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Hi and welcome to the Core Reports special edition. I'm in conversation with Sid Swaminathan, CEO of Jio BlackRock in India. Sid, thank you so much for joining me.

So I'm going to talk about a bunch of things, but before we come to Jio BlackRock and some of the funds, or rather schemes , that you're going to launch now, tell us a little bit about BlackRock and what it's been doing in India all these years.

Sure. Thank you, Govind. Firstly, thank you for having me here.

I'm actually a regular listener of the podcast, so it's super exciting for me to actually be here.

Thank you for that.

And yeah, just to get into the JV and where BlackRock's coming from for people who aren't familiar with it, BlackRock is the world's largest asset manager with over $14 trillion in assets. It's been running for well over 30 years now and is present in most countries around the world, operating across the spectrum of investments, whether public markets or private markets.

From an India perspective specifically, BlackRock has definitely been expanding its presence in India. Not many people probably know that BlackRock's own GCC has over 5,000 people working in India across various offices. So that's one area where, you know, it's more than just back-office work — there's actually a lot of front-office work getting done here as well.

Prior to this role, I had spent nearly 20 years at BlackRock, primarily in investments, based in London. I'd also helped set up teams in India to support the investments function. So that's an exciting piece.

Then we come to the JV, which is this 50-50 joint venture that we've formed. Asset management is actually one piece of it — it spans asset management, wealth management and brokerage. So it's an overall investments offering, and the objective really is to make investing easier and more accessible to more people in India.

We see the potential here for overall economic growth, and people's participation in the investments industry is growing at a pretty quick pace. Everyone knows the story of the last five, six, seven years, but we're still only scratching the surface.

When I look at stats like mutual fund AUM as a function of GDP, we're still in the teens roughly. In other markets — the UK, where I come from, it's about 80 percent, and the US is at 150 percent. So the growth potential is immense. For us, from a JV perspective, it's all about growing the ecosystem — first getting more people to access the markets, and then, more importantly, since so many people have come in over the last five, six, seven years and are reaching a more advanced stage of their participation in investments, their needs change.

So it's also about making sure you have the right suite of products available for those needs. That's the most exciting part about India for me — there's a segment of the market that is maturing and will need more refined, nuanced offerings, and there's also this huge growth segment where the goal is simply to get people in.

BlackRock has been in India for a while doing many other things, including real estate, for example. Tell us about what else it's been doing and what the strategy has been for those other categories or asset classes, and how that flows into asset management with equities, bonds, and so on.

Primarily, BlackRock's DNA globally, not just in India, came from fixed income markets. That was the foundation, and it then expanded in a big way to public equities with the acquisition of Barclays Global Investors. I actually used to work at Barclays Global Investors when we were acquired by BlackRock.

Over the years, that expanded to all markets — private markets included. Infrastructure is an important one, with the acquisition of GIP recently, and they have a presence here in India as well. So that's how the overall offering is placed right now.

It's a whole-portfolio story at BlackRock, and I think it's very relevant for India too, where the combination of access to public markets as well as private markets, real estate and infrastructure is becoming more and more relevant for a large part of the investing population. Being able to offer these kinds of high-quality solutions across the world is the objective BlackRock is looking to achieve, and we're happy to do that in a smaller way in India. We've just completed a year, but we're looking at it through the same lens — how do we grow into being a full-service investment solutions provider for Indian investors.

And the reason a company like BlackRock ventured into areas other than equities and fixed income in India before it came to equities and fixed income — is that serendipitous or strategic?

It is strategic. I think it's about portfolio diversification. Ultimately, from an investor's lens, you're starting to see some of those historical assumptions people might have had like equity-bond correlations break down.

You can't just say, "I have an asset allocation that's a fixed equity and a fixed debt portion, and that's going to cover me." Now, don't get me wrong, that covers a lot of people. For people who aren't even invested yet, that kind of basic asset allocation is great. But for more nuanced investors, as they accumulate more wealth and start looking for differentiated, whole-portfolio outcomes — where they want a certain level of returns when the market's going up, but also a certain level when it's going down or sideways — you need to get a bit more nuanced. That's where diversification helps.

Bringing in assets like real estate and infrastructure, which are lowly correlated with public equities, helps because it gives you a return stream with low correlation. Ultimately, your risk goes down. When you look at the level of risk an individual needs to take to attain a certain level of returns because that's ultimately what it's all about, the risk-return trade-off — being able to add these low-correlated or uncorrelated assets is a huge cheat code. The easier we can make it for people to use these cheat codes, the better it will be for their investment outcomes.

Right. BlackRock is a giant, and in a manner of speaking you've entered India alone in all its other investments. But in this case, you have a joint venture partner who's also a giant, though of a different type. So why the need for a partner?

That's a great question. In a market like India, which is very, very retail-driven and where we see the biggest potential for growth is from retail investors having a partner that really understands retail is super important.

From a BlackRock perspective, BlackRock understands investments, including investments in India, because a large part of BlackRock's global assets are also invested directly in Indian markets. But understanding the Indian retail investor is a huge benefit that comes from having a local joint venture partner.

And in the direction the financial ecosystem here is taking, moving more digital, with more and more people getting comfortable managing their finances on their phones, that trend is growing much, much faster in India than in a lot of developed markets around the world. So those two things are key features we look for in a joint venture partner, and with Jio we have exactly that: a deep understanding of Indian consumers given their presence, and the same strength in the digital ecosystem, given their massive presence as a telco. So it's a very complementary skill set that each joint venture partner brings to the table, and that's what we're looking to unlock through the company.

I'll come to the schemes in a moment, but what's been the strategy so far? When you start as a very big brand, is there a more generic strategy for entering a market as a late entrant? Do you build up with small interventions and then scale up, or do you go in with a big bang? Clearly you've gone the small-interventions-and-up route from what I can see, but tell us about that from your vantage point.

You're right, it's relative, we see it as small "micro-disruptions," is what we call it. But we've already had a big impact in a year, so we're very happy with the progress we've made.

Rewinding back to the beginning: when we looked at the ecosystem here, we knew there was huge potential, but it's also a pretty crowded market. If you look at the overall industry, it's now 800-odd billion dollars, with over 50 AMCs already present in the asset management space. The offerings are pretty robust too, there are funds here doing well on total and active return; people are performing.

So for us, when we came to market, we wanted to make sure we offered something differentiated. I think that's where having the BlackRock infrastructure behind us helps, because you can look at BlackRock's global expertise and what's already available and ask, "What works, and what works in India?" There are strategies that have a track record in other markets that simply don't exist locally. One of the big unlocks for us was what we call the systematic platform, systematic active equity, which is also applied in fixed income globally. That's truly unique, and it's been running at BlackRock for almost 40 years, even before the BlackRock days, back to the BGI (Barclays Global Investors) days.

It has a track record of successfully leveraging data, in the early days, some basic machine learning, and now more advanced AI, to take a different approach to generating active returns. If you think about a traditional fund manager, you have a fund manager and a team of analysts deeply analyzing a single stock, maybe 10, 20, 30 stocks, and coming up with high-conviction views. That is exactly not what this strategy does. This strategy collates data on a lot of stocks, for example, we might have 400-plus data points on a thousand different Indian stocks. We collect all of that, clean it, refine it, and then run mathematical models plus some AI models to figure out what combination of these insights actually delivers outperformance versus benchmarks. That can then be used in a fund to generate alpha but in a very different way from existing funds.

Again, that's the low-correlation cheat code. You could arrive at the same kind of outcome, a 3 to 4 percent alpha above a benchmark, which is what the best funds return in the long term, but with a very different returns profile from what already exists. So for investors who already have exposure to fundamental active equity strategies, this can serve as a diversifier, an add-on to their portfolio, and we believe it makes a lot of sense.

That's what we brought first, and we've already launched a few mutual funds based on that platform. We also brought Aladdin, the technology platform BlackRock uses to manage all its portfolios over $14 trillion at BlackRock alone. BlackRock also licenses it to other asset managers, so over $30 trillion in total is managed on Aladdin. We brought that to India as well. As a manufacturer, we're able to leverage that technology to innovate and scale at the same time, and we're looking to pass some of that on to our end customers — whether through cost, since manufacturing more efficiently lets us deliver more cost-efficiently, or through more transparent reporting. Our institutional clients are always looking for more advanced reporting, and retail investors will start getting that too.

These were the main value propositions, and it's worked out well so far, we now have 14 funds launched in year one, and this past weekend we crossed 20,000 crores in assets. We're very happy about that.

Across 13 or 14?

14 mutual funds, 20,000 crores of AUM, both institutional and retail. Over 5,000 crores of that is pure retail participation, and the rest is institutional. Within retail, on the "micro-disruptions" point, how we've approached retail so far in our build phase has been to go digital and direct.

That's another innovation we put in place as we scaled up, again leveraging the Jio ecosystem. We saw this big trend toward digital in finance and investments, so we leaned into that at the start, saying, "Let's build our portfolio of products first before we expand to more traditional distribution approaches." That's worked really well.

Of those roughly 5,000 crores from retail investors who came directly to us, there are over 11.5 lakh investors, and over 20 percent of them are first-time mutual fund investors, the first mutual fund they ever bought was a Jio BlackRock fund, digitally, direct. So, going back to the point about wanting to grow the market, these are encouraging signs that we're able to achieve that.

Now we're moving into phase two, launching more complex, more nuanced products. We believe now is the right time to expand our distribution as well, going into physical distribution to complement our digital presence. It's going to be an "and," not an "or." It never was purely digital.

So we'll continue on the strong digital front while bringing in the physical channel to do what we came here to do — provide access to more and more people. Our first fund on that front is the one we're launching right now — it's an SIF, which we can get into later if you'd like. It's more complex, with heavy use of derivatives, and the minimum ticket size, as you know, is 10 lakhs. So we're engaging with distribution partners on that.

That level of physical touch is important to be able to talk to the end investor about the product. It's a smaller universe than traditional mutual fund distribution, it requires a different exam that people need to clear, but we've had a very positive response from the distributors who have come on board. We're in the middle of the NFO right now, but the signs are encouraging, and we're pretty convinced we'll expand this to the rest of our funds after this as well. It's a very good channel.

Market-entry timing is not something you can ever get right, so let's park that aside for a moment. In general, has BlackRock entered the equities part of the market in this form elsewhere in the world, whether recently or in past years?

Do you mean as a local joint venture, or independently? Not in this form right now, there's a joint venture in China that actually started before Jio BlackRock, so those are the two. I'm sure there's probably something else BlackRock is looking at I'm not technically a BlackRock employee anymore, so I'm not in the know, but these are the two joint ventures BlackRock has outside its own, fully owned operations.

Right. So entering a market at this point like I said, you can never time it perfectly, and you're here for the long term — how are you looking at this strategically, or differently, compared to any other point in the past? If you'd come three or four years ago, things were clearly on the upswing; now they're not, and haven't been for maybe two years. So how do you view this phase or period?

I see this from a very long-term view. From an India perspective specifically, as I said at the start, we're very bullish on the overall growth prospects for the economy. We know participation is low, and we know it's going to increase. Ultimately, this is all going to be great in terms of growing the industry to two or three times its current size over the next five years or so we're highly convicted on that.

Now, what happens in the interim, to your point, can't ever be timed perfectly. Yes, it's been a challenging 18 months fairly flat since we joined but that hasn't stopped us. We're still seeing very good participation, with over 20,000 crores of assets collected in a year. That gives us encouragement that we've gone through this challenging period and still managed to post very good numbers. If anything, it's given us even more confidence. This is not a quick get-in-and-collect-assets kind of game you have to build, and you have to earn trust. Yes, we have two very well-recognized brands, but you still have to build trust through the products you launch and the performance you generate. That takes time. So while we're very happy that we've managed to scale up quickly in the first year, we're not taking that for granted.

And the schemes or funds you've launched, which make up this 20,000 crores, did you follow a sequence you'd already decided on and largely stuck to, or have you course-corrected along the way?

We definitely course-corrected, and that's one of the advantages of being a startup you can be nimble about when and how you launch. What we didn't really change was the phase-one plan. We knew we wanted a set of funds targeted at institutional clients, because that's a strong point for both BlackRock and Jio. And in the retail space, we knew we wanted to offer a mix of both index and active funds, because that's where the market is predominantly active, but with index growing. We wanted to be everywhere. That was set as the year-one target, and we stuck to it.

From an institutional standpoint, we wanted to launch there first, and that's what we did we closed our first NFO just over a year ago, on the 4th or 5th of July. So it's been literally a year since we closed the first NFO, and that was the first part of the plan.

Then we did a lot of test-and-learn. We said, "Let's launch some index funds next and see how the response is," because in this direct-digital space, you need to learn what marketing works. A lot of our marketing is primarily educational, telling people about the funds. We learned from the first one that we were leaning too much on English, and given our investor base, we needed to do more in regional languages. So when we did our Flexicap NFO, which was by far our largest one, we had a lot of local, regional education and communications as well. We were flexible with our strategy, knowing this is a new market for us, you try new things, do more of what works, and drop what doesn't. From that perspective, we've been fairly nimble.

And even with this launch, remember we're still in build mode, yes, we've grown, but there's still so much of our capability that we want to bring to the table. That's a function of many things: there are regulations, so you need approvals; there are capabilities you need to build; there's technology that needs to be built around it, because everything we do needs a digital interface, so the app needs upgrading to support any new product rollout.

So we can't think too linearly, like "I've done this fund, and this is my next fund." At any point in time, and this drives people mad on the floor, we probably have three or four things going at once. We don't really work in traditional AMC-style hierarchical org structures; we have pod structures that are all cross-functional.

And that's a BlackRock way of working?

It's a BlackRock way of working, and I think a lot of fintechs here are doing it too, so it's not something completely new. A lot of it has been adapted from how BlackRock works, you work toward an end objective, whether it's a customer objective or a firm objective, and you bring in people from investments, risk, ops, technology and legal and compliance all together in one team to build a squad that delivers. At any given point, there are three or four of these cross-functional squads working, which allows us to be nimble this one's ready to go, that one has a regulatory delay, so we'll shuffle the order a little. That's one of the most important capabilities we need, because there's a lot that's in our control, and a lot more that isn't. We just need to be adaptable.

And you're looking at GIFT City and outbound investments too is that one of the things you plugged in or retrofitted into your strategy, or was it part of it from the start?

Always part of the strategy, because our objective, as I said, is to provide the full spectrum of investment offerings to the people of India, and international exposure is one of those. It was always part of the plan, we may have accelerated it a bit, given that we've had a good start and we're seeing more interest in that space right now, but it was always in the business plan to have that offering. And it's not just an outbound story, we're looking at inbound as well, because given BlackRock's position, we're seeing a lot of inbound interest too. We're in the process of setting that up, we've got the entity registered, and we're evaluating the funds before we file.

And in that context, are you at an advantage because you can draw on more BlackRock research resources for outbound investing, or are you in the same position as a local AMC?

It's a huge advantage. From a manufacturing perspective, we're actually spoiled for choice, the real challenge for us is picking the right fund, or the right combination of funds, at BlackRock, because the full spectrum is available across multiple jurisdictions. We can choose, for instance, between UCITS and FPI structures depending on what's better suited. That's one of our advantages.

We spend a lot of time understanding the needs of the customer base here and figuring out what unique fund or combination of funds we could bring to address them. I'd prefer — and I've been asked this before — that our offerings are seen in a whole-portfolio context. It's not necessarily about a returns-chasing mindset; we're trying to discourage that. I've heard this a lot, especially after 18 to 20 months of flat markets here while Korea and Taiwan have been rallying — that FOMO is real, but that's not what this is about. International investments should be thought of as a really good diversifier for your portfolio. Being able to bring those diversifying exposures is what we're focused on.

But markets like Korea also swing just as violently in the other direction, sometimes in a single day.

Exactly, you can get the timing absolutely wrong. That's why we're thinking more holistically about what broader exposures we can bring first. As we build, some of these niche, more nuanced exposures will become available too, because people do want to get more specific with their asset allocation. But I think the starting point needs to be broader.

I'll come to the PRISM fund shortly, but do you see the world beyond AI stocks coming into view? Or is it still too early to say when people will lose interest in, or reduce their exposure to, AI stocks?

This is just my view, but I still believe we're in the early stages of the AI story, and I don't think it's a tide that will lift or sink all boats equally. I'm quite certain there will be winners and losers, so security selection, understanding who's adapting best to the new business models, is going to matter. That hasn't fully played out yet. Right now it seems more like, "It's going great in the US and in the hyperscalers," and then, "Now hyperscalers are at risk, let's sell off." That's not how it will actually play out. Security selection will become more relevant over the next year or two, and the same applies in India, not all IT firms will struggle. There are already signs that some are revamping their business models and preparing for the next phase, so there will be winners here too.

Got it. Tell us about the PRISM SIF scheme and how it's different from the other 14 schemes you've launched so far.

It's very different, mainly in how it addresses client needs. A lot of how we think about product design is: we can put together all kinds of interesting products and be intellectually stimulated and excited about them, but if there's no client need, it's not worth it.

Talking more generally about the SIF category before getting to our specific fund, I think it's a bit of a masterstroke from the regulator to have created this category at this particular time. If you think about the journey of the Indian investor, there are at least two very different segments in terms of experience and time spent in the market. One segment isn't in the markets at all, and that's the piece we talked about earlier access. Getting them access, making it easier to get started, even something as simple as an SIP. That's been the biggest industry focus for the last five, six, seven years, it's all been about access.

Then there's the segment that's been in the markets for a while and has grown significantly. For them, it's not necessarily about access, it's about outcomes. They've accumulated a lot of wealth, primarily through equities, let's be honest, and the question becomes: how do I build a portfolio that performs more like an all-weather portfolio? Because now they have significant exposure, and they need portfolios that perform in up markets, down markets, and sideways markets. Some of that can be achieved through traditional hybrid mutual funds, an allocation to equity and fixed income, but as I mentioned, those correlations are also breaking down. So the ability of a hybrid fund within an SIF to fine-tune its exposures, use derivatives, and construct return outcomes that work across up, down and sideways markets is a big unlock. For investors who've been in the markets a while, that becomes a really interesting allocation option.

We recognized that, which is why although it might seem early for an asset manager only a year in to be launching an SIF, we had high conviction. We already had the capabilities: from BlackRock's systematic investing platform, and teams with experience in derivatives were already in place from an investments perspective. We had the raw materials, and we saw the client need, so we put this strategy together, looking at how we could differentiate from other hybrid strategies.

The biggest endorsement, in my mind, has been the flows. Over 14,000 crores have gone into SIFs in total over the last nine months since they launched, and almost 10,000 crores of that is in hybrid funds. That's where the value proposition lies — and the fact that this has been built inside a mutual fund wrapper means investors get the regulatory oversight and governance structures they're comfortable with, as well as the tax advantage, especially for hybrid funds.

So this is as opposed to portfolio management schemes?

Exactly. The difference is there's a tax benefit for certain structures if held above one year, and the entry point is a lot lower — PMS is 50 lakhs, this is 10 lakhs. So the combination of the client need and the structure of the wrapper it's offered in is genuinely additive, and that's why we have very strong conviction in this category. We're excited about it.

On an average day, what would the derivative exposure of this fund be?

The maximum allowed is 25 percent, so that's how it's monitored. It's not a full hedge-fund-style solution, but you can do a lot with 25 percent. To give you an example, in this strategy we use what are called "collars," which give you participation in the equity markets without significant equity beta, you're able to protect both the downside and the upside.

Our objective here is to deliver returns that feel like "arbitrage plus plus," as we call it internally, in the range of 9 to 11 percent total return, with much, much lower risk than equity. The risk range is 2 to 3 percent, which is very low. That's the unique feature: by using derivatives, we're able to hedge out that potential drawdown risk, which really brings down the overall risk profile.

And do you have similar schemes running in other parts of the world?

Yes. While not exactly the same, this category is comparable to what's known as "liquid alts" in the US — a very large category — and the timing is similar too. Liquid alts kicked off around the early 2000s in the US, and when they first launched in a mutual fund wrapper, there was similar pushback: "Why do retail investors need derivatives? Derivatives are risky, you don't know what you're getting into." But derivatives here are used for risk management, that's the real reason. These strategies are actually lower risk than long-only portfolios, and once people understood that, the industry took off. It's now well over $300 billion just in the liquid alts space, and BlackRock has a lot of offerings there globally, particularly in Europe. We've brought some of that thinking here, especially around risk management.

When you look at these kinds of strategies, particularly in India right now, it's less about picking the best winners and more about avoiding the losers and the drawdowns. Derivatives help protect against that, which is a huge benefit. So the risk models and risk-management expertise we're bringing from BlackRock are the differentiated value proposition here, we're really trying to reduce equity beta risk while still generating high-single-digit to low-double-digit returns.

Last question, or a couple of questions. You worked at BlackRock for almost two decades outside India, including in the UK. What have you found different here?

This is going to sound like I'm supposed to say it, but I mean it, it's way more exciting here, to be perfectly honest. The market is in such an interesting place because there's growth, growth potential, and innovation still coming. Regulations are changing, so you always need to stay on top of things. You don't get that kind of dynamism in well-established, mature markets.

You asked about our plans and being nimble, I didn't mention this, but it's quite relevant: when we first put the business plan together, SIFs didn't even exist, so they weren't even part of the plan. Then the regulations came out, the circular was published, we read about it, and thought, "Wow, okay, that's something we can do. Let's look into that."

And GIFT City would be somewhat similar?

GIFT City is similar. We're also very excited about the upcoming lifecycle funds, I think that's a very strong offering. If you think about retirement and pensions overall, the US has come a long way, and I think this could be a major unlock for India as well, if these funds really take off. There's a lot changing in these markets, which I find very exciting, so I'm really energized to be here. Yes, the overall economy has been a bit flat, but there's still growth, and even the energy on the streets here is much higher than in the UK, where I came from, it's very low-energy there right now. I've been here for over two years now, and I'm really enjoying the experience.

That's a wonderful note to end on, Sid. Thank you so much for joining me.

Thank you for having me.