Asset management industry leader BlackRock says it just ain’t gonna happen. It being a major liquidity crunch created when investors react to rising interest rates. That’s why the giant fund manager has decided to push back against growing worries from analysts and regulators that asset managers are likely to see severe investor outflows when interest rates start moving up in the near future.
Analysts also point out, that like most asset managers, BlackRock has grown massively by buying corporate bonds as firms take advantage of ultra low interest rates to issue debt.
Critics say that when interest rates rise in the not too distant future, investors will flee en masse, meaning asset managers will be forced to sell into a distressed market with known liquidity issues that severely impacts the ability to offload assets without further lowering prices.
Yost Partners was up 0.8% for the first quarter, while the Yost Focused Long Funds lost 5% net. The firm's benchmark, the MSCI World Index, declined by 5.2%. The funds' returns outperformed their benchmark due to their tilt toward value, high exposures to energy and financials and a bias toward quality. In his first-quarter letter Read More
Statement from BlackRock
“The likelihood of the scenarios that have been outlined actually occurring is incredibly low,” noted Barbara Novick, vice-chairman of BlackRock. “The data actually show that there is a tremendous amount of mutual fund money in retirement accounts which tend to be extremely sticky and not moved around much at all.”
More on potential for bond liquidity crunch
Based on data from the Investment Company Institute, retirement money represented 46% of the $13.1 trillion in mutual funds at the end of the first quarter of 2015, a significant increase from 40% in 2008.
Moreover, according to ICI data, the largest outflows from bond mutual funds in one month was 2.4% in October 2008. That said, not everyone is convinced that you can count on history for accurate lessons about today’s markets.
Related to this, regulators from all across the globe are calling for additional regulatory supervision of asset managers, pointing to reduced liquidity in markets as potentially big worry should bond funds need to exit their positions in a hurry.
“Regulators are looking at asset managers in anticipation of possible redemptions because we have seen unprecedented inflows and they are much larger,” explained Marcus Stanley, policy director at Americans for Financial Reform. “It’s not the same situation as the historical precedent.”