Daniel Skwarna/The Globe and Mail
With office towers largely emptied thanks to pandemic protocols, the brain trusts of many large corporations are spread hither and yon. It hasn’t hurt the global investment behemoth BlackRock, which attracted a record inflow of US$172 billion in the first quarter of this year. These days, Marcia Moffat, head of BlackRock’s Canadian division, conducts her business far from Toronto’s financial hub, connecting with clients (and the roughly 100 employees responsible for the division’s US$217 billion in assets under management) between hikes with her two teenage children and young black Lab along the woody trails surrounding Collingwood, Ont. Could that be one reason Moffat is keen to talk about the investment world’s growing shift to climate-driven initiatives? No—it’s probably the money.
Have you sensed a change in how Canadians are investing because of the pandemic?
You’d heard for a lot of years about the death of active management. If anything, this pandemic environment has proven the importance of active management, because the markets have swung in different directions, and there have been some tectonic shifts, some acceleration of technological and other structural trends. And then there have been some shifts in terms of different sectors being under further pressure and other ones popping up. We had been having a lot of conversations with clients around sustainability heading into this. You think the foot will come off the pedal because of the crisis. Actually, we went in the other direction. There’s a fundamental shift in the market. We had a session with clients featuring Bill Gates and Larry Fink talking about sustainability, and then Mary Barra, the CEO of GM, and the CEO of Rivian, R.J. Scaringe. And it was our most well-attended event ever.
Interesting. We’ll get into the sustainability stuff in more detail a little later.
The other thing on investing I would say is the whole notion around construction of the portfolio, as opposed to stock picking—you know, asset allocations. What are the macro trends and so on. That’s a big theme, and that’s where our sophisticated clients really lean.
When you say “sophisticated clients,” you mean…
Think of us as a B2B type of model. We have an institutional client business. Our clients for that business are pension funds, insurance companies, family offices, foundations, endowments, some of the other asset managers on a sub-advised basis, and so on. And then our other big pillar in Canada is our exchange-traded fund business through the iShares franchise. The clients for that tend to be those institutional clients I mentioned, as well as financial advisers, and then individual investors buy them, too.
BlackRock is in at least 30 countries. That should give you perspective. How would you characterize Canadian investor behaviour in a way that differentiates it from others?
I speak more from an institutional lens than from an individual investor lens, and I would say there’s commonalities in terms of how sophisticated institutions approach investing around the world. This move to asset allocation is a global trend. And the move, from a financial adviser perspective, to more of a model portfolio, where you might make some adjustments, as opposed to stock picking, is a trend we see in different regions. In most countries, you do see a home-country bias, and Canada is no different. The pensions have gotten away from that to a large degree. From an individual perspective, you still see there’s comfort with what we know. And I would say Canadians would be well-served to look outside our borders to where the growth is happening. The U.S. is a natural. Certainly some emerging markets. China’s a powerhouse.
The very first ETF was launched in Canada in 1990. The TSX recently listed the first bitcoin ETF. Now we’re listing the world’s first Ether ETF.
And you’re missing one, Trevor—the first bond ETF globally was launched in Canada by BlackRock.
Okay, why do these things happen in Canada first?
Canada’s got a couple of great attributes. It’s a sophisticated market. It is small enough to try some of these things and see if they take off. That’s a lot of what I do, in terms of running the business in Canada: Try something out here, and then it can be used as a model for other regions around the world.
Daniel Skwarna/The Globe and Mail
Let’s talk about sustainable investing. Is this a game-changing trend, in your view?
It is. It is here to stay. The conversations on sustainability have been picking up over the last few years, and then through the pandemic, they have accelerated significantly.
Why?
One reason is a broader-based agreement that climate risk is investment risk, that we are in a transition, and that those companies that are not preparing adequately for the transition will be left behind and will be riskier investments. There’s the other side of that coin, where there are real opportunities, not just within venture capital–type investments in emerging companies, but with well-established companies that are preparing for the transition better than their peers. Sustainability is a broad topic. There’s also ESG—environmental, social and governance. I would say that historically, there’s been a lot of focus on governance, and rightly so, because a well-governed company does tend to have its arms more around the strategy, is more thoughtful, is more prepared, is getting asked the tough questions by its board of directors. That piece has been part of the investor engagement for a long time. The social and the environmental, less so. It hasn’t manifested itself in an investable way, if you will.
Now, sadly, we’re seeing the repercussions of climate change more readily, in terms of the physical risks it presents. The insurance industry, property and casualty, would see that early. But then you start seeing it trickling through the investment portfolios. And then there’s the opportunity. When most people think about climate, they think specifically around oil, driving cars, planes and so on. But it’s much broader than that. Our clients are saying they’re going to double their assets in sustainable strategies to 2025.
So, these are your big clients. Are they thinking about these things because they’re having to plan out 20, 40 years from now?
That would be part of it, but not all of it. I think we’re seeing the risks as being much more near-term now and manifesting themselves in valuations, as well.
Is it a problem that there are no regulations around what constitutes sustainable investing?
Additional rigour is being pushed for, and it is happening. Because you’re right, it can be difficult to know: Is what I’m investing in having the impact I’m looking to have? And people are drawn to sustainable investing for different reasons. A portion is that climate risk is investment risk, and there’s opportunity. Some is that people want to have an impact. But all of that comes without wanting to give up returns. And that’s what we have focused on—the data and analytics to really understand what the risk is, how to quantify it, how to make investment decisions on it.
There is a push afoot for more standardized disclosures. I would say that’s moving quite quickly. And this would be around TCFD and SASB, and then investors meeting with companies and indicating what kind of metrics they’re looking for. As to whether it can be immediately regulated, we’re still feeling our way through. You are seeing a push for these changes, and you are seeing companies responding, both with net-zero commitments and with sustainability reporting. And it’ll get better and better.
On net zero, BlackRock has launched products with explicit temperature-alignment goals. Your chair, Larry Fink, has called on companies to show their plans for being compatible with a net-zero economy. With US$8.7 trillion in assets under control, BlackRock has a lot of power. Can you effectively force companies to become net-zero compliant?
There are client needs that must be met around sustainability. And we’re looking at how we can best serve our clients. Specifically on your point, we do have an investment stewardship team that engages with companies, with a view toward long-term value creation for shareholders, around their governance, their strategies and their transition readiness. And asking for good disclosure so investors can make proper decisions on those companies. We should talk a little bit around the data and analytics, and also some of the products or capabilities we’re offering, because there’s quite a lot happening in those two areas.
Let’s touch on it briefly. What analytics are you talking about?
We have an investment management platform called Aladdin. It’s end-to-end, software as a service. We have proprietary risk analytics within the enterprise system. It goes across asset classes, and it goes front-to-back within an organization. For example, portfolio management tools, trading, operations compliance accounting—all of that in a single platform. From a portfolio view, what’s the value? It’s around users being able to see the whole portfolio and understand the risks in its totality. We’re adding in more and more external sustainability data. You’ve heard of providers like MSCI, Sustainalytics, Refinitiv, Rhodium Group, Clarity AI—they all provide sustainability metrics. We have loaded those into Aladdin. We’re talking, like, 1,200 metrics.
So it’s a massive processing brain around investment risk.
There’s a real thirst for being able to understand portfolio risk from a climate perspective. And opportunity—last month we launched two carbon-transition-readiness funds. And just to give you an idea of the appetite, it was our biggest ETF launch ever. It was $1.2 billion. And it continued to grow. Across those two, it’s US$1.8 billion. And the U.S. equities version is the largest single launch in history: US$1.25 billion. That ETF produces about 50% less annual greenhouse gas emissions per dollar of revenue than the Russell 1000, which is its benchmark.
Is there any risk in having one system coming up with solutions for everyone?
Everyone uses it differently. The users are in control. I spent many years in banking, and you would see organizations build these systems, and very quickly, they become legacy systems. The world keeps changing, and it becomes extremely expensive to keep a system current. So that’s the way I think about Aladdin. The industry has moved away from proprietary systems. It just doesn’t make sense.
You mentioned your banking experience, so let’s focus on you. You came to lead BlackRock in Canada six years ago. How has that worked out for BlackRock?
I would say it’s worked out extremely well, Trevor! First of all, we struck an alliance with RBC on the iShare side of the business, which brings together our global capabilities and their capabilities.
Was that a Marcia Moffat decision?
Nothing is solely one person, but yes, I was instrumental in that. Because as an independent asset manager, the structure of the Canadian market is such that you’ve got 80% of distribution through the banks. To be successful as an independent, it makes sense to have an alliance.
At one time, BlackRock controlled more than 80% of the ETF market in Canada. By the end of 2018, that was down to 36%. Were you trying to fix that by partnering with RBC?
When we first entered Canada, we were the only player. So at one point we had virtually 100% of the market. As any asset class matures, inevitably there’s more competition. There’s now dozens of providers of ETFs. So yes, we were losing market share. And given what our strengths are, and what RBC’s strengths are, the alliance made a lot of sense.
What is the chief skill you’ve needed as head of BlackRock Canada?
It’s collaborating across the organization, to be able to connect the dots. When you’re trying to get something done in the regional arm of a large multinational, you need to develop those skills around collaboration, influence, sharing a vision for what can be and having others feel they’re part of that vision.
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