The Federal Reserve on Tuesday called on a division of BlackRock, the world’s largest asset manager, to manage billions of dollars worth of bond and mortgage-backed securities purchases while the central bank is working to cushion the economic and financial fallout from the coronavirus pandemic.
BlackRock’s financial market advisory unit, the company’s advisory arm, will act as an investment manager for three new facilities: two Fed-backed vehicles that will buy corporate bonds and a program that will buy securities backed by mortgages issued by US government agencies.
The New York branch of the Fed highlighted the company’s expertise and “solid operational and technological capabilities” on its website. A spokesperson stressed the short-term nature of the commitment as the Fed implements the new facilities.
The arrangement reflects BlackRock’s role in supporting the Fed during the 2008-2009 financial crisis, when the central bank hired the company to manage the assets of Bear Stearns and the American International Group. Yesterday and today, the Fed did not issue a formal tender, which sparked criticism in the aftermath of the crisis.
On Monday, the Fed expanded its program to buy housing agencies to include mortgage-backed securities on commercial properties, such as apartments. BlackRock will transact with the major distributors of the Fed. Larry Fink, CEO of BlackRock, helped pave the way for mortgage-backed securities as a Wall Street banker in the 1980s.
BlackRock will also serve as the investment manager for two new special purpose vehicles that will purchase corporate bonds from the primary and secondary markets. The New York Fed will lend to the two vehicles and the US Department of the Treasury will take an equity stake.
As part of the secondary market corporate bond program, the Fed-backed vehicle will purchase premium exchange-traded funds, marking the first time the Fed has included ETFs in this type of buying program. A maximum of 20% of the vehicle’s assets can be placed in a single ETF, depending on the details of the program.
Fixed income ETFs, which have boomed in recent years, have been under severe strain due to market liquidation in recent weeks. BlackRock is the largest ETF fund manager and offers premium bond ETFs. He could benefit from fees if the Fed bought his ETFs. The extent to which these will figure in the Fed’s buying program has not been finalized, BlackRock said in a statement.
“It’s the Fed that is asking for Goliath’s help,” said Tyler Gellasch, executive director of the Healthy Markets Association, a business group. “BlackRock is so vast that its investment decisions have an impact on the markets like a federal agency. We hope this will help stabilize the market, but it will certainly benefit BlackRock. “
BlackRock said in a statement that it would provide details on purchases of primary corporate bonds and begin secondary market purchases as soon as possible, but “will not engage in discussions with market participants” on programs before this date.