Takeaways From BlackRock CEO Fink’s Annual Letter

BlackRock Inc. CEO Larry Fink’s annual letter to investors details issues he sees as key for investors, businesses and markets. This year’s edition, “Time to Rethink Retirement,” focused on a looming retirement crisis and the need to better equip future generations to thrive as they age.

Fink highlighted the need for the U.S. and other countries to reconsider the concept of retirement and related public policies in light of increasing life expectancy. He also outlined the investment options and structures his firm has developed to help address the issues.

“When people are regularly living past 90, what should the average retirement age be?” Fink asked rhetorically in the letter. But he noted it will be important to encourage people who want to work longer to be able to do so, rather than requiring it.

Acknowledging that work has changed since the heyday of defined benefit pension funds, Fink wrote that defined contribution plans, such as 401(k) plans, were intended to help a more mobile workforce, “but in practice? Not really.” Problems with the move to defined contribution retirement systems, Fink said, include that they force retirees “to trade a steady stream of income for an impossible math problem.”

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In his letter, Fink pointed to his parents’ modest incomes and noted that when reviewing their retirement savings, he saw they were a magnitude greater than their combined incomes. The reason: their investments.

“My dad had always been an enthusiastic investor,” Fink wrote. “He encouraged me to buy my first stock (the DuPont chemical company) as a teenager. My dad invested because he knew that whatever money he put in the bond or stock markets would likely grow faster than in the bank. And he was right.”

Fink noted that he and his partners founded BlackRock in order to help people retire like his parents did, and that participation in capital markets is crucial for people to retire comfortably and financially secure.

“My parents lived their final years with dignity and financial freedom,” Fink continued. “Most people don’t have that chance. But they can. The same kinds of markets that helped my parents in their time can help others in our time. Indeed, I think the growth- and prosperity-generating power of the capital markets will remain a dominant economic trend through the rest of the 21st Century.”

His comments also noted how much harder today and how important it is for people to save for a secure retirement. His remarks noted that “as populations age, building retirement savings has never been more urgent.” Yet, while medical and pharmaceutical breakthroughs are making it possible for people to live longer, “we focus a tremendous amount of energy on helping people live longer lives. But not even a fraction of that effort is spent helping people afford those extra years.”

Retirement “is a much harder proposition than it was 30 years ago,” Fink wrote. “And it’ll be a much harder proposition 30 years from now. People are living longer lives. They’ll need more money. The capital markets can provide it—so long as governments and companies help people invest.”

Replicating Strong Capital Markets

Fink pointed to the success of American capital markets as one of the reasons why the U.S. rebounded from the global financial crisis faster than almost every other developed nation. “More and more countries recognize the power of American capital markets and want to build their own,” Fink wrote.

Stronger capital markets, according to Fink, will address two of the biggest economic challenges of the mid-21st century, providing a secured well-earned retirement and building the infrastructure the world will need in the future.

Fink noted that there is an increased demand for not only energy infrastructure, but lower-carbon sources of power while simultaneously achieving energy security. Stronger global capital markets can help countries meet these goals affordably, in his view.

“As countries decarbonize and digitize their economies, they’re supercharging demand for all sorts of infrastructure, from telecom networks to new ways to generate power,” Fink said. “In fact, in my nearly 50 years in finance, I’ve never seen more demand for energy infrastructure.”

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Tags: BlackRock, institutional investors, Larry Fink, Retirement

Blackstone Inc.’s battered real estate trust appears to be in comeback mode. Commercial real estate has been the bête noire of investing for the past couple of years, and Blackstone Real Estate Income Trust took its lumps in 2023, with its main investment class losing 0.5% and lots of investors exiting.

The worst appears to be over for commercial property, with some possible exceptions such as offices. As investment manager Wilmington Trust stated in a recent research report, “fundamentals remain strong” in many CRE segments, such as industrial and multifamily, and expected lower interest rates and the absence of a recession should bring the start of a recovery in 2024’s second half.

For BREIT (assets: $61 billion), as the Blackstone trust is known, “we’ve seen a bottoming out, and in 2024, the clouds will part,” Blackstone’s global co-head of real estate, Nadeem Meghji, told shareholders last month, pointing to the anticipated rate cuts. BREIT has seen a slowing of redemption requests so that it no longer has to cap them at 2% of the fund’s net asset value monthly.

One sign of health, or at least optimism, is making an acquisition. Amid tough times for real estate, BREIT recently announced it was buying a single-family rental company, Tricon Residential, for $3.5 billion. Also, in December 2023, BREIT agreed to buy 20% of a facility that holds a $16.8 billion senior mortgage loan portfolio, formerly owned by failed Signature Bank. This $1.2 billion investment, made in partnership with the Canada Pension Plan Investment Board and Rialto Capital, is a joint venture with the Federal Deposit Insurance Corp., which seized Signature’s assets.

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An early vote of confidence in BREIT came in January 2023 at the height of redemptions when UC Investments, which manages the University of California’s endowment, announced a $4 billion investment in the fund. “In the current environment, investors can benefit from stable cash-flowing investments that can grow with high global inflation,” Jagdeep Singh Bachher, the University of California’s CIO, said in a statement. “We consider BREIT to be one of the best-positioned, large-scale real estate portfolios in the U.S.”

BREIT is a non-public REIT, meaning it is not exchange-traded. The upside for the fund is that investor withdrawals are limited, so the trust cannot suffer a massive capital outflow all at once—an advantage that has served it well as commercial property buckled under rising mortgage rates and mounting recession fears, along with the post-pandemic change in work habits. But now the Federal Reserve is openly talking about reversing its rate hikes, and economists no longer consider a recession a certainty.

Since its launch in 2017, BREIT has done well, rising 12% annually, close to the increase in the S&P 500 over the period and (per Blackstone) more than double the return of private REITs overall. BREIT started out strong, yet faded once the Fed began escalating rates in 2022: It returned 30% in 2021 and 8.4% in 2022.

Blackstone touts BREIT’s asset allocation as a major plus going forward. It has only 3% in offices, the most troubled CRE sector, given the work-from-home mentality that has taken root thanks to the pandemic.

The fund has 25% in apartments and an identical share in the industrial sector — mostly in warehouses, but also in factories. Demand should be solid for apartments, according to CBRE, the real estate services and investment firm. Reason: a shortage of single-family homes, which has led to an affordability issue for many people. While the pandemic-driven boom in warehouses has faded, CBRE still sees a strong future for industrials because of the ongoing onshoring of manufacturing.

Another factor favoring BREIT is that most of the fund’s holdings are in the Sun Belt, which is growing faster than the rest of the country, said Meghji. He added, “This is a great time to deploy capital.”