By Kirsten Grind
The boss of giant money manager BlackRock Inc. warned Thursday
about a "dangerous imbalance" across the financial system as bond
investors hunt for ways to make money during a period of low
interest rates.
"The increasingly desperate search for yield is the single
greatest source of risk in the financial system," BlackRock Chief
Executive Laurence Fink said on a conference call with
analysts.
The head of the world's largest asset manager sounded the alarm
about potential dangers in the bond market as pensions, insurance
companies and individual investors across the U.S. wrestle with how
much risk to take as they look to fulfill mounting retirement
obligations.
Mr. Fink's comments came as BlackRock reported an 8.7% increase
in first-quarter earnings but missed Wall Street's revenue
expectations. His remarks echoed statements he made last week in
his annual letter to shareholders. In the letter, he cautioned that
"the situation is worsening every day as the pool of funds in
search of returns grows larger" and current investments "are
insufficient to meet the growing liability burdens of pension
funds, insurers and retirees."
The Federal Reserve has held short-term interest rates near zero
since December 2008, far longer than many of the central bank's
officials expected when they pushed them there during the financial
crisis. It has been a decade since the Fed last started a series of
interest-rate increases, although many investors expect to see a
short-term rate rise as soon as June.
The ultralow rates, together with bond purchases by the European
Central Bank and Bank of Japan, have helped fuel a rally in bond
prices that has sent yields near record lows in the U.S. and to
levels unseen in Europe for years. Switzerland last week sold
10-year bonds that investors are actually paying to hold, while
Mexico lined up a rare transaction to borrow euros it promised to
repay a century from now--at a yield of 4.2%.
Mr. Fink also warned Thursday about the effect a rising dollar
has had on global companies, small businesses and tourism. Mr.
Fink, widely turned to by large institutional investors and global
governments for his views on the economy, typically uses earnings
calls to share his view of markets and international trends.
He attributed his firm's revenue miss to weaker fees tied to a
stronger dollar. Investors sent shares of BlackRock down 1.2% to
$372.18.
The dollar has risen more than 19% in the past year as the U.S.
economy strengthened, a shift that is squeezing profits at giant
U.S. multinationals that compete in world markets and prompting
analysts to make their deepest cuts to earnings forecasts since the
financial crisis. The dollar's rise is also making travel to the
U.S. more expensive.
At BlackRock, the dollar's rise cut fees from clients paying in
weaker foreign currencies. The upshot was a drop of $87.6 billion
in assets under management during the first quarter, worse than a
$63 billion drop in assets under management in the fourth
quarter.
As a result, first-quarter revenue came in at $2.72 billion,
below analyst expectations of $2.79 billion. Overall, BlackRock
reported earnings of $822 million, or $4.84 a share, up from $756
million, or $4.40 a share, in the same period a year before.
Strong investor inflows of $70.4 billion during the quarter
helped buoy the firm. The company's iShares division, which offers
exchange-traded funds, a type of fund that trades on an exchange,
saw $35 billion of net inflows during the quarter.
Assets under management grew to $4.77 trillion from a $4.4
trillion a year earlier and $4.65 trillion at the end of the
previous quarter.
Write to Kirsten Grind at kirsten.grind@wsj.com
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