Transcript: Mike Pyle, BlackRock’s Portfolio Management Group
The transcript from this week’s, MiB: Mike Pyle, BlackRock’s Portfolio Management Group, is below.
You can stream and download our full conversation, including any podcast extras, on Apple Podcasts, Spotify, YouTube (video), YouTube (audio), and Bloomberg.
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[00:00:16] Barry Ritholtz: This week on the podcast—wow, this is another banger. Strap yourself in. Mike Pyle, Deputy Head of BlackRock’s Portfolio Management Group. They oversee about $5 trillion in client assets, not only in systematic and discretionary investment strategies, but he also oversees the BlackRock Investment Institute as well as their hedge funds. You may not know BlackRock globally is one of the top 10 hedge fund portfolio managers, about $94 billion. One little note: we are recording this on Tuesday, April 7th. Supposedly, something is happening tonight at eight o’clock. You’ll know what happened by the time you hear this; we won’t. We don’t know if something terrible is happening or if it’s another Taco Tuesday, but we’ll find out soon enough. In the meantime, with no further ado, my conversation with Mike Pyle, Deputy Head of BlackRock’s Portfolio Management Group. Before we get into both your market and government experience, let’s take a look at your background. You graduated Summa Cum Laude in economics from Dartmouth. You get a JD from Yale and then a master’s, an LLM, from Cambridge. What was the original career plan?
[00:01:34] Mike Pyle: So I’d maybe go back before higher education. I am from a little town in the Midwest, 600 people in the middle of Illinois, no stoplights in the little town where I grew up. And I had a sense from a pretty early age that I wanted to do something out beyond the horizon, out past the fields. I was lucky enough when I was in high school, there was this competition sponsored by the local community college called Running the US Economy, where you could set monetary policy, you’d set government spending levels, you’d set taxation rates—basically the big tools of monetary and fiscal policy. And over a 10-year period, you’d set those variables and you’d see what came out the other side in terms of GDP growth, in terms of unemployment, in terms of the stock market. For me, I had never really grappled with a more interesting set of problems than that when I was 14, 15, 16 years old. And I didn’t really have the words to express what it is that would take me to, but I knew that problems at the heart of economic policy, what that meant for ordinary people, what that meant for markets, were the most fascinating things I’d ever encountered and how I wanted to spend my career.
[00:02:52] Barry Ritholtz: And how you’ve spent your career is moving back and forth between government and the private sector. You have two long stints at BlackRock, including the current one. You were in the Obama administration, you were in the Biden administration. How do you shift back and forth between these two worlds, and how does working in government affect how you perceive investing risk and policy from the private side?
[00:03:20] Mike Pyle: Yeah, so I’d say I try to view my time in government and my time as an investor at BlackRock really as two sides of the same coin. The job in government, at least as I understood it, was—whether through economic policy or national security policy, had the pleasure to work on both of those through the years—to provide a predictable, stable foundation for prosperity for the US and hopefully the world beyond. And to recognize that the job in government is to provide that stable foundation so businesses, so families, so individuals can live their lives, make their choices economically, can take risks in the economy to build businesses, expand businesses, invest and grow, knowing that there’s some basic stability and predictability that they get from government. And so for me, that time in government was one side of that coin; that time as an investor is the other side of that coin. How do you try to take that output from policymakers and make sense of the world, make sense of the economy, make sense of markets, and then make sound choices for clients?
[00:04:36] Barry Ritholtz: We’re gonna talk a little later about the state of government policy. I want to just stick with your background before we get into the nitty gritty. So you were at the Treasury and the White House from 2009 to 2013, really the midst of the great financial crisis recovery. Tell us about that experience. What was that like?
[00:05:02] Mike Pyle: So it was a pretty extraordinary thing to be a part of. I had a chance to learn from, be seasoned by, a set of extraordinary, in my judgment, policymakers, whether that was Secretary Geithner, Lael Brainard, Peter Orszag, Jason Furman, others—folks that early in my career, I just learned a lot about what it meant to make sound policy choices, to consider policy choices in the midst of crisis. I think one of the things I also took away from that experience is this recognition that there’s no other room—that these are very accomplished policymakers making choices with imperfect information, with not enough time, with incredibly high stakes. And there’s no other room where the hyper-confident people who know everything and have the luxury of time are. There’s just the human beings sitting in front of you, and you’ve gotta do your role to support them in the way you can. And for me that was a very empowering experience or recognition: that from an early stage in my career, I needed to take responsibility. I needed to offer my best day in and day out because, like I said, there’s no other room with the hyper-competent people. There’s just the role you get to play with people acting with not enough time and not enough information to make high-consequence judgments.
[00:06:34] Barry Ritholtz: So let’s talk about those judgments. What do you think policymakers got right? And what was the biggest mistake? What did we get wrong as a nation?
[00:06:45] Mike Pyle: So I think one of the principal lessons coming out of the global financial crisis is that in the face of a large economic shock—a shock that impacts the balance sheets of households and businesses—the government needs to act speedily and with size to prevent the labor market damage, the economic damage, from being an overhang that lasts for a long time. And I think one of the things that a lot of policymakers concluded coming out of the GFC is we just didn’t do enough, quickly enough. And as a result, we had a very slow recovery that didn’t last just a couple years but 10, 12 years, and had labor market damage that lasted for longer than it needed to because we didn’t act with the force and speed that we needed to.
[00:07:44] Barry Ritholtz: So when you say we didn’t do enough, the Fed was at zero, every type of credit alphabet soup of organizational government entities came into effect. Are you referring to the fiscal side? Because it felt like the fiscal stimulus was very, very modest. About a third was temporary tax cuts, a third was temporary extension of unemployment, shovel-ready stuff was $180 billion. It almost seems like we overcompensated in the start of the pandemic and went huge to make up for that. But I’m assuming you’re talking about a very underfunded fiscal stimulus.
[00:08:28] Mike Pyle: I think that’s principally yes. I mean, one thing I would highlight here is, in some ways, the United States only got out of the doldrums post the GFC during the first Trump administration, when President Trump and that Republican Congress passed the 2017 tax bill. Now, coming from where I come from, I wouldn’t necessarily have signed off on every particular of that bill, but I think what you saw was fiscal stimulus at size going through the economy as a result of that tax bill. And as a result, an economy that at long last began to see full employment, began to see that higher velocity, began to see really the US get out of those post-GFC doldrums. Again, not how I would’ve necessarily designed the fiscal stimulus myself, but I think the fact that that’s really perhaps the moment when we came out of the doldrums highlights that that fiscal lever was one that perhaps we should have pulled sooner and at a greater size earlier post the crisis.
[00:09:38] Barry Ritholtz: Really interesting. So let’s talk about some of your other roles within government. You were a law clerk for Merrick Garland—that’s fascinating. Tell us about that experience.
[00:09:51] Mike Pyle: Yeah, so Judge Garland was my very first boss in Washington. In some ways the perfect way to begin a career—somebody that I continue to regard as the model public servant. I learned three things from the judge. I learned what it meant to love the law. I learned that I didn’t love the law the way the judge did. And three, I needed to find something that I loved as much as Judge Garland loved being a lawyer, being a judge. And so that brought me back to what I’d done—I was talking about a moment ago in high school when I really fell in love with economics, economic policy, the impact on people and markets, what I’d studied as an undergrad and in graduate school. And so what I really took away from that experience is I wanted there to be a strong public service component to what I did, and also that I needed to put myself to work in a space that I really loved and felt passion for. And that was the space of economics, domestic economic policy, international economic policy, and working to make the US and the world a more prosperous place.
[00:11:01] Barry Ritholtz: So you were the President’s personal envoy to groups like the G7, the G20, APEC summits. When you look around the world and see US-China relations, Russia’s war in Ukraine, Israel and America’s war with Iran, AI, and just energy security, trade and investment, tariffs—all these things—it seems like it’s just an overwhelming amount of things taking place. How effective are these global organizations? What do they actually accomplish? It just seems like the fire hose is so overwhelming, it’s impossible to know where to even begin.
[00:11:47] Mike Pyle: Yeah, so I worked for two years as President Biden’s Deputy National Security Advisor. I think President Biden started from the place of believing that the United States acts with greatest impact in the world when it acts alongside our closest allies and partners. And I think that’s part of the reason why the G7 during the years I was serving was perhaps at the height of its impact and influence across time. I think of two things that really highlight this. One was after Russia’s invasion of Ukraine, really acting with force, with one voice—not just as the United States, but as a set of allies—to put a historic set of sanctions on Russia, to put historic economic pressure on Russia. And to do that in a way that made sure that it wasn’t just the United States acting, but all of our allies and partners together around the world acting in concert, delivering a stronger force of policy than the United States, for all of its power and might, could have delivered by itself.
[00:13:00] Similarly, with respect to a different type of problem—thinking about the United States’ competition with China in domains such as technology and artificial intelligence, the type of thing that’s very front of mind today—a lot of our European allies came to that with more skepticism. They have a different perspective on their relations with China than we had in the United States, both across the Trump administration and the Biden administration. And it was the hard diplomatic work day in, day out, week in, week out, persuading skeptical allies to join us in some of the policy steps that we thought were important to protect our technologies, to protect the national security applications that they offered, to protect our economic wellbeing against that competitive threat. And bringing those allies along through, like I said, the hard work of diplomacy, through the hard work of persuasion, day in, day out, week in, week out—I think was ultimately quite fruitful. And something that was an important part of how I spent those years.
[00:14:10] Barry Ritholtz: So given all that policy experience and being in the room where it happens, how does that affect how you look at markets and investing? Did your government experience affect how you think about risk, uncertainty, and various opportunities?
[00:14:30] Mike Pyle: Yeah, so I would say a couple things there. One, I do think that investing and policymaking are different exercises and need to be kept separate. Policymaking is an exercise of attempting to make the world as you want it to be, or at least as the people’s elected representatives want it to be. Investing is an exercise of taking the world as it is and making sound judgments about how to invest client capital—that is their capital, that is their savings—on their behalf, so as to help them achieve what they’ve set out to achieve. And so to me, the framework I’ve used to think about investing kind of comes back to some of the blocking and tackling of active management. I think about my mentor at BlackRock, Ron Kahn, one of the authors of literally the bible of quantitative investing and the fundamental law of active management.
[00:15:38] And it’s really all about making forecasts that are right about the world, having a wide set of those forecasts so you can build a diversified portfolio, and then translating those insights efficiently into portfolios through the assets you own. So again, for me, these exercises overlap to some degree, but I really try to keep them distinct because one’s about the world as you might hope it to be and the other is about the world as it is. And being sure that you don’t confuse those two things is really part and parcel of what it means, I think, to do the job you’re meant to do at each.
[00:16:13] Barry Ritholtz: I like that framework between the two. Coming up, we continue our conversation with Mike Pyle, Deputy Head of BlackRock’s PMG, discussing the Portfolio Management Group. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio. I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is Mike Pyle. He is the Deputy Head of BlackRock’s Portfolio Management Group. The group oversees $94 billion in hedge fund assets and another $394 billion in systematic investments. So let’s talk a little bit about the Portfolio Management Group. Tell us about the various strategies you oversee. What does the Deputy Head of PMG actually do?
[00:17:23] Mike Pyle: Yeah, so the Portfolio Management Group, as you talked about, is really the organization within BlackRock that oversees our active investing strategies in public markets. We’ve been entrusted with just about $5 trillion in client assets to manage through those strategies. It really spans asset classes—fixed income, equities, multi-asset—spans styles, as you say, both discretionary and systematic, spans both long-only as well as long-short hedge fund and liquid alternative strategies. So really it’s that full umbrella of active strategies in public markets. In terms of what do I do? Well, I directly oversee what we do on the hedge funds and liquid alternative side, directly oversee our efforts in fundamental equities, and directly oversee our internal think tank, the BlackRock Investment Institute. But what does that mean day to day? It’s a mix. With some share of my time,
[00:18:24] I am working with our portfolio managers, working with our lead researchers, to try to offer what I can to help them frame what’s happening in the world, to help them—as we talked about—understand the world as it is and what that might make for markets, and help them think about the choices they’re making in portfolios on behalf of clients. But really the lion’s share of my time is about making sure we’ve got the right portfolio managers and teams, the right strategies, the right investment process and research process sitting beneath those teams so that we can deliver for clients. In a lot of respects, it’s a lot more about being the GM or the coach than being the player. And I think that’s a pretty exciting mix of things that I get to do as a result.
[00:19:12] Barry Ritholtz: So I think everybody understands what hedge funds are. What are liquid alternatives? Explain that a little bit.
[00:19:18] Mike Pyle: Yeah, sure. So maybe to take a step back. If I think about the challenge that investors face today—and this is true whether we’re talking about the most sophisticated large asset owners on the planet or mom-and-pop investors saving for their retirement—it’s: where can they find diversification? Obviously one of the core precepts of investing is the free lunch of diversification, the value of diversification. And yet it is increasingly hard to find out there. I think that’s true in a couple of ways. Traditionally we think about government bonds being an important hedge against stocks in a portfolio—when stocks go down, bonds go up in value. That’s not what we saw in 2022; that’s not what we saw in March of this year.
[00:20:12] And so finding tools that can help diversify portfolios in a world where bonds aren’t perhaps serving that role as well as they have at different points in history. And secondly, on the equity side, facing markets that are increasingly concentrated—we see what a large share of indices those big mega-cap tech names are today. That means that when you own the index, you’re owning a less diversified equity portfolio than has historically been the case. So what does that mean about where a liquid alternative steps in? I think one of the ways in which investors can find diversification is by having exposures that are neutral to broad markets, neutral to those betas in stocks and bonds that drive the lion’s share of portfolios. And being neutral to the markets means having strategies that can be long and short in an asset class, that can be long individual stocks, can be short individual stocks—the same on the bond side—in order to generate alpha and investment return that is independent of the movements in the broad markets.
[00:21:27] Liquid alternatives are vehicles that have exactly those types of strategies. They’re very similar in this respect to the types of strategies that we deploy in our direct hedge funds and offer similar types of uncorrelated return. Now, an important difference between something like a direct hedge fund and a liquid alternative: these are different types of vehicles meant for different types of investors. They offer daily liquidity, as opposed to hedge funds which have different liquidity terms. That means running strategies that at their core are the same across liquid alts and hedge funds but are designed to be in daily liquid vehicles, designed to be run with much less leverage, to recognize the types of clients and the types of needs that those clients have—which are for greater diversification, but also liquidity, transparency, and availability that is different from an institutional hedge fund clientele.
[00:22:29] Barry Ritholtz: So from your seat, what sort of trends are you observing, either in hedge funds or liquid alts? What kind of strategies are resonating with investors?
[00:22:40] Mike Pyle: Yeah, so I think exactly as we were talking about, what’s resonating is the availability of diversification—of diversifying the diversifiers, meaning—
[00:22:52] Barry Ritholtz: Beyond just 60/40, beyond just stocks and bonds.
[00:22:55] Mike Pyle: Exactly. And I think some work that my colleagues at the BlackRock Investment Institute did highlighted the type of world that we’re investing in now. They basically made the point—which goes to why we don’t see the diversification across stocks and bonds we have historically—that some of the macroeconomic and the macro underpinnings of markets have become unmoored in recent years. It is a less predictable framework, whether it’s around trends on growth or inflation, trends around monetary and fiscal policy frameworks, the geopolitical environment, and the like. And as a result, hedge funds and liquid alternative strategies provide tools that allow managers to navigate that environment. Like with my colleagues on the systematic side, running strategies that are not just market-neutral but neutral to broad market factors like momentum, like low volatility, like some of these other well-known factor exposures, and really focusing on true uncorrelated alpha. And also macroeconomic strategies, macro strategies where skilled managers are navigating a much more complicated macroeconomic environment to deliver alpha through that skillful navigation. Those, from our research, are the two types of strategies that are perhaps best poised to offer that different type of return, that different type of diversification. And that’s what we’re seeing not just within the firm but across the industry. The places that are attracting client interest are systematic strategies and macro strategies, and we think precisely because they best correspond to the opportunity set that markets are offering us.
[00:24:37] Barry Ritholtz: So let’s talk a little bit about that systematic approach. Your team began in 1985 with a grand total of three investment signals. You use more than a thousand investment signals. I’m kind of fascinated—this came along with the BGI acquisition in ’09, which everybody remembers for iShares, but this is still almost $400 billion. This is a substantial chunk of capital. Tell us a little bit about how the systematic team thinks about adding a signal, how they integrate all these various signals. And I’m legally obligated to ask: how is AI contributing to these signals?
[00:25:20] Mike Pyle: Yeah, so I’d say a couple things. One, this is a team that really is at the forefront of
[00:25:31] taking advantage of the fact that the availability of data in the world—structured data, unstructured data—is stepwise different than it has been ever before in history. And the techniques available to analyze, process, and identify consistent valuable investment signals from that data, given expanded compute, given the changes in techniques including around generative and agentic AI, to make sense of that data and bring order to it—this is really at the heart of what our systematic researchers do in building signals and portfolios. I’d add a couple of additional points. One, building on what you said, they’ve been at this for now 41 years, so they are not new to using data, using tools of AI, machine learning to generate alpha for clients. This is something they’ve been at—really defining the frontier—for four decades. They were doing natural language processing more than 10 years ago. They were doing portfolio optimization with machine learning more than 10 years ago. This is not a Johnny-come-lately story of the moment. This is a story of accrued excellence and expertise built over decades.
[00:26:36] The other thing I’d say—and maybe it’s funny to talk about it with respect to a quant team, a kind of hardcore systematic team—but I think one of the things that really sets it apart within BlackRock, within the industry, is the culture that they’ve built. This is a core set of investors and researchers that, as you say, have been together for decades, that have been together in many cases since before BGI became a part of BlackRock, became BlackRock Systematic. And so there’s that continuity, that legacy across time. And at the same time, they’re also every year adding young professionals, young researchers, fresh off their PhDs, with new perspectives, new innovative techniques, new ways of looking at the data, new ways of looking at AI. And I think that really special balance between experience, continuity, depth of knowledge built over decades, with new voices, new perspectives, new ways of solving hard computational and hard data problems—that’s what’s pretty special about the culture they’ve built as well.
[00:28:02] Barry Ritholtz: So you guys sit very much at an intersection between quantitative and fundamental investors. When you’re thinking about systematic signals, how do you manage when what comes out of the data conflicts with the fundamental narrative that seems to be driving most of the conversations? How do you contextualize that? Who wins that debate?
[00:28:35] Mike Pyle: So I think it’s a great question, and I’d say a few observations. One, at BlackRock, we believe in individual PMs and teams that are empowered to make judgments that they’re accountable for. And so it may be that our systematic investors are coming to a different view on markets or on a range of stocks than our fundamental teams are. That’s okay. We believe in empowered portfolio managers who are making the best decisions they can for our clients, but are armed with a common set of tools to come to judgments. But to abstract away from that further, I’d say I really do think that in some pretty important ways, what systematic investors do is just a different kind of thing altogether from what fundamental investors do. If I think about the work that our fundamental investors do, it’s really harnessing all potential sources of insight to go as deep as humanly possible, as technologically possible, with respect to understanding an individual company, an individual asset, and its likelihood of outperforming or underperforming the market in the years ahead.
[00:29:50] That’s different than the type of insight that our systematic investors tend to think about. They think about what they call high-breadth insights—insights that basically apply to a wide range of stocks, 300, 400, 500 stocks. We found an insight that we think, on balance, over time, across the universe of many hundreds of stocks, is going to outperform. That’s not about deep research in one company and coming to a highly convicted view on one company; that’s coming to a view about what is statistically likely to be the case across a full universe of stocks on balance across time. Now, where do I think these things can be complementary to one another? One, I would say is: these are just kind of pretty different sources of insight. And again, we’ve talked about diversification.
[00:30:42] Putting yourself in a place to put different types of insights into a single portfolio can be additive, can be diversifying, can mean that the alpha that you’re generating is more diversified and resilient. I’d say another thing—and this is something we’re spending a lot of time on with our fundamental teams—by virtue of what systematic investors do, insights that apply across many hundreds of stocks, packaging, as you talked about, many hundreds if not a thousand types of signals into one portfolio, they think a lot about portfolio construction. They think a lot about how do I take those different insights and size them versus one another to come up with a portfolio that is optimized to achieve client results. I think that taking some of those lessons of portfolio construction into the fundamental realm, with a set of investors that at the end of the day, I think, on balance, view themselves as having conviction about companies more than portfolios, and having them take some of those portfolio optimization frames of mind and apply it to how they build portfolios on the fundamental side—there, I think, is also a real source of complementarity and something we’re spending a lot of time on in PMG.
[00:31:50] Barry Ritholtz: And the BlackRock Investment Institute also sits under your umbrella. Tell us about what sort of research they produce. Who consumes the output of this? Is it internal? Is it external? Is it both? Give us a little color on the BlackRock Investment Institute.
[00:32:08] Mike Pyle: Yeah, it’s a really powerful tool at BlackRock. Maybe to take a step back, as I’ve been doing a couple times in this conversation: one of our observations about the asset management industry, the hedge fund industry, over the last 10 or 15 years is that 10 or 15 years ago people viewed hedge fund alpha, alpha more broadly, perhaps as the province of small niche players who understood some corner of the market deeper and better than anybody else. I think 10 or 15 years on, we’ve come to see that alpha is more the province of scale. This is the story of the rise of the multi-strategy hedge funds—of the Citadels and Millenniums—but we think it’s also true of the asset management industry at large: that there are a lot of benefits of scale that come from insight, that come from risk management, that come from trading and liquidity, that come from operational backbone.
[00:33:08] And a big piece of that is something like the BlackRock Investment Institute, that’s able to really dedicate itself to the question of how do we research and source valuable insight across a full platform and deliver that to our portfolio managers. And so the purpose of the BlackRock Investment Institute is, one, to inform those alpha research discussions, to really inform and drive the investment debate within the firm, but then also to open up the curtain and let our clients see and consume a lot of the research that our portfolio managers are using day in and day out to inform their own thinking and their own investment decision-making. So to answer your question, it’s a little both. It’s about driving the investment debate, driving the alpha discussion within the firm, but then saying: we’ve benefited from this, we want our clients to benefit from it too, and let’s produce work that, based on what we use internally, allows our clients to enjoy the fruits of that research as well.
[00:34:09] Barry Ritholtz: Really, really interesting. Coming up, we continue our conversation with Mike Pyle, Deputy Head of BlackRock’s Portfolio Management Group, discussing the state of the world economy and markets in an era of geopolitical uncertainty. I’m Barry Ritholtz, you’re listening to Masters in Business on Bloomberg Radio.
[00:34:44] Barry Ritholtz: I’m Barry Ritholtz. You are listening to Masters in Business on Bloomberg Radio. My extra special guest today is Mike Pyle, Deputy Head of BlackRock’s Portfolio Management Group, responsible for, I don’t know, about $5 trillion in investor assets. So we are living through an era, especially under this administration, of seemingly challenging geopolitical turmoil and unexpected policy shifts. I wanna start with something positive, which was a quote from you: “US resilience is underestimated.” So tell us what that means. What does the market misprice about the US economy or the US markets? And we are recording this in the first week in April. Despite everything that’s happened—tariffs and war in Iran—markets are barely 5% off their recent highs. Tell us a little bit about US resilience.
[00:35:48] Mike Pyle: Sure. Well, first I would say, yeah, we’re taping this on Tuesday midday—eight
[00:35:54] Barry Ritholtz: o’clock tonight, who knows what’ll happen. Well, I think that—and for all we know, that’s a misdirection and it’s gonna start as soon as it gets dark. Who knows.
[00:36:01] Mike Pyle: We will all find out together. But I do think that this point about US resilience is an important one. We’ve seen it on display in many moments over the past number of years, including the last 12 months. The diversity, the breadth, the innovative potential of the US economy, the quality of our corporate sector—these are all things that are pretty extraordinary. I think one of the things that I would highlight in the here and now, with respect to what I think is fairly described as a historic energy supply shock—an energy shock the dimensions of which I think are gonna only become even more clear in the weeks and months ahead—we’re seeing physical supply disruptions in a way that, for example, we didn’t see in 2022 post Russia’s invasion. And this is a global shock.
[00:36:59] This is a global supply chain shock. It is going to have impacts on the United States, but I do think it’s fair to say that in a real economic sense, the US is relatively more insulated from the shock than other economies around the world—whether that’s in Europe, whether that’s in East and Southeast Asia, whether that’s in the emerging markets broadly. You can look at one number which I spend a fair amount of time looking at and marveling at in some respects, which is the price of natural gas in the US. If you look at a chart of the last three, four months of the natural gas contract in the US, it basically hasn’t budged. You would be hard pressed to identify where on that chart the military intervention in Iran began.
[00:37:45] And I think that highlights the extent to which this critical input to electricity production in the United States, this critical input to industrial production in the United States, this critical input to the way houses heat themselves and cook—all of this is basically untouched by what we’ve seen in the war over the last five weeks. Again, I think that’s in some ways the most dramatic data point, but it highlights the extent to which even in the face of this global shock, there are very important dimensions of the US that look different than other economies around the world and makes us, on balance, more resilient than those other economies as well.
[00:38:24] Barry Ritholtz: Right. Nat gas tends to be moved around by pipeline, and it’s more local.
[00:38:30] Mike Pyle: Yeah. Unlike oil, it is not a globally integrated market.
[00:38:32] Barry Ritholtz: Right. And right before we stepped in here, I checked—the price of crude was 113. So by the time this comes out, it’s either much higher or much lower, or maybe the same. But you mentioned supply. Let’s delve into that. We saw a giant supply chain shock during the pandemic. The war with Iran and the Strait of Hormuz moves are creating a new energy supply shock. This seems to be an ongoing issue. You would’ve thought by now we would’ve solved this problem, but it continues to be significant to the global economy. Tell us your views on this.
[00:39:09] Mike Pyle: Yeah. You asked about the role that the BlackRock Investment Institute plays. One of the things that they have done and built on over the last four years is a piece of work they did back in 2022 called “A World Shaped by Supply,” which basically talked about the ways in which the 2010s in particular is a world defined by aggregate demand. This goes back to the very start of our conversation when we talked about the struggles that the US and global economy had after the GFC because perhaps of the lack of a forceful fiscal policy lever being pulled. That’s a story about aggregate demand. That’s a story about there being insufficient demand in the macro economy to achieve full employment and inflation at target. The story post-COVID is not that—it’s a world, as they’ve said, shaped by supply.
[00:40:04] And that was true not just in 2021, 2022 after COVID, after Russia’s invasion. It’s true today as well. And I would draw attention to really two episodes that we’ve seen already in 2026 that highlight this point. One, and most obviously, is what we’ve seen in markets since the beginning of the military intervention in Iran and the world pricing, to a greater or lesser extent, a pretty traditional negative energy supply shock: higher inflation expectations, lower growth expectations, a pullback in risk really across different types of asset classes. But if you roll the clock back just a couple of weeks before the beginning of hostilities in Iran, you saw a market priced for a different type of supply shock—a positive technology supply shock from AI. We saw that disinflationary, even deflationary trend in the way government bonds were getting priced. We saw big cross-sectional moves in the equity market reflecting the potential disruption from AI around a range of business models. And so really 2026, I think, highlights both on the positive side and on the negative side, in terms of supply shocks, what it means to be living in a world shaped by supply.
[00:41:25] Barry Ritholtz: So abundance on the one hand, scarcity on the other, and logistical interruptions determining which way we go.
[00:41:34] Mike Pyle: Yeah. And the thing I’d need to—to put on my sort of policy observer hat, at a minimum—however hard financial problems are to solve, and they are hard to solve as the GFC and the Eurozone crisis made clear, they are fundamentally not engineering problems. They’re problems of political and policy will. Supply chain problems—those are a different beast entirely. This is about rewiring the way physical things, atoms, get produced, get transported, get consumed. And that is a much harder, much slower, much more difficult economic and market problem, a much different and harder policy problem. Again, I would highlight this is one of the ways in which I think the US has proven itself more resilient—again, the quality, the innovative capacity, the flexibility of the US corporate sector to solve through the supply chain problems that we’ve seen since the advent of COVID. That’s a genuine source of resilience for the economy, but also, I think, highlights that these are hard problems, and a different set of problems in kind than what we saw post the GFC.
[00:42:49] Barry Ritholtz: So let me have you put on your policy wonk cap and look out three years, five years. What is the result of this war gonna mean for things like alternative energy supplies? It turns out China is fairly insulated for different reasons than the United States. We have fracking and nat gas; they seem to have a ton of solar and wind and geothermal, which we’ve sort of neglected the past couple of years. What’s the end result of this war gonna be? I don’t mean in terms of military or political alignment—I mean in terms of global economy, in terms of energy consumption, things like that.
[00:43:35] Mike Pyle: Well, I’d say—you talk about three or five years out—to quote the potentially apocryphal story about Zhou Enlai: I think it’s too soon to tell. We’re gonna find out again together in the years, maybe even the hours and days ahead. But I will say, I think we’re spending a fair amount of time trying to think about some of these questions at BlackRock. What are the more durable economic themes going to be coming out of the shock? I might highlight three. One, I think energy security, which post-COVID, post Russia’s invasion, was already front of mind for countries, companies, economies around the world, is only gonna become more so. This is, I think, one of the important trends of our moment.
[00:44:34] Secondly, I think what we’re gonna see both from countries and from companies is increased focus on strategic stockpiling. Obviously we’re seeing economies make use of things like strategic petroleum reserves. I suspect that in spaces like energy, but much more broadly across a much wider set of critical inputs and raw materials, you’re gonna see companies and countries really turn to using resources to build stockpiles of those critical inputs. And that is—we’ve talked for a long time about the ways in which there’s been a turn in the world from just-in-time supply chains to resilient supply chains. That type of stockpiling behavior is what it means, in important ways, to be spending more resources than you otherwise would today for an efficient outcome today in service of greater resilience over the long term. And then the third is, I do think that countries and companies around the world are gonna be looking at their energy mix. And to one of the points we’ve made about investing: diversification is a really important precept in investing. It is perhaps the only free lunch that’s out there. And I would expect a lot of different players to be thinking, as they think about their energy security, as they think about how to build strategic stockpiles, what’s the right diversification to ensure that I’m not subject to choke points, to supply shortages, to disruptions, looking ahead.
[00:46:10] Barry Ritholtz: I like the concept, the framework, of this shift that’s taken place in the 2020s in a lot of ways—where the regime today is so much different than the 2010s: more fiscal stimulus, higher rates that seem to be structural and built in, higher inflation rates, more geopolitical actions, more volatility. Does this decade require us to fundamentally rethink how we build portfolios, how we manage risk? How different are the 2020s from the 2010s?
[00:46:48] Mike Pyle: Yeah, I think this gets to some of the themes we were talking about earlier: that diversification is an extraordinarily important tool as an investor, and diversification is harder to come by today than it was in the 2010s and has been historically. Again, that’s true around the role that government bonds can be relied upon to play in portfolios—like in months such as March 2026, like in 2022. It’s also true, as we were talking about, in terms of equity markets and how concentrated equity markets, especially in the United States, have become. And so building portfolios means building portfolios that achieve diversification in a world where diversification is less available than it has been in the past through straightforward means like balanced 60/40 portfolios. What does that mean? My boss, Larry Fink, has talked about the role that private assets can play in building more resilient, more diversified portfolios.
[00:47:53] And as part of that, talking about the role that hedge funds and liquid alternative strategies can play in public markets, as we’ve done here—that role, that uncorrelated alpha that’s not exposed to broad market directionality, can play in portfolios. These are the types of solutions that I think investors of all types are gonna need to reach for to build those portfolios that are designed for a world shaped by supply, designed for a world of geopolitical shocks, designed for a world where diversification is harder to come by and the answer isn’t as straightforward as the traditional 60/40. The world is gonna have to be thought of in terms of that broader set of tools.
[00:48:36] Barry Ritholtz: So we’ve spent a lot of time talking about the Middle East. Let’s look around the rest of the world, starting with this attempt to sort of decouple from China. Is that achievable, or are these just political aspirations that don’t reflect economic reality?
[00:48:56] Mike Pyle: So I think that’s a very good question. I will say it is clear that President Trump and the administration have been working to achieve a stable economic footing between the US and China. I think that, if it were to be achieved, would be positive—again, from the perspective of the type of stability, the type of predictability that allows businesses, households, individuals to plan and make choices. I think that plays into—one of the things that I’ve been talking about last week, even with some of your colleagues, is—the summit between President Trump and President Xi is scheduled for May 14th and May 15th. I think that as we look about events in the Middle East, that’s a date that I have in my own eye as I think about when hostilities in the Middle East would likely need to be winding down. I think you’d be hard pressed to see how a summit happens—they’ve already rescheduled once—how a summit happens in the event of ongoing active hostilities in the Middle East. And I do wonder whether that’s a backstop around the Middle East, because I do think that there’s a strong priority from this president, I think from the Chinese side as well, to find that stability between the US and China. And I think the summit is meant to be the culmination of a lot of that work.
[00:50:29] Barry Ritholtz: So we have to talk about AI a little bit. What’s the potential there for a possible supply shock and impact on the labor markets, the ability to accelerate productivity and corporate earnings growth? How does BlackRock think about what AI is really doing across everything?
[00:50:52] Mike Pyle: Sure. I would say the uncertainty bands here are extraordinarily high. And so I think in some ways it’s hard to venture a forecast around what this means for productivity, what this means for the labor market, what this means for geopolitics one year from now, much less 5, 8, 10 years from now. What I might hopefully do is zero in a little bit within a domain that I know better, namely BlackRock. I think about what we are doing, and I’d make maybe a couple of observations. One, we’ve already talked about the work ongoing in the systematic platform. They really continue day in and day out to define that frontier of what technology, what AI, means in terms of how to manage portfolios and generate investment insight.
[00:51:48] I look across our active investment platform more broadly. We are very busily deploying tools that empower individual researchers to access more of the collective intelligence of BlackRock—to go deeper, to go broader, more rapidly—around researching individual securities, researching individual companies, researching macroeconomic trends, and come to more judgments, better judgments, more rapidly, in ways that we think can help drive investment performance. Third, one of the ways in which BlackRock continues to seek to provide solutions that make sense for our clients is to do what we call customization at scale—to be able to look at an individual investor, listen to their concerns, listen to their needs, and design a solution that’s customized for their particular circumstances. Again, whether that’s an institution or an individual, technology, AI, is opening up the prospect of being able to do that with more granularity, at greater speed, and allow us to get in front of our clients with solutions that are really oriented to their goals, their dreams, their ambitions, their concerns, in a way that’s different than before.
[00:53:03] Last one I’d make is: one of the cool things about being at BlackRock is it’s a big place filled with a lot of smart people, and a lot of the excitement is just giving tools to our researchers, to our professionals, and seeing organically what they come up with. A lot of the excitement of the moment is seeing so much innovation, seeing so much experimentation, seeing so many cool applications of this technology and our data to solve problems for clients. Now we’re at the stage where we’re kind of saying as a firm: okay, what are the handful of things that have bubbled up organically that we think can really move the needle for our clients, really move the needle for the firm, and think about what it means to put our shoulder behind those as an organization.
[00:53:50] Barry Ritholtz: So last question before I get to my favorites that I ask all our guests. Given all this geopolitical turmoil and market volatility and uncertainty, what do you think investors are not thinking about or talking about, but perhaps should be? What topics, assets, geography, policy, data point—what’s getting overlooked but shouldn’t?
[00:54:13] Mike Pyle: So there, I’ll offer an answer that puts on both of my hats and say: we’ve obviously been talking about AI, we were just talking about it as applied to BlackRock. I think that the investment implications of AI, as I said, have huge uncertainty bands around them—where value is gonna accrue, at what pace, what transformations to the macro economy, to the labor market, to geopolitics. These are all extraordinarily first-order questions for investors. I’d say one piece that I think is being underappreciated is the degree to which I think AI is gonna become a first-order political and policy issue in the quarters and couple of years ahead. We’re seeing the beginnings of that: talk about data center moratoriums, talk about things like chip access for China, something I worked on. But if you talk to pollsters, they would say AI is rocketing up the list of issues that voters are focused on in the United States more broadly. And I think an important dimension of what it’s gonna mean to invest in AI is understanding that this is gonna become a rising important political and policy issue, and an additional dimension of uncertainty that investors are gonna have to confront as we make choices around where impact is gonna be felt and value’s gonna accrue.
[00:55:41] Barry Ritholtz: Really, really interesting answer. All right, let’s jump to my favorite questions I ask all of my guests, starting with—and I really have to split this question into two—who are the mentors who helped shape your career, both from an investing standpoint as well as a government and policy perspective?
[00:56:00] Mike Pyle: Yeah, so I’ll offer a couple of thoughts here. The pair of Peters in my life: a guy, Peter Fisher, who’s responsible for bringing me into BlackRock as an investor. He had been a senior official in George W. Bush’s Treasury Department, a legendary Federal Reserve official, had led the fixed income platform at BlackRock, had really that type of career bringing together public and private, and is the person most responsible for bringing me into BlackRock, and somebody who’s been an important counselor to me through the years. I spent some time yesterday with my very first economic policy boss in Washington, Peter Orszag—part of President Obama’s cabinet as the director of the White House budget office, now the CEO of Lazard. Similarly, somebody to me who’s brought together public service with financial and commercial service as well.
[00:56:58] Somebody who’s, again, been an important source of counsel and advice. But I would say beyond that, my mentors both in government and at BlackRock—I’d really look into those organizations writ large. When I was in government, the career civil servants at the Office of Management and Budget, the career civil servants at the Treasury Department, they knew more about their corner of the federal government, their corner of the world, than anybody else in the world. And if you just sat down and listened, they had so much to share and offer. Similarly, at BlackRock, my attitude when I walked in as a kind of new investor in my mid-thirties, having never been in financial markets before, was: I’ve got as much to learn from the analysts and associates as I do from those Peters, as I do from the senior leadership of the firm. And being open to this idea that there is knowledge to be gleaned in all places in these organizations—that is how I think about how I’ve been mentored by these places, as much as individual people.
[00:57:56] Barry Ritholtz: Let’s talk about books. What are some of your favorites? What are you reading currently?
[00:58:00] Mike Pyle: So I’ve been revisiting a favorite of mine called The Wise Men by Walter Isaacson. I was listening to a podcast that Tyler Cowen did a couple weeks ago where he talked about AI, the geopolitical changes that we’re seeing, means that the world is gonna have to be reinvented anew, not unlike perhaps was the case after the Second World War. That’s a book about the group of Americans that really constructed the post-war world—constructed the security architecture, constructed a world built on American leadership and integrated global markets, and helped to build that 80 years of peace, of prosperity that we as Americans have enjoyed. And I think that revisiting that is a reminder of what it takes to rebuild a world, what it takes to invent a world anew. And I do think that Tyler’s right—that this is a moment that, because of technological transformation, because of changes in the world writ large, is gonna require that type of thinking again. And so revisiting that book and revisiting some of its lessons is something that’s been important to me in the past couple of weeks.
[00:59:12] Barry Ritholtz: You mentioned Tyler Cowen’s podcast. What else are you streaming these days—other podcasts or Netflix or Amazon-type stuff?
[00:59:22] Mike Pyle: Yeah, so I would put in a pitch for my friends Jake Sullivan and Jon Finer—their new podcast called The Long Game, about US national security and foreign policy. I’d say I like it for three reasons. One, I think they really try to offer a pretty just-the-facts perspective on the choices confronting policymakers here in the United States and more broadly. Two, it’s a real window into the craft of foreign policy. I think there’s a lot to be learned from the craft of how professionals—whether they’re policymakers or investors or business leaders—think about doing what they do, and this is a window into that. And third is a personal one. I spent two years of my life—spent many years on top of that—being in dialogue with both of those guys. And for me, once a week, to tune in for an hour and hear two familiar voices talking about stuff that I care about is a pretty comforting thing to get to do as well.
[01:00:19] Barry Ritholtz: So our final two questions. What sort of advice would you give to a recent college graduate interested in a career in either investing or government policy?
[01:00:31] Mike Pyle: Yeah, so I’d say a mix of the timeless and the timely. On the timely side, it is clearly the case that working to be at the frontier of how the tools of technology, the tools of AI, are getting used to expand and augment the productivity of workers in finance and government is kind of table stakes. But I’d also emphasize the timeless. In investing, it is still gonna be the case that the net amount of alpha in the market, net of fees, is zero—or gross of fees is zero. It is still going to be the case that the fundamental law of active management—that mix of forecasting skill, breadth, and the ability to translate into the portfolio—is what’s gonna define active management. Being steeped in those timeless truths, I think, is valuable. Last point I’d make is: you can never emphasize enough what is always going to be human. Trust is hard to build. It is built on the back of relationships, and relationships across time. Spending time building your relationships, building trust, being seen as somebody who acts with trust and integrity—it’s not just a way to live a good life, it is also a pretty good piece of career advice as well.
[01:01:58] Barry Ritholtz: I like that advice. And our final question: what do you know about the world of investing today that might have been useful to know 30 years or so ago?
[01:02:08] Mike Pyle: Yeah. I would say we’ve talked a lot about diversification and portfolio construction across this conversation, and that to me, I think, is the piece that I’ve most climbed up a curve around, that I’ve been most struck by learning about during my time at BlackRock across the stints. In the prior one, what I expected to learn when I left government the first time was: okay, how do I do deep macroeconomic research? How do I take deep macroeconomic research and turn that into an insight that I can put on as an individual position or individual trade? What I hadn’t appreciated and came to really love learning about was: okay, how do you actually take five or six or seven of those insights, put them in a portfolio, understand how much return each can generate, understand how they’re correlated, how they move with one another, and then build a portfolio of those insights that is gonna deliver the right risk, the right return for clients? And that’s the art and science of portfolio construction, which to me is, at the end of the day, the art and science of what it means to be a good investor and to serve your clients well.
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