The Long View — Mike Pyle: Looking for Uncorrelated Sources of Return

Date: October 14, 2025
Hosts: Dan Lefkovitz (with contributions from Christine Benz, Amy C. Arnott)
Guest: Mike Pyle, Managing Director & Deputy Head of Portfolio Management, BlackRock

Episode Overview

This episode explores investing amid heightened policy and macroeconomic uncertainty. Mike Pyle draws on his unique experience across both government policymaking (Obama and Biden administrations) and portfolio management at BlackRock to discuss how investors can adapt to evolving market regimes, the rise of AI as a megatrend, the shifting role of traditional bonds, the value of alternative strategies, and the critical importance of finding uncorrelated sources of return.

Key Discussion Points & Insights

1. Policy Landscape in 2025 and Investment Implications

• Uncertainty as the Defining Theme:
  • Policy uncertainty has been prominent with significant shifts, especially around tariffs and industrial policy.

    “One of the big buzzwords of 2025 has been uncertainty, particularly as applied to the policy environment... we're now six or seven months into the new administration... we're in a place where we can know... more confident and fully knowledgeable things about where we are and likely where we're going.”
    – Mike Pyle, [01:47]

• Tariffs Have Dramatically Increased:
  • Effective US tariffs have jumped from 2.5% to 17.5%—the highest in a century. This is expected to slow growth and raise price levels gradually.

    “The president inherited about 2.5% average effective tariff rates... today we're sitting on about 17.5%. That's, you know, a sevenfold increase...”
    – Mike Pyle, [02:20]

• Resilience of the US Economy:
  • Despite these shocks, the US remains “the most dynamic, the most innovative, the most resilient economy in the world,” helping to explain continued positive growth and equity performance.

    “...while we've had these negative growth and inflation shocks, we've still seen positive growth, we've still seen positive equity market performance because the United States still has these incredibly important reserves of strength...”
    – Mike Pyle, [04:55]

2. Overlapping Policy Priorities Across Administrations

• Industrial Policy & AI as Bipartisan Priorities:
  • Both the Biden and Trump administrations share goals around domestic manufacturing and leadership in artificial intelligence, even if their policy tools differ.

    “There's an important set of shared objectives... around rebuilding our industrial base, around ensuring that the United States continues to define the frontier of leadership on AI.”
    – Mike Pyle, [06:47]

3. Market Reactions to Geopolitical and Macro Risks

• US Equity Markets: AI Megatrend Dominance
  • Volatility in March/April, but markets rebounded, driven mainly by AI, with investors seeking exposure to US firms at the forefront.

    “It’s at core about... the importance of the AI transformation... investors around the globe... want exposure to that theme...”
    – Mike Pyle, [08:23]

• Divergence in Currency Markets:
  • The US dollar behaved atypically, weakening even as equities rebounded, driven by concerns about US inflation and fiscal health.

    “The dollar sold off alongside US equities in March and early April. Pretty unusual behavior...”
    – Mike Pyle, [09:07]

4. Rethinking Macro Investing

• Traditional Macro Frameworks are Less Reliable:
  • There’s far more instability in economic, political, and security foundations compared with previous decades, making macro bets riskier.

    “The traditional macro framework... is much different, much more uncertain, much less anchored than it was in past years.”
    – Mike Pyle, [11:42]

• AI as a New Market Driver:
  • Mega forces like AI now drive markets more than traditional macro variables like growth and inflation.

5. AI’s Economic Impact

• Significant Corporate CapEx on AI:
  • AI-related investments are historically high and showing up in GDP statistics.

    “If you roll the clock back even four or six weeks ago, it looked as if really more than half of growth in the first half of the year was attributable to that AI capex impulse.”
    – Mike Pyle, [13:48]

• Balanced US Growth Picture:
  • While AI is a major contributor, consumer strength has improved, leading to a more resilient and balanced macro picture.

6. Heightened Dispersion and Opportunities for Alpha

• More Performance Dispersion:
  • Greater performance spread between companies and assets, compared to the 2010s, which compresses volatility via policy.

    “Take a given asset class like the US Equity index—the gap between what the highest performing companies... is greater... than... just a handful of years ago.”
    – Mike Pyle, [15:56]

• Alpha Opportunities in Both Directions:
  • A richer environment for stock-picking (both longs and shorts).

7. Fundamental vs. Systematic Investing, and Their Synergy

• Fundamental Investing:
  • Involves deep research and conviction, usually over fewer names, aiming for differentiated insights.
• Systematic Investing:
  • Focuses on breadth—using diversified, repeatable signals over many securities, creating resilience via portfolio construction.

    “On the systematic side... what you want to identify is a diversified set of insights that tend to work on average across a really high number of names.”
    – Mike Pyle, [18:19]

• Integration:
  • BlackRock aims to blend the deep insights of fundamental research with the risk controls and construction strength of systematic approaches.

8. AI’s Role at BlackRock

• Across Both Approaches:
  • Fundamental teams use AI to identify outperformers; systematic teams have leveraged machine learning and AI-style techniques for years.

    “If I think back to when I was first at Blackrock from 2014... techniques... that now would be called AI, really put to work on new different data sets... these were the tools of their trade five, six, seven, eight, nine years ago...”
    – Mike Pyle, [22:17]

• Firmwide:
  • AI also drives operational improvements in trading, client engagement, and more.

9. Portfolio Construction in the New Regime

• Bond Returns Forecast:
  • Long-dated government bonds are less likely to offer historic levels of diversification and income going forward.

    “The next period of years is not likely to be one where long dated government bonds are the reliable source of diversification and income that they have been...”
    – Mike Pyle, [25:08]

• Seeking Alternatives:
  • Greater emphasis on high yield, securitized assets, emerging market debt for income; hedge funds and market-neutral strategies for diversification.

10. More Room for Hedge Funds & Alternatives

• Why Now for Alternatives:
  • Macro uncertainty calls for “market neutral, factor neutral” strategies with uncorrelated sources of return (e.g., long-short, diversified alpha).

    “...trialling down macro risk, dialing down factor risk, getting to a truly market neutral, factor neutral setting... health outcomes that are uncorrelated to broader macro and market factors.”
    – Mike Pyle, [27:15]

• Flexibility:
  • Hedge funds offer a broad toolkit (long, short, multi-asset) fit for uncertain regimes.

11. Market-Neutral / Global / International Equity

• Market-Neutral: Focus on Alpha, Not Beta:
  • Example: BlackRock’s global equity market neutral strategy aims for diversified alpha uncorrelated to market direction.
• Global Diversification for Alpha:
  • The US has outperformed, but market-neutral strategies benefit from the much wider stock universe globally, without needing to take pure market (beta) bets.

12. Allocations: US vs. International, Currency, and Alternatives

• US Still Core for AI Exposure:
  • The US is unique in offering exposure to the AI transformation theme.

    “...continuing to be exposed to the US Equity market because the US equity market is providing the exposure to this underlying theme of AI transformation...”
    – Mike Pyle, [32:34]

• Diversification Still Matters:
  • Investors should think thematically and across geographies, not just regionally.
• Currency Hedging:
  • Non-US investors who left positions unhedged have been punished by the dollar’s decline—balanced hedging is increasingly important.

    “A number of investors globally allowed their hedge ratios to move considerably lower over the past couple of years as the US has outperformed... this year that's been a difficult spot to be...”
    – Mike Pyle, [34:20]

13. Private Markets and the Evolving Portfolio

• Growing Role:
  • Larry Fink and BlackRock suggest a “50-30-20” split: 50% public equities, 30% bonds, 20% alternatives (private credit, infra, real estate).

    “Private assets do have an important role to play... maybe it's 50% public equities, maybe it's 30% bonds, maybe it's 20% alternatives, most particularly private market assets...”
    – Mike Pyle, [36:37]

• Why?
  • Matching long-term liabilities, diversification, potential for higher income.

14. Gold and Uncorrelated Return-Seeking

• Gold’s Popularity:
  • Viewed as a sign of investor desire for uncorrelated, diversifying assets, though private assets and alternatives may be more useful to most portfolios.

15. Client Conversations & the Feedback Loop

• What’s Top of Mind for Institutions Globally:
  • Macro uncertainty, diversification, asset allocation, mega forces/megatrends, alternatives to traditional bonds.
• Client Collaboration:

  “You always learn how to think harder about the problems that clients face and the portfolios they're looking to build when you're actually listening to them, listening to their needs, listening to what's front of mind.”
  – Mike Pyle, [41:23]

• Product Innovation:
  • Constant feedback from clients shapes BlackRock’s portfolio management and product development.

Notable Quotes & Memorable Moments

• On Policy Uncertainty:

  “The United States is still by some margin the most dynamic, the most innovative, the most resilient economy in the world... while we've had these negative growth and inflation shocks, we've still seen positive growth, we've still seen positive equity market performance...”
  – Mike Pyle, [04:50]

• On Macro Investing:

  “The traditional macro framework... is much different, much more uncertain, much less anchored than it was in past years.”
  – Mike Pyle, [11:42]

• On AI’s Transformative Power:

  “We are in the midst of a multi year period of strong productivity before AI really is taking hold and empowering a next phase of productivity.”
  – Mike Pyle, [14:38]

• On the Rise of Alternatives:

  “You can't ignore the macro, and you've got to go about managing the macro in order to generate alpha... hedge fund strategies in particular can do that.”
  – Mike Pyle, [27:03]

• On Portfolio Construction:

  “Building balance around [the amount of US and AI exposure] is going to be the right way of thinking about building a portfolio that can generate return but also resilience.”
  – Mike Pyle, [33:14]

• On Client Feedback:

  “You always learn how to think harder about the problems that clients face and the portfolios they're looking to build when you're actually listening to them...”
  – Mike Pyle, [41:23]

Key Timestamps

• [01:47] Policy uncertainty and the rise of tariffs
• [05:29] Policy continuity: industrial strategy & AI focus
• [08:03] Market reactions to policy/geopolitical risk
• [10:53] Shifting macro landscape and investment implications
• [13:17] AI’s impact on productivity and capex
• [15:45] Heightened return dispersion and alpha opportunities
• [17:59] Comparing fundamental and systematic investment strategies
• [21:31] AI across investment approaches at BlackRock
• [24:57] Rethinking bonds and the diversification challenge
• [26:49] The case for hedge funds and uncorrelated return
• [29:22] Global, market-neutral strategies and international alpha
• [32:21] Balancing US and international allocations
• [34:18] Currency exposure and hedging decisions
• [36:05] Role of private market assets in modern portfolios
• [38:07] Gold and alternative sources of diversification
• [40:06] Client concerns and learning from client interactions

Takeaways

• Don’t Rely Solely on Traditional Macro Signals or Assets: The anchor points of the past (like stable macro policy, the stock-bond correlation, reliable government bonds) are less certain now.
• Seek Uncorrelated Returns: In a more unstable world, market-neutral and alternative strategies (hedge funds, private markets) offer valuable diversification.
• AI Is Both a Megatrend and a Market Driver: US equities remain important for AI exposure, but there are global opportunities for alpha.
• Global Diversification Should Be Multi-Faceted: Not just geographical, but also thematic; don’t overlook currency risk.
• Stay Adaptive and Listen to Clients: The best strategies are forged in dialogue, with a willingness to evolve products and portfolios to meet modern challenges.

For more details or to hear the full interview, listen to the episode on The Long View by Morningstar.