BlackRock CEO sees market stabilization, but still not ‘back to normal’

By Stephanie N. Rotondo

Portland, Ore., Oct. 20 – BlackRock Inc.’s management gave a moderately optimistic overview of the state of the financial markets during an earnings conference call Tuesday.

Laurence D. Fink, chairman and chief executive officer, said that while the state of the markets was not necessarily “back to normal,” there were some definite improvements overall.

In the third quarter of 2008, “investors worldwide needed to reassess their portfolios and began to mitigate the risks as necessary,” he said. This resulted in a “huge hoarding of cash which pushed down equity markets, credit spreads and a collapse of confidence as people ran to the door with most of their holdings in cash.”

Fink noted that the “aggressive response” by the Federal Reserve, the Department of Treasury and the FDIC “began to stabilize our capital markets.

“It gave confidence to the system whereby people were no longer frightened of Armageddon and started to focus on their own issues and how best to respond to the markets new reality.”

By the second quarter of 2009, Fink said investors were beginning to look for opportunities.

“Some investors only took risk out to two-year, earning 96 basis points, which is certainly better than zero,” he said. “Many other investors started to look at opportunities in credit, emerging markets and other equity markets worldwide.

“And, just beginning now, we began to see clients refocus on alternatives,” he added.

“So a whole beginning of restabilization happened at the beginning of the second quarter and certainly now has responded in the third quarter where clients are continuing to look for investment opportunities.”

Risk management ‘more than ever’

Investors are also less averse to risk, though cautiously so, Fink noted.

“More than ever before they are testing their risk management and their tools around risk management,” he said.

As investors returned to the market, “the markets responded strongly.”

“Now much of the rally in the most recent few months is a continuation of clients looking to put money to work, out from cash into other long-dated strategies,” Fink explained. “Also important, clients are starting to reassess their portfolios on a global platform.”

Looking longer term

For example, investors are looking at dollar weightings, as well as international opportunities, he said.

“We’re starting to see a much greater vision by our clients in terms of trying to respond to opportunities in the future,” he said.

Fink remarked that BlackRock clients are responding to the recent glut of FDIC-backed offerings from banks, moving cash into those products and turning away from areas such as retail and commercial real estate.

“Our clients are aggressively moving in these FDIC products,” he said. “I think this is going to continue for awhile. This is an industry issue and we are going to have that drag for some time.”

But Fink seemed somewhat confident that troubled areas – such as retail and real estate – would pick up eventually. In the commercial real estate space, he predicted that “we won’t see a recovery until mid-next year.” Still, he said it was an area worth keeping an eye on.

Fink also noted that “we are seeing some U.S. institutional investors moving from fixed income to equities,” as the stock market has improved by at least 15% since June 30.

“Overall, I would say, in a marketplace that exhibited extreme volatility, from extreme depression to some kind of euphoria in the third quarter, we have fared very well.”

BlackRock is a New York-based investment management firm.

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