Money manager BlackRock Inc is launching more distressed securities funds to take advantage of the current credit market troubles, Chairman and Chief Executive Laurence Fink said on Tuesday.
Speaking at the Merrill Lynch Financial Services conference in New York, Fink said the firm would launch funds investing in distressed mortgages and distressed real estate. These funds would raise multibillion dollars, Fink said.
This is a time to be innovative, he said.
Fink said BlackRock, the biggest listed U.S. asset manager, has already raised a very large leveraged-loan fund and is now in the process of investing the money.
The firm had $1.3 trillion in assets under management at the end of September.
BlackRock, which last month posted strong quarterly earnings as its funds steered clear of subprime mortgages and other troubled assets, has an exposure of about $4.2 billion to structured investment vehicles (SIVs) out of its total money market assets of about $320 billion, Fink said.
Many SIVs had issued asset-backed commercial paper to raise cheap short-term funding to buy higher-yielding but risky subprime securities. These problem SIVs have been scrambling to find funding or have come under pressure to sell assets to meet their obligations.
Legg Mason Inc, the second-biggest listed U.S. asset manager, said last week it has about $10 billion of investments in asset-backed commercial paper issued by SIVs. Legg also said it has procured letters of credit from a bank for $238 million to support the credit ratings of its two rated money market funds.
Fink said almost all of BlackRock's SIV exposure was to vehicles sponsored by HSBC Holdings Plc and Citigroup.
We don't own any orphan SIVs. These orphan SIVs are probably the ones which present more issues, the single-purpose SIVs, Fink said.
Fink has been rumored to be the front-runner to take over as Merrill Lynch & Co Inc's chief executive following the ouster of Stan O'Neal last month. He has also been mentioned as a possible successor to Citi's Charles Prince, who retired this month.
The BlackRock CEO did not touch upon those rumors on Tuesday but, answering a question on management succession, said the firm has had a succession plan in place for the past few years.
BlackRock shares were up $6.31 or 3.3 percent at $195.28 on Tuesday afternoon in a firm overall market.
BlackRock is owned 49 percent by Merrill and 34 percent by PNC Financial Services Group Inc. Merrill shares were up $3.35 or 6.3 percent to $56.54 and PNC shares were up $1.79 or 2.5 percent to $72.46.
(Reporting by Muralikumar Anantharaman)