The Federal Reserve is turning to money managers BlackRock and Pacific Investment Management Co. (Pimco) to help it handle bond investments and the purchase of companies’ short-term borrowings, according to a Wall Street Journal (WSJ) report.
The money management companies could be responsible for investing billions of central bank money. The two firms are tasked with managing some $8 trillion from bonds to private equity.
“Here’s a chance for asset managers to show they could be powerful partners in the recovery,” Ben Phillips, a principal at Deloitte consulting arm Casey Quirk, told the WSJ. “They’re organizing capital, as opposed to using their own balance sheet, and can think longer term.”
On behalf of the Fed, BlackRock will direct some $750 billion into the corporate debt market.
“BlackRock will execute this mandate at the sole discretion of the Bank, and in accordance with their detailed investment guidelines in order to provide broad support to credit markets and achieve the government’s objective of supporting access to credit for U.S. employers and supporting the American economy,” a BlackRock spokesperson said.
Sources familiar with the issue told the WSJ that the Fed was advised that it should not use banks for corporate bond-buying.
The Fed and government officials also spoke with Goldman Sachs Group’s asset-management division as well as with the investment team at JPMorgan Chase and State Street Corp., said sources with knowledge about the outreach. Mohamed El-Erian, chief economic adviser to Pimco parent Allianz SE, was also consulted.
The central bank consults with outside firms when they can offer particular proficiency in an efficient manner. The Fed asked BlackRock to handle corporate bond buys without giving other companies the opportunity to bid for the job.
A former senior official who was an informal adviser to Treasury officials said the prominent issue was speed.
Last week’s On The Agenda panel discussion with PYMNTS’s Karen Webster and other industry leaders said they didn’t think the latest infusion of money into Paycheck Protection Program (PPP) loans would last another week. As of May 8, money was still available, likely because businesses were confused if they were the intended recipients of the forgivable loans.