Rob Goldstein, the chief operating officer of BlackRock, the world’s largest asset manager, thinks there are a lot of misconceptions surrounding the rise of passive investing.
One, for instance, is the name.
“We actually believe one of the greatest misnomers is this word ‘passive’ because we don’t believe any investment decision is a passive decision,” Goldstein told Business Insider.
Passive investing, which means tracking a market-weighted index rather than actively trading single stocks, has steadily eaten away at active-investment management over the past several decades.
Index investing has been revolutionary for Main Street investors, allowing them to bypass high-fee investment managers, many of which have not performed well. The firms that specialize in index investing and exchange-traded funds, another form of passive investing, have become giants of the industry, meanwhile.
BlackRock is one of them. The giant pulled in more money into its ETF arm in the first half of this year than all of last year, the FT reported.
Business Insider recently met up with Goldstein in his Manhattan offices at BlackRock headquarters. You can read the full interview here, and following is the relevant excerpt on his views on passive investing.
Rachael Levy: Can you speak to how BlackRock views active versus passive more broadly?
Rob Goldstein: Sure. It’s incredibly simple in terms of how we view it in that our goal is to construct portfolios that achieve our planned outcomes. And we believe that often, in building those portfolios, you’re blending active management and you’re blending index product. We actually believe one of the greatest misnomers is this word “passive” because we don’t believe any investment decision is a passive decision. You could buy an index fund but you’re not doing that passively. You are making a judgment about asset allocation and other things that impact your portfolio. So when we look at it, we look at it really from, “What is the objective the client is striving for and how do you build the most efficient portfolio to get him or her or the institution to achieve that objective?” Most of the time, you see a role for both active product as well as index product in constructing that portfolio.
Levy: So you don’t think there’s going to be a “death of active” necessarily?
Goldstein: Not only do we believe there’s not going to be a “death of active” but I think quite strongly, we’ve been investing in our active businesses and we’ve been quite transparent and vocal about some of the investments that we’ve made.
Levy: In the sense of expanding them?
Goldstein: So for example, we’ve been very focused on how we could leverage — funnily enough, this could be its own technology discussion — but we’ve been very focused on how we can leverage technology, big data, and other concepts to generate more alpha in portfolios. That’s been a huge thrust of what we’ve been focused on.
Levy: In actively managed portfolios?
Goldstein: In actively managed portfolios, and obviously technology has changed so many things. I mean, look, you’re recording this on your phone. The whole thing is amazing, where the world is. If I would have told you 10 years ago you would have a device that does all those things, you would have thought I was crazy. And the irony is that when you look at the devices on “Star Trek,” what you have is actually cooler than many of the devices on “Star Trek.”
When you look at one of the major changes, it is this combination of the data that’s now available, the technologies that are available to analyse the data, and access to computing power at the price points that you can access computing power and put them together, the opportunities that creates to identify themes, trends, market paradigms is just — it’s limitless.
My sales pitch is very simple: BlackRock is a growth company. BlackRock is a growth technology company and we’re growing our technology functions. We have a very ambitious plan that we call “Tech 2020.” And as part of that, we are looking to extend the 2,000-plus technologists we already have within BlackRock. And we’re really excited about the opportunity to take a company like BlackRock, which is already, I’d say, at the forefront of technology in its industry, and, if anything, keep expanding that.
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