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Rob Goldstein, the chief operating officer of BlackRock,
the world's largest asset manager, thinks there are
a lot of misconceptions surrounding the rise of passive investing.

chevron.com One, for instance, is the name.

"We actually believe one of the greatest misnomers is this word 'passive' because we don't believe any investment decision is a passive decision," Goldstein told Business Insider.

Passive investing, which means tracking a market-weighted index rather than actively trading
single stocks, has steadily eaten away at active-investment management over the past several decades.

Index investing has been revolutionary for Main Street investors,
allowing them to bypass high-fee investment managers, many of which have not performed well.

The firms that specialize in index investing and exchange-traded
funds, another form of passive investing, have become giants of
the industry, meanwhile.

BlackRock is one of them. The giant pulled in more money into its ETF arm in the first half of
this year than all of last year, the FT reported.

Business Insider recently met up with Goldstein in his Manhattan offices at BlackRock headquarters.
You can read the full interview here, and following
is the relevant excerpt on his views on passive investing.

Rachael Levy: Can you speak to how BlackRock views active versus passive more broadly?

Rob Goldstein: Sure. It's incredibly simple in terms of how we view it in that
our goal is to construct portfolios that achieve our
planned outcomes. And we believe that often, in building those portfolios, you're blending active
management and you're blending index product.
We actually believe one of the greatest misnomers
is this word "passive" because we don't believe any investment decision is a passive decision. You could buy an index fund but you're not
doing that passively. You are making a judgment about asset allocation and other things that impact
your portfolio. So when we look at it, we look at it
really from, "What is the objective the client is striving for and how do you build the most efficient portfolio to get him or her or the institution to achieve that objective?" Most of the
time, you see a role for both active product as well as index product in constructing that portfolio.

thecommonwealth.org Levy: So
you don't think there's going to be a "death of active" necessarily?

Goldstein: Not only do we believe there's not going
to be a "death of active" but I think quite
strongly, we've been investing in our active businesses
and we've been quite transparent and vocal about some
of the investments that we've made.

Levy: In the sense of expanding them?

Goldstein: So for example, we've been very focused on how we could leverage —
funnily enough, this could be its own technology discussion — but we've
been very focused on how we can leverage technology, big
data, and other concepts to generate more alpha in portfolios.
That's been a huge thrust of what we've been focused on.

Levy: In actively managed portfolios?

Goldstein: In actively managed portfolios, and obviously technology has changed so many things.
I mean, look, you're recording this on your phone. The whole thing is
amazing, where the world is. If I would've told you 10 years ago you would have a
device that does all those things, you would've
thought I was crazy. And the irony is that when you look at the devices
on "Star Trek," what you have is actually cooler than many of the
devices on "Star Trek."

When you look at one of the major changes, it is this combination of
the data that's now available, the technologies that
are available to analyze the data, and access to
computing power at the price points that you can access
computing power and put them together, the opportunities that creates to identify themes,
trends, market paradigms is just — it's limitless.

nytimes.com My sales pitch is
very simple: BlackRock is a growth company. BlackRock is a growth technology company and we're growing our technology functions.
We have a very ambitious plan that we call "Tech 2020." And as
part of that, we are looking to extend the
2,000-plus technologists we already have within BlackRock.
And we're really excited about the opportunity to take a company like BlackRock, which
is already, I'd say, at the forefront of technology in its industry,
and, if anything, keep expanding that.

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