BlackRock vows to follow Fed’s lead

World’s largest asset manager signals it will forgo its investment strategy in the short term before a “return to a more normal equilibrium”

BlackRock vows to follow Feds lead                                 

BlackRock has signalled its intention to forgo its investing strategy in the near future and instead to buy what leading central banks are buying.

The company is the largest asset manager in the world, with $7 trillion (£5.61tr, €6.44tr) in assets under management.

In a blog titled Wall Street’s believe it or not, BlackRock’s Russell Brownback and Rick Rieder outlined their approach for the coming weeks.

“Initially, we plan on keeping a significant cash cushion given uncertainty as to the length and depth of the economic downturn," they wrote. "At the same time, we will follow the Fed and other DM central banks by purchasing what they’re purchasing, and assets that rhyme with those.”

The admission that the largest money manager in the world will essentially walk in lockstep with leading central banks may cause alarm. The two senior executives, however, also described their move “into investment-grade credit and buying other high-quality assets that are not included in Fed purchase programs”.

The Federal Reserve has intervened significantly to counteract or reduce the damage inflicted on the US economy by the Covid-19 pandemic. It cut rates to zero, resumed unlimited quantitative easing, backstopped money market mutual funds, replaced regulatory requirements to encourage lending and undertook trillions of dollars worth of repo operations.

Commentators have argued that this increasing enmeshment has the potential to increase moral hazard in the US financial system.

Brownback and Rieder’s latest comments will also raise concerns around conflict of interest. BlackRock itself was chosen by the Fed at the end of March to manage the central bank’s near-nationalisation of the bond market.

Rieder observed: “While the magnitude of this unfolding crisis is truly historic, eventually things will return to a more normal equilibrium, and as is often the case, the markets will lead the way back to normalcy, believe it or not!

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