The coronavirus pandemic will change how investors and the economy operate, the chief of the world’s largest asset manager has indicated, with the group boosting its ETF business and its presence in the US$14 trillion ($22.7 trillion) Chinese market.
Larry Fink, CEO and chairman of BlackRock shared his thoughts on the COVID-19 pandemic and revealed the asset manager’s focuses for growth in the decade ahead in his annual letter to shareholders.
ETFs, technology and illiquid assets have been pointed to as key for the company’s progress, alongside plans to expand into China. BlackRock has aimed to become the top foreign asset manager in the market.
Speaking on the coronavirus outbreak, Mr Fink wrote that he along with 90 per cent of BlackRock’s 16,200 employees are working from home. With global equity benchmarks falling form record highs into a bear market alongside historically low liquidity levels in US Treasuries, Mr Fink said the coronavirus outbreak has forced investors to reassess the global economy.
“In my 44 years in finance, I have never experienced anything like this. The outbreak has impacted financial markets with a swiftness and a ferocity normally seen only in a classic financial crisis,” Mr Fink wrote.
“The outbreak has not simply pressured financial markets and near-term growth: it has sparked a re-evaluation of many assumptions about the global economy, such as our infatuation with just-in-time supply chains or our reliance on international air travel.
“Even more profoundly, people worldwide are fundamentally rethinking the way we work, shop, travel and gather. When we exit this crisis, the world will be different. Investors’ psychology will change. Business will change. Consumption will change.”
But he believes the economy will recover steadily, partly because the situation lacks some of the obstacles to recovery of a typical financial crisis.
BlackRock’s Financial Markets Advisory business was recently appointed to assist the Federal Reserve Bank’s arm in New York along with the Bank of Canada in the central banks’ quantitative easing programs.
The company is advising the Fed on the purchase of commercial mortgage-backed securities and investment-grade corporate bonds. Part of the initiative is said to involve the central bank buying back bond ETFs for the first time – BlackRock could be in a position to profit from the advice it provides.
While investment banking giant UBS recently axed its ETF business in Australia, citing a lack of viability on the ASX, BlackRock is honing in on its exchange-traded funds. Mr Fink revealed the asset manager is planning to double its number of sustainable and index mutual funds on offer to more than 150 over the next few years.
He added the ETFs business, iShares, traded in record volumes during the market meltdown, including US$1.4 trillion ($2.2 trillion) in the US alone, or 37 per cent of all US equity activity, compared to a 27 per cent average for 2019.
“The benefit of fixed income ETFs becomes amplified in times of market stress,” Mr Fink said.
“When liquidity disappears in the underlying bond markets, the transparency of an ETF allows clients to price the underlying bonds. And the ability for buyers and sellers of the ETF to meet directly on exchange, and trade in secondary markets creates an additional layer of liquidity for clients.
“That capability is why ETFs – both in equity and fixed income – are fast becoming investors’ go-to vehicles for quickly taking off risk exposure in times of market volatility. More and more investors are recognising these benefits, and we saw record flows into our iShares fixed income business last year.”
BlackRock eyeing China
Mr Fink revealed despite the current volatility, he believes China will provide long-term opportunity as a growing market.
“I continue to firmly believe China will be one of the biggest opportunities for BlackRock over the long term, both for asset managers and investors, despite the uncertainty and decoupling of global systems we’re seeing today,” he said.
“We continue to invest in our presence in China and our local investment expertise, so we can help clients navigate this large and growing opportunity as they seek to increase exposure to China’s onshore assets.
“We are also focused on building our presence as a manager for Chinese clients. China’s US$14 trillion asset management industry is the third-largest in the world, and as the Chinese market opens to foreign asset managers, our global reach and whole-portfolio approach will help us become the leading foreign asset manager in China.”
Further, BlackRock is focusing in on technology and illiquid alternatives to drive its future growth during the next decade.
“The biggest change for asset managers will be how we use technology,” Mr Fink said.
“In the future, asset managers have to be as good at using technology as anything else they do – and as good at it as any tech firm. It has to be part of who they are.
“Asset managers will have to fully integrate technology to connect with clients, generate investment insights, create operational efficiencies and unify their organisation on a single platform. And volatility of the markets, and the speed with which they have moved these past few weeks, [reinforce] once again how essential technology is to managing risk today.”
Technology will also become key for distribution, he noted.
“The way we connect with clients and deliver solutions to them is also changing, particularly in the wealth management industry,” Mr Fink said.
“Much like institutions, retail investors are demanding more transparency, better service and a more portfolio-based approach. Between these expectations and new regulations, distribution models in the US and Europe are moving away from commissions toward fee-based advisory models.
“Additionally, we saw direct brokerage platforms eliminate trading commissions in the US. This is a good thing for more people, because it makes it easier for them to invest and benefit from the growth of capital markets. But it will also fundamentally change the distribution landscape for years to come.”
Sarah Simpkins is a journalist at Momentum Media, reporting primarily on banking, financial services and wealth.
Prior to joining the team in 2018, Sarah worked in trade media and produced stories for a current affairs program on community radio.
You can contact her on [email protected].
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