World's Largest Asset Manager BlackRock Reports 12.5% Asset Decline Amid COVID-19 Recession

Decline in Customer Asset Value

Canter Fitzgerald Lays Off Hundreds

▲Larry Fink, CEO of BlackRock [Image source=AP News]

[Asia Economy Reporter Kwon Jaehee] The world's largest asset management company, BlackRock, saw its assets under management (AUM) shrink by a staggering 12.5% in the first quarter compared to the previous quarter. This decline in the value of customer assets managed by BlackRock is a result of a clear preference for safe assets amid the spread of the novel coronavirus (COVID-19). The U.S. Federal Reserve (Fed) had earlier involved BlackRock in operating special purpose vehicles (SPVs) for corporate bond purchases, leading to industry ridicule suggesting that this was a 'bailout' measure in response to the asset value decline.

According to major foreign media on the 16th (local time), BlackRock's asset size as of the end of the first quarter was $6.5 trillion (approximately 7,947 trillion KRW). The previous quarter recorded a peak of $7.43 trillion (approximately 9,084 trillion KRW), marking a record decline in just three months.

The record decrease in AUM in the first quarter of this year is largely attributed to a base effect from the unusually high asset increase in the fourth quarter of last year and the uncertainty surrounding the global economy. BlackRock's asset growth last year was made possible by massive inflows into the exchange-traded fund (ETF) sector. Over the past decade, demand for various funds including ETFs has dramatically increased, resulting in BlackRock's net profit in the fourth quarter of last year rising 40% year-on-year to $1.3 billion. However, as the global economy sharply contracted this year, customers showed a clear preference for safe assets over 'high-risk, high-return' bonds.

Accordingly, BlackRock's revenue for the first quarter is expected to slightly increase to $371 million compared to the same period last year, while net profit is forecasted to decrease by 2% to $203 million.

As BlackRock's asset size shrinks, attention is also focused on the operation of three SPVs entrusted to the company by the U.S. Federal Reserve. BlackRock operates three SPVs for corporate bonds and commercial mortgage-backed securities as part of the Fed's economic stimulus measures. Since BlackRock controls half of the ETF market, there is a high possibility of conflicts of interest between the SPVs it manages and its own operations.

Because of this, criticism has arisen that the Fed's delegation to BlackRock may be a 'bailout' measure in response to the decrease in asset size. Industry dissatisfaction has intensified, especially since BlackRock was appointed as the asset manager for these SPVs without a competitive bidding process.

Larry Fink, CEO of BlackRock, expressed displeasure at such criticism, calling it "insulting" and opposing the framing of the situation as a "bailout."

The Fed explained, "BlackRock has extensive expertise in purchasing various types of corporate bonds and credit products in both primary and secondary markets, and comprehensive capabilities including knowledge and experience in the corporate credit market were taken into consideration."

Meanwhile, large-scale layoffs have begun in financial firms on Wall Street. According to Bloomberg on the same day, Canter Fitzgerald, a private financial services company, cut hundreds of employees amid the worst unemployment crisis in decades. Wall Street financial firms had previously stated they would not conduct workforce restructuring, but this was broken.

Earlier, major investment banks including Goldman Sachs and other Wall Street financial firms consecutively announced first-quarter earnings that were halved compared to the same period last year.

This content was produced with the assistance of AI translation services.