May 16, 2024 • 29 mins
In this first episode of Tiger Money, BlackRock's Head of Asia-Pacific, Susan Chan, shares insights with hosts David Ingles and Rebecca Sin into what she calls the “big structural shifts” in the global economy that are forcing investors to rethink their portfolios, with mega-forces in Asia including Japan, ETFs and private markets driving returns.
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Speaker 1 (00:00):
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Speaker 2 (00:19):
Good morning, good afternoon, good evening, and good nights wherever
in this vast, beautiful planet. You are joining us from
Welcome to Tiger Money, a Bloomberg podcast about investing, stocks, funds,
and everything in between, from investment tips, care, your advice,
love and life hacks, and maybe some tips in the kitchen.
This conversation is strictly non confidential. We're your hosts, strictly
(00:43):
all talk, no money. David and Less and with me
is ETF Sage in Current and Future Tiger Mom, Rebecca Sin.
Speaker 3 (00:51):
Thank you David. Today we're excited to have Miss Susan Chan,
head a ATA Pacific at black Rock join us for
this conversation. Susan is responsible for I THINK the Asia
Pacific region, serving the wealth and institutional investor via black
Rock's Active Index ETF, alternative and technology offering. She's a
mother of four, loves to cook and has perfected the
(01:14):
Patti press, a classic Prins dessert that is made from
shoe pastry and filled with a variety of cream filling.
When Susan is not in the kitchen, she enjoys rock clipping.
Welcome Susan, and we're so thrilled you could join us today.
Speaker 4 (01:27):
Thank you Rebecca and David for having me and I'm
super excited to be here today with you all.
Speaker 2 (01:34):
There is so much we want to talk to you about.
I guess just to get us started and get us
warmed up, you'll oversee quite a massive operation of courus
at Blackrock. And we're wondering, as you look ahead to
the rest of this year, what are your key priorities.
What do you want to see your firm achive by
the end of this year.
Speaker 4 (01:54):
Sure, first, let me touch upon the macro level. We're
seeing there are structural changes taking place in the global
economy which are impacting the way clients are constructing their portfolios.
These mega forces, or what we're calling big structural shifts,
are driving returns, including for example, demographic divergence, the digital disruption,
(02:19):
the geopolitical fragmentation, if you were to say, and then
also the evolving financial architecture and transition to a low
carbon economy. So today, all around the region and in
fact globally, our clients are rethinking their portfolios and how
they should be allocating to them. This is where Blackgroc
(02:39):
is uniquely positioned as we have everything from public to
private markets and we're able to offer our clients customization
to suit their needs. So specifically here in Asia Pacific,
we're seeing three areas that are really moving or accelerating
in this narrative. Number one is Japan, Number two is ETFs,
(03:02):
and number three private markets. Let me talk about each
of them very quickly. For Japan, as you will know,
monetary and corporate reforms are transforming the market and creating
very exciting investment opportunities. While it's still early, there is
a lot of hype and we are seeing that the
market has turned and it's gathering great momentum and we
(03:25):
are seeing basically the end to decades of deflation and
economics avclation. So this is really important in driving the
changes right. So I think the end of negative interest
rate policies just a few weeks ago with the move
is a positive, although it's going to create interim market volatility.
(03:47):
Number two ETFs, this We've been on a journey for
a long time, Rebecca. I remember you from a decade
ago when we were talking about ets This is not changing.
If anything, we can continues to see our institutional investors
increase their adoption to ETFs in the region. Largely they've
been playing in this space by purchasing our global lines
(04:11):
both the US and Europe in this part of the world. Recently,
what we're seeing because of the changes in largely the demographics,
with the self directed investor, with wealth and the digital
transformation that we're seeing in this part of the world,
we're seeing a demand for locally listed ETFs and we
see that in Japan, we see that in Australia. Those
(04:33):
are the two countries that we're seeing the growth there,
but we expect that trend to continue into the future.
And then the third point is in private markets. While
the markets remain incredibly volatile, I would say this shift
to the broader economy and investing landscape that I'm talking
about is positioning the private markets for growth. And also,
(04:56):
you know, I think this is an area where this
part of the world, in particular, where our clients have
always looked for income, they are starting to look at
private market investing as a means to get that income.
Two areas in particular are in infrastructure and in private credit.
Let me stop there, so.
Speaker 3 (05:16):
Let's drill into point one and two that you mentioned
Japan and ETFs. Japan is the largest market in Asia
Pacific with roughly five hundred and sixty billion in assets
under management, and for black rocks specifically I Shares, you
rank fifth in Japan. You've grown very significantly, especially in
the past year, with six billion dollars of inflows. You've
(05:37):
launched nine new ETFs. You are one of the lowest
providers in Japan, with your ETFs charging only five basis points,
and we've seen very large assets come into Japan in
your ETFs, especially from sovereign wealth fund. The NIKE has
returned thirty percent in twenty twenty three. This year's up
more than fourteen percent. But as you mentioned when when
(06:00):
I first met you, you were head of capital markets
at I Shares, and the ETF adoption rate in Asia
has grown significantly. To your point, a lot of people
were previously buying US ETFs, but now in Asia we're
seeing more and more investors trade Asia in Asia. So
since Japan is a focus area for Blackrock this year.
Could you help us understand why Japan and why now?
Speaker 4 (06:22):
Yeah? Sure, So I already alluded to this before and
when I touched Bound Japan, but let's expand upon that, right. So,
if you think about this, Japan is one of the
most mature economies in the world, and it's situated here
in Asia Pacific. It's getting traction and I think there
are three key drivers to this. So the first is
(06:44):
on the mac front, rates are changing. The BOJ move
means that gradually will start to see rates normalize in Japan,
and increasing rates is really really important. As that happens,
we're going to see inflation come back back into Japan
and this is going to have an impact on households,
(07:04):
on corporate behaviors, and on wages, all trending positive. So
that's number one. This creates opportunity. Secondly, Japan is a
great diversifier for global investors. If you think about portfolio allocation,
Japan is under allocated in all global portfolios today, and
that's probably the first move that we have seen, Rebecca,
(07:27):
to your point, the equity markets have gone up, the
first global move is global investors allocating more into Japan
as well as domestics, so that diversification as another market
outside of the United States to allocate to is very important.
And third, I think within the country, their democratic challenges
(07:47):
are really profound. And we know that Japan is aging
and therefore they have a labor shortage, and we know
that over time, like many many countries in the world,
you know that aging population creates a lot of challenges.
What's different though, Japan has really focused on development in
automation and in robotics. Japan is well positioned to benefit
(08:11):
from some of the big themes that prevail around the
globe today in the investment space, right, So in particular,
mega trends around aging population is something that can greatly
benefit Japanese companies because they're already focused on it, the automation,
the robotics, right. And then I think also AI Semiconductor
(08:32):
medtech for example, because they had a necessity to try
to solve these problems for their own domestic and now
all these themes are becoming incredibly relevant globally. So it
makes them an amazing, amazing economy to look at participating in.
So I think the domestic monetary shifts, the corporate governance
shifts with sort of the diversification and portfolios and everything
(08:56):
that they are playing and makes them a great attractive
destination for all investors, both domestically and globally. Now in
terms of ETFs, one of the things that the government
is working on around monetary policy, corporate governance, and domestic
focus as they know that their demographics are aging, is
(09:16):
to move cash into investments, and we see that in
Japan where they're focusing on policy changes. They have, for example,
expanded their NISA savings plan, which is a tax exempt
scheme for savings. There's still a lot to do there.
It's early days and I'm very hopeful that the government
will continue to evolve this. But what all this means
(09:39):
is with rates going up, with policy changes and implementation
of savings plans, it's really trying to force that next
generation and also currently the aging generation to invest more
for the future, because you can't just sit in cash anymore.
If rates are going up, you have to move into investments.
(10:00):
So why is this really great for the ETF. It's
a simple tool for that money to move into without
having to understand which share should I purchase, which bond
should I buy? For these investors who may not necessarily
be really really in the know of the markets because
they hadn't had to for the past three decades. You
(10:20):
just sit in cash. The easy go to instrument that
provides transparency, liquidity, and choice is the ETF. So that's why,
Rebecca and David, you're seeing that in Japan. Not only
is the growth of ets been pretty phenomenal, to be honest,
but the choices and why we're launching more in that
(10:41):
space is critically important so that when cash moves, they
have somewhere to go.
Speaker 2 (10:47):
Fantastic. The third pillar of growth or priority or set
of priorities that you mentioned earlier on if we could
just elaborate on that, it's really private markets, and within
that you mentioned infrastructure in private credit. I have a
couple of follow ups in that if you don't mind,
and one is going into private markets is a completely
different ballgame. You know, the dynamics of that market, everything
(11:10):
from structuring, deal sourcing, what have you is completely different.
So I was wondering if you could touch on the
challenges of black Rock getting into something arguably very very different.
That's number one. Number two is what are you hearing
from your clients as far as the preference and allocations
into private assets, how sustainable do you think that flow
(11:33):
is going to be predictable or is it simply cyclical
in other words, cyclical versus structural as well? Just take
us through how you're thinking about that.
Speaker 4 (11:41):
Sure, so Blackrock already today where amongst the top five
in private markets globally, so this is not new to us.
And we cover everything from your traditional pe all the
way through the spectrum to real estate and infrastructure, so
it is areas that we've been playing in for a
long time now. I think the difference now, what is
(12:03):
driving all of this and what is creating such focus
on private markets. I would say there's a few trends
right in general, there's a changing nature in private market allocation.
And what I would say, David is it's an institutional
focus play largely, and it always has been up to now.
Although we are seeing demand in some pockets of the
(12:26):
ultra high net worth, but I still think that largely
private market demand is an institutional play. So what we've
seen is that traditionally, sovereign wealth funds and institutional investors
have built over time, deep and sophisticated private equity portfolios
that's known to be true, and then what we're seeing
(12:48):
in changes is that they're expanding into other areas to
allocate and they want different accepnesses as the requirements on yield,
the requirement on where to invest are changing, and a
lot of that has been fueled by the increase in
rates in the previous year around dollars right. So I
(13:08):
think the diversification and sort of like the factors that
are driving private markets in this part of the world
is more profound because, as you both know, in this
part of the world, a lot of our clients are
looking for income. So income is very important, and I
think in the public side of the market the yields
normalize and are a little bit lower. We're seeing that
(13:30):
in this part of the world, our clients are looking
number one two things out duration and how they can
get income relatives to the duration that they're looking at.
The second trend is that we're seeing that a lot
of companies are staying private for longer, and because they're
(13:51):
staying private for longer, there is a need for us
to continue to support the private side and see what
opportunities are out there these companies are looking for, like
alternative sources of capital in order for them to say
private for longer, So that creates a great opportunity without
institutional clients. The other piece is banks. Banks balance sheets
(14:15):
continue to be stressed and they are being very selective
on how they deploy balance sheet so in that you're
seeing the area of for example, private credit sort of
grow because we have both sides of the equation, those
that want to lend and those that want to borrow,
but away from the bank balance sheets. So that becomes
(14:36):
a critical need as well for our clients. And within
all these there are great opportunities to invest and to
generate the yields or the income that our clients might
be looking for when they assess how they should be
creating their portfolios over the long run.
Speaker 2 (14:55):
It's certainly something that anecdotally has come up a lot
more in the last six months. You know, a pool
of byside investors who would normally not even discuss private
markets are now and to your point, sovereign wealth funds
for example. You know, I was having a conversation I
think it was almost about a year back with Korea
Investment Corps and they're looking to increase their allocations to
(15:16):
private markets generally speaking by I think five percentage points.
And one of the things that they brought up, and
just anecdotally as well, that's I guess, in some ways
incentivizing and forcing if that's the right word, more investors
into the private markets, is just that correlations between your
traditional stocks and bonds have snapped back substantially as the
(15:36):
FED raised interest rate. So I guess this sticks me
into my next question, what happens when the FED eventually
takes rates down? What remained trends that we can trust
and what do you think changes? How does that affect
your strategy, for example as a firm.
Speaker 4 (15:50):
I think that's a great question. I'm not sure that
the FEDS will take the rates down. From my personal
opinion right now, there are no macro factors today that
would have a strong dictation of feeds should move on rates,
So I think the rates will normalize around here. But
having said that, if rates do go down, the search
(16:11):
for income becomes even more prevalent, and that's an area
where I think private markets will continue to play a
long lasting support to our client base because of the
fact that there are critical themes in private markets. If
you just think about, for example, why are people focused
on infrastructure and the transition to net zero that will
(16:34):
take place over a long period of time, and these
themes will generate significant amount of returns and irrespective of
where rates are up or down, those returns will always
normalize and continue to carry as we must go into
transitioning to net zero, as we must then alongside of
(16:55):
that build infrastructure i e. Data centers, global energy support, etc.
So I think this trend is here. So that's a
trend irrespective of rates, even though it might be bumpy
depending on how quickly rates move. But I have a
firm opinion personally that the rates are normalized and will
be quite stable for at least a million part of
(17:17):
this year.
Speaker 2 (17:18):
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Speaker 3 (17:42):
So let's go back to ETF, which you mentioned is
the second pillar of what you guys are focused on
in the region. So I think one thing that's unique
to Asia is the fragmentation that we see across the region.
So for instance, the difference between Hong Kong, China, Australia,
Japan and how investors use EAT and why they use it.
To your point, For instance, in Japan, they just launched
(18:05):
the NISA, which is a tax free stock investment program
which will help the aging population in Japan. In Hong Kong,
we just launched the Spot Bitcoin and Ether ETFs. Virtual
asset is definitely picking up in popularity in the US.
Blackrock has the largest Spot Bitcoin ETF with more than
seventeen billion in assets and you only just launch this
(18:27):
product in January. There's clear demand from investors globally for
virtual asset, not just across retail but also institutional clients.
Does Blackrock have any plans to bring such product to
the local market in Asia.
Speaker 4 (18:42):
So, Rebecca, you know, even if we did, I couldn't
comment on that. However, what I would say is the
launch of the Spot Bitcoin ETF for US in the
US has been super exciting because it's a scalable bridge
from traditional finance to bitcoin and it's helping to broaden
access to bitcoin for mainstream investors. It also highlights. The
(19:04):
one thing that we've been saying, which is ets as
a rapper is ubiquitous, and more and more, what we
are seeing is you can take the ETF rapper and
you can pretty much look to put anything within it
and launch it and offer it to mainstream investors. I
think this is really really important for us because we
(19:26):
knew it, We've been saying it for over a decade,
and now we are seeing this come to play. So
it's very exciting and I think there will be a
future where you can probably ETF almost anything.
Speaker 3 (19:39):
So one thing that I love about ETFs is that
they're like legals. You can build just about anything with them,
like an ETF. Ultimately, to your point, ETF is just
a rapper for another product. We've seen phenomenal growth across
product offering in recent years, and if we look at
the Asia Pacific landscape, the clientele and the demand has shifted.
(20:00):
Previously a lot of people in Asia we're trading usutfs,
but now we're seeing a lot of people trade their
local markets more. We have investors in Japan only trading
in Japan, clients in Hong Kong only trading Hong Kong. Investors'
investment habits have shifted. For instance, there are certain tax
benefits for Asian investors to trade their local product offering.
(20:22):
You no longer need to stay up at night to
trade the US market because we have those products locally.
What are some of the ETF trends in Asia that
you've observed and some of the challenges ETF investors face
in the region.
Speaker 4 (20:35):
So I think while we see in great adoption across
the region, in particular, we see it in Australia and
that was really catalyzed by sort of the move to
peebase in twenty nineteen and also the digital transformation on
platforms down in Australia. That's one. And then if we
move to Japan, you've already highlighted that in terms of
(20:58):
we're seeing more local adoption because of this focus on
moving cash into investment products. I would say the rest
of the world in APEX, so Hong Kong, Singapore, you
can put Taiwan, Korea, everywhere with there's a ETF market.
It's all very different, and while it's growing, it still
(21:18):
can grow much faster. One of the main challenges we
continue to have is that these markets largely still retro
session based and when there are retro sessions, it's very
challenging to drive adoption of ETFs in an accelerated manner
because people don't get paid for selling ETFs. We don't
(21:38):
necessarily need to say there's a massive band, but we
do need to see that there is the adoption because
our investors believe that having choice in your portfolio to
construct your portfolios will be the best So that investors
will see that having ETFs in your portfolio will be
(21:58):
the most costly fire way to trade in and out
of positions, and so that you can create amazing portfolios
over time.
Speaker 3 (22:09):
Just for our audience who may not know, retrocession fees
or rebates are ultimately fees that you pay the distributor
for selling your product. It's a kickback fee. In Asia,
this is a very common practice and management fees are
often higher due to this. It's not uncommon for fees
to be one to two percent because you have to
pay the different parties.
Speaker 2 (22:30):
Yeah, I's actually going to follow up on that. You know,
what's holding the growth back in some places is a
distribution issue and is that a function of regulation And
if it is partly, where do regulators in those places
perhaps need to look for successful case uses of where
it is successful to start incentivizing a change in that model.
(22:51):
You know, what are markets where I do that and
it's better off for the investor based net net.
Speaker 4 (22:58):
I would point them to the US and in particular
to the UK. So those are two markets that due
to regulatory change and shifts and moving to feebase. This
has created a momentum that helped investors think about their
whole portfolio and how to construct that using an array
(23:18):
of instruments, mutual funds that have retro sessions and ETFs.
Speaker 3 (23:24):
Just to add in Asia Pacific, the only region that
has banned retro session fee is Australia. Because of this,
they've managed to build a very successful retail and advisory model.
In Australia, they have one of the highest adoption rate
of ETFs and this could be due to the fact
that rebates are banned. This ultimately provides an equal landscape
(23:46):
for all of the ETF issuers, in clients and advisors
who can really select products that's right for them, not
based on advertisements or fees that people are paid.
Speaker 2 (23:57):
All right, So we have a couple of minutes left
before I guess we wrap things up. I have actually
one more question on markets than we can turn to
the fun stuff. We've yet to really talk about China,
and I'm wondering it's been challenging the last two three
years for that market. Where do you think the market goes.
What's the outlook based on what information we have right now, Susan,
and what are your plans generally speaking in this part
(24:18):
of the world, Hong Kong and of course Greater China.
Speaker 4 (24:22):
No doubt, China has been an underperformer in global markets
across the board for about eighteen months now. I think
the coming out of COVID recovery was expected to be
quite positively bullish, and that has been slow, so that's
caught people off guard. I also do think that given
(24:44):
that global geopolitical environment, as we head into a year
of more than fifty elections, in particular the United States,
this is casting a shadow over China. This will take
some time. Having said that, I do think that in
the market place domestically, the government, the regulators, and the
(25:04):
ecosystem are acutely aware that they have to focus on
rebooting the economy. They have some structural challenges I in
real estate that they continually are addressing, but they've been
very vocal that they want to continue to open up
their capital markets, and we're seeing through some of their
(25:24):
policy changes even recently on the positive to help to
encourage more global investment into China. So I think they
are working as best as they can, but it will
be quite a bumpy year for China continued. But as
long as they set positive policy changes, I think it
will come out of this. It's only a question of when.
(25:47):
And also I think the other thing is globally, we
need to accept that the sort of expectations of China's
GDP growing at eight or nine percent per annum are
gone and that China will grow at their expected five
for some time to come. And even at five percent growth,
China will continue to grow and grow out of its problems.
(26:10):
It'll just take a little bit longer. As for us
at Blackrock, we remain committed. We've built two businesses domestically
in China, a fund management company and a wealth management company,
and we continue to launch products and we continue to
grow our business on shore as well. We continue to
(26:30):
support our client flows from international with those clients in
particular around this region that continue to want to invest
in China. We have not changed our sort of business
model and we continue to support China over time.
Speaker 2 (26:46):
Well, it said, and you know what, the markets have
been listening fairly recently when you look at how the
price action has been just a couple of more fun
questions and we're pivoting now away from some of the
more serious stuff. You've been around these markets and this
region for several years, and when someone says Asia, one
of the more common misconceptions is it's one place. It's actually,
(27:08):
as you know, twenty thirty different places. And when into
thirty different places, there's a lot of nuances to be here.
So my question is you've been around this entire region
for a long time. Is there anything that still surprises you?
Speaker 4 (27:20):
Oh, every day something surprises me. That's why I've been
around for so long, David. I think the dynamism of
the region is exceptional and extraordinary. I think the changes
that are always coming keeps it exciting, and you know,
one keeps on learning every day. So when we were
talking about Japan, who would have thought that they would
(27:40):
move out of zero interest rates? Who would have thought
that there's inflation? What are you going to do when
that happens. That was always a yeah, we'll see doubt
it will happen, and now it's happening. So even the
most developed markets of this region are changing and evolving
and giving us some new food for thoughts. So that's
that's why I love it out here. It's great.
Speaker 3 (28:02):
So, Susan, you've always provided me with very good advice,
whether that's on career investment. So for our audience, what's
the best career advice someone has given you?
Speaker 4 (28:13):
Don't worry about the things that are out of your
control and focus on things that you can actually control
on a day to day basis.
Speaker 3 (28:21):
I love that. So, as a senior female executive in
the finance industry, what's your take on breaking through gender
and cultural biases and how can we help women in
the finance industry succeed?
Speaker 4 (28:34):
I would say, one step out of time, and let's
be realistic. This is a multi decade journey and I
think every step is a win. So let's do everything
one step at a time, and let's not try to
think we're going to make some massive changes overnight, because
we need everyone to join us on this bus and
(28:55):
you know, take this journey, and that requires communication collaboration, education,
and a lot of understanding of each other. So on
that one, I would just say, we should become students
of each other so that we can help break through
sort of the glass ceiling. We can help understand each gender.
(29:15):
And then also while we focus on gender, we also
need to understand the next gen because the next gen
has a very different focus, so we need to also
bring that into the mix so that the future is
much more balanced than it is today.
Speaker 2 (29:31):
And you know, on that note, Susan, thank you so
much for joining us today and thank you for blessing
us with your time. Of course, that was Susan Chender,
head of each Specific at Blackrock.
Speaker 3 (29:42):
This podcast was produced by Clara Chen. You've been listening
to Tiger Money.
This podcast is brought to you by HKX, Asia's ETF marketplace.
Well you'll find a gateway to liquidity and a diverse
selection of opportunities across asset classes, sectors, and themes in
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Speaker 2 (00:19):
Good morning, good afternoon, good evening, and good nights wherever
in this vast, beautiful planet. You are joining us from
Welcome to Tiger Money, a Bloomberg podcast about investing, stocks, funds,
and everything in between, from investment tips, care, your advice,
love and life hacks, and maybe some tips in the kitchen.
This conversation is strictly non confidential. We're your hosts, strictly
(00:43):
all talk, no money. David and Less and with me
is ETF Sage in Current and Future Tiger Mom, Rebecca Sin.
Speaker 3 (00:51):
Thank you David. Today we're excited to have Miss Susan Chan,
head a ATA Pacific at black Rock join us for
this conversation. Susan is responsible for I THINK the Asia
Pacific region, serving the wealth and institutional investor via black
Rock's Active Index ETF, alternative and technology offering. She's a
mother of four, loves to cook and has perfected the
(01:14):
Patti press, a classic Prins dessert that is made from
shoe pastry and filled with a variety of cream filling.
When Susan is not in the kitchen, she enjoys rock clipping.
Welcome Susan, and we're so thrilled you could join us today.
Speaker 4 (01:27):
Thank you Rebecca and David for having me and I'm
super excited to be here today with you all.
Speaker 2 (01:34):
There is so much we want to talk to you about.
I guess just to get us started and get us
warmed up, you'll oversee quite a massive operation of courus
at Blackrock. And we're wondering, as you look ahead to
the rest of this year, what are your key priorities.
What do you want to see your firm achive by
the end of this year.
Speaker 4 (01:54):
Sure, first, let me touch upon the macro level. We're
seeing there are structural changes taking place in the global
economy which are impacting the way clients are constructing their portfolios.
These mega forces, or what we're calling big structural shifts,
are driving returns, including for example, demographic divergence, the digital disruption,
(02:19):
the geopolitical fragmentation, if you were to say, and then
also the evolving financial architecture and transition to a low
carbon economy. So today, all around the region and in
fact globally, our clients are rethinking their portfolios and how
they should be allocating to them. This is where Blackgroc
(02:39):
is uniquely positioned as we have everything from public to
private markets and we're able to offer our clients customization
to suit their needs. So specifically here in Asia Pacific,
we're seeing three areas that are really moving or accelerating
in this narrative. Number one is Japan, Number two is ETFs,
(03:02):
and number three private markets. Let me talk about each
of them very quickly. For Japan, as you will know,
monetary and corporate reforms are transforming the market and creating
very exciting investment opportunities. While it's still early, there is
a lot of hype and we are seeing that the
market has turned and it's gathering great momentum and we
(03:25):
are seeing basically the end to decades of deflation and
economics avclation. So this is really important in driving the
changes right. So I think the end of negative interest
rate policies just a few weeks ago with the move
is a positive, although it's going to create interim market volatility.
(03:47):
Number two ETFs, this We've been on a journey for
a long time, Rebecca. I remember you from a decade
ago when we were talking about ets This is not changing.
If anything, we can continues to see our institutional investors
increase their adoption to ETFs in the region. Largely they've
been playing in this space by purchasing our global lines
(04:11):
both the US and Europe in this part of the world. Recently,
what we're seeing because of the changes in largely the demographics,
with the self directed investor, with wealth and the digital
transformation that we're seeing in this part of the world,
we're seeing a demand for locally listed ETFs and we
see that in Japan, we see that in Australia. Those
(04:33):
are the two countries that we're seeing the growth there,
but we expect that trend to continue into the future.
And then the third point is in private markets. While
the markets remain incredibly volatile, I would say this shift
to the broader economy and investing landscape that I'm talking
about is positioning the private markets for growth. And also,
(04:56):
you know, I think this is an area where this
part of the world, in particular, where our clients have
always looked for income, they are starting to look at
private market investing as a means to get that income.
Two areas in particular are in infrastructure and in private credit.
Let me stop there, so.
Speaker 3 (05:16):
Let's drill into point one and two that you mentioned
Japan and ETFs. Japan is the largest market in Asia
Pacific with roughly five hundred and sixty billion in assets
under management, and for black rocks specifically I Shares, you
rank fifth in Japan. You've grown very significantly, especially in
the past year, with six billion dollars of inflows. You've
(05:37):
launched nine new ETFs. You are one of the lowest
providers in Japan, with your ETFs charging only five basis points,
and we've seen very large assets come into Japan in
your ETFs, especially from sovereign wealth fund. The NIKE has
returned thirty percent in twenty twenty three. This year's up
more than fourteen percent. But as you mentioned when when
(06:00):
I first met you, you were head of capital markets
at I Shares, and the ETF adoption rate in Asia
has grown significantly. To your point, a lot of people
were previously buying US ETFs, but now in Asia we're
seeing more and more investors trade Asia in Asia. So
since Japan is a focus area for Blackrock this year.
Could you help us understand why Japan and why now?
Speaker 4 (06:22):
Yeah? Sure, So I already alluded to this before and
when I touched Bound Japan, but let's expand upon that, right. So,
if you think about this, Japan is one of the
most mature economies in the world, and it's situated here
in Asia Pacific. It's getting traction and I think there
are three key drivers to this. So the first is
(06:44):
on the mac front, rates are changing. The BOJ move
means that gradually will start to see rates normalize in Japan,
and increasing rates is really really important. As that happens,
we're going to see inflation come back back into Japan
and this is going to have an impact on households,
(07:04):
on corporate behaviors, and on wages, all trending positive. So
that's number one. This creates opportunity. Secondly, Japan is a
great diversifier for global investors. If you think about portfolio allocation,
Japan is under allocated in all global portfolios today, and
that's probably the first move that we have seen, Rebecca,
(07:27):
to your point, the equity markets have gone up, the
first global move is global investors allocating more into Japan
as well as domestics, so that diversification as another market
outside of the United States to allocate to is very important.
And third, I think within the country, their democratic challenges
(07:47):
are really profound. And we know that Japan is aging
and therefore they have a labor shortage, and we know
that over time, like many many countries in the world,
you know that aging population creates a lot of challenges.
What's different though, Japan has really focused on development in
automation and in robotics. Japan is well positioned to benefit
(08:11):
from some of the big themes that prevail around the
globe today in the investment space, right, So in particular,
mega trends around aging population is something that can greatly
benefit Japanese companies because they're already focused on it, the automation,
the robotics, right. And then I think also AI Semiconductor
(08:32):
medtech for example, because they had a necessity to try
to solve these problems for their own domestic and now
all these themes are becoming incredibly relevant globally. So it
makes them an amazing, amazing economy to look at participating in.
So I think the domestic monetary shifts, the corporate governance
shifts with sort of the diversification and portfolios and everything
(08:56):
that they are playing and makes them a great attractive
destination for all investors, both domestically and globally. Now in
terms of ETFs, one of the things that the government
is working on around monetary policy, corporate governance, and domestic
focus as they know that their demographics are aging, is
(09:16):
to move cash into investments, and we see that in
Japan where they're focusing on policy changes. They have, for example,
expanded their NISA savings plan, which is a tax exempt
scheme for savings. There's still a lot to do there.
It's early days and I'm very hopeful that the government
will continue to evolve this. But what all this means
(09:39):
is with rates going up, with policy changes and implementation
of savings plans, it's really trying to force that next
generation and also currently the aging generation to invest more
for the future, because you can't just sit in cash anymore.
If rates are going up, you have to move into investments.
(10:00):
So why is this really great for the ETF. It's
a simple tool for that money to move into without
having to understand which share should I purchase, which bond
should I buy? For these investors who may not necessarily
be really really in the know of the markets because
they hadn't had to for the past three decades. You
(10:20):
just sit in cash. The easy go to instrument that
provides transparency, liquidity, and choice is the ETF. So that's why,
Rebecca and David, you're seeing that in Japan. Not only
is the growth of ets been pretty phenomenal, to be honest,
but the choices and why we're launching more in that
(10:41):
space is critically important so that when cash moves, they
have somewhere to go.
Speaker 2 (10:47):
Fantastic. The third pillar of growth or priority or set
of priorities that you mentioned earlier on if we could
just elaborate on that, it's really private markets, and within
that you mentioned infrastructure in private credit. I have a
couple of follow ups in that if you don't mind,
and one is going into private markets is a completely
different ballgame. You know, the dynamics of that market, everything
(11:10):
from structuring, deal sourcing, what have you is completely different.
So I was wondering if you could touch on the
challenges of black Rock getting into something arguably very very different.
That's number one. Number two is what are you hearing
from your clients as far as the preference and allocations
into private assets, how sustainable do you think that flow
(11:33):
is going to be predictable or is it simply cyclical
in other words, cyclical versus structural as well? Just take
us through how you're thinking about that.
Speaker 4 (11:41):
Sure, so Blackrock already today where amongst the top five
in private markets globally, so this is not new to us.
And we cover everything from your traditional pe all the
way through the spectrum to real estate and infrastructure, so
it is areas that we've been playing in for a
long time now. I think the difference now, what is
(12:03):
driving all of this and what is creating such focus
on private markets. I would say there's a few trends
right in general, there's a changing nature in private market allocation.
And what I would say, David is it's an institutional
focus play largely, and it always has been up to now.
Although we are seeing demand in some pockets of the
(12:26):
ultra high net worth, but I still think that largely
private market demand is an institutional play. So what we've
seen is that traditionally, sovereign wealth funds and institutional investors
have built over time, deep and sophisticated private equity portfolios
that's known to be true, and then what we're seeing
(12:48):
in changes is that they're expanding into other areas to
allocate and they want different accepnesses as the requirements on yield,
the requirement on where to invest are changing, and a
lot of that has been fueled by the increase in
rates in the previous year around dollars right. So I
(13:08):
think the diversification and sort of like the factors that
are driving private markets in this part of the world
is more profound because, as you both know, in this
part of the world, a lot of our clients are
looking for income. So income is very important, and I
think in the public side of the market the yields
normalize and are a little bit lower. We're seeing that
(13:30):
in this part of the world, our clients are looking
number one two things out duration and how they can
get income relatives to the duration that they're looking at.
The second trend is that we're seeing that a lot
of companies are staying private for longer, and because they're
(13:51):
staying private for longer, there is a need for us
to continue to support the private side and see what
opportunities are out there these companies are looking for, like
alternative sources of capital in order for them to say
private for longer, So that creates a great opportunity without
institutional clients. The other piece is banks. Banks balance sheets
(14:15):
continue to be stressed and they are being very selective
on how they deploy balance sheet so in that you're
seeing the area of for example, private credit sort of
grow because we have both sides of the equation, those
that want to lend and those that want to borrow,
but away from the bank balance sheets. So that becomes
(14:36):
a critical need as well for our clients. And within
all these there are great opportunities to invest and to
generate the yields or the income that our clients might
be looking for when they assess how they should be
creating their portfolios over the long run.
Speaker 2 (14:55):
It's certainly something that anecdotally has come up a lot
more in the last six months. You know, a pool
of byside investors who would normally not even discuss private
markets are now and to your point, sovereign wealth funds
for example. You know, I was having a conversation I
think it was almost about a year back with Korea
Investment Corps and they're looking to increase their allocations to
(15:16):
private markets generally speaking by I think five percentage points.
And one of the things that they brought up, and
just anecdotally as well, that's I guess, in some ways
incentivizing and forcing if that's the right word, more investors
into the private markets, is just that correlations between your
traditional stocks and bonds have snapped back substantially as the
(15:36):
FED raised interest rate. So I guess this sticks me
into my next question, what happens when the FED eventually
takes rates down? What remained trends that we can trust
and what do you think changes? How does that affect
your strategy, for example as a firm.
Speaker 4 (15:50):
I think that's a great question. I'm not sure that
the FEDS will take the rates down. From my personal
opinion right now, there are no macro factors today that
would have a strong dictation of feeds should move on rates,
So I think the rates will normalize around here. But
having said that, if rates do go down, the search
(16:11):
for income becomes even more prevalent, and that's an area
where I think private markets will continue to play a
long lasting support to our client base because of the
fact that there are critical themes in private markets. If
you just think about, for example, why are people focused
on infrastructure and the transition to net zero that will
(16:34):
take place over a long period of time, and these
themes will generate significant amount of returns and irrespective of
where rates are up or down, those returns will always
normalize and continue to carry as we must go into
transitioning to net zero, as we must then alongside of
(16:55):
that build infrastructure i e. Data centers, global energy support, etc.
So I think this trend is here. So that's a
trend irrespective of rates, even though it might be bumpy
depending on how quickly rates move. But I have a
firm opinion personally that the rates are normalized and will
be quite stable for at least a million part of
(17:17):
this year.
Speaker 2 (17:18):
Now, if you like what you hear, do not forget
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Speaker 1 (17:25):
This podcast is brought to you by HKX Asia's ETF marketplace,
where you can get exposure to themes ranging from AI
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to global search HKX to learn more.
Speaker 3 (17:42):
So let's go back to ETF, which you mentioned is
the second pillar of what you guys are focused on
in the region. So I think one thing that's unique
to Asia is the fragmentation that we see across the region.
So for instance, the difference between Hong Kong, China, Australia,
Japan and how investors use EAT and why they use it.
To your point, For instance, in Japan, they just launched
(18:05):
the NISA, which is a tax free stock investment program
which will help the aging population in Japan. In Hong Kong,
we just launched the Spot Bitcoin and Ether ETFs. Virtual
asset is definitely picking up in popularity in the US.
Blackrock has the largest Spot Bitcoin ETF with more than
seventeen billion in assets and you only just launch this
(18:27):
product in January. There's clear demand from investors globally for
virtual asset, not just across retail but also institutional clients.
Does Blackrock have any plans to bring such product to
the local market in Asia.
Speaker 4 (18:42):
So, Rebecca, you know, even if we did, I couldn't
comment on that. However, what I would say is the
launch of the Spot Bitcoin ETF for US in the
US has been super exciting because it's a scalable bridge
from traditional finance to bitcoin and it's helping to broaden
access to bitcoin for mainstream investors. It also highlights. The
(19:04):
one thing that we've been saying, which is ets as
a rapper is ubiquitous, and more and more, what we
are seeing is you can take the ETF rapper and
you can pretty much look to put anything within it
and launch it and offer it to mainstream investors. I
think this is really really important for us because we
(19:26):
knew it, We've been saying it for over a decade,
and now we are seeing this come to play. So
it's very exciting and I think there will be a
future where you can probably ETF almost anything.
Speaker 3 (19:39):
So one thing that I love about ETFs is that
they're like legals. You can build just about anything with them,
like an ETF. Ultimately, to your point, ETF is just
a rapper for another product. We've seen phenomenal growth across
product offering in recent years, and if we look at
the Asia Pacific landscape, the clientele and the demand has shifted.
(20:00):
Previously a lot of people in Asia we're trading usutfs,
but now we're seeing a lot of people trade their
local markets more. We have investors in Japan only trading
in Japan, clients in Hong Kong only trading Hong Kong. Investors'
investment habits have shifted. For instance, there are certain tax
benefits for Asian investors to trade their local product offering.
(20:22):
You no longer need to stay up at night to
trade the US market because we have those products locally.
What are some of the ETF trends in Asia that
you've observed and some of the challenges ETF investors face
in the region.
Speaker 4 (20:35):
So I think while we see in great adoption across
the region, in particular, we see it in Australia and
that was really catalyzed by sort of the move to
peebase in twenty nineteen and also the digital transformation on
platforms down in Australia. That's one. And then if we
move to Japan, you've already highlighted that in terms of
(20:58):
we're seeing more local adoption because of this focus on
moving cash into investment products. I would say the rest
of the world in APEX, so Hong Kong, Singapore, you
can put Taiwan, Korea, everywhere with there's a ETF market.
It's all very different, and while it's growing, it still
(21:18):
can grow much faster. One of the main challenges we
continue to have is that these markets largely still retro
session based and when there are retro sessions, it's very
challenging to drive adoption of ETFs in an accelerated manner
because people don't get paid for selling ETFs. We don't
(21:38):
necessarily need to say there's a massive band, but we
do need to see that there is the adoption because
our investors believe that having choice in your portfolio to
construct your portfolios will be the best So that investors
will see that having ETFs in your portfolio will be
(21:58):
the most costly fire way to trade in and out
of positions, and so that you can create amazing portfolios
over time.
Speaker 3 (22:09):
Just for our audience who may not know, retrocession fees
or rebates are ultimately fees that you pay the distributor
for selling your product. It's a kickback fee. In Asia,
this is a very common practice and management fees are
often higher due to this. It's not uncommon for fees
to be one to two percent because you have to
pay the different parties.
Speaker 2 (22:30):
Yeah, I's actually going to follow up on that. You know,
what's holding the growth back in some places is a
distribution issue and is that a function of regulation And
if it is partly, where do regulators in those places
perhaps need to look for successful case uses of where
it is successful to start incentivizing a change in that model.
(22:51):
You know, what are markets where I do that and
it's better off for the investor based net net.
Speaker 4 (22:58):
I would point them to the US and in particular
to the UK. So those are two markets that due
to regulatory change and shifts and moving to feebase. This
has created a momentum that helped investors think about their
whole portfolio and how to construct that using an array
(23:18):
of instruments, mutual funds that have retro sessions and ETFs.
Speaker 3 (23:24):
Just to add in Asia Pacific, the only region that
has banned retro session fee is Australia. Because of this,
they've managed to build a very successful retail and advisory model.
In Australia, they have one of the highest adoption rate
of ETFs and this could be due to the fact
that rebates are banned. This ultimately provides an equal landscape
(23:46):
for all of the ETF issuers, in clients and advisors
who can really select products that's right for them, not
based on advertisements or fees that people are paid.
Speaker 2 (23:57):
All right, So we have a couple of minutes left
before I guess we wrap things up. I have actually
one more question on markets than we can turn to
the fun stuff. We've yet to really talk about China,
and I'm wondering it's been challenging the last two three
years for that market. Where do you think the market goes.
What's the outlook based on what information we have right now, Susan,
and what are your plans generally speaking in this part
(24:18):
of the world, Hong Kong and of course Greater China.
Speaker 4 (24:22):
No doubt, China has been an underperformer in global markets
across the board for about eighteen months now. I think
the coming out of COVID recovery was expected to be
quite positively bullish, and that has been slow, so that's
caught people off guard. I also do think that given
(24:44):
that global geopolitical environment, as we head into a year
of more than fifty elections, in particular the United States,
this is casting a shadow over China. This will take
some time. Having said that, I do think that in
the market place domestically, the government, the regulators, and the
(25:04):
ecosystem are acutely aware that they have to focus on
rebooting the economy. They have some structural challenges I in
real estate that they continually are addressing, but they've been
very vocal that they want to continue to open up
their capital markets, and we're seeing through some of their
(25:24):
policy changes even recently on the positive to help to
encourage more global investment into China. So I think they
are working as best as they can, but it will
be quite a bumpy year for China continued. But as
long as they set positive policy changes, I think it
will come out of this. It's only a question of when.
(25:47):
And also I think the other thing is globally, we
need to accept that the sort of expectations of China's
GDP growing at eight or nine percent per annum are
gone and that China will grow at their expected five
for some time to come. And even at five percent growth,
China will continue to grow and grow out of its problems.
(26:10):
It'll just take a little bit longer. As for us
at Blackrock, we remain committed. We've built two businesses domestically
in China, a fund management company and a wealth management company,
and we continue to launch products and we continue to
grow our business on shore as well. We continue to
(26:30):
support our client flows from international with those clients in
particular around this region that continue to want to invest
in China. We have not changed our sort of business
model and we continue to support China over time.
Speaker 2 (26:46):
Well, it said, and you know what, the markets have
been listening fairly recently when you look at how the
price action has been just a couple of more fun
questions and we're pivoting now away from some of the
more serious stuff. You've been around these markets and this
region for several years, and when someone says Asia, one
of the more common misconceptions is it's one place. It's actually,
(27:08):
as you know, twenty thirty different places. And when into
thirty different places, there's a lot of nuances to be here.
So my question is you've been around this entire region
for a long time. Is there anything that still surprises you?
Speaker 4 (27:20):
Oh, every day something surprises me. That's why I've been
around for so long, David. I think the dynamism of
the region is exceptional and extraordinary. I think the changes
that are always coming keeps it exciting, and you know,
one keeps on learning every day. So when we were
talking about Japan, who would have thought that they would
(27:40):
move out of zero interest rates? Who would have thought
that there's inflation? What are you going to do when
that happens. That was always a yeah, we'll see doubt
it will happen, and now it's happening. So even the
most developed markets of this region are changing and evolving
and giving us some new food for thoughts. So that's
that's why I love it out here. It's great.
Speaker 3 (28:02):
So, Susan, you've always provided me with very good advice,
whether that's on career investment. So for our audience, what's
the best career advice someone has given you?
Speaker 4 (28:13):
Don't worry about the things that are out of your
control and focus on things that you can actually control
on a day to day basis.
Speaker 3 (28:21):
I love that. So, as a senior female executive in
the finance industry, what's your take on breaking through gender
and cultural biases and how can we help women in
the finance industry succeed?
Speaker 4 (28:34):
I would say, one step out of time, and let's
be realistic. This is a multi decade journey and I
think every step is a win. So let's do everything
one step at a time, and let's not try to
think we're going to make some massive changes overnight, because
we need everyone to join us on this bus and
(28:55):
you know, take this journey, and that requires communication collaboration, education,
and a lot of understanding of each other. So on
that one, I would just say, we should become students
of each other so that we can help break through
sort of the glass ceiling. We can help understand each gender.
(29:15):
And then also while we focus on gender, we also
need to understand the next gen because the next gen
has a very different focus, so we need to also
bring that into the mix so that the future is
much more balanced than it is today.
Speaker 2 (29:31):
And you know, on that note, Susan, thank you so
much for joining us today and thank you for blessing
us with your time. Of course, that was Susan Chender,
head of each Specific at Blackrock.
Speaker 3 (29:42):
This podcast was produced by Clara Chen. You've been listening
to Tiger Money.
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