The Power of Frictionless Rails with Rob Goldstein of BlackRock*

With over $8.5 trillion assets under management, BlackRock* is the world’s largest money manager. Its influence on Wall Street, in Washington, and beyond, is hard to overstate. A key reason for the firm’s success is the steady hand of Rob Goldstein, the firm’s COO and Head of BlackRock Solutions. Goldstein joined BlackRock in 1994. In the years since, he’s been named twice to Fortune's "40 under 40" list and has been identified as one of the top technology entrepreneurs in the financial services industry by Institutional Investor's "Tech 50" list.

At the World Economic Forum in Davos, Switzerland, in January 2023, Rob joined Circle CEO Jeremy Allaire for a discussion about the nature of asset management, attacking institutional inefficiencies, and the growing collaboration between Circle and BlackRock. Together, they explore how a new, frictionless infrastructure layer on the internet can generate transformative opportunities in the years to come.

Their Money Movement episode covers:

  • [2:02] – The history of BlackRock
  • [5:01] – The nature of asset management
  • [7:26] – The ultimate long-term game
  • [11:02] – The catalyzing effect of Russia’s war in Ukraine
  • [12:44] – Attacking institutional inefficiencies
  • [15:48] – A new infrastructure layer on the internet
  • [22:35] – Frictionless rails
  • [24:42] – The magic of simple strategies

If you’re interested in learning more about capital markets, the modernization of financial rails, and principles of effective asset management, tune in to this episode of The Money Movement. 

*Rob Goldstein is COO and Head of BlackRock Solutions at BlackRock, which manages the Circle Reserve Fund, a registered Rule 2a-7 government money market fund.

Jeremy - 00:00:04:

Good morning, Rob.

Rob - 00:00:05:

Good morning, Jeremy. How are you?

Jeremy - 00:00:07:

I'm great. Welcome to the Circle Lounge. Or I don't know if this is officially a Circle Lounge, but really excited to have this conversation on a bunch of different topics. But for those that don't know, Rob. Rob is the Chief Operating Officer and Global Head of Solutions at BlackRock, which I know covers a lot of things. We'll get into that a little bit. I think we really wanted to have a conversation about technical innovation, building companies and building technology for the long term, how to do things right, and the ways that weaves through your business, our business, and then connect the dots of that to this new realm of digital assets, digital money, what's happening there? And I think touch a little bit on the partnership we have as well. But thematically, those are the big themes. I'm just interested to maybe start having you share a little bit about your journey at BlackRock specifically, and then maybe we'll kind of pull that thread of building to last, so to speak.

Rob - 00:01:16:

Sure. And first, I'm thrilled to be here. Thank you for having me. And BlackRock is very happy and excited for the opportunity with Circle and all of the great value that you provide to the world. It's actually interesting because if you notice, he's the guy wearing the tie and I'm the guy without the tie, which is a little bit backwards here, but I think it says a lot about the history of BlackRock, and really what my history there has been. I joined BlackRock 29 years ago. We had 80 people. We had $19 billion in assets under management. And I know, Jeremy, you and I have spoken a bunch about what the strategy behind BlackRock has been. And BlackRock is a company, is an asset management company, and it's a technology company. It is a financial technology business called the Aladdin business. But really what it is is a company that from the beginning, has had the ruthlessly, practical, simple strategy of if clients have problems, anything to do with their investment portfolio. Our simple strategy is to try to solve those problems. And effectively, what my journey at BlackRock has been, and really, to a large degree, the journey of BlackRock is we have these different capabilities. How do we piece them together in different ways to solve client problems? We started as an asset manager who built the technology to effectively manage its own portfolios on behalf of clients. And then clients started asking us, can we have access to the technology that you use to manage the portfolios? And it was really interesting because I was genuinely a kid at the time. I was 20 years old. I was sitting in a room, and all these senior people, thirties, all these senior people were debating whether or not we should provide technology because we're an asset manager. And I remember someone basically in the room said, we're in the client business. Clients have problems. Our job is to solve those problems. And that really has been the history of the company.

Jeremy - 00:03:26:

You guys have obviously a stellar reputation in serving clients. And maybe, again, kind of coming back to some of the themes, I think of BlackRock as a company that takes a very long view, not just on clients and client relationships, but a long view in terms of doing things right, doing things well, doing things thoroughly, not racing, but sort of being deliberate. And when you think about whether it be a partnership or a product, you're not like, what do we do next quarter? You're like, what do we do in the next few years? Can you talk a little bit about that mentality within the firm?

Rob - 00:04:03:

Yeah, and I think we have that mentality, but I also think we have an advantage towards that mentality, which is at various times in my career, I've been asked, can you create a five year track record in less than five years? And the answer is, you can. So the nature of the asset management business is a very long term business. Inherently. Clients want stability. Clients want to see quite often before they'll give you an allocation of capital. They want to see over a long period of time what you've done. So it's inherently a very long term business, which is a great competitive advantage. I think what we've learned as a company, just broadly across everything we do, is that things that seem simple, quite often the simple part is figuring out what the problem is you're solving, but executing upon that often winds up being very hard. And it not only winds up being very hard, but it also winds up being something that takes time. It takes iterations, it takes practice. One of the things I'm sure you've dealt with at some point in your career, Jeremy, is you've probably sat in a room and someone said, just code. That like there's like a magic thing, like two lines, and tomorrow it'll be done. Aladdin, at this point is over 30 million lines of code, and it's used by our clients to do incredibly sensitive things. It's used and trusted by our clients such that it has to work, and doing that takes time. The last thing I would say with regard to the long view is that in reality, and I think this is a very important component of digital assets and sort of where things are in different cycles. But when you think about the long term and when you think about client expectations, most of our clients, over half the money that we've been entrusted with by our clients is for people's retirements. And when you think about that, that is the ultimate long term game that is measured in decades. And not only is it measured in decades, but importantly, if you start early, the ability to dramatically change the outcome at the end and those decisions you make early on and their implication for the outcome at the end, it's just the ultimate long term game, the game of investing. So it's critical that people not look at it quarterly. It's critical that people look at it over years, decades. One of the best memories that I have is I was once at a dinner with a sovereign wealth fund, and they went on and on and on about how they're looking at developing these resources for generational wealth over hundreds of years. And after like ten minutes of listening to this and I was incredibly impressed and fascinated, but I'm a quantitative guy, so I said, how do you measure that? And the person I was sitting next to, he goes, oh, quarterly. So we measure that. And I do think there is a gap between the reporting cycle that people expect and what the real outcomes that people are striving for.

Jeremy - 00:07:41:

Yeah, well, I want to come back to what we're doing together in a few minutes, but maybe bridging into this sort of general topic on digital assets and I think kind of also kind of laddering off of this theme of kind of taking time to think things through. BlackRock is not a firm that raced into this market, right? And you guys have been very careful, very deliberate and thoughtful about digital assets. But clearly there's a tremendous potential opportunity here in the whole way that capital markets work, the whole way that investments work and the way money works. Maybe just take a minute to share your kind of bird's eye view. What do you see there?

Rob - 00:08:28:

Sure. And get ready because I'm going to ask you there. I'm looking for reciprocal questions, so get ready for that. But within BlackRock, as we think of everything, we think of it in the context of the whole portfolio. So to us, it's not like a standalone thing. It's when you're looking at creating a portfolio, how can this possibly complement diversify? How could this help the outcome that someone is looking for in 10, 20 or 30 years? So we think about everything through the lens of the whole portfolio. We have been carefully watching, learning, trying to understand everything that's been going on for, I don't know, five years, ten years, whatever the amount of time has been. But we've been consciously choosing to have a strategy, but not yet implement the strategy. And what's interesting about this year, 2022, which was a remarkable year in so many ways and through so many lenses, including through the lens of just fixed income and equity returns, it was one of the worst years, depending upon how you count in, let's say, 50 years. But interestingly, it was the year that we chose at BlackRock to actually start implementing our digital asset strategy, the strategy that we had written over the past couple of years and chose to sort of like put in a pile and say, one day we will do this. But today is not the day because we wanted to see certain things happen. And what's interesting is one of the things that we were carefully observing is where we are with regard to regulation and when Ukraine Russia happens, which obviously is a terrible tragedy, an incredible event for the world. But importantly, it also has a lot to do with digital assets. In terms of it was an unprecedented sanctions regime and clearly the concept of understanding how to manage money, the swift payment network, all of those items wound up being front of mind across the whole discussion. And what we observed is as that was happening, it would have been a prime time for governments to choose to really lock down on digital assets. And if anything, it seemed to be catalytic towards governments looking to regulate and have smart regulation associated with digital assets. And that really got us excited about the resilience and persistence of this as an asset class. And as we thought about our strategy, we as a company, we've launched a bitcoin trust. We as a company have done a variety of things with regard to a relationship that we have with Coinbase and how we've taken our Aladdin platform and connected it with the Coinbase platform. Obviously, our relationship with Circle. One of the things I would observe is obviously a lot of energy among this audience is thought of, a lot of brain cells go into thinking about digital assets and USDC, but in reality, cash and how cash moves around, even for an organization like BlackRock in the institutional land, there's great inefficiencies. There's great inefficiencies. Even in today's world. You wouldn't think in 2023 there are great inefficiencies. But we see incredible opportunity for something like Circle, USDC and those use cases to actually attack those inefficiencies. We see opportunities for different blockchain technologies to help with regard to some of the operating inefficiencies we have within our ecosystem. And importantly, as we look forward, we think there's a lot of opportunity for tokenization broadly in the capital markets. And there are great opportunities where there are things that take days that shouldn't take days. There are great opportunities. In my opinion, a lot of the world runs on legacy infrastructure and everyone talks about this concept of can you believe that changing legacy infrastructure is really hard and the reality is at some point it needs to happen. And I think with regard to tokenization in particular, as this legacy infrastructure ultimately needs to be replaced, it shouldn't be replaced like for like it should be replaced in certain circumstances with new operating models. What do you think?

Jeremy - 00:13:23:

Yeah, well, I mean, it's a great segue. I mean, I think, as you know, my background coming to this was out of internet technology, internet software platforms, and kind of watching the world of open internet networks and software colliding with industries, whether it's the software industry or the media industry, the communications industry. And I think what captured our imagination ten years ago was back then, ten years ago, there were a lot of ideas that were mostly talked about in messaging groups and white papers about. There was bitcoin, obviously, but there were a lot of ideas that were talked about, which is, hey, what if you could take these networks and you could issue assets on them? Tokenization, right, what if you could deploy code that was tamper resistant, that could interact with those assets, smart contracts? And so we looked at those things and said, and I looked at those things and said, I'm a technologist, these are just ideas on a napkin. But in five years that's going to be here. I can see that that's going to be here. And the implications were, wow, we're going to have kind of like a new infrastructure layer on the Internet that is purpose built for the primitives of the financial and economic system and that you could actually start to build that up. And so that was sort of inspiring into the comment about to get there. It's a long term, long term thing. We couldn't do it all right away. So we had to kind of take steps to get the regulatory infrastructure, to get the access to the traditional banking system so that we could even connect the existing world to the new world and had to do those. And I think as we think about tokenization and the broader range of assets, our belief was you got to start with the most base layer, which is digital cash, right? You have to start with how do you take the most core unit of account, the most popular unit of account in the world, the dollar? And how do you make that usable as like an efficient protocol on the Internet? And that was sort of the first problem to solve. And we're still working on that, obviously. I think as we launched USDC five years ago, since our fifth anniversary of USDC, it was like very early in the kind of blockchain programmable, smart contracts. And there were big ideas in 2018 about tokenization, but it was one of those things that certainly regulators weren't ready and the technology was just so not mature. But again, we could see, okay, if we can get this protocol going and you can get developers building with this, that will create flywheels, and that certainly did and catalyst in the market in 2020 or 21. And now here we are kind of connecting the dots here to the discussion with you, which is there's now a very good understanding of the benefits of a shared ledger or a blockchain. There's a good understanding of the power of these kind of tamper resistant financial contracts deployed in code. And there's now an acceptance that digital dollars that are well regulated, that are sort of backed in the way that we operate. USDC is like, wow, okay, this is a digital cash that can interact with contracts, that can now represent funds or that can represent other types of assets. And so, in my view, we're right on the precipice of real world assets is a phrase that a lot of people like to use. USDC is a real world asset, right? It's a token backed by a real world asset. We're right on the precipice of that, connecting to many, many new forms of utility and building that evolution, because I don't believe things just get thrown out. It's sort of evolution that extends from, but then also manifests new things that weren't possible.

Rob - 00:17:34:

And Jeremy, it's so interesting what you say, because one of the things that always boggles my mind is how binary people try to make these conversations, and they're so much more complicated. And I think to a large degree, through our lens, our napkins were more about so many of the activities that we do at BlackRock. Other people do the same activity. And to a large degree, what we've done with Aladdin is try to create a language, because there's really no language within the ecosystem. Try to create a language of portfolios. And going back to your points, to a large degree, what's really interesting about the technology component of it is that every one of the ecosystem players I shouldn't say every one, most of the ecosystem players have built in some way their own technology that, if you looked at it, you could argue, is their own smart contract technology. The problem is none of them talk to each other. So most of the brain cells that get destroyed are trying to translate between ABCD, who are all required for the contract in some way, to work all with their own technologies that they've created to in some way keep track of the same thing. Exactly. And there's no question that even when you look going back to cash, which you would think in many regards, that would be like the most basic thing, even there, the complexity of that is tremendous. So we're super excited about the opportunity set ahead, but we also believe that it's going to be a series of evolutions that in aggregate equal revolution as opposed to the other way around.

Jeremy - 00:19:30:

Yeah, absolutely. I know we're a little short on time, but very specifically, the way we've constructed USDC and the way BlackRock has become a strategic partner in that, I think it would just be helpful just to talk for a minute about why is the structure we have a better structure, right? We've got the circle reserve fund and what that is. Sure.

Rob - 00:19:52:

And taking two steps back, it's actually quite interesting because if I took the cash out of my pocket that I have, you think that you could sort of use that in every place. But even in today's world, more and more places you can't use cash because they require just digital means of payment. And I think if you sort of zoom out for a second to the institutional landscape. When you really think about the capital markets, something as basic as taking your investment, that you would have in a government money market fund, which is considered the safest form of cash investment, you can't then say I'm going to take that and post it as collateral at a clearing corporation, for example. You would have to take that investment away, then move it there, then move it back, then move it there, then move it back. And when you think about what we've tried to do with USDC, obviously Circle has created the rails to make that frictionless, everything I just described. But what we've tried to do in terms of the BlackRock partnership is provide the same safety and soundness as a government money market fund with regard to the underlying cash reserve investment. So now you've solved that problem of constantly needing to go in and out because you've taken the equivalent investment capability of that money market fund in terms of the preservation of capital, which is what cash is. You've taken that underlying preservation of capital and you've made it frictionless to move around. And you've made it frictionless to move around for small use cases. You've made it frictionless to move around in terms of the rails for digital assets. But ultimately we believe you'll make it frictionless to move around. With regard to the broader capital markets landscape.

Jeremy - 00:21:54:

This is one of the things that people often ask, what would I use a USDC for? Anything you'd ever use a dollar for literally, right? It can be used for a fraction of a dollar micro payment for a piece of digital art, and it can be used for hundreds of millions of dollars of collateral that's being used as part of a bilateral trade in a big commercial markets context. And it is used that way and everything in between. And I think digital payments, sometimes you think, well, PayPal that's for ecommerce or venmo, that's for paying back my friends. And aren't those also digital money? And like, this is more of a fundamental base layer primitive. And that kind of gets back to some of the earlier stuff.

Rob - 00:22:44:

And Jeremiah, I would just say two things in reaction to that. Both personal things, which is in my own career, in the early days, I always thought strategies needed to be really complicated. And I thought, like, if it was simple, it would be done. And then one of the critical unlocks in my own journey was I realized strategies need to be really, really simple. And that is the magic trick. And I think what you just described is really, really simple. It's so simple, it's not been done. It literally is that simple. And even going to a personal experience, I have a son in college, my son Max, he is moving off campus. So it was like this emergency, we need to pay the security deposit in the next two minutes. Or the apartment is going to go away. So I paid the security deposit and now all of his roommates are paying me back. I'm downloading all these apps because everyone's paying me back in a different way. And you just look and you're like, how could this be? And it really is remarkable how that should be the most simple thing. And by the way, I said, can they pay me cash? And that was like, what's wrong with you? But the most simple thing is so complicated, and there's no reason for that.

Jeremy - 00:24:08:

We are getting there, and it takes time.

Rob - 00:24:11:

I should have sold them on USDC. It was a missed opportunity.

Jeremy - 00:24:16:

They probably all had a crypto wallet.

Rob - 00:24:17:

I'm sorry about that. I'm sure they all did. Yeah, no, I screwed that up.

Jeremy - 00:24:20:

I screwed that in it's okay. Well, listen, Rob, this is a great conversation. We're obviously really excited to see how all this continues to develop and appreciate you sharing your wisdom here with everyone.

Rob - 00:24:34:

Awesome. Thank you, folks.

Jeremy Allaire
Co-Founder, CEO & Chairman at Circle
Rob Goldstein
COO & Head of BlackRock Solutions, BlackRock

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