BlackRock, While Predicting ‘Sharp’ Recovery, Is Building a Strong Cash Position

Even BlackRock, the world’s largest asset manager, is pushing a strong cash position while at the same time predicting a “sharp” economic recovery, owing to Congress’ passage of the largest fiscal relief package in history.

“We emphasize portfolio resilience through a benchmark allocation to government bonds, quality equities, cash, and sustainable investing,” read the most recent market outlook from the world’s largest asset manager. BlackRock, which manages almost $7.4 trillion in client assets, emphasized that enhancing its cash stash is a vital move to make now.

The institutional investor said it sees cash as a guard against a negative supply shock that could drive stocks and bonds lower. BlackRock, whose own balance sheet boasts about $169 billion in assets, holds just $4.8 billion in cash and cash equivalents as of December, according to its financial statements. The company’s pumping up of its cash position is part of a trend among large companies.

A host of corporations, including financial firms, have been raising their cash reserves to weather the market downturn. For instance, leading entertainment companies Comcast and Disney respectively raised $4 billion and $6 billion earlier this month, according to Deadline. They sold debt securities as they shuttered theme parks and shifted movie production schedules.

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But BlackRock believes the markets will recover in one or two quarters following a sharp downturn, especially after the $2 trillion economic stimulus package that was passed Friday.

The asset manager last week was tapped to take over the Federal Reserve’s bond-buying program, the second time BlackRock was asked to support the government during a financial crisis. In the 2008 debacle, BlackRock was one of several Wall Street firms that Washington enlisted to sell off troubled assets, such as mortgage-backed securities.

Additionally, the asset manager said it prefers US and Chinese equities and credits, as the world’s two largest economies move to deliver swift policy response to the crisis.

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World’s Largest Pension Fund’s CIO Hiromichi Mizuno Exits

Tags: BlackRock, cash, Coronavirus, COVID-19, Investment, Investment Fund, Management, Market

Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension plan with approximately $1.6 trillion in assets under management, confirmed that Chief Investment Officer Hiromichi Mizuno will step down at the end of this month. A successor has not yet been named.

Mizuno’s term was originally scheduled to conclude in October but was extended to March. He joined in January 2015 as the fund’s first dedicated CIO, and reportedly led large transitions in the portfolio’s strategic asset allocation while adhering to a strong environmental, social, and governance (ESG) mentality.

The fund also announced that Masataka Miyazono will become the fund’s new president, and that Chairman Norihiro Takahashi is retiring at the end of his term at the end of March.

The news comes in tandem with a report from Nikkei of upcoming significant asset allocation changes at the fund. Nikkei reported that the fund will allocate nearly 25% of its portfolio to foreign bonds, incentivized by the relatively high rates of foreign bonds compared to lower-rated domestic bonds, and that it trimmed its allocation to domestic debt to make room for the change. Mizuno previously spearheaded a change in portfolio allocation to make more room for a domestic debt allocation by shying away from stocks to do so. The publication said GPIF would be left with an equally split allocation between foreign and domestic stocks and bonds.

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The fund owns approximately 10% of the Japanese stock market and 1% of the global stock market. It recently announced in December that it will suspend its stock lending program that’s used for short sales since it runs “inconsistent” with its stewardship duties.

This seems to run concurrent with a lot of good news coming out of Mizuno’s leadership at the fund. For example, a Harvard Business School case study reported that Mizuno spearheaded an improved sense of corporate governance at the fund, through gender diversity and climate change programs.

The ESG theme that Mizuno helped shepherd is doing relatively well, with four out of five ESG investments outperforming their benchmarks.

“The radical part was thinking about all three. Many Japanese asset managers and investors were worried about governance,” said Harvard professor Rebecca Henderson. “It was the idea that you should focus on E and S as well when everyone was, like, ‘Whoa, why are you doing that?’ I mean, that was very countercultural. … We have a protagonist who’s absolutely trying to change the world.”