Blackrock’s Wei Li: Is there an AI bubble?

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Joe Cass: [00:00:00] Do you think the AI boom is a productivity revolution, or do you think it could be a bubble?

Wei Li: How do we stand out in a sea of insights and content? The first phase is build-out, second phase is adoption, and the third phase is broader productivity gain. We're still early. We're still early. This is a topic that I have spent a lot of time thinking very hard about, which is something that I have not seen in my career.

So right now, I, I don't think it's a bubble, but could it get there?

Joe Cass: Do you think the AI boom is a productivity revolution, or do you think it could be A bubble?

Wei Li: It can be both, you know. It can be both. You give it time, it gives you both. I think right now, at this very moment, AI and tech names are actually not as stretched in valuation. So when you say [00:01:00] bubble, it infers that it is bubbly multiple levels, but you look at US tech right now.

It's trading at the same multiple as US ex tech. Isn't that crazy? Isn't that crazy? Everyone is increasing CapEx commitment and re-underwriting and doubling down on their conviction in the AI transformation, and yet these companies, the, the, the multiples are not that stretched because they're still doing the heavy lifting in earnings delivery.

So, so right now I, I don't think it's a bubble, but could it get there? i-i-it's also possible, right? With every GPT, I'm talking about general, purpose technology, narratives can get ahead of actual revenue creation and adoption and, and when narratives get ahead of itself, and arguably at some point last year, that was why we [00:02:00] saw a bit of a repricing, then, then you could feel, you know, a bit of a bubbly kind of reaction in markets, but that's just the nature of investing in transformative technologies.

It cannot be that the progress and pricing are perfectly in sync. I mean, that's actually a lot harder to, to, to defend, right? Now, you mentioned productivity boost. We see some evidence of that in case studies and in certain sectors, but on a broader economic level, we have yet to see meaningful progress to make us feel very confident that we can grow out of a lot of the issues that, many economies face right now, but, but we're still early.

We're still early. You know, like if, and this is what we believe, that what we are going through right now is comparable to previous industrial [00:03:00] revolutions. We're talking about decades, and, and maybe even longer. maybe things are happening faster this time, but we're still in the early days. You know, like we look at AI in three phases.

One is... The first phase is build-out, second phase is adoption, and the third phase is broader productivity gain. We're still in massive build-out phase, right? So all of that just to say give it time. and right now, whoever that can say with high conviction, with a very deterministic kind of, approach to this is where we will be in five years' time, in 10 years' time, I, I think that's, that's unjustified.

We're in a, I will see if, we manage to make this word catch on because, we tried a few times and right now not many people are using it. Polyfurcated world. Well, in a polyfurcated world, it's a bit like bifurcated, but polyfurcated with what's happening in AI, with what's happening in geopolitical fragmentation, with [00:04:00] what's happening in the energy transition.

I think the range of outcomes on the table, I mean, like, we always have a range of outcomes on the table, but right now the range of outcomes on the table is wider than ever and there are very, very different scenarios, very different from each other, with very different macro consequences, with very different investment implications From each other, they are all plausibly sitting on the table, which is something that I have not seen in my career, and this is what we mean by polyfocated

Joe Cass: I'll try and use it more and see if we can-

Wei Li: Yes, please. Just throw it out there in your conversations .

Joe Cass: It's funny. No, it's interesting. I mean, there's a great quote from Howard Marks at Oaktree- Mm-hmm ... where he says, "There are old investors, there are bold investors, but there, there are not many old, bold investors."

Wei Li: Ah.

Joe Cass: And it goes back to your point about kind of being so sh- certain of one outcome-

Wei Li: Mm ...

Joe Cass: as opposed to actually taking a high level view and looking at all the potential scenarios.

Wei Li: Yeah. That's, that's [00:05:00] very fair, very wise.

Joe Cass: What do you think a typical day in the life would be in terms of your role or maybe your team's role in the market strategy team?

Wei Li: My day, if it is up to me to shape, I will spend, I will spend more than half of my day just kind of doing analysis, speaking with, my, teams, looking at markets and, and, and both shorter term and also longer term type of, research that take time to do. I want to, I want to make sure that I carve out time to look at those, and speaking with, internal investors as well.

And then there will be important external engagement that I will prioritize and, schedule my day around. But, but get the content first and then think about how to get it out.

Joe Cass: It's interesting. So we mentioned off air, I interviewed Kunal Shah at Goldman-

Wei Li: Mm ...

Joe Cass: and he was talking about content-

Wei Li: Mm ...

Joe Cass: and kind of leading with content.

Wei Li: Mm-hmm.

Joe Cass: And interestingly, you know, the [00:06:00] impact of LLMs-

Wei Li: Mm-hmm ...

Joe Cass: on summarizing, you know, a market wrap.

Wei Li: Crazy, right? Yeah. So

Joe Cass: he was saying, okay, there's, there's not much value- ... in, you know, an LLM market wrap because anyone- ... can do it, so it's commoditized.

Wei Li: Yeah.

Joe Cass: So how has LLM, or like the rise of LLM, impacted your presentations and your insight gathering?

Wei Li: This is a topic that I have spent a lot of time thinking very hard about because with the development of LLM and, and just general, technology and analytical tools, the incremental cost of content production and insight production is probably gonna go to zero or converge to zero, right? So how do we stand out in a sea of insights and content?

And I think it has to come down to credibility, and it has to come [00:07:00] down to, y- your, reputation and your brand as a, as a company and also as individuals, so that before people even decide- To listen to you, to see what you have to say, to, to read what you have just produced. They're like, "Okay, this is worth making time for."

So, so I think that's something that everybody needs to start kind of thinking about how to build in a world where AI is raising the floor for many things, but specifically for, for investment because that's what I, care about. How identifying where you represent the ceiling and where you re-represent the, the best is important.

It's a honest conversation you gotta have with yourself and, and, and then just accept and, and be ready to say, "Well, the rest, you know, like I'm not very good at and, and, you know, let's, let's focus on what, what I'm [00:08:00] good at." So yeah, it is a, it's very tough, uh Tough, honest conversation everyone needs to have with themselves.

Joe Cass: And do you guys at BlackRock, or do your team, or do the portfolio managers, or anyone across the firm, do you have kind of internal AI tools that you use or do you kind of plug in the larger LLMs to your current workflow?

Wei Li: Well, we, we have both. We have both. And, at our earnings call, I think it's our COO, Rob, Rob Goldstein- Yeah

that talked about Asimov, which is our internal investment tool that investors use, and of course we built versions of that, right? So, so it's already out there, so I can talk about it. So certainly this is, this is something that we look to integrating every step of our day-to-day. And more broadly speaking, I would say when it comes to AI integration, there are two kind of dimensions to it.

One is to kind of build, let's say, LLM that [00:09:00] has your own secret sauce, and that is hard because we're talking about pushing the frontier. And then the other dimension of AI initiative and effort is around how do we redesign processes to get most efficiency gain and productivity boost out of the tools that is readily available to everyone, but you can use it smarter, right?

So as I see really great thoughts and efforts going into both kind of directions. The first one is harder, but really necessary, and the second one, you know, the low-hanging fruits, we, we are doing and, and, and we have done some. It gets harder, but I, I think there's a lot that, that, that can still be extracted, and especially with the fast development of, of models, you know.

Just now I was talking about different agents that we can think about incorporating into our processes. I think runway is, is gonna be, shocking Versus [00:10:00] most people's expectation.

Joe Cass: What's the most important data point that you personally check every day?

Wei Li: I have this... Now this, this shows my age, or maybe it doesn't, but like I have this habit, and I learned it from the first, senior investor that I worked with as I started, on the trading floor.

I, I, I have a paper notebook, and every day I note down index levels, and I think everything that you write- You remember better than things that, you know, like you just glimpse through on your, on your phone, right? And then also financial conditions, that's something that I look at because, I, I, I look on a, on a daily basis because markets can go, all over the place and narratives can swing wildly.

But, you know, like the broader financial conditions, easy easing or loosening is something that you just always gotta have at the back of your, at [00:11:00] the back of your, mind. And these days, oil prices, not only the front end, but, but where markets are pricing by the end of this year and also by the end of next year is, is, is, is something that I wake up to every day.

But things are moving very fast.

Joe Cass: What's one market view you have that most other investors might disagree with?

Wei Li: At this juncture, I think our underweight in long duration US government bonds is a little divisive at the moment. On the one hand, I think at some point you look at yield levels, it's attractive and you wanna get in.

But on the other hand, and this is why we are underweight at the moment, you look at the fiscal trajectory, of the US government, you look at the increasing risk premia, in US government bonds, i.e. investors [00:12:00] demanding more, to own US government bonds in portfolio because of e-everything that is happening and the inflationary, pressure that the world shaped by supply, is creating.

This is why we're underweight long duration US treasuries. We prefer the front and the belly of the curve rather than the long end of the curve. But I would say as I speak to investors and clients all across the world, this one is a little divisive. It's, it's quite divisive.

Joe Cass: And I wanted to talk about BlackRock.

Wei Li: Yeah.

Joe Cass: So you've been there for just over 15 years now. What's it really like working at BlackRock?

Wei Li: It feels like yesterday. I remember very well the first day that I joined, because one month later my boss then then left the firm. So it was a, a, a whirlwind of of a start. What is it really like? It's a very friendly place, and I think everybody would say that about their company, but I really [00:13:00] mean it.

It's a place where actually relationships really matter. It's a place where I really enjoy going to, to work, right? Like, you know, like, it's feels like a cliche thing to say that you, you, you, you jump out of bed to go to work, and I really feel it because I really like the people that I work with. I mean, it's, almost table stakes to say that you work with smart people, but, it's not to be taken for granted that you also work with really nice people.

And I think, I work with really nice and smart people, and I, I, I think it's a privilege.

Joe Cass: What happens inside a BlackRock investment committee when people disagree?

Wei Li: It happens a lot. First, I just want to say that because it's a very diverse platform with different, investment approaches, and this is the beauty of having a, a diverse, platform.

So from my perspective, my [00:14:00] contribution to those discussion is to put facts and analysis on the table for people to react to and recognize that sometimes we agree to disagree. sometimes we can find consensus, and sometimes we cannot find consensus. And in those situations, I think the best that we can do is to identify the center of gravity, of, the dispersed views, and have a really good understanding where we disagree, but also why we disagree.

If there are good reasons to disagree, that is good. That is fine

Joe Cass: What are, do you think the biggest misconceptions people might have about the influence BlackRock has on the market generally?

Wei Li: Well, I, have a very unique, and I think a really privileged seat in that I travel [00:15:00] everywhere, and I speak to investors and, clients all over the world.

And I would say that one, I guess, misconception that, people may have, i- is that, they think BlackRock is a very American firm, and of course we are, a very Am- American firm and, and, and founded and headquartered, in the US, but we're also a very international firm. We're very local. You know, I manage a team of, chief investment strategists in the countries and in regions, and they are European, they are Asian, they are Middle Eastern, and they are local, right?

So I think the people that I speak to as I travel oftentimes, can be surprised to see that, yes, we are an American firm, but we're also very, very local, and the faces people interact with on the ground are the local faces, and I'm really [00:16:00] proud of that. You know, like we... Yes, we're global, but we're also very local, and we can look at, issues that our clients are trying to solve from a local lens with a local kind of set of parameters as we optimize for best outcome, and I think that's, that's something perhaps at times underappreciated and something that, as someone that is very global, I'm really proud of.

Joe Cass: Has there been a moment in your career which has changed how you see markets at a high level?

Wei Li: I started on the fixed income trading floor in Lehman Brothers, and then I moved to the equity trading floor in Citigroup, and now I sit in BlackRock. But I've spent, before I took my current role, I spent most of my kind of, trading floor career looking at equity market, right?

So I, I would say y- you know, if there is an asset class [00:17:00] that I grew up in, so to speak, it's, it's in equities. So, so I always kind of think of things from a, through a equity lens. You know, if you look at the list of indices that I write down levels for, it's mostly, equities and then m- also, credit spreads and one more, but point being, I grew up in equities.

And I think when I took on my role as a multi-asset investment strategist and being exposed to the- swings in bond market, in commodities. And then you realize that actually, you know, like there, there are some intrinsic biases that certain asset classes may carry, and it's really fascinating, right? Like people say that the bond investors are, are wise and bearish and equity investors have to be intrinsically, optimists.

Th- these are said as jokes, but there is something true i- in [00:18:00] those jokes too. So this is, I think, the, the moment that I changed, my perspective on Assessing powers of the market is when I break out of my equity background and training ground and, start to put myself in the shoes of different asset classes and their intrinsic pricing biases and have a more holistic assessment of things.

Joe Cass: So is the balance of power shifting from public markets to private markets?

Wei Li: Well, there is a bigger role for private markets to play because of financing needs created by transformations happening around us. So, we talked about, I came on your show, I think three, four years ago, and that was [00:19:00] actually the beginning of BlackRock rolling out this mega force framing.

So the whole idea is that there are structural transformations happening right now that create a world shaped by supply constraint. And these structural transformations, we already talked about them, but there are five in total. AI, aging population, low carbon transition, geopolitical fragmentation, and the future of finance.

So these are the five structural transformations. And as we think about what is needed in terms of build-out and financing to support these structural transformations, the numbers start to first add up in a staggering way, and then they start to not add up, right? Because if you look at the level of indebtedness in the public sector, you look at US debt to GDP ratio, it's now [00:20:00] twice the level compared to pre-global financial crisis level.

And that's not unique to the US. That's the case in almost all developed market economies, and that is also the case in many emerging market economies more and more. E-emerging market government finances more and more as well. So when the public sector cannot do as much in terms of heavy lifting to support the financing of these huge transformations that are happening around us, then the private sector needs to do more heavy lifting.

And private sect- the, the private sector, obviously, there is the public market, and then there is the private market. We're seeing more activities happening in the public market, but ultimately, um More is needed, in terms of heavy lifting by, the private market, side of things. And, and here being, selective is important and really focusing on [00:21:00] private market players that, have, the discipline, the track record, the, the, the, the rigorous underwriting standards that is needed, not just tourists in the sector, I think is very important.

Joe Cass: We spoke about your, the BlackRock investment committees and kind of the disagreements and the healthy disagreements- Mm ... let's say. Have you ever had a situation where you've been the person on the other side of the argument? And how have you managed to persuade or be persuaded in that situation?

Wei Li: Oh, quite regularly.

 regularly. I, I put forward, proposals and, I think my, my role is also to be shot at, so it is quite regularly. I, I would say one example, the latest example is to, tighten risk to neutral three weeks, or two weeks in the latest Middle East conflict. So here [00:22:00] we're running up against kind of the old playbook of, buy the dip when something happens in the geopolitical space.

But at the same time, there were also kind of signs that point to prolonged physical disruption that can take, a long time to recover from, right, when energy infrastructure is targeted. So, heading into this period, we had a, modest overweight in US equities in particular, which was also predicated on our conviction in AI transformation.

 but given the, the, the, the, the significant kind of uncertainty associated with physical disruption, getting, the, the, the key voices on board [00:23:00] with communicating, not taking big directional bets and leaning into thematic opportunities accelerated by events in the Middle East is the latest example of having a, a really thought-through and spirited and, and, and really engaging discussion with senior investors in, in BlackRock.

I always learn something. It's fascinating.

Joe Cass: How important do you think credit signals like an S&P rating when investors assess risk?

Wei Li: Mm-hmm. I, I, I think credit quality is incredibly important, especially in the context of how long this cycle has gone on. We actually don't talk about it in cycle terms because this feels more of a super cycle, not your typical cycle.

But just look at how, for how long [00:24:00] we haven't had a typical credit cycle. You know, it makes you think that, you know, where, where are the, fragility? Where, where could things go wrong, right? So I think having a very good handle on credit quality is, is critical where we are, at this, this, this, this moment in, in market and having timely, reactions to credit signals by way of rating adjustment, I think that's something that markets and investors definitely really welcome.

Joe Cass: So what are the world's largest pension funds, insurers, sovereign wealth funds most worried about right now if we look at it on a, say, a six-month or a 12-month horizon?

Wei Li: I think the one challenge that I [00:25:00] pick up from speaking to clients all over the world is how to be disciplined in a market that just whips source, that, that, that is just, that, that just reacts to every headline and just reacts and overreacts both on the way up and on the way down.

So how, how to, how to be, how to stay disciplined, how to stay, really anchored to the mission when- Market, the market is changing. The world is seemingly moving very, very fast i- is the number one kind of challenge that I, extract from my conversations, all over the world. And I think, it boils down to, a dynamic portfolio construction process, right?

Like, how do we, h- h- how can we be comfortable that, the, [00:26:00] what we, kind of putting in portfolios as diversifiers are going to work in, in, in this new regime? Or how do we accept the fact that the old diversifiers wouldn't work and, and, and we're still comfortable with the level of risks that we're taking?

So, so I think h- how do we evolve portfolio construction in this new regime shaped by supply constraints and shaped by, the, the daily news cycle is, i- is, is really a challenge. But, that always leads to very, fruitful conversations with clients.

Joe Cass: And do you think US market dominance on the long term is here to stay, or do you think it's maybe nearing its peak?

Wei Li: I, I would say it's too early to say because the drivers of US exceptionalism they are still here. [00:27:00] And specifically, I am talking about the depth of capital markets. The depth of capital markets in both equities and bonds, in public and private. There was a very interesting analysis, done by a member of my team adding up the percentage of US

equity market in global, benchmark and the percentage of U.S. bonds in global benchmark. You add the two percentages together, it gets to ninety, something like that. The next closest country is either Japan or China, I'm not entirely sure. I think they are pretty close, but they are in... They, they are close to ten percent.

Like, the depth of capital markets is why kind of innovation happens. A, a lot of the innovations happen in the U.S. which [00:28:00] also gives it an edge, especially at a time of AI transformation. So I think, you know, like for those that kind of, quickly conclude that the peak is behind us, I think it's too early.

It's too early to, to say that. And back to my favorite word, polyfurcated, I think, of course, among the multiple plausible and wildly different scenarios on the table, there is one where this continues, and there is one this does not. And there are very kind of tangible steps one can imagine that takes us in either direction.

And I think that it's just too early, too early to say. We talked about the depth of capital markets. There is also energy independence, and dominance of the dollar. You know, all of this, they don't happen. They don't change overnight.

Joe Cass: Hmm. So we spoke earlier about- I guess personal credibility.

Wei Li: Mm.

Joe Cass: [00:29:00] we-- I remember asking you three or three and a half years ago- Mm

when we first spoke about your LinkedIn profile-

Wei Li: Mm ...

Joe Cass: where I think you had about seventy thousand followers.

Wei Li: Mm.

Joe Cass: My last check, I think you were over three hundred thousand.

Wei Li: Mm.

Joe Cass: So creating that kind of personal credibility, creating a following, I guess my question is: What kind of advice would you give to young people entering the world of finance, of investing-

Wei Li: Mm

Joe Cass: right now?

Wei Li: That's a big question, and I, I, I don't, I don't take it lightly because this is an environment of AI transformation. So it may well be... I was just talking about how old investment playbook doesn't apply, in the new regime. I think old career advices may not apply as much either, right? So I remember, may-maybe we talked about this, but something that I like to, to say whenever I, I, I talk [00:30:00] about, personal and career journeys is, one of the earliest advices and one of the most, kind of, impactful advices I have received was to be replaceable because you wanna be replaceable so that you can be considered for other opportunities.

But now I think about that advice in the age of AI. Maybe you don't wanna be- ... too replaceable, right? Maybe we, we, we think about how we can not be replaced by, by, by, by AI, and I th- and, and I think the way to do that is to try to replace what you do yourself proactively with the tools that you, with the tools that you, that you have.

And then one more thing I will say is do not over-index on usefulness. like, do, do not, do not over-index on usefulness in that,

you know, like y- we all have limited spare time, and we want to spend those times on things that takes us somewhere. But, but I [00:31:00] think, you know, just read generally, and, and, and learn random things. Just- You know, you know, I, I read all these books about AI, and, there is the system knowledge, and there is the tacit knowledge.

You know, like, the system knowledge is kind of, really around kind of what you do, how... what can be codified and, and, and maybe perceived as useful. But read, like, random things and learn random things that are contextual, that are tacit. Maybe those are the things that are not gonna be easily replaced by, by AI.

But also, you know, in a world that is changing this fast, what used to be useless may well end up being super useful. So just don't lose the habit of reading in a world where attention span is getting shorter and shorter. We gotta, we gotta keep working on, on this [00:32:00] and, and it's gonna, it's gonna be good.

Joe Cass: Why, thank you so much for joining me.

Wei Li: Thank you so much for having me.