The business of dreams

Robert Kapito presents a very different view of asset management.

Apart from giving us an opportunity to see a photograph of the young Peter Tufano (instantly recognisable), 2 November’s Distinguished Speaker Seminar with BlackRock President and co-founder Robert Kapito contained a range of insights into subjects such as finding your passion and leadership.

Finding your passion

After an undergraduate degree at Wharton, experience at First Boston, and then an MBA at Harvard Business School, Kapito very nearly accepted a job with Bain &Co.

But something stopped him, and that was the experience of flicking through a business school magazine and seeing two advertisements. The first, he said, was for McKinsey and Company: ‘… there was a guy standing over a chair in a boardroom telling the board what to do’. The second was for Smith Barney (which no longer exists) and showed a trading floor with a lot of activity in the background, and man in the foreground talking on two phones at once. This made him realise what he really wanted to do, and he became ‘the first person in the history of Bain to return the signing bonus’. He drove to New York and worked for First Boston.

There he sat next to ‘a guy called Larry Fink and we thought that no one really understood the risk that happened on Wall Street … so we decided to create a firm that would look at risk’.

He told the students in the audience: ‘You have to get in touch with your feelings as to who you really are and where your true personality can really come out, where you really feel that you fit in …  I still walk in every day feeling really good about what I do and the people that I work with. Those are the jobs that you take.’

Creating a firm

In co-founding BlackRock, he exercised a different sort of leadership from that which is typically needed to trade bonds and create risk models. He described how, ‘In the first dinner we had I said something which has now been written in to our history and in business school case studies. I said to the other seven partners, “let’s all make the same amount of money together”’.

At the time, he was making more than the others, but he said that he did not want to think about money; he wanted to think about building the business together. Competing with each other over money would get in the way of their becoming a team.

Part of the job of leadership was to keep people moving in the same direction and diffusing disagreements, helping people to ‘work it out’ together. But, he said, you also have to ‘laugh a lot. You’ve got to create an environment where people want to work with you, you’re optimistic, you feel good about what you’re doing.’

He also emphasised that, outside the firm, it was ‘partnerships and relationships that put us on the map… All the people that we had been very good to in the first eight years of working in the investment bank, they all wanted to help us. What goes around comes around – if you treat people well, they want to help you.’

This was particularly important in the financial community, he said, because it is very small; everyone knows everyone. ‘It is important to leave a good taste.’

Never forgetting whose money it is

As Tufano pointed out, the financial industry ‘doesn’t have the best reputation’ – but there are good people in it. How does Kapito reconcile the poor reputation of the industry with the good people he knows?

Kapito said it was important always to remember whose money it is, and what that money means to them. ‘When you start to believe it’s your own money, that’s when you get into a lot of problems.’ Indeed, at BlackRock they made a very early decision to manage no money on their own behalf, but only for their clients.

‘There’s a guy fitting windshields on a car for 30 years,’ said Kapito. ‘And all he’s thinking about is when he will retire and move to a vacation area, or how he is saving money for his child’s college fund. That’s our client, and those are his dreams. So if we lose his money we are screwing up his dream.’  

He said that in the financial crisis, people simply ‘got way far ahead of the risks they should take: they became very arrogant, and forgot their responsibility to their customers’. Reminding people of their responsibilities is part of leadership: ‘People have to understand what the job is that they’re doing – and it’s not just making money.’

In fact, he said, if you want to ‘make a difference’ in the world, there is ‘No bigger role you can have than being a fiduciary and managing the dreams that people have’.