BlackRock, the world’s largest asset manager, will oversee the Fed’s efforts to stabilize the bond market. The central bank was tapped during the 2008 crisis, but was slow to disclose the specific terms of its agreement with BlackRock during the last crisis, and even today the full details of what the firm earned have not been disclosed in that deal. The details of the current deal are unknown.
The Fed will purchase billions of dollars in commercial mortgage-backed securities and investment-grade corporate bonds, just like in the 2008 financial crisis, as reported by NYT. The operation promises to be a lucrative venture for the firm, which will probably profit from the arrangement, for BlackRock Fed can buy exchange-traded funds that hold stakes in investment-grade bonds, a type of investment that BlackRock sells. The Fed could even buy some of the E.T.F.s that BlackRock sells.
“The firm’s flagship corporate bond fund, LQD, is a likely beneficiary of the Fed’s planned efforts to stabilize the bond market,” Todd Rosenbluth, head of E.T.F. and mutual fund research for CFRA, a research firm. “BlackRock needs to provide transparency in its due diligence process to alleviate concerns that it is choosing to invest in LQD because they are the asset manager running the Fed’s program.”
After Bear Stearns and American International Group collapsed, BlackRock advised the New York Federal Reserve on billions of dollars in weak assets that had belonged to them. In 2008, the firm helped price and sell those assets for the government, while helping private clients buy similar assets.
BlackRock’s dominant position in Wall Street via the stock and bond markets has grown since 2008. The firm now manages nearly $7 trillion––up from $1.3 trillion at the time of the last crisis–– in assets for big private clients, including pension funds, hedge funds and sovereign wealth funds.
Blackrock’s advisory division has done work for the British Treasury, the Swiss National Bank, the European Central Bank and the government of Greece.
“BlackRock Financial Markets Advisory is honored to have been selected to assist the Federal Reserve Bank of New York during this extraordinary time,” the New York firm stated.“[It] will not engage in discussions with market participants and issuers” without more specific details.
The New York Fed claims it selected BlackRock on a “short-term basis” for its expertise in commercial mortgage-backed securities, which are backed by government-sponsored mortgage finance firms — Fannie Mae, Freddie Mac and Ginnie Mae. Laurence D. Fink, its chief executive, pioneered trading of mortgage-backed securities on Wall Street.