Federal Reserve Taps BlackRock to Purchase Bonds for the Government
March 24 2020 - 6:07PM
Dow Jones News
By Dawn Lim
The Federal Reserve on Tuesday asked BlackRock Inc. to steer
tens of billions of dollars in bond purchases, a reflection of the
influence of the world's largest money manager.
BlackRock will purchase agency commercial mortgage-backed
securities secured by multifamily-home mortgages on behalf of the
New York Federal Reserve. The Fed will determine which securities
guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are suitable
for purchase. BlackRock will execute the trades.
BlackRock also will manage two large bond-buying programs. It
will be in charge of a Fed-backed facility to buy new
investment-grade bonds from U.S. companies.
The firm also will oversee another vehicle for buying
already-issued investment-grade bonds. Bond purchases will be the
focus of that effort. But the firm has latitude to buy U.S.
investment grade bond ETFs -- including exchange-traded funds of
its own. BlackRock is the largest provider of bond ETFs.
The mandate is expected to be significant. The Treasury
Department is expected to inject $10 billion in initial equity
funding in connection with each of the two facilities, according to
a previous Fed statement.
The tasks place BlackRock in a potentially controversial
position of implementing the administration's response to the
spreading coronavirus pandemic. The firm's roughly $7-trillion
reach extends into everything from equities to bonds to private
equity. The firm will face significant scrutiny on how it prevents
conflicts of interests.
BlackRock will be working with the Fed through its financial
markets advisory business, and not its asset-management arm. That
financial markets unit advises governments on how to manage their
balance sheets, assisting them in the purchase of investments and
the unwinding of toxic instruments.
For the program that involves ETF purchases, BlackRock can't
invest in more than 20% in any one ETF.
Exchange-traded funds that mirror broad swaths of the market can
sometimes be a more politically palatable way of pumping money into
the fixed-income market than investing in individual securities. It
doesn't require a manager to actively pick winners and losers, but
simply track an index.
BlackRock will use Aladdin, a software system that assesses
risks and prices investments, to monitor the assets. Aladdin
watches over more than $20 trillion in assets.
BlackRock Chief Executive Laurence Fink is no stranger to
turning his Rolodex and Aladdin into a powerful role for his firm
in times of crisis. In the last financial crisis, the U.S.
government tapped BlackRock to oversee assets once owned by Bear
Stearns Cos. and American International Group Inc. after the two
financial institutions collapsed.
That mandate put scrutiny on the firm, generated billions of
dollars to the U.S. government and became a milestone that sealed
BlackRock's influence in Washington.
Mr. Fink, in a recent market briefing to some clients, said the
firm was working with regulators to ensure the smooth functioning
of markets. He has told clients the current situation doesn't rise
to the magnitude of a financial crisis, but it does mark a crisis
of confidence that can be addressed with the help of prudent fiscal
policy.
--Vipal Monga contributed to this article.
(END) Dow Jones Newswires
March 24, 2020 17:52 ET (21:52 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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