BLK BlackRock Inc

By Dawn Lim 

BlackRock Inc. made a well-timed bet on distressed loans during the financial crisis. Now the firm has moved its windfall to its charitable arm.

In a move disclosed Thursday, the giant asset manager said it has donated all of its nearly $600 million worth of shares in the mortgage company PennyMac Financial Services Inc. to fund nonprofits. Half of that went into a new corporate foundation the firm is launching called the BlackRock Foundation.

By moving the stake to charity, the firm will also reap tax gains.

BlackRock is setting up the new foundation as the firm's growing influence has brought it new scrutiny. BlackRock, on behalf of the funds it runs, is one of the five largest shareholders in nearly every corporation in the S&P 500. That means the world's largest money manager faces new demands from the public to use its heft to address problems from poverty to environmental issues.

Chief Executive Laurence Fink is a vocal advocate for companies thinking beyond shareholders. BlackRock has called for a fuller accounting on climate risks from companies and is expanding its range of funds that focus on companies with better social and environmental records.

BlackRock has split nearly $600 million worth of shares in PennyMac between two platforms. The first is a new foundation BlackRock said is aimed at advancing "a more inclusive and sustainable economy."

BlackRock has traditionally done philanthropic work by making grants, and a foundation would give BlackRock more flexibility to structure giving in different ways, said Deborah Winshel, who is head of BlackRock's charitable arm and president of the new foundation.

BlackRock donated the rest to an existing donor-advised fund that has supported organizations from those that train women in Latin America for technology jobs to those that assist farmers in sub-Saharan Africa. The latest contributions add to the $50 million BlackRock recently committed to build saving tools for lower-income individuals.

"We think it's so important that BlackRock shows up in the communities in which it operates," said Ms. Winshel. She said that BlackRock's philanthropic work on issues such as individual social mobility and financial stability makes it an "extension of what the firm does."

BlackRock was a scrappy bond shop before it evolved into a behemoth with $7.4 trillion in assets under management. It was one of the biggest beneficiaries as postcrisis investors, weary over complexity and costs, turned to funds that track markets and software that could help them manage financial risks.

BlackRock's donation will bring the firm roughly $240 million in tax benefits. The firm won't have to pay taxes on the $125 million in gains on its corporate investment in PennyMac, and it will get to deduct the $589 million in market value of charitable contributions from its taxable income.

Philanthropy and investments in communities have proven to be a powerful way for the biggest companies to soften their images as corporate overlords.

Alphabet Inc.'s Google said it would commit $1 billion to boost housing construction in the San Francisco Bay Area as Silicon Valley giants face scrutiny on how their presence in the places where they do business is pricing out locals. JPMorgan Chase & Co. has earmarked millions in philanthropic investments as part of a $500 million effort to juice economic growth in cities.

BlackRock's retreat from PennyMac closes a pivotal decade for the firm when some of its contrarian bets helped cement its dominance in the investment world.

In 2008, the firm invested $34 million from its corporate balance sheet to back PennyMac in anticipation of a wave of mortgages at bargain prices that could be restructured. The venture was controversial because it was run by former executives of Countrywide Financial Corp., a now-defunct lender that became a symbol for the excesses that led to the financial crisis.

The minority investment was made when BlackRock wanted to be a bigger player in the home-mortgage space.

Its investment in PennyMac, a loan buyer and servicer, has paid off handsomely. The stock has nearly doubled in value since it went public in 2013.

BlackRock donated $125 million worth of its investment in PennyMac to charity in 2013 but continued to hold a minority stake. More recently BlackRock decided to exit from the rest of the investment because it was no longer core to its business and to fund charitable initiatives.

Write to Dawn Lim at dawn.lim@wsj.com

(END) Dow Jones Newswires

February 13, 2020 07:16 ET (12:16 GMT)

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