Lawrence Fink discusses: How AI and asset tokenization will redefine the future of finance

BlackRock has become a financial giant managing $12.5 trillion in assets. Leading its growth is Chairman and CEO Laurence Fink. In a conversation with Citi Global Banking Chairman Leon Kalvaria, he candidly discussed his career experiences, his obsession with technology, and his vision for the future of the financial industry.

Childhood Experiences That Shaped Leadership

Fink’s worldview was formed from a young age. His parents held socialist ideals but also demanded that their children balance “learning and personal responsibility.” In particular, the phrase “Even if you fail when you grow up, don’t blame your parents. It’s your responsibility” instilled an early sense of independence in him.

Starting a part-time job at a shoe store at age 10, Fink learned the basics of customer service and relationship building through this experience. While many modern children lack such experiences, he developed a sense of responsibility and how to face reality early on.

Discoveries on Wall Street: How Computers Changed Finance

In 1976, Fink moved from the West Coast to New York and saw snow for the first time in his life. His career at First Boston was smooth, eventually being assigned to the mortgage department. This experience profoundly changed his life.

Wall Street at that time was very different from today. The total capital of the investment banking industry was only about $200 million, mostly family-run, with little concept of risk management.

However, a turning point came in 1983 when computers were introduced into the mortgage department. Although primitive by today’s standards, this was the real game-changer for Wall Street. It enabled complex mortgage pool restructuring and cash flow calculations, and real-time data processing ushered in the era of financial derivatives.

Lessons Learned from Failure: The Essence of Crisis Management

At 27, Fink became the youngest managing director, and by 34, he was overconfident, suffering a $100 million loss in Q2 1986. This setback taught him two deep lessons.

One was that “we believed we had the best team and market insight, but we couldn’t keep up with market evolution.” The other was that “our ambition to compete for market share blinded us, leading to neglect of risk management in the Salomon Brothers competition.”

The core of this failure revealed the fragility of organizational culture: profits made heroes, but losses could fracture team cohesion. Fink later expressed regret for not strongly opposing the company’s blind capital injections. They had taken risks without understanding them, lacking risk management tools.

This experience laid the groundwork for the founding and growth of BlackRock.

Founding BlackRock: Obsession with Technology

Leveraging relationships with clients who offered startup capital, Fink consulted Steve Schwarzman. He eventually became Blackstone’s fourth partner and, in 1988, invested $25,000 in Sun Spark Workstation to develop their own risk analysis tools.

From day one, BlackRock’s foundation was risk tool development, and its corporate culture is deeply rooted in risk technology. This obsession led to the development of the Aladdin system.

In 1994, during the Kidder Peabody crisis management, Fink proposed not taking consulting fees but instead using a success fee. Within nine months, he turned the asset portfolio profitable and ultimately received the highest consulting fee in history from GE.

The 2008 Financial Crisis and the True Value of Aladdin

During the financial crisis, the U.S. government’s decision to appoint BlackRock as a key advisor was pivotal, largely due to early adoption of Aladdin technology. During the rescue of Bear Stearns, BlackRock was hired by JPMorgan to analyze assets. Later, it received direct government requests for services from the Treasury and the Fed.

In response to concerns about taxpayer losses, Fink said, “If you include principal and interest, the chances of recovering funds are high,” and subsequently managed government interventions for AIG restructuring and crises in the UK, Netherlands, Germany, and Canada.

The Historic Significance of Shareholder Letters

Following the acquisition of BGI in 2009, BlackRock became the world’s largest index fund manager. This milestone prompted Fink to start writing shareholder letters. The initial goal was to promote “long-termism” and analyze long-term trends for long-term investors.

Considering that 50% of the $12.5 trillion in assets under management are retirement-related funds, the importance of this stance is clear. The letters, which began in 2012, are highly regarded among institutional investors as a “sister edition” to Warren Buffett’s letters.

Two Factors Reshaping Future Finance

Investment Paradigm Shift in the AI Era

The biggest variables in future investment environments, as pointed out by Laurence Fink, are AI and tokenization of financial assets.

Emerging companies like Brazil’s Neo Bank and Germany’s trading platform “Trade Republic” are shaking the foundations of traditional finance. BlackRock established an AI lab at Stanford in 2017 to accelerate the development of optimization algorithms.

All investors need to seek “information that the market has not fully recognized,” as outdated news cannot generate excess returns. BlackRock’s systematic equity team has achieved market-beating returns over 12 years, and AI and big data-based thematic investment strategies have outperformed 95% of fundamental investors over the past decade.

However, sustained success is extremely difficult. If active management were truly effective, ETFs would never have risen to prominence. The declining market capitalization of traditional asset management firms is a result of underinvestment in technological upgrades.

Capital Inflows into Private Assets

In 2023, BlackRock acquired Prequin, HBS, and Bio, significantly expanding its private market strategies. iShares grew from $340 billion to nearly $5 trillion. Private business also saw remarkable growth, with infrastructure investments reaching $50 billion from zero.

Prequin’s acquisition cost is only one-third of its peers, and this investment aims to integrate E-Front’s private analysis platform with Aladdin’s public system. Building comprehensive risk management capabilities across public and private assets will deepen client engagement.

Systemic Risk: When U.S. Growth Falls Below 3%

Fink currently identifies the scenario where U.S. economic growth cannot sustain 3% as the greatest black swan risk in the financial markets.

While the deficit was $8 trillion in 2000, it has surged to $36 trillion over 25 years. Only with 3% growth can the debt-to-GDP ratio be controlled. The following are serious latent risks:

1. Decline of the dollar’s status: 20% of U.S. Treasuries are held abroad, and isolationist tariffs could reduce dollar holdings.
2. Rise of emerging markets: Many countries are focusing on developing their own capital markets. BlackRock has raised $2 billion in India and started MBS operations in Saudi Arabia.
3. Expansion of digital currencies: Stablecoins and digitalization of currencies could diminish the dollar’s global role.

However, in private credit, higher matching rates mean current systemic risks are lower than in the past. If assets and liabilities are matched and deleveraging progresses, losses will not propagate systemic risk.

Changing Perspectives on Bitcoin: Its Value as a “Fear Asset”

Laurence Fink once harshly criticized Bitcoin alongside Jamie Dimon, calling it a “money laundering and theft currency.” But his perception has changed significantly.

During the pandemic, he learned that in Taliban-controlled Afghanistan, Bitcoin functions as a means of paying women workers. In environments where banking systems are controlled, cryptocurrencies become a crucial outlet.

Fink now recognizes that Bitcoin is not a currency but a hedge against an uncertain future. People hold it out of concerns over national security and currency devaluation, and its essence lies in being a “fear asset.”

The True Nature of Leadership: Daily Self-Update

Finally, Fink emphasized that an essential element of leadership is continuous self-renewal. Leading a large organization means there is no “pause button.” You must keep learning every day and give your best.

Laurence Fink, who has worked in this industry for 50 years, still strives to be at his best every day. Because “only by giving your all can you maintain the right to engage in dialogue and influence the industry.” This right is earned daily through effort and is never taken for granted.