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.
(Dawn Lim at dawn.lim[at]wsj.com)