July 16, 2014 3:01 pm

Fed should speed up end of crisis-era policy, says Fink

Laurence "Larry" D. Fink, chairman, chief executive officer and co-founder of BlackRock Inc©Bloomberg

Larry Fink has urged the Federal Reserve to bring a quicker end to its crisis-era monetary policies a day after Janet Yellen signalled the US central bank was in no rush to raise interest rates.

Mr Fink, chief executive of BlackRock, the world’s largest asset manager with $4.6tn of assets under management across the equity and fixed income markets, said that plans to maintain the Federal Reserve’s balance sheet at its current size would do little to tackle what BlackRock believes is structural unemployment.

“We have a central bank that has not admitted we have structural unemployment,” he said. “Factories that used to employ thousands now employ 200. For the US to grow above trend, it has to be about government policy not central bank policy.”

Mr Fink told the Financial Times that Fed policy would remain too aggressive even if it ends new bond purchases as planned in October, since the central bank intends to reinvest the proceeds from expiring Treasuries and mortgage-backed securities.

BlackRock called for an early tapering of quantitative easing last year, but Mr Fink said that the Fed had in fact become an even bigger factor in the fixed income markets this year, despite reducing the size of its purchases.

“They have actually been more aggressive this year relative to supply than they were in 2012,” he said. “And don’t think they are not still heavily aggressive in the markets after October.”

Mr Fink was speaking after BlackRock reported forecast-busting earnings for the second quarter. Its assets under management were $4.59tn at the end of June, up 19 per cent on the same time last year and 4 per cent larger than three months earlier.

Net income was $837m in the second quarter, up 16 per cent on 2013, thanks to higher management fees, lower taxes and a reduction in costs. Revenues were up 12 per cent; earnings per share of $4.89 were above the consensus estimate of $4.46.

Factories that used to employ thousands now employ 200. For the US to grow above trend, it has to be about government policy not central bank policy

- Larry Fink

But analysts were disappointed that institutional customers are still pulling money from BlackRock’s active equity managers, despite an executive shake-up in that division.

The company said $2.4bn came out of fundamental equity during the three months to the end of June, with another $2.1bn pulled from its quantitative investment products. That is better than the respective $4.1bn and $3.9bn outflows in the first quarter, but reflects a warning Mr Fink gave three months ago, namely that it will take time for new managers to build a record that attracts investors.

There were strong inflows into BlackRock’s exchange traded funds business iShares, which accounts for $994bn of the company’s assets under management. Mr Fink said hedge funds were increasingly using ETFs instead of futures to make big long and short bets on financial markets.

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