Edwin Conway on BlackRock Alternative Investors (Podcast)

nine trillion dollars in total assets. Uh. The opportunity set that exists for alternatives, even for a firm like black Rock that specializes in public markets, is potentially huge, and black Rock wants a big piece of it. I found this conversation to be absolutely fascinating, and I think you will also so, with no further ado, my conversation with black Rocks Head of Alternatives, Edwin Conway. This is Masters in Business with very renaults on Bloomberg Radio. My extra

special guest this week is Edwyn Conway. He is the global head of black Rocks Alternative Investors, which runs about three hundred billion dollars in assets. He is a team of over eleven hundred professionals to help him manage those assets. Black Rocks Global alternatives include businesses that cover real estate, infrastructure, hedge funds, private equity, and credit. He is a senior managing director for black Rock. Edwin Conway. Welcome to Bloomberg. Sorry,

thank you for having me. So you've been in the financial services industry for a long time. You were a credit Swiss and black Stone and now you're at black Rock. Tell us what the process was like breaking into the industry. Uh, it's an interesting when Verry I grew up in a very small town in the middle of Ireland, um and the breakthrough to the industry was one of more coincidence

as opposed to purpose. I enjoyed the game of rugby for many years and through an introduction Whilston University and University College Dublin in Ireland, had a chance to you know, play rugby at a quite a quite a decent level um and get to know people that were across the industry.

It was really through an internship and the suggestion, given my focus on business and financing things that you know, the financial services sector may be a great place to traverse and and get to know and literally through rugby connections being part of a good school, I had an opportunity to to to really understand, uh, what this service sector in many respects could provide declients and became absolutely intrigued with this and and what was it my my

primary ambition in life to be in the financial services sector? I can definitively say no, But through the circumstance of a game that I love to play and be part of, was introduced to it through an internship and and actually fell in love with them. Quite quite interesting and alternative investments at black Rocks almost seems like a contradiction in terms. Most of us tend to think of black Rock as the giant nine trillion dollar public markets firm best known

for E t f s and indices. Alternatives seems to be one of the fastest growing groups within the firm. This was fifty billion dollars just a few years ago. It's now over three billion. How has this become such a fast growing part of black Rock? When you look at the various facets which you introduced at the start party, Um, we've actually been in alternatives will be ad of the years now. Now the scale as you know which you can operate on the beta side of the business start

surpasses that on the alpha side. You know, for us throughout the years, this was very much about how can we deliver investment excellence to our clients and performance and therefore going an opportunity somewhere else to explore an an alpha opportunity in alternatives, and I think being so connected to our clients understanding that this pivot was absolutely taking place not only thirty years ago, but in a very pronounced way today. Um, you know, we continue to invest

in this business to support those ambitions. You know, they're clearly seeing this as a world that's going through a tremendous amount of transformation and with some of the challenges quite frankly in the traditional asset classes, being able to leverage that black Rock is a black Rock muscle to really explore these alpha opportunities across the various alternative asset classes.

And in our mind wasn't imperative, um, And the imperative really from the firm's perspective, and you look at our purposes to serve those clients, so the need was coming from them, The necessity to have alternatives in their whole portfolio was was very Uh, it was very much growing in prominence. And you know, it's taken us thirty years to build this journey, and I think very quite frankly, we're far from being done. As you look at the industry,

that demand is going to continue to grow. So I think you could expect to see from us a continued investment in the space because we don't believe you can live without alternatives in today's world. That's really that's really interesting. So so let's dive a little deeper into the product strategy for alternatives, which you are responsible for a black rock. Our audience is filled with potential investors. Tell them a

little bit about what that strategy is. So we're i think, as you mentioned, were an excessive three billion today, um. And you know, when we started this business, it was less about you know, building a moat around private equity

or real estate. I think Larry Things and Rob Campedo's vision was how do we build a platform to allow us to be relevant to our clients across the various alternative asset classes, but also within the within the confines of what they are permitted to do on a year by your basis, so to always be relevant, um, irrespective of where they are on their journey from respect of liabilities demands from liquidity demands for returns. So we took

a different approach I think vary to most. It was around how do we scale into the business across Like you said, real estate equity and debt, infrastructure equity in debt and we think of that as the real assets platform of our business. And you take our private equity capabilities both in primary investing, secondary, etcetera um and then you have private credit and a very significant hedgehunt platform.

So we think all of these have a real role and and depending on clients liquidity needs and and risk appetite, our goal was to over the years really build into this to allow us solve for these challenging needs that our clients have. I think it's an industry right and over the many years that alternatives have been in existence, this has been about return enhancement initially, I think fundamentally the changes around the receptivity to the role of alternatives

and a client's portfolio has really changed. So we've watched it vary. From this is we are in the pursuit of a very total return or absolute return type of an objective to now resilience and our portfolio, yield an income, and so things that probably weren't perceived as valuable in the past. Because your traditional asset classes will play a more profound role. UM alternatives have stepped up in many respects in the needs to provide more than just total return.

So we're taking the approach of how do you have a more holistic approach to this, how do we really build a global multi alternatives capability UM and and try to partner and I think that's the important word for us, try to partner with our clients in a way that we can deliver that our performance, but delivered in a way that probably our clients haven't been used to in this industry before because unfortunately, but as we know, it has had its challenges with regard to secrecy, transparency, and

so many other aspects. Now we need to help the industry mature and and really that was our audition. What our clients needs first, build around that and really be relevant in all aspects of what we're not, they're doing or trying to accomplish on behalf of the people that

they support and represent. So we'll talk a little bit about transparency and secrecy and those sorts of things later but right now I have to ask, what I guess is kind of an obvious question, this growth that you've achieved within black Rock for non public asset allocation within a portfolio, what is this coming at expense of it? Are these dollars that are being moved from public assets into private assets or are you just competing with other

private investors. It's it's it's really both what what you are seeing from our clients. If I take a step back UM today the institutional client community, and you think about the the retirement conundrum we're all facing around the world. Right it's such an awful challenge when you think how we'll prepare people are for that eventual stepping back from the workplace, and then you know, longevity is your friend, but can also be a very very difficult thing to

obviously live with if you're not prepared to retirement. The typical tension plan today Verry is allocating about twenty five eight percent in alternatives, predominantly private markets. UM. What they're telling us is that's increasing quite substantially going forward. But you know the funding for that, that alpha pursued for that diversification, and that yield is coming from six income

assets it's coming from equity assets. So there's a real rebalancing that's been taking place over the past number of years, and quite frankly, the evolution, and I think the innovation that's taken place, particularly the past ten years in alternatives

has been really profound. So the days where you just invest in in a global fund, they still exist, but now you can concentrate your efforts on sector exposure, industry exposures, g A, graphic exposures, and I think the the menu of things our clients can now have access to has just been so greatly enhanced, and so the benefit is that, but I think in some in some respects are the next question is, well, with all of those choices, how do you build the right portfolio for our client's needs,

knowing that each one of our client's needs are different. So I would say it's absolutely coming from the public side.

We're very thankful those that have had a multi year journey with us on the public side are now allocating capital to us now on the private side too, because I do think the the industry, given that change, given that evolution, and given the complexity of these private assets, our clients are looking to quite frankly, do more with fewer managers because of that complexion of the industry and the complexity that comes with it quite quite interesting and

and I it's pretty easy to see why large institutions might be rotating away from things like treasuries or tips because there's just no yield there. Um. Are you seeing inflows coming in from the public equity side? Also, the markets put together a pretty good string of years. Yeah, it absolutely has. And in many respects, I think you know, we've had a multi year period where there was big questions around the alpha that can be generated, for example,

from active equities. The question was active or passive. I think what what we've all realized is that at times when politility introduces itself, which is frequent, even independent of what's been done from a fiscal and monetary standpoint, that these alpha speaking strategies on the traditional side still make a lot of sense. Um. And so, you know, as we think about what's what's happening here the transition of assets um from both passive and active strategies to alternatives,

it's really to create better balance. It's not that there's there's a lack of relevance anymore in the public side it's just quite frankly that the growth of the private asset base has grown so substantially. Um Now, I moved married to the US in and you know, it's interesting when you look back at today you start to recognize the equity markets and what was available to invest in. You know, the number of investable opportunities has shrunk by

forty plus percent, which that compression is extraordinarily high. But yet you've seen obviously the equity markets grow in stature and significance and prominence, but you're having more concentration risks with some of the big public entities. The converse is true though on the on the private side, just this explosion of enterprise and innovation, employment creation, and then I

believe opportunities that has been real. So I look at the public side, the investable universe is measured in the thousands, and the private side is measured in the millions. And I think part of the part of the thing our clients are are not struggling with with what they're really recognizing with with enterprises staying private for longer, if not forever, and with this growth of the opportunity set both in debt and equity in the private market side. You really

can't forego this opportunity. It has to be part of your going forward concern and asset allocations. And I think this is why we're seeing that transformation. And it's not because equities and fixed thinking just aren't relevant anymore. They're very relevant, but they're relevant now in a total portfolio, whole portfolio context beside alternatives. So let's discuss this opportunity set of alternatives. Where are you guys at black Rock seeing demand, what sectors and from what sorts of clients

are are are is this demand increasing? We're very fortunate varied today there isn't a single piece of our business within within black Rock Alternatives that isn't growing. And quite frankly too, it's it's it's really up to us to deliver on the investment objectives that are set forth for those clients. I think on the back of strong absolute

and relative performance. UM. You know, thankfully, our our clients luck to us um to to help them as as they think about what they're doing, as they're exploring more in the alternatives areas. As you know, certainly the private equity and real estate allocations are quite mature in many of our client's portfolios, but they've been around for many decades.

I think that the areas where we're seeing let's call it outside um demand an opportunity said just by virtue of this small allocations on a relative basis that exist today is really around infrastructure vary and it's around private credit. So to caveat that, I think all of the areas are certainly growing, and thankfully for us that's true where we're looking at clients and we believe they're underinvested, would believe they're underinvested in those two asset classes infrastructure both

debt and equity, and in private credit. And as you think about you know why that is. The attributes that they bring to our clients really important. And in a world where your correlations and understanding those correlations is important, these are definitely diversifying assets. In the world where you're seeing trillions of dollars quite frankly, you're providing little to know or even there's negative yield um you know, those short folds are real, and people need yield, they need income.

These assets tend to provide that. So the diversification it comes from these assets. The yield can come from these assets. And because of the immaturity of these asset classes UM, independent of the capital that's flowing in, we still consider them relatively white space. You're not crowded out. UM. There's much room for development in the markets and with our client's portfolios, and to us that's exciting because it presents opportunities.

So for at the highest level, you know, they're the two areas who believe are most underdeveloped in our clients. So let's talk about both of those areas well. We'll talk about structured credit in a few minutes. I think everybody kind of understands what what that is. What when you say infrastructure as a sector, how does that UM show up as an investment are And obviously I have infrastructure on the brand because we're recording this not too

long after the giant Infrastructure Bill has been passed. Tell us a little bit about what alternative investments in infrastructure looks like. Yeah, it's you know, it's really in its infancy and and and what do the underlying investments look like. I think traditionally you would consider it as and part of the bill that has just been announcing roads, bridges, airports, some of these hard assets, some of the core infrastructure investments that have been around for actually quite some time.

The interesting thing is the the industry is evolved so much and but the need for infrastructure is so great across both developed and emerging economies. UM. It's it's become something that if done the right way, the attributes we just spoke of can really have a very strong effect on our client's portfolios. So beyond the core that we just mentioned what we've seen a tremendous demand as a

result of this energy transition. You're really seeing a spike in activity and the necessity to transition industry to cleaner technologies UM, a movement not away completely from fossil fuels,

but integrating new types of clean energy. And as a result, you've seen a lot of demand on a global basis for wind and solar and quite frankly, that's why even at black Rock albeit UH ten twelve years ago, we really established a capability there to help with that transition, to think about how do we use these technologies, solar panels and wind farms to generate clean forms of energy for utilities where in some cases they're mandated to procure

this type of this type of power. UM. And when you think about pre contracting with utilities for long duration that to me spells vary. Uh. You know, good risk mitigation and management, and a ability to get access to clean forms of energy that throw off field that can be very complementary to your traditional asset classes, but for

very long periods of time. And so you know, the benefits for us of these these assets is that they are long in duration, they are yield enhancing, they're definitely diversifying. And so for us, you know, we're we've got about let's call it two hundred and eighty assets around the world that we're managing that literally generates this this clean electricity, I think to give the relevance of how much I believe today it's enough to power the country of Spain, um.

And that's really that's really changing. So you're seeing governments, so from a policy standpoint, be seeing governments really embracing new forms of energy, transitioning out of bunker fuels, for example, of burning diesels which really spew emissions into the into the into the environment. Um. But it's really around modernizing

for the future. So developed an emerging economies like want to retain capital, they want to attract new capital and by having the proper infrastructure to support industry is a really really important thing. Now on the back of that too, one thing we've learned from COVID is that the necessity to really bring e commerce into how you conduct your business is so important. And I think from the theme

of digitization within infrastructure too with a huge part. So it's not just the energy transition that you're seeing, it's not just roads and bridges, but by allowing businesses to connect to a global consumer, allowing children be educated from home, you know, allowing experiences that span geographies and boundaries in a digital form is so important, not just for commerce,

between so many other aspects. And so when you think about cable, fiber optics, as you think about all the other things even outside of power that enable us to conduct commerce, to educate um. There are many examples where Barrey, you can build resilience into your portfolio because that need is not measured in years. Actually the shortfall of capital is measured in the trillions, so which means this is uh, this is a multidecade opportunity set from our vantage point

and one which our clients should really avail of. Quite quite an interesting and I mentioned in passing structured credit. Tell us a little bit about what that opportunity looks like. I think of this as a space that is too big for local banks but too small for Wall Street to finance. Is that an oversimplification? What what is going on in that space? I probably couldn't have said it better. Variation. It's it's we can go back to just even the investi the universe, I mean the the the tens of

thousands um companies. Just if we take North America that our private that have great leadership, that really have strategic vision um and are at the in some cases at the start of their growth life cycle, or even if they maintain they have a very credible and viable business for the future, they still need capital. And you're you're

absolutely right. With the retreat of the banks from this space through various regulations that have come after the global financial crisis, you've seen the asset managers in many respects working behalf of our clients, both wealth and institutional, becoming

the new lenders of choice. And and when we when we think about that opportunity set, then it's really understanding the client's desire for risk, right for something maybe on a lower risk side, from middle market lending or middle market enterprises where you know you can support that organization through its growth cycle, all the way to some higher yielding obviously with more risk assets on the opportunistic or even the special situation side. But it spans many things.

I'm going back to the comment area around the evolution of the space you know, private credit today and what you can do has changed so profoundly. It spans the liquidity spectrum, it spans the risk spectrum. And the great news is with the number of companies both here and abroad,

the opportunity set is has been enriched every single day. Um. And we're certainly seeing particularly going back to the question, are some of these assets coming from the traditional side, the public side when we think of private credit, you are seeing private credit now being incorporated in fixed income allocations. Um. You know, this is a is a yielding asset, this is these are dead instruments, these are structures were creating. We're trying to be flexible and dynamic with these clients.

But it really is an area where we think it really is still act, it's at its infancy relevant to where it can potentially be. That's that's really quite quite interesting. Let's let's stick with that concept of of money rotating away from fixed income. I have to imagine clients are starved for yields. So so what are the popular substitutes for this is? Is it primarily structured credit? Is it

real estate? How do you respond to an institution that says, hey, I'm not getting any sort of realistic coupon on my bonds. I need a substitute. Yeah, it's it's it's it's all of those in many respects. And I think to the role even around now, at a time where people have questions around inflation, how do you substitute this yield efficiency

or certainly make up for that shortfall? How do you think about a world where we're increasingly seeing inflation not as a transitory thing, but it feels certainly quasi permanent. Um These are a lot of questions we're getting, and certainly real estate is an important part of how they think about inflation protection, how clients think about yield. But quite frankly too, we've we've gone through something none of

us really had thought about, a global pandemic. And as I think about real estate, just how you allocate to the sector. You know, what was very heavily influenced with retail assets, high streets, our shopping behaviors and habits have changed. We all occupied offices for obviously many many years pre the pandemic. The shape of how we operate and how we do that has changed. So I think some of

the underlying investment investments have changed. Or you've seen heavily waiting towards office space to leisure travel in the past. Actually now you've seen a rotation in some respects out of those, just given some of the uncertainties around what the future holds as we come come through a really difficult time. But the great thing about this sector is between senior living, between student housing, between logistics and so many other parts. There are ways in real estate to

capture where there's where there's demands. So still a robust opportunity set and we do think can absolutely be yield enhancing. We mentioned infrastructure. Even if you think about and we mentioned O E c D and and non O E c D emerging and and developed. You know, and I think about Asia in particular just as a subset of

the world in which we're living in. You know, that is a two point six trillion dollar alternative market today growing at a fift keger um, and quite frankly, the all growth is driven by the large economic growth in the region. So even from a regional perspective, if we pivot, you know, it houses fifty seven percent of the world's population and yet delivers seven percent of the world's economic role.

So I think think of that, and then with regard to to infrastructure and goes back to that, this is truly a global phenomenon. So we just even take that sector, Barry, you realize that the way to maintain that type of growth, to attract capital, to keep capital, it really requires an investment of significance amount of money to be able to sustain that. And you know when you have forty two million people in a pack migrating to cities in the year.

Going back to digitization, that's an important things. So when I say we're so much at the infancy and infrastructure, I really mean it. Um. It can be water, it can be sewage systems, it can be digital, it can be rows. There's so much to this um and then even down to the regional perspective, it's it's a it's a need that doesn't just exist in the US. So for these assets. These tend to be long and duration.

There's both equity and debt and on the death side, quite frankly, very few outside of our insurance clients and their general accounts are taking advantage of the debt opportunity and as we both know, to finance these projects that are becoming more plentiful every single day across the world, including like I said, an a pack in scale um. There's an opportunity on both sides, and I think that's where the asset mix change happened. It's recognizing that the

attributes of these assets can have a role. The attributes of these assets can potentially replace some of these traditional assets, and I think you're going to see it grow. So

infrastructure to us is really equity and debt um. And then on the credit side, like like I mentioned it again too, it's a very very big and growing market and certainly the biggest area today and from our advantage point is middle market landing from a scale opportunity standpoint, so you know, we think much more to come in all of those spaces. Really interesting, and let's just stay with the concept of of public versus private um. That line is kind of getting blurred in the secondary markets.

There's liquidly coming to for lack of a better phrase, pre public equities. Tell us a little bit about that space. Is that an area that is ripe for growth for black Rock? Yeah, we absolutely think it is. And you're you're you're absolutely correct. The secondary market is is on quite substantially. If you if you even look at just the private equity secondary market and what will transact this year, you know, we think it will be attention in excess

of a hundred billion, and that's what will clear. Let's not to mention what will be visible and what will be what will be analyzed, um and and that speaks to me, what's what's really happening and the innovation that that we mentioned earlier. It's no longer about just primary exposure. It's secondary exposure. And then we see all sorts of

interest in co investment opportunities as well. I think the the the available sources of alpha and the flexibility you can now have, albeit if directed and advised, I believe the right way Barry can can be very helpful and in the portfolio. Um so your pre I p O. It is a big part of actually what we do

and we think about growth equity. You know, there is a significant amount of capital following that space from from our vantage point as one of the largest investors in public equity market UM and now obviously one of the largest investors in the in the private side. The bridge between between private to public, there's there's a real need. I p o s are not going away, and I think smart informed capital to help with these journeys these journeys is really as really a necessity and the need.

So let's talk a little bit about this recent restructuring. You were first named global head of black Rock Alternate Investors in April, the entire alternatives business was restructured. Tell us a little bit about how that restructuring is going continues to go really well Bury. When you look at the the flow of assets from our clients, I think

hopefully that speaks to the performance we've been generating. UM. You know, I joined the firm, as you know, albeit eleven years ago, and being very close to the alternatives franchise was as a critical thing for me, and running the institutional platform to me, when you watched this migration of assets towards alternatives, it was obviously very evident for decades now that this is a is a critical leg

of the stool as our clients are thinking about their portfolios. Um, we're continuing to innovate, we're continuing to invest, and thankfully we'll continue to deliver a strong performance. We're growing at about, you know, high double digits on an annual basis, but we're trying to be purposeful to around where that growth

is coming from. I think the reality is when you look at the competitive universe, I think the last number I sold it was about thirty eight thousand alternative asset managers out there today, obviously coming from hedge funds all the way through through private credit and private equity. So competition is real, and I do think the outcomes for our clients are starting to really grow, unfortunately some in some cases obviously very good, in some cases actually not great.

So our focus are really much on how how can we deliver performance, how can we be a partner. And I think we've been rewarded with the trust and the faith their clients have on us because they're seeing something different I think from us. Now, the scale of the business that you mentioned earlier really gives us tentacles into the market that I believe allows us to access what I think is the new Alpha, which is in many respects given the heft of competition, Sourcing and originating new

investments is certainly harder. But for us sitting in or having our Alternatives team sitting in fifty offices around the world really investing in the markets because that's the market they grew up with and have relationships within. I think this, this network value that we have is something that's quite special, and I think in the world that's becoming increasingly competitive, we're going to continue to use and harness that network

value to pursue opportunities. And thankfully, as a result of the partnership we've been we've been pursuing with our clients. Like we've we're certainly looking for opportunities and investments in our funds, but because of the brand, I think, because of the successes, opportunity seeks us as much as we seek opportunity, and that has been something that you know, we look at an ongoing basis and feel very privileged to actually have that inbound flow as well. Really really

quite interesting. There was a quote of yours I found while while doing some prep for this conversation that I have to have you and on quote the relationship between black Rocks, alternative capabilities and wealth firms marked a large opportunity for growth in the coming years. This was back in so the first part of the question is was your expectations correct? Did you did you see the sort

of growth you were hoping for? And more broadly, how large of an opportunity is alternatives not just for Black Rock but for the entire investment industry. Yeah, it's It's been very much an institutional opportunity, says up until now. And there's so much to be done still to to really democratize alternatives. And we we certainly joke around making alternatives less alternative. Actually, even the normenclature we use and how we describe it doesn't kind of make sense anymore.

It's such a core an important allocation to our clients, Barry, that just calling it alternate the seems wrong. Um, I just think about the institutional clients its ranges. I think, as I mentioned on our some of our more conservative clients, which would be pension plans which really have liquidity needs on a monthly basis because of the liabilities they have to think about, you know, at about twenty five plus percent in private markets to endowments, foundations, family offices going

to fifty plus. So's it's a really important part and has been for now many years, the institutional climate, communities outcomes. I think the thing that we use an industry have to change is alternatives has to be for the many, not for the few. And quite frankly, it's been for the view and as we talked about some of the

attributes and the important attributes of these asset classes. To think that, you know, those who have been less fortunate in their careers can't access things that and enrich their future retirement outcomes, to me is a failing UM and

we have to address that. That comes from regulation changes, it comes from structuring of new products, it comes from education, and it comes from this this this knowledge transmission where UM clients in the wealth segment can understand the role of alternatives in the context of what that can do as they invest in equities and fixed income too, and

we think that's a big shortfall. So the journey today just to give you a sense as we look at our clients in Europe on the wealth side on average, as you look from what we would call accredited investors all the way through to more ultra high net worth individuals, their allocation to alternatives we believe stands it around two to three of their total portfolio. In the US, we

believe it stands at three to five. So most of those intermediaries we speak to our partners who are who are porting and serving the wealth channel, they have certainly an ambition to help their clients grow that to twenty percent and potentially even beyond that. So when I look at that gap of let's call it two to three in in a in a market that just given the explosion and wealth around the world, I think the last numbers I saw this is a sixty trillion dollar market um.

That speaks to the shortfall relative to the ambition. And you know, how has it been going. We have a number of things and capabilities we've set up to allow for this market to experience hopefully private equity, hedge funds, credit and infrastructure in ways they haven't in the past. We've done it in the US, we're doing it now in Europe. But I will say various this is still very much at the start of the journey. Wealth is a really important part of our future given our business.

Quite frankly, ninety plus percent institutional today, but we're looking to change that by hopefully democratizing these asset classes, and I'm making it so much more accessible than that of the past. So we we hinted at this before, but I'm going to ask the question outright, how significant is interest rates to clients risk appetites. How much of the current low rate environment are driving people to move chunks of their assets from fixed income UH to alternatives. It's

really significant, Verry Um. I think that the transition of these portfolios UM is quite profound. So you're and I think the unfortunate thing in some respects as this transition happens, UM, is that you're introducing new variables and new risks. And the reason I say it's unfortunate that I think as an industry, this goes back to the education around the assets you want, understanding the role, understanding the various outcomes. I think it is so incredibly important, and that this

is a time where complete transparency is needed. UH. And quite frankly, we're investing capital. It's not ours as an industry. We're investing our clients assets and they need to know exactly the underlying investments, and you know, in good and

bad times, how would those assets behave? So certainly interest rates are driving a flow of capital away from these traditional assets you know, fixed income and absolutely in towards UM real estate, infrastructure, private credit, etcetera, in the pursuit of this this yield. But I do I do think one of the things that's critically important for the institutional town, not just the well which are newer entrance, is this transmission of education of data, because that's how I think

you build a better balanced portfolio UM. And that's a that's a real conundrum I think that the the industry is facing, and certainly your clients to quite quite interesting. So so let's talk a little bit about the differences between investing in in the private side versus the public markets. The most obvious one has to be the illiquidity. You know, when you buy stocks or bonds, you get a print every micro second, every tick, but most of these investments

are only marked quarterly or annually. What does this i liquidity do when you're interacting with clients, how do you how do you discuss this with them and how do they perceive? Uh? Some of the challenges of illquid investments over the over the number past number of day case, it's I think our clients have largely held too much

liquidity in their portfolios. Like, so, what what we are finding is the ability to take on I liquidity risk and obviously in pursuit of that premium above the traditional markets. I mean, I think the sentiment there is an absolute right one that transition towards private market exposure, we think is is an important one just given the return objectives

the majority of our client's need. But then also again most importantly now with geopolicy, with uncertainty, with interest rate uncertainty, inflation uncertainty, going back to the resilience point, the characteristics now by introducing these assets into the mix is important and I think that's that that point is is maybe hort. I'll expand on as we're talking to clients using the Aladdin systems, and as you know, we bought the Front technologys,

albeit a couple of years ago. By allowing I think great data and technology to help our clients understand these assets in the context of how they should own them relative to their liquidity needs, their risk tolerances, and the return expectations. We're really trying to use tech and data to provide a better understanding and comprehension of the outcomes.

And as we continue to introduce these concepts and these approaches by the way that there's as you know so used to in the traditional side, it's it's giving them more comfort around what they should and can't expect, and that to me is a really important part of what we're doing. So you know, we've released recently new technology to the wealth sector because you know, quite frankly we mentioned it before, the sixty forty portfolio is a thing of the past um and that that introduction of about

into alternatives. We applaud our our partners who are suggesting that to their clients, we think is something they have to do. What we're doing to support that is really bringing thought, leadership, education, but also portfolio construction techniques and and data to bear in that conversation. And this goes back to it's no longer an alternative, right, this is

a core allocation. So the comprehension of what it is you own the behavior of the assets in good and bad times is so necessary and that's become a very big thing, uh with regard to our activities bar because you know, our clients are looking to understand better when you're talking about assets that are very complex in their nature. Huh So, is now fifty twenty something along those lines, yes, really really intriguing. Uh So, So what are clients really

looking for these days? We we talked about yield, are they also looking for downside protect on the equity side or inflation hedges? You hinted at how broad are the demands of clients in the alternative space. It's yeah, it's it ranges the gamut. And even you know, we didn't speak to even hedge funds. We've had you know, differing levels of interest in the hedge fund world for for years. Um and I quite frankly think some degree of disappointment to Barry with with regard to the alpha the returns

that were produced relative to the cost. It's a tough space to say the very least exactly right. But when when you start to see volatility introducing itself, you can

really see where skill plays a critical factor. So where we are absolutely seeing in the hedge fund space a resurgence of interest and demand by virtue of those who really have honed in on their skills, who have demonstrated an up and down markets, an ability to protect and preserve capital, but importantly in a low not uncorrelated way, build attractive risk adjusted returns. We're starting to see more activity there again too, I think with an alternatives you've

really seen a predominant demand coming from from privates. These private markets, like you said, have grown so extraordinarily fast, and the opportunity set is rich. The reality too, on the public side, which is where hedge funds operate, they continue to in large part do a really good job. The the issue with our industry now, with the thirty eight thousand managers is how do you distill all the information, how do you think about your needs as a client

and pick a manager can deliver the outcomes. And just to give you a sense that the difference now between a top performing private equity manager, so a top court versus the bottom quartile, the difference can be measured in tens of percent, whereas if you look at the public equity side, for example, a large cap manager top quartile versus bottom quartile, it's measured in hundreds of basis points.

So there there is definitely a world that has started where the outcomes our clients will experience can be great as they pursue yield as they pursue diversification, inflation protection, etcetera.

I think the caveat that I would say is, you know, the outcomes can vary greatly, so manager underwriting and the importance of it now, I think really is is something to pay attention to because if you do have that bottom performing at the bottom quartile manager, it will it will affect your your outcomes obviously, and that's the basic thing we collectively have to to face. So let's talk a little bit about real estate. UM, there are a couple of different areas of investment on the private side.

Rent to own was a very large one, and we've seen, um some lesser by the flip al go driven approaches. Tell us what black Rock is doing in the real estate space and how many different approaches are you bringing to bear on this? Yeah, we think it's it's both equity and death UM. Because again, no different to the

infrastructure side, these projects need to be financed. But on the if you think about the sectors in which you can avail of the opportunity, you know, you've no doubt heard a lot and I mentioned earlier this demand for logistics facilities. UH, the explosion of shopping online and having until we've obviously had the supply chain disruption, an ability to have nearly immediate satisfaction because the delivery of the good to your home has become so readily available. Uh,

it's it's a very different consumer experience. So the explosion and the need for logistics facilities to support this type of behavior of the consumers is really an area that will continue to be a great interest to us. And then you think to think about the transformation of of business, um, and you think about the aging worlds unfortunately, um, you know, you can look at various economies where our populations are

decreasing and quite frankly, we're getting older. And so when you when you think in the context of that, senior living facilities becomes a really important part, not just as part of the health care solution that will come with it,

but also from living as well. So you know, single family multifamily opportunities continue to be something that you know, the world looks at because there is really the shortfall of available properties for people to to live in and as the community has evolved to support the growing age of the population, tremendous opportunity there too. But we won't give up on office space. It really isn't going away. And I've even think about our younger generation here in

Black Rock. They love being in New York, they love being in London, they love being in Hong Kong. So the shape and the footprint may change slightly, but the necessity to be in the major financial centers it still exists. But how we wait the risks has definitely changed, certainly for the for the short term and medium term future um. But real estate continues to be very a critical part of how we express our our thoughts around the investment

opportunity set, but clients largely do this themselves. To the direct investing from the clients is quite significant because they too see this as still a rich investment ground all the one that has changed quite a bit as a result of COVID. H Well, I'm I'm fascinated by the real estate issue, especially having seen some massive construction take

place in cities pre pandemic. Look over in Manhattan at Hudson Yards, and look at what's taking place, uh in London, not not just um the center of London, but all but all around it. And I'm forced to admit the future is going to look somewhat different than the past, with some hybrid combination of collaborative work in the office and remote work from home when it's convenient. That sort of suggests that we now have an excess of capacity

in office space. Do you see it that way? Or is this just something that we're going to grow into and and just the nature of working in offices is changing, but offices are not going away. Yeah, I I do think there's it's a very valid point in that in certain cities you will see access and others we just don't vary UM And quite frankly, as a firm to as you know, we have adopted flexibility with our teams.

Now we're very fortunate the technologies in which we created a black Rock has just become such an amazing enabler, not just to help us, as we mentioned, manage the portfolios, help us with better portfolio construction, understand risks, but also to communicate with our clients. You know, I think we've we've all witnessed and experienced a way to have connectivity UM that allows one to believe that commerce can exist

beyond the boundaries of one building. You know, however, I do look at our property portfolios and even the things that we're doing. You know, rent collections still being extraordinarily high. Occupancy now getting back up to pre pandemic levels, not in all cities, but in many the major ones that have reopened. And certainly the demand for people to just socialize, that that that demand for human connectivity is really high.

It's palpable, right, we see it here to the smiles and people's faces are back in the office, conversing together, innovating together. Um. You know, when people were feeling unsafe, unquestionably, I think the question marks around the role of office

space was really brought to bear. But as we're coming through this um, as you've seen vaccine rates change, have you've seen the infection rates fall, as you've seen confidence grow, the return to work is really happening, and turned to work to office work is really happening, albeit now with degrees of flexibility. So going back to the I, I do believe in certain areas you're seeing a surplus, but

in many areas you're absolutely seeing a deficit. And the reason I say that we are seeing occupancy in certain buildings at such a high level and frankly to demand from more space being so high, um, it's uneven. And this goes back to then you know, where do you invest our clients capital, making sense of those trends, predicting where you will see resilience versus stress, and building that into the portfolio consequences as you as you better risk,

manage and mitigate. Very interesting and so we are seeing this transition across a lot of different segments of investing. Are you seeing any products that were or or investing styles that was once thought of as primarily institutional that are sort of working their way towards the retail side of things, meaning going from institutional to accredited to mom

and pop investors. Um. Well, certainly the past private equity was was really an asset class for institutional investors, and I think that's that has changed in a very profound way.

I mentioned earlier, Sorry that regulation has become a bit more adoptive, but it also has hurt in many respects and providing this access and I think the perception of owning and be part of this liquid investment opportunities that it was hard to stomach because many didn't under understand the attributes and a lot of could brain and I think we've been trying to solve for that, and what you're seeing now with with regulators understanding that the difference

between if we take it quite simply as you d D versus DC, the differences between the options you have as a participant in in a retirement plan are so vastly different that and I think there's a broad recognition now that there's needs to be more equity with regard to what happens there and private equity being a really established part of the alternatives marketplace was once I think, really believed to be an institutional asset class, but albeit

now has become much more accessible to wealth. We've seen it by structuring UM activities in Europe working with the regulators there. Now we're being able to provide private equity exposure to clients across the continent and they're really getting access to what was historically very much an institutional asset class.

And I do think the receptivity is extraordinarily high. Just throughout people's careers they have seen wealth being created as a result of engineering a great outcome with great management teams in a great business, and I do believe the receptivity towards private equity is high. As as an example,

in the US too. You know, working with the various intermediaries and being able to wrap now private equity in a forty Act fund, for example, is possible by being able to deliver that too, you know, the many as opposed to the few, we think has been a very good success story and I think obviously appreciated by buyer clients as well. So I would look at we're seeing across private equity as well as private credit and quite

frankly infrastructure. You're seeing now regulation that's becoming more appreciative of these asset classes. You're seeing a more a greater level of openness and willingness to allow for these assets to be part of many people's experiences across their investment portfolio. And now with innovation around structures as an industry, we're able to wrap these investments in a way that our clients can really access them. So I think across the

board probably speaks to the innovation that's happening. But I do think that accessibility has changed age in a very significant way. But you've really seen it happen in private equity first, and now that's spanning across these various other astrocauses. Quite intriguing. I know I only have you for a relatively limited period of time. So let's jump to our favorite questions that we ask all of our guests, starting with tell us what you've been streaming these days? Give

us your favorite Netflix or Amazon Prime shows. That is an interesting question. I don't watch a hell of a lot of TV. I gotta tell you I am. I keep busy with three wonderful children and a beautiful wife, and you know, between the sports activities when I do watch TV, I have to tell you I'm addicted to sports and having I may have mentioned it earlier. Growing up playing rugby, which is not the most common sport

in the US. I stream NonStop the Six Nations that happened in Europe, where Ireland is one of those six nations that compete against each other on an annual basis. Right now, they're playing a lot of sides that are

touring for the sub of the Southern Hemisphere. And to me, the free time that I have is either enjoying golf, are really enjoying rugby because I think it's a it's an extraordinary sport, obviously very physical, was very enjoyable to watch, and that that truly is my passion outside of family. Interesting stuff. Tell us a bit about your mentors who helped to shape your early career. Well, it even even goes back to some of the aspects of sports. Um. You know, playing on a team and being on a

on a field where you're you're working together. There's a strategy involved with that. Now, I used to really appreciate how we approached playing in all the All Ireland league. Um, how we thought about our opponents, how we thought about the structure, how we thought about each individual with on

a rugby field and the team having a role. They're all different, um, but you knew your role and actually, even starting from an early age, very thinking about and I know it's it's it's sports, but how to build a great team with those various skills perspectives that can be a really really powerful combination when done well. And certainly from an early age that allowed me to appreciate that.

Actually in the work environment, it's not too different. I give you surround yourself with just really great people that have high integrity, UM, that are empathetic and have a degree of humility that you know, when working together good things can happen. UM. And I will say, it really started at sports, but I think of today in even in Black Rock, you know how Larry think thinks about the world. Um, and I think Larry truly as a visionary.

And then Rob Capito, who really helps lead the charge across our various businesses, you know, speaking and conversing with them on a daily basis, getting their perspectives, trying to get inside their head and thinking about the world from their vantage point. To me, it's it's it's a it's a huge thing about my ongoing personal career and development. And I really enjoy those moments because I think what you recognize as independent of how much you think you know,

there's so much more to know. And this, this journey is is an ever evolving one where you have to appreciate that you will never know everything and you need to be a student every single day. So I'll probably cite those barriers certainly the two most important mentors in my life today, but professionally and personally quite frankly, really very interesting. Uh, let's talk about what you're reading these days. Tell us about some of your favorite books and what

you're reading currently. Sorry, what I love to read. I love to read history, believe it or not from a very small country that seems to have exported many, many, many people love to understand the history of Ireland. So there's so many books. Uh. And you know, having three children that have been born in the US and my wife is a New Yorker, trying to help them understand, you know, some of their history and what's made them

what they are. UM. I love delving into Irish history and how the country has had moments of greatness and moments of tremendous struggle. Outside of that, I really don't enjoy science fiction or any of these books. I love reading, um you name any paper in any magazine on a daily basis. Unfortunately, I wake at about four thirty five o'clock every day. I spent my first two hours of

the day just consuming as much information as possible. I enjoy it, but it's all it's it's really investment related magazines, not books. It's every paper that you could possibly imagine. Barry and I just have a great appreciation for certainly trying to be a student of the world because that's

what we're operating in. And I find that just a very interesting avenue too, to get an appreciation to for the not just the opportunities, but the challenges were collectively facing as the society, and but I was as a business. I'm with you on that mass consumption of of investing related news. I sounds like you and I have the same morning routine. UM, let's talk about what sort of advice you would give to a recent college graduate who

was interested in a career of alternative investments. Well, you know, the the the industry has, it's just gone through such extraordinary growth, UM, and the difference when I started versus today, the career opportunities set has changed so much. And I think I tried to remind any one of our analysts

who come into each one of our annual classes. Right as we bring in the new recruits, I think about how talented they are first vary, and how privileged we all are to one be in this industry and work for the clients that we do. It's just such an honor to do that. I tind of. I try to

remind them of that. UM. You know, at the end of the day, whether you're supporting an institution, that institution is the face of many people in the background, and alternatives has really now become such an important part of their experience, and we talked about earlier just this challenge

of retirement. If we do a good job these institutions that support them any they can have hopefully a retirement that involves you know, dignity, and they can have an ability to do things they so wanted to do as they worked so hard over their lives, you know, getting that that personal connection and allowing for those newbies to

understand that that's the effect that you can have. UM and alternatives, whether it's private equity, real estate, infrastructure, private credit, hedge funds, all of these now with the scale at which they're operating at, can allow for a great career. But my advice to them is always don't forget your career is supporting other people. And that comes directly through how we intersect with the wealth channel. It comes indirectly as as a result of the institution and and it's

such a privilege to do that. I didn't envision when I grew up, as I mentioned my first year of milking cows and back in a small town the middle of Ireland, that I would be one day leading an alternati those business within Black Rock. I see that as

a great privilege. So you know, for for those who are joining a fresh hopefully try to remind them that it is that for all of us and show up with empathy, dignity, compassion, and you know, do the best you can and hopefully these people we serve, we'll serve them well. And our final question, what do you know about the world of alternam investing today? You wish you knew years or so ago when you were first getting started.

I think if we had invested much more heavily as an industry in technology, we would not be in the position we are today. Um and I say that very from from a number of aspects. I mentioned that the shortfall of information or clients are dealing with today. They're making choices to do best from one asset class to invest in another. To do that and do that effectively, they need great transparency. They needed real time in many respects.

It can be just on a quarterly lacked basis. And if we had been better prepared as an industry to provide the technology and the data to help our clients really appreciate what it is they own, how we're managing the assets on their behalf, I think they would be so much better served. I think We're very fortunate at this firm to have built a business on the back of technology for all the a thirty plus years and we're investing over a billion dollars a year in technology

as as I'm sure you know, um. But we need to see more of that in the industry. So the client experience is so important. Stop let's demystify alternatives. It's not that alternative. Let's provide education and data um. And it's becomes so large relative to other asset classes. The need to support, to educate and transmit information, uh not data information so or clients can understand it is at a paramount now and I think it's certainly is an

industry things have to change there. If I knew how big the growth would have been and how prominent these asset classes were becoming, I would have pushed so much harder on that front thirty years ago. Thank you Edwin for being so generous with your time. We've been speaking with Edward Conway. He is the head of black Rock Investor Alternatives Group. If you enjoy this conversation, please check

out all of our prior discussions. You can find those at iTunes, Spotify, or wherever you get your podcasts at We Love your comments, feedback and suggestions right to us at m IB podcast at Bloomberg dot net. You can sign up for my daily reads at Ridalts dot com. Check out my weekly column at Bloomberg dot com slash Opinion. Follow me on Twitter at Ritholtz. I would be remiss if I did not thank the crack team that helps with these conversations together each week. Mohammed is my audio engineer,

Paris Wald is my producer. Michael Batnick is my head of research. Attiko Valbrann is our project manager. I'm Barry Rihalts. You've been listening to Masters in Business on Bloomberg Radio