at all on my am a grandfather today, and I get a lot BlackRock’s initial offering, its shares competitors,” says Fink, who is known for of pride watching my daughter raise her are up 1,200%, or 24% annually, includ- his intense competitive drive. “I don’t even son. I will have just as much pride—in ing reinvested dividends. That compares care about what my competitors do. What fact, it will probably make me happier— with a 16%, or 1.25% annual, return for I do care about is that, if we do our job when I see this firm doing better without the broad market. Fink, who has amassed well for our clients, we’ll be fine.” me.” considerable wealth at the helm of Black- BlackRock’s massive size and reputa- Rock, owns a stake worth about $289 mil- tion have brought the firm a wide range Another of the CEO’s passions is col- lion. of clients, including pension funds, foreign lecting American folk art, most notably Helping to boost BlackRock’s growth governments, sovereign wealth funds and weather vanes. He cites naivete as a big is a broader product mix, which now in- the Federal Reserve, which tapped it in reason for their appeal, ironic, perhaps, cludes a slew of active and passive funds March 2008 to manage $30 billion of dis- for someone who is anything but. “These in stocks, bonds and multi-asset cat- tressed mortgage securities that had been were not made by noted artists,” says egories. Some three-quarters of the $3.7 held by the failed investment bank Bear Fink. “These were people who wanted trillion under management is with insti- Stearns. But size can also be a liability. In- to decorate their house with whatever tutional clients, but the firm’s retail busi- stitutions, complying with mandates that means they had.” ness is growing, helped partly by iShares. limit their exposure to any one asset man- And as with all collecting, practicality In contrast, the No. 2 and 3 asset man- ager, have pulled out billions of dollars is not a consideration. Larry Fink doesn’t agers, State Street Global Advisors and from BlackRock over the past 18 months, need a weather vane to know which way Fidelity Investments, oversaw $2 trillion though those outflows are subsiding. the wind blows. n

This is a reprint of an article originally published by Barron’s on August 15, 2011 and is being reprinted with permission of Barron’s.

The opinions expressed are as of August 15, 2011, and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by BlackRock to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass. Any investments named within this material may not necessarily be held in any accounts managed by BlackRock. Reliance upon information in this material is at the sole discretion of the reader.

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