BlackRock CEO Letter: A New Era For Corporate Credit?

BlackRock CEO Larry Fink published his annual letter to shareholders today; two things stood out for us: infrastructure and superannuation. Long term trends for credit markets could be meaningfully impacted.

• Infrastructure: having just spent USD12.5bn buying GIP, he would focus here but he makes interesting points about the requirement for infrastructure from two perspectives.
  • Firstly, the spur to economic growth, specifically in the US where he sees disaffection about the future as a major threat to the animal spirits of entrepreneurship that is a hallmark of the US economy.
  • Secondly, as part of the energy transition as demand for new way of both generating and transmitting energy are required.
  • So what? Well, infrastructure is often heavily leveraged which speaks to a long-term demand trend for corporate credit. If Fink is trying to push Rooseveltian “New Deal” economics into whomever is the next US President (the firm and Fink himself donate to both sides), the potential for a new era of credit issuance is there.
• Superannuation: Fink’s core thesis is that we don’t save enough for retirement but points to the establishment of the modern Australian superannuation scheme, over 30yrs ago, as an example of a good option.
  • So what? If Fink, again talking his own book, is looking to increase savings and investment levels, that can, in the long term, have profound impacts on credit markets.
  • He tiptoes around the “third rail” of increasing the share of wealth to be downstreamed from the baby boomers but the inference is that – a rebalancing of some form must occur for the vibrancy of the US and, by extension, global economy. This could well be a very interesting counter to the above trend – we would expect GenX, GenZ and so forth to be more equity-heavy than current boomers. Perhaps this is at the expense of housing wealth but it could be a net withdrawal (in proportionate terms, at least) from debt investments.
• To conclude – more debt issued to build power alongside boomers selling credit for GenX equity interests could be a very plausible scenario. If this powers economic growth, credit should be underpinned. If infrastructure build is wasteful and transfer (via taxation?) mechanisms from the boomers poorly executed, long term credit could look a lot less easy than today.