Industry Updates

Federal Reserve selects BlackRock to execute bond purchases

Tom Eckett

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The Federal Reserve has hired asset management giant BlackRock to manage the billions of dollars of bond purchases including exchange-traded funds (ETFs).

The New York Fed said in a statement on Tuesday it had retained BlackRock Financial Markets Advisory to purchase the assets on behalf of the central bank.

The move is reminiscent of the Fed’s decision to hire the asset manager to manage the assets from Bear Stearns and American International Group during the Global Financial Crisis in 2008.

The Fed will decide which bonds are suitable for purchase while BlackRock will execute trades.

“BlackRock was selected on a short-term basis to serve as an investment manager after considering their expertise in trading and analysing agency CMBS in the secondary market, and robust operational and technological capabilities,” the Fed said.

The decision comes days after the Fed announced plans to purchase ETFs for the first time in its history as part of unlimited quantitative easing measures in a bid to calm spooked markets.

Fears over the long-term impact of the coronavirus has sent markets tumbling over the past few weeks with the S&P 500 falling 33% from the highs seen in February.

BlackRock’s role raises a number of questions for the ETF industry. The world’s largest asset manager controls the majority of assets in the fixed income ETF space and could benefit from fees should the Fed buy its products.

Fixed income ETFs, which have come under pressure in recent weeks after discounts widened to all-time highs, account for around a sixth of the $5trn ETF market.

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