In this week’s episode of Retire in Texas, Darryl Lyons, CEO and Co-Founder of PAX Financial Group, tackles the topic of BlackRock, the world’s largest asset manager, and its everchanging role in the financial world. Darryl shares insights into BlackRock’s influence on global markets, its relationship with government entities, and its controversial engagement with Environmental, Social, and Governance (ESG) initiatives.
Through candid storytelling, Darryl explains how BlackRock’s policies have impacted PAX Financial’s client portfolios and the broader investment community. The episode also touches on the importance of maintaining trust and transparency in financial partnerships, and how PAX Financial continues to engage with BlackRock while monitoring their evolving strategies.
Key show highlights include:
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The role of BlackRock as a major asset manager and its relationship with global governments.
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How ESG initiatives and climate-focused investing have impacted investors.
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The story behind BlackRock’s involvement in major events such as the 2008 financial crisis and the Covid-19 response.
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The implications of BlackRock’s voting rights on behalf of investors in major corporations.
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A behind-the-scenes look at how PAX Financial engages with BlackRock for client portfolios.
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Darryl’s key takeaway: “Trust but verify” when it comes to BlackRock’s investment strategies.
Transcript:
Hey, this is Darryl Lyons, CEO and co-founder of PAX Financial Group. And you’re listening to Retire in Texas. This information is general nature only. It’s not intended to provide specific investment, tax or legal advice. Visit PAXFinancialGroup.com for more information.
And if you’re not a client yet, you can go to PAXFinancialGroup.com, there’s a ‘Connect with Us’ or ‘Contact Us’ button. Click on that and then what it’ll do is it’ll trigger an advisor to have a 15 minute, no obligation kind of a fit meeting. Hey, is this a good fit? And I’m convinced all of our advisors have a heart of a teacher. So, you’ll find that to be a non-threatening conversation, to see if we’re just a good fit.
So, I want to talk about BlackRock today. They’re the largest asset manager in the entire world. I mean, they manage over 10 trillion, which is a lot of money as you would imagine. They’ve been around since 1988. You may or may not have heard one of the products that they offer, and I’ll get into some of the construction in just a minute. It is called an iShares®, those are exchange traded funds and they’re in a lot of people’s portfolios. They’re so big that during the 2008 crisis, the government called on BlackRock to help. And then during Covid, they call on them to help again. And even earlier, gosh, time’s flying, I guess it was this year, SVB, the Silicon Valley Bank, BlackRock came in and helped out with that.
So, they’re kind of, they’ve been somewhat of a safety net for the government over the last 10, 15 years. They are publicly traded. So, you can actually buy BlackRock stock online. And they were founded by a guy named Larry Fink, and I believe Susan Wagner was one of the founders, but Larry Fink is kind of the face of the franchise. But don’t confuse BlackRock with Blackstone. A lot of people do. Blackstone is a real estate company. They focus primarily on buying real estate, commercial real estate that is. Some people kind of get them confused. I’ve seen this before, that I’ve heard that BlackRock’s buying residential houses all across the country. And I think there’s wires getting crossed in that rhetoric.
First of all, BlackRock is really not in the business of buying real estate necessarily. They’re probably confusing with Blackstone and frankly, I, you know, working with these asset managers, I don’t know if buying residential property is… really moves the needle. So, I don’t, and I have a lot of people in the real estate business. I’ve never seen Blackstone or BlackRock get into the residential housing business. So, it’s kind of strange with BlackRock, and I’m going to give you an opinion before I’m all said and done on BlackRock.
But it’s kind of weird as you get into these proclamations about BlackRock, how wires can get crossed and they become half-truths and either it’s ignorance or intentional, but I’m going to try to dispel some of those. Like one of them recently was the assassins of Donald Trump, they were in BlackRock commercials. And I think that all of us would be like, “Okay, what is going on here? Both of them?” One was and one wasn’t. So, the other one was debunked. But, like, I don’t know, like, we don’t even know truth anymore because, you know, you can certainly put them in a commercial and you can take… it’s just, it’s hard to know.
There’s a guy out there named Tyreek Fancy, and he goes around, he says he was a former BlackRock executive. And he goes around and kind of perpetrates these things. And of course, the idea is is that BlackRock has become kind of the face of almost an enemy that wants to take over the world. So, I want to kind of unpack that a little bit today. And you know, I had worked and PAX, in general, had worked with BlackRock 20 years ago. In fact, this was kind of before BlackRock became, kind of the superpower of the world. We were the number one user of BlackRock Strategies in San Antonio. And Bob Dole was there, he’s a great Christian man, still in the industry, not with BlackRock. And he was the Chief Investment Officer at the time. A guy named Dennis Statman ran a fund that we just absolutely loved, it was called Blackrock Global Allocation. And so, we were the professionalism, the research, the risk management, we were just really in dear to being able to use them for the benefit of our clients, so they could make money. And so, it worked.
And then about 2021, that’s when it got all squirrely. And Larry Fink puts a letter out every year to shareholders. And in his letter, it said, the 2021 letter, it said ‘climate risk is investment risk.’ And so, what it told all of us is that he was making climate change a priority. And then, I looked in our clients’ portfolios. And BlackRock has discretion to trade. Without getting into the nuances of how investment management works, we work with asset managers and then they have limited authority to do things within client portfolios, and we do too. And so, that’s how the whole machine works. But, they had exchanged out of some of our clients’ portfolios, funds that we had, you know, been used to, and we found that there was ESG funds in our clients’ portfolios.
And we totally lost it. I mean, I did personally, I was so mad because I felt like we were violated, like this big entity that we had trusted over the years had taken advantage of us and started to push their agenda of climate change and ESG and DEI. And they had actually, you know, you hear about it on TV, but it was actually happening in our client’s portfolio. So, we just went ballistic. I mean, I did. I was mad, I was on the phone with them. And again, when I get mad, I mean, I want to be very strategic about it. So, I didn’t undermine anybody at BlackRock. I didn’t, I didn’t belittle anybody. I just had very frank conversations.
And then, I went one step further and actually had a conversation with Governor Abbott about this. And this was through the National Federation of Independent Business Owners. And we were talking about how BlackRock had so hyper focused on clean energy and, you know, abandoning fossil fuels that there was a complete disconnect. Because Texas is such a big producer of energy, what was happening was BlackRock was managing a portion of the Texas, the pension, and at the same time undermining the very economic engine, which is fossil fuel, of Texas. So, when I had a brief conversation with Abbott, he was going to have nothing to do with it. DeSantis pulled out like $2 billion from their state’s fund because of BlackRock.
So, it wasn’t just me that was frustrated. It was the whole, like I mean, the states, the state. I mean, they are the ones that have the big money. When they started, like our little firm can only do so much, but when the big states start to pull their money out of BlackRock, BlackRock listened. And so, that’s where we’re at today.
I just recently went up to the global headquarters of BlackRock. I was up there in New York just recently. I was in the office where they… they don’t negotiate, they sit down with the board of directors, Elon Musk. Larry Fink’s office was right next to the room we were in. So, I was there visiting with BlackRock because I wanted to see if they’re getting their act together. And, it was very interesting, you know, the thing about it now, and let me help you understand how the construction of all of this works. So, when you invest with BlackRock and you have iShares® or BlackRock Fund, the mechanics of all of this is that you give the fund provider the authority to vote on your behalf.
So, if, let’s say Target comes out with this new crazy agenda, which they have, and that makes it on the like corporate, it’s called corporate resolution. And BlackRock can vote thumbs up or thumbs down on your behalf. And so, BlackRock, being an owner, has votes on every single company in the entire world. So, they can pull shareholders out, I mean they can pull board of board of directors out, they can add board of directors. I mean, they can do, they can do anything. And so, that’s important for you to understand because and that’s often why we do Christian Investments, is because those asset managers, we know that, will have alignment with votes. So, that’s why it’s important that you consider Christian asset managers.
Not… you don’t have to do 100%, but you at least have to know how that game works. And BlackRock has been taking all of our clients’ votes collectively. And what I have observed was voting antithetical to my convictions, and some of our clients’ and our community’s convictions. And they were doing it in the name of these letters. DEI. Diversity, Equity and Inclusion, and ESG. Environmental, Social and Governance. And so, I’d seen this happen and you can read reports. I’ll put one in the link. It’s 2021’s report, or I’ll put the 2024 report, but you can go back and see how they’ve been voting. And, I just had to get to the bottom of it. And again, I had built relationships because here’s the thing about, one quick exit ramp, I think it’s important for the Christian community, for those that do share those beliefs, to be in the world, but not of the world.
So, my, the way I operate, and that includes the communities that I’m a part of, and it includes the investment world. I don’t just completely abandon and go into my echo chambers and, and, you know, raise my fist in anger. I find it to be much more effective when I build relationships with these entities and have a careful dialog that’s rooted in facts and information. And so, I built a rapport with BlackRock over the years and had tough conversations. So, there’s some key people in their leadership that I was able to dialog with. And again, I’ll give you my opinion at the end of how I feel about BlackRock in general, but this meeting was very important because I needed to get a feel if it makes sense for our clients to still use BlackRock.
Now, we have legacy BlackRock holdings. We didn’t just rip all of our clients out because we were angry. You know, that’s just not in our client’s best interest. There could be tax ramifications or portfolio considerations per each individual. So, we still have legacy BlackRock assets. So, what is BlackRock doing today? Well BlackRock apparently, this is just me speaking from what I have observed, apparently heard that there’s another group of people that care about engagement. I think they heard from activists very loud. And I think there was a conservative voice that was just quiet and complacent, and that voice has been heard now.
I felt very much that the tide was shifting. And a couple things that they’re doing; first of all, Larry Fink, who has been the face of the franchise, they’ve kind of told him to quiet down and go in the corner. I’m air quoting this. But you’ll see less of Larry Fink out there, I would imagine, because or at least less of his climate change rhetoric. Believe it or not, they’re very professional, professionals. And I mean, these are CPAs, engineers. They’re not, you know, the people making these decisions are not like in sandals and blue hair and all these nose rings, as you would imagine. I mean, nothing against those listeners that have those things. But I just want you to know, there’s a high degree of professionalism in this organization. Which could still be manipulative, don’t get me wrong.
But generally speaking, they’re thinking deeply about these issues and navigating them accordingly. And one of which is, how do we not disenfranchise, you know, half of the country. Like as an example, Disney, Disney is a good example. You know, they sat down with Disney, and this is in the shareholder their… the voting spotlight. They sat down with the board, and they said, and I’m paraphrasing here, “No one’s going to the parks anymore. Everyone’s frustrated with your movies because you put stuff in there that the families don’t like. You’re losing money. What are you going to do? What’s the plan? You need to restore investors’ confidence. You need to revise your strategy.” And that’s BlackRock influencing Disney.
So that’s an example of the message that I heard from their executives is that our focus on a go forward basis, is the intent is to vote in such a way, and I’m paraphrasing here, but you’ll get my point, vote in such a way that our clients who are investors will make money long term. That’s really what we’re focused on. And we’re going to be in the business of the decisions that the executives at these companies are going to make. Are they making decisions that long term, our clients will benefit from that? That was the consistent theme, which is really from what I need is that’s really what I need is just if we’re going to use you, can we just at least, can you just at least focus on making our clients’ money? You know, my faith-based brothers and sisters, they’re going to focus on promoting Christian values in the marketplace, and that’s why we’ve hired them. But BlackRock, I just need you to not be doing this DEI, ESG non-stuff.
Now they’re not going to abandon it overnight because there’s some challenges with that. But you know here’s maybe a quote that might help, that might help frame their positioning. This is a quote from them. Frame their positioning of how they think about their voting on a go forward basis. This is an important quote. “We found that most shareholder proposals on climate and natural capital issues, as well as company impacts on people, in other words, environmental and social, were overreaching. They lacked economic merit, and they sought outcomes that were unlikely to promote shareholder value.” So, in other words, many of the activists that were pushing agendas, they have acknowledged that many of those lacked economic merit, and they have, I think we’ve seen the change of their voting, because that’s going to be the evidence. We can trust but verify. That’s the key here.
The evidence is, is how has your voting, what is the voting track record? Interestingly enough, 88% of the time they just vote with whatever management recommends. That may or may not be good, but that’s just to know they’re not they’re generally not trying to push an agenda from their perspective. Most of the time they’re just voting on what management recommends. They’re very much not anti-fossil fuels. I mean, they’re the number one shareholder of ExxonMobil, and they’re very engaged with their board. So, I don’t I don’t think there’s a like anti-energy agenda that exists anymore. Whether it’s sincere or not, they’re making investments in Texas. In fact, Texas is starting a like a New York Stock Exchange in Texas. BlackRock is actually one of the biggest, and Citadel, are the biggest funders of that initiative. So, they’re really, they recognize that there’s half the country they’ve disenfranchised. May or may not have been intentional.
They hired an executive from Starbucks to start getting in front of all of this social media memes and everything about BlackRock. To just, I guess, disband them, to I don’t know how they’re going to do it, but they’re, but they’re basically now, before they were just like, “Okay, we’ll let that stuff play out. All that stuff about BlackRock taking over the world.” Now they’re actually going to be… apparently, they’re going to be proactive in going against it, and they’re going to focus on making our clients’ money. They did say that every now and again there will be issues that will look more like a social issue.
And as an example, in Arizona, one of the companies that they invest in, they do data centers. And every data center, I didn’t know this, every data center that you put in, it takes about as much water as a 50,000-person town. So yes, that data center will make money for investors. But the question is, how are they going to manage the water issue and work with local municipalities? So, at first glance, that may seem like a peripheral one of those ESG kind of things, make the world, you know, safe. But their contention is that if they don’t get that right, then that will have an economic impact.
So, I think, so here’s my conclusion. So, I like to wind down at night with going in my hot tub. And I think about it this way, like, sometimes you get in that hot tub and it’s like 101 degrees and you’re like, you can’t just jump in. You kind of ease yourself in. I kind of feel like that right now with BlackRock. It’s like I’m having good dialog, they’re saying all the right things. There’s evidence actually to support it, and in some of the reports that you’ll read and I’ll link here, and that feels good. It’s just you just still kind of like, “Okay, are they legit?”
And so, here’s what we’ll do at PAX. We’ll continue to trust but verify. Have robust conversations with key people over there. Not just take this lightly. Look, even as Christians like, I love apologetics, and I think about it the same way. Like, I want to deeply understand, cerebrally, and make sure that I don’t just make emotional decisions, and we’re going to do the same with BlackRock. So, BlackRock has been, for us, a very important asset manager because what they do in terms of their risk/reward profile of their investments, it really helps our clients meet their retirement goals. That’s why we’ve used them. If they can just stay in their lane, then we’ll continue to use them. If we find that they’re drifting some certain way, then we will not use them anymore.
So that’s a lot of information. I hope that helps. Again, dipping my toe in the water to overuse an analogy. And I think we are collectively; we’ll keep our eye on them. And of course, pay attention to performance because ultimately, we want clients to meet their retirement and financial objectives. But I hope that helps you. Again, if I could give you anything, any like phrase regarding BlackRock, it’s trust but verify. And the last thing I’ll say is if you see anything on BlackRock send it to your advisor, send it to me and we’ll actually address it with them and see if there’s any legitimacy behind it. So, I think we have that relationship now where if we get something we’ll take it up and find out if there’s any truth to it.
Okay, that was a lot of stuff to unpack, but appreciate you tuning in and hanging out and, as always, trust but verify. But you think different when you think long term. Have a great day.
Resources:
Who owns Blackrock? | The Motley Fool
Blackrock’s former sustainable investing chief says ESG is a dangerous placebo (cnbc.com)
2024 Investment Stewardship Voting Spotlight (blackrock.com)
Tune in to hear Darryl’s perspective on BlackRock’s future and what it means for your investments. For more resources, visit http://www.paxfinancialgroup.com. If you enjoyed today’s episode, don’t forget to share it with a friend!
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Resources:
Who owns Blackrock? | The Motley Fool
Blackrock’s former sustainable investing chief says ESG is a dangerous placebo (cnbc.com)
2024 Investment Stewardship Voting Spotlight (blackrock.com)
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