Assessing Asset Volatility and Iran War Threats With BlackRock's Mike Pyle

31:04But I think one of the things that really sets it apart, you know, within BlackRock, within the industry is, you know, the culture that they've built. This is, you know, 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 kind of continuity, that legacy across time. And at the same time, they're also every year adding young professionals, young researchers fresh off their PhD with new perspectives, new innovative techniques, new ways of looking at the data, new ways of looking at AI.

31:44And 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 built as well. So you guys sit very much at an intersection between quantitative and fundamental data, 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?

32:31How do you contextualize that? Who wins that debate? I think it's a great question. I'd say a few observations. I mean, one, BlackRock, we believe in individual PMs and teams that are empowered to make judgments that they are accountable for. And so it may be that our systematic investors are coming to a different view on markets, on a range of stocks than our fundamental teams are. That's OK. We believe in empowered, like I said, 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 I think 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.

33:26If 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. That's different than the type of, I think, insight that our systematic investors tend to kind of think about. They think about sort of what they call high breadth insights. So insights that, you know, basically apply to a wide range of stocks, 300, 400, 500 stocks.

34:10You know, 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 the full universe of stocks on balance across time. Now, where do I think these things can be complementary to one another? You know, one I would say is, you know, these are just kind of pretty different sources of insight. And again, we've talked about diversification. You know, 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.

34:54I'd say another thing, and this is something we're spending a lot of time on with our fundamental teams, just 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. You know, 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 kind of take some of those portfolio optimization frames of mind and apply it to how they build portfolios on the fundamental side.

35:45There, I think, is also a real source of complementarity and something we're spending a lot of time on in PMG. 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. Yeah, I mean, it's a really powerful tool at BlackRock. I mean, I think one of the, maybe to take a step back, as I've been doing a couple times in this conversation, you know, I think 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.

36:43I think 10 or 15 years on, I think 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 Citadel's and Millenniums. But we think it's also true of the asset management industry writ 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. 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.

37:25And so the purpose of 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, you know, 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, their own investment decision making. So So to answer your question, it's a little both and. 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.

38:03And let's produce work that, based on what we use internally, allows our clients to enjoy the fruits of that research as well. 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.

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40:46I'm Barry Ritholtz. You're 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 want to start with something positive, which was a quote from you. U.S. resilience is underestimated. So tell us what that means. What does the market misprice about the U.S. economy or the U.S. markets. And we're recording this in the first week in April.

41:37Despite everything that's happened, tariffs and war in Iran, markets are barely 5 % off their recent highs. Tell us a little bit about U.S. resilience. Sure. Well, first I would say we're taping this on Tuesday, midday. Eight o 'clock tonight. Who knows what will happen? And for all we know, that's a misdirection and it's going to start as soon as it gets dark. Who knows? We will all find out together. But I do think that this point about U.S. 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. You know, the diversity, the breadth, the innovative potential of the U.S.

42:27economy, the quality of our corporate sector. You know, 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, you know, what I think is fairly described as a historic energy shock, a energy shock, the dimensions of which I think are going to only become even more clear in the weeks and months ahead. And 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. This is a global supply chain shock. It is going to have impacts on the United States.

43:07But I do think it's fair to say that in a real economic sense, the U.S. 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 know, and, you know, you can look at, you know, one number, which, you know, I spend a fair amount of time looking at and marveling at in some respects, which is, you know, the price of natural gas in the U.S. And if you look at a chart of the last three, four months of the natural gas contract in the U.S., it basically hasn't budged.

43:41You would be hard pressed to identify where on that chart the military intervention in Iran began. And I think that highlights, you know, 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 kind of heat themselves and cook, you know, all of this is, you know, 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 U.S.

44:18that look different than other economies around the world and makes us, on balance, more resilient than those other economies as well. Nat gas tends to be moved around by pipeline and it's more local. Yeah. Unlike oil, it is not a globally integrated market. And right before you stepped in here, I checked the price accrued 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. You know, we saw a giant supply chain shock during the pandemic. The war with Iran and the Strait of Hormuz is creating a new energy supply shock.

44:58This seems to be an ongoing issue. You would have thought by now we would have solved this problem, but it continues to be significant to the global economy. Tell us your views on this. Yeah, I mean, you asked about the role that the BlackRock Investment Institute plays. I mean, I think one of the things that they have done and built on over the last four years, you know, is a piece of work they did back in 2022 called A World Shaped by Supply, which basically talked about the ways in which, you know, the 2010s in particular, you know, is a world defined by aggregate demand. I mean, this goes back to the very start of our conversation when we talked about the struggles that the U.S.

45:42and 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 macroeconomy 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. Right. And, you know, I think that wasn't true. That was true, not just in 2021, 2022, after COVID, after Russia's invasion. You know, it's true today as well. And I would sort of draw attention to, you know, really two episodes that we've seen already in 2026 that highlight this point.

46:23One and most obviously, you know, 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.

47:07We 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. So abundance on the one hand, scarcity on the other, and logistical interruptions determining which way we go? Yeah, and the thing I need to put on my sort of policy observer hat at a minimum, you know, these – however hard financial problems are to solve, and they are hard to solve as the GFC, as the Eurozone crisis made clear.

47:54They are fundamentally not engineering problems. They are 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, much different and harder policy problem. I think, again, I would highlight this is one of the ways in which I think the U.S. has proven itself more resilient. Again, the kind of quality, the innovative capacity, the flexibility of the U.S. corporate sector to solve through the supply chain problems that we've seen since the advent of COVID.

48:39That's a genuine source of resilience for our 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. 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 going to 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 that 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 going to be?

49:26I don't mean in terms of military or political alignment. I mean in terms of global economy, energy consumption, things like that. you know well i'd say you know you talk about three or five years out um you know to to quote the potentially apocryphal um uh story about joe and la i think it's too soon to tell uh we're gonna find out again together in the in 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 in BlackRock, what are the more durable economic themes going to be coming out of the shock?

50:11I mean, I guess I might, you know, highlight three. You know, one, you know, I think energy security, which I think post-COVID, post-Russia's invasion was already front of mind for countries, companies, economies around the world, is only going to become more so. This is, I think, one of the important trends of our moment. Secondly, you know, I think what we're going to see both from countries and from companies is increased focus on strategic stockpiling. You know, 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 of raw materials, you're going to see companies and countries really turn to using resources to build stockpiles of those critical inputs.

51:11And that is, again, 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 I think the third is, you know, I do think that countries and companies around the world are going to be looking at their energy mix. And I think, you know, to one of the points we've made about investing, diversification is a really important precept in investing.

51:51It 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 securities, 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. I like the concept of 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.

52:36Does this decade require us to fundamentally rethink how we build portfolios, how we manage risk? How different are the 2020s from the 2010s? Yeah, I mean, I think this gets to some of the themes we were talking about earlier, that, you know, 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. You know, 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.

53:30And so, you know, 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? You know, my boss, Larry Fink, has talked about the role that private assets can play in building more resilient, more diversified portfolios. And I think 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, alpha that's not exposed to broad market directionality can play in portfolios.

54:12These are the types of solutions that I think investors of all types are going to 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 going to have to be thought of in terms of that broader set of tools. So we 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?

54:58So I think that's a very good question. I will say, you know, it is clear that President Trump and the administration have been working to achieve a stable economic footing between the U.S. and China. I think that 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, you know, one of the things that we've been talking about, what I've been talking about last week, even with some of your colleagues, is, you know, the summit between President Trump and President Xi is scheduled for May 14th and May 15th.

55:50You know, 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 hard pressed to see how a summit happens. They've already rescheduled it once. Hard pressed to see how a summit happens in the event of ongoing active hostilities in the Middle East. And I do wonder hard 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 U.S.

56:26and China. And I think the summit is meant to be the culmination of a lot of that work. So I 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? Sure. I mean, 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 five, eight, ten years from now.

57:20You know, I think what I might helpfully do is zero in a little bit within a domain that I know better, namely BlackRock. And I think about kind of what are we doing? And I make maybe a couple of observations. I mean, one, we've already talked about the work ongoing in the systematic platform. And really, you know, they 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. You know, 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 us.

58:19and drive investment performance. Third, I think 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.

59:05Last point I'd make is one of the cool things about being a BlackRock is, you know, 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, you know, what they come up with. And I think 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. You know, 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.

59:52So last question before I get to my favorites, 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? So there, I mean, I'll offer an answer that kind of puts on, you know, both of my hats and say, we've obviously been talking about AI. We were just talking about it as applied to BlackRock. You know, I think that the investment implications of AI, as I said, have huge kind of uncertainty bands around them.

1:00:33where value is going to accrue, at what pace, what transformations to the macroeconomy, 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 going to become a first-order political and policy issue in the quarters, couple of years ahead, we're seeing the beginnings of that, you know, talk about, you know, data center moratoriums, talk about, you know, things like, you know, chip access for China, something I worked on. But I think if you talk to, you know, pollsters, they would say AI is rocketing up the list of issues that voters are focused on in the United States more broadly.

1:01:23And I think an important dimension of what it's going to mean to invest in AI is understanding that this is going to become a risingly important political and policy issue and an additional dimension of uncertainty that investors are going to have to confront as we make choices around where impact is going to be felt and value is going to accrue. 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 were the mentors who helped shape your career, both from an investing standpoint as well as a government and policy perspective?

1:02:02Yeah, so I'd offer a couple of thoughts here. You know, a pair of Peters in my life. A guy named Peter Fisher, who is responsible for bringing me into BlackRock as an investor. You know, to me, 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 kind of most responsible for bringing me into BlackRock and somebody who's been an important counselor to me through the years. You know, 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.

1:02:49Similarly, somebody to me who's brought together public service with financial and commercial service as well. And somebody who's, again, been an important source of counsel advice. But I would say beyond that, I mean, you know, my mentors, both in government and BlackRock, you know, I'd really look into those organizations writ large. You know, 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.

1:03:26And 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-30s, 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 farm. And being open to this idea that there is knowledge to be gleaned in all places in these organizations is, I think, how I think about how I've been mentored by these places as much as individual people. Let's talk about books. What are some of your favorites?

1:04:01What are you reading currently? 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 of weeks ago where he talked about, you know, AI, the geopolitical changes that we're seeing means that, you know, the world is going to have to be reinvented anew, not unlike perhaps was the case after the Second World War. That's a book about, you know, 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, you know, 80 years of peace, of prosperity that we as Americans have enjoyed.

1:04:49And 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 going to 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. You mentioned Tyler Cowen's podcast. What else is – you're streaming these days, other podcasts or Netflix or Amazon type stuff? Yeah, so I would put in a pitch for my friends Jake Sullivan and John Feiner, their new podcast called The Long Game about U.S.

1:05:35national security and foreign policy. I'd say I like it for three reasons. I mean, one, you know, 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, too. It's a real window into the craft of foreign policy. I mean, I think there's a lot to be learned from the craft of how professionals, whether they're policymakers or investors or business leaders, kind of think about doing what they do. And this is a window in that. And third is a personal one. And, you know, I spent two years of my life, spent many years on top of that being in dialogue with both of those guys.

1:06:13And for me once a week to kind of 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. 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? Yeah. Yeah, so I'd say, you know, a mix of the timeless and the timely. You know, I think on the timely side, you know, 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.

1:07:01But I'd also emphasize the timeless. In investing, it is still going to 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 that mix of forecasting skill, breadth, and the ability to translate in a portfolio is what's going to define active management. You know, being steeped in those timeless truths I think is valuable. Last point I'd make is, you know, you can never emphasize enough what is always going to be human. You know, trust is hard to build. It is built on the back of relationships and relationships across time.

1:07:45You know, spending time building your relationships, building trust, being seen as somebody who acts with trust and integrity. You know, it's not just a way to live a good life. It is also a pretty good piece of, I think, career advice as well. I like that advice. And our final question, what do you know about the world of investing today? It might have been useful to know 30 years or so ago. Yeah, I mean, you know, I would say, you know, 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 kind of most struck by learning about during my time at BlackRock across the stint in the prior one.

1:08:33What I expected to learn when I left government the first time was, okay, how do I do deep macroeconomic research? What I expected when I left government the first time around is 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, you know, build a portfolio of those insights that is going to deliver the right risk, the right return for clients.

1:09:16And 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. Well, this has been absolutely fascinating. Thank you, Mike, for being so generous with your time. We have been speaking with Mike Pyle, deputy head of BlackRock's Portfolio Management Group, helping to oversee about$5 trillion in client assets. If you enjoy this conversation, well, be sure and check out any of the 600 we've done over the past 12 years. You can find those at iTunes, Spotify, Bloomberg, YouTube, wherever you get your favorite podcasts.

1:09:55I would be remiss if I didn't thank the crack team that helps put these conversations together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my producer. I'm Barry Britholtz. You've been listening to Masters in Business on Bloomberg Radio.

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