BlackRock released Larry Fink’s 2024 Annual Chairman’s Letter to Investors. There is no need to go on into why it is important to keep tabs on the movements of the biggest asset manager in the world.
There has been significant change in the company since January – the acquisition of Global Infrastructure Partners (GIP) and the organizational re-architecture are pointed out by Larry as the biggest changes since the acquisition of Barclays Global Investors in 2009 (the one that put Blackrock on the map of the passive indexing universe, through iShares).
I did not expect so much of the letter to be around public-private partnership. It is not about partnership models per se, but areas in which coordination is urgently needed. Larry’s letter focuses on challenges around infrastructure (including the debt that comes with it) and the right to a dignified retirement.
- INFRASTRUCTURE
In the infrastructure point, the letter lays out some of the reasons behind the acquisition of Global Infrastructure Partners (GIP).
We live in a structurally more indebted post-pandemic world. To deal with this reality, in Larry’s words, there are three choices: taxing, cutting spending, or growing more. And what better way to grow if not through the $1-trillion-worth-fastest-growing-sector of infrastructure?
This backdrop makes it even more important to tap into the capital markets to foster growth, but this kind of investment requires deep pockets: that’s where BlackRock enters. In Larry’s words, “the future of infrastructure is public-private partnership”, but, further than that, they can be a welcomed financing partner to already private developments, as you may not want to carry the full cost of infrastructure alone in your balance sheet.
When it comes to infrastructure sectors, the main topic is energy – for both public and private eyes. We have seen the weight of geopolitical unrest and near-shoring translating in energy inflation and spiralling into what Larry calls “energy pragmatism”, where the focus lays on decarbonization and energy security at the same time, rather than full focus on energy transition.
One of the key thoughts of the letter is that the energy transition will only succeed if it is “fair”, that is, if the premium we have to pay for going green gets increasingly lower – here again surfaces the need to also summon the help of capital markets to gain scale, reduce the cost of innovation and lower the green premium.
Amid the various infrastructure projects already started by the firm, I thought it interesting to find out one of them is actually in Brazil – BRASOL (refer to the letter for the full list). - RETIREMENT
The issue around retirement and the disillusionment of Gen Zs with the future is not only a Brazilian or US related problem. When we talk about Brazil, it is clear that the social security system (INSS) will not be able to guarantee a dignified retirement to our or the following generations. It is only fair that we lead the call to action.
On that note, it is important to look outside for clues on how to solve this puzzle and learn from international experience.
Larry lays out three important fronts: (1) people investing personally (private capital markets), (2) plans provided by employers and (3) government safety nets (social security).
Some important takeaways are the need to make it easier for workers that do have access to an employer retirement plan to adopt it, as, for instance, automatically enrolling employers in some level. And making it simpler to transfer 401(k)s in between employers. Larry mentions the kick-in of a new Federal US law that will require employers that set up new 401(k) plans to automatically enroll their new workers.
He also points out that the shift from the pension model (defined benefit plan) to the defined contribution plans (like 401(k)s), brings in another question: how to plan spending for retirement money that does not come as a monthly paycheck. Blackrock proposes a solution with LifePath paycheck, a product that is thought to provide the lost predictability of the pension model.
It is important to keep an eye out for these international trends and how other countries try to solve the same problem we now face. In Brazil, we have seen a big transition in terms of updating the private pension funds framework. Even though the developments have been relevant, we still have costly structures and less product options than in the regular private market.
As our public system continues to face the same challenges and reform after reform, with still not a really viable plan, I believe we will see even more public incentive towards private retirement products¹, in an attempt to lift the burden of the public sphere. These incentives should be taken advantage of by investors.
This is not the only answer, but it is an important part of it. And we are an important part of designing a future where all people can retire with dignity.
