BlackRock Chairman and CEO Larry Fink is warning investors about using passive money management strategies, such as exchange-traded funds, to try to achieve more aggressive returns usually associated with active management.
"What people are missing [is] many investors across the board are using passive for active," Fink told CNBC's "Squawk Box" on Tuesday.
As the leader of the world's largest asset manager, with more than $5 trillion in client money, Fink said he's a believer in active management, a strategy under pressure because of recent poor returns that have been exacerbated by fees.
"I do not believe active is dead," he said.
"We're a believer in active, ... and we're continuing to invest in our active portfolios," he said. "[But] you're looking a migration from active to passive."
Fink spoke after BlackRock reported third-quarter earnings that beat expectations but missed on revenue.
In the earnings statement, he said: "Our $55 billion of long-term net inflows were positive across both active and index [passive] strategies, and positive across every asset class and region."
Fink told CNBC his clients are having a tough time navigating the low interest rate environment. "U.S. equities outflows were $240 billion in the first nine months [of 2016]. You're seeing huge outflows in equities. Inflows in cash. Inflows in fixed-income."
Against that backdrop, pension funds are going to be lowering long-term expectations for return targets, Fink said.
By January, they could lower their return goals "from probably a 7.5 percent to 7, maybe even a 6 handle," he said. That has a "material impact on the ability to meet their liability targets," he added.
"Insurance companies are having a harder time attaining the necessary returns to meet their insurance premium targets," Fink said. "So our clients are looking for solutions."
But aggressive central bank stimulus is causing many asset classes to correlate, which puts investors who normally thrive on looking for diamonds in the rough at a disadvantage, Fink said.
Fink also blamed passive investing for the lack of divergence. With so many investors buying instruments tied to indexes, it makes buying individual stocks not in the indexes tougher, he said.
In mid-July, the billionaire leader of the world's largest asset manager had told CNBC he thought the U.S. stock market should not be trading at record highs, because the data on fund flows don't support the moves.
At the time, he said the rally was being supported by institutional investors covering shorts, or bets that stocks would fall, not by individual investors feeling bullish.
Since Fink's summer interview, the S&P 500 has trended lower, and as of Monday's close stood 3 percent away from record highs.
BlackRock, the world's largest asset manager, is looking after more than $5 trillion in client money.
Three other closely followed billionaire investors all expressed caution in interviews Monday on CNBC's "Fast Money Halftime Report."
David Tepper, founder of Appaloosa Management, said he's "pretty cautious" on the stock market.
Carl Icahn, chairman of Icahn Enterprises, said he's "more and more" concerned about stocks.
Jeffrey Gundlach, chief executive of DoubleLine Capital, advised investors to be defensive.