Black Rock Money Manager on the Retirement Crisis and Climate Change

In a recent Barron’s, Mark Wiseman, head of BlackRock’s equities group, made a strong case for long-term investing and offered solutions to short-termism and the retirement crisis in the U.S.

Here are some highlights from the interview:

  • Active investing is “far from” dead, Wiseman argued: “I don’t think passive investing exists. The decision to buy an index, and which index, is an active decision.” Instead, he explains, it’s about your investment approach. “You can have an index-based approach, or one that seeks to generate alpha.”
  • Regarding the best approaches to active management, Wiseman said technology is changing the landscape in every industry and “the winner is the consumer. ” He added, “The old way of doing things is no longer efficient or competitive on an after-cost, risk-adjusted basis, which is what matters in buying an index or a factor exposure.”
  • According to Wiseman, BlackRock provides Big Data and analytics for the traditional asset manager who has “already read every research report, attended every conference, interviewed every management team.” Without an information edge, he says, “it’s very hard to generate value because the world has just become too efficient.”
  • Wiseman says that there is currently a paradox in the system, that although many investors want to take a long term view, as the flow of funds moves from institutional investors to asset managers and ultimate to corporations (where asset managers allocate capital), “you see corporations making unbelievable short-term decisions”—he cites share buybacks and responses to activist investors as examples.  These corporations, he argues, “are empirically making decisions that tend to be for the next quarter, whereas the saver’s interest is probably over the next quarter century.” One solution, he says, is to adopt a structure that locks in capital for a period of several years, “and there’s a 12-month notice period to withdraw our money.” He adds that boards should focus more on long-term strategy.
  • Although Wiseman is in favor of quarterly reporting, he argues that EPS guidance drives a short-term view. “Public corporations need to do a better job of disclosing nonfinancial metrics, in particularly around environmental, social and governance issues,” adding that investors must learn how to use that information to improve their investment decision-making.
  • Wiseman believes climate change is 100% real and argues that “even if you think it’s malarkey, you’ve got to look at it in your investments for two reasons: a) most of the world isn’t skeptical, and customers and other investors and probably your kids really care about it,” and “b) perception is reality in the value of a security.”
  • He describes the retirement crisis in the U.S. as slowly growing, adding, “policy makers need to spend more time on it.” Although it has been perpetuated by a positive development–longer life expectancy–Wiseman argues that the solution is complicated and must be driven by “financial literacy, incentives to save, and by reducing disincentives.” BlackRock, he said, is beefing up its investor education and looking for “private-market solutions.”