Too much cash, not enough assets for investors: BlackRock chief

The biggest problem in today’s investment markets is the shortage of assets, according to BlackRock’s chief.

BlackRock president Rob Kapito will be a keynote speaker at this year’s Sohn Hearts & Minds conference in Sydney on November 22 Picture: Bloomberg

The biggest problem in today’s investment markets is the shortage of assets with too much cash sitting on the sidelines wanting to invest, according to BlackRock co-founder and president Rob Kapito.

He told The Australian that “companies are buying back stocks, taking equities out of the market which are not being replaced, central banks are buying longer duration assets and there is $US1 trillion ($1.46 trillion) of dry powder in private equity firms looking for a home”.

“This means interest rates will be lower for longer and equity prices higher,” he noted, adding that “the market is flush with cash with limited opportunity to invest”.

“There are questions whether certain monetary policies are working and lower rates are not helping wealth,” said Kapito, who will be a keynote speaker at this year’s Sohn Hearts & Minds conference in Sydney on November 22. BlackRock which began in 1988, is the world’s largest asset manager with $US6.8 trillion under management.

It has expanded its operations recently to capture the new world with deals including a new private equity fund, Long Term Private Capital, which has raised $US2.7 billion from investors and threatens to do to private equity what it has to the listed market.

This is cut fees for investors.

It has also expanded its private debt offering through the acquisition of Tennenbaum, a middle-market credit investor.

When asked how BlackRock did it, Kapito says “we are constantly looking for solutions for our clients. If you keep your promises to clients, they will want to do more with you. It’s been a long journey and now there are 15,000 families dependent on BlackRock, so you do pinch yourself at what has happened”.

He backed Australia’s superannuation system in preparing the country for what he calls the retirement crisis facing the world.

“You can’t invest for the future in the future,” he said, adding “people are living longer but they have not saved enough”.

“It’s the most important issue facing investment markets because people used to work until the age of 65, but now they will have to work until 75.

“There are some who are saving but not investing.”

He was not prescriptive about what should happen in Australia but said “Australia has to do something”. His comments come as the federal government is poised to announce a review of retirement income which is seen as testing the present plans to lift the superannuation guarantee from 9.5 to 12 per cent.

“The number one stress people have in their lives is about money,” Kapito adds.

“The other issue we have with the younger generation is debt and they will never be able to get ahead if they have to spend their first 10 years working to repay debt.”

Kapito says BlackRock is looking at products to try to manage that issue with ­insurance and technology.

When asked about Treasurer Josh Frydenberg’s call for companies to invest more, Kapito says: “It’s nice to say that when you are not running a company.”

“Companies look for opportunities and if there are no other alternatives, then they give it back to shareholders.”

He notes that when people raise the issue they forget about technology, which has meant “you don’t need to invest as much in bricks and mortar to get the returns you need”.

“It’s hard to compare when you don’t look at the efficiency of technology.”

Kapito says BlackRock is also looking at more products to give people access to private credit transactions because there “are now more private transactions because people don’t want to be subject to the regulation”.

He notes recent BlackRock surveys that say 38 per cent of people want to keep their money in cash: “This is more than we’ve ever seen and last year the number one performing asset was cash.”

Asked about China, he said: “It’s a large place and is underweight in every portfolio when over time it will be one of the largest countries. You have to have China in your portfolio.”

Environment, social and governance (ESG) investment is now mainstream, he adds, but “we need benchmarks so people can measure performance”.

“Our entire portfolio should be slanted to ESG but it is important to know how it is being achieved. If you say you have a lower carbon footprint because you have fewer offices it doesn’t mean much,” he says.

Ratings service Fitch now has ESG benchmarks and S&P Dow Jones has flagged a similar move.

“People worry about performance, which means you need benchmarks,” he says.

Kapito adds: “We need more education in the area.”

BlackRock has a product called Liquid Environmentally Aware Fund that invests in cash products in companies even if they fall short of some ESG issues.

Rob Kapito is a keynote speaker at the Sohn Hearts & Minds conference in Sydney on November 22. Details at sohnheartsandminds.com.au