WITH RANK COMES PRIVILEGE. NO ONE KNOWS that better than Laurence Fink, the voluble chairman and CEO of BlackRock, the worlds largest asset management firm. In September, while one of his lieutenants, Richard Prager, was meeting with a reporter, Fink hovered near the door of Pragers office for a few moments before stepping in and asking what they were talking about. Prager, BlackRocks global head of trading, told his boss that hed been explaining what the firm is doing to make sure it continues to thrive in markets that are undergoing some of the biggest changes in a generation in the wake of new regulations and the seemingly never-ending financial crisis.
That was all the opening the 59-year-old BlackRock CEO needed. Fink, whose love of power and showmanship is tempered by a childs wide-eyed curiosity and energy, raced on about the forces shaping BlackRocks plans. It was a long list: an inexorable macro trend toward less dollarbased trading, French banks stoking counterparty fears, investors pushing up costs by demanding more granularity on securities, and the need to create the right asset management culture to manage all of this. After his five-minute soliloquy, the indefatigable Fink left as swiftly as he had entered the room.
Fink, who has an outsize grasp on the details of his $9 billion-plus-in-revenue business, has reason to be worried. BlackRock is one of the largest managers of fixed-income securities and relies on unfettered access to them and to efficient capital markets to manage its growing portfolios for retail and institutional clients. A lack of sufficient liquidity financial jargon that refers to the ease with which a trade can occur at a given price has defined the debt markets off and on since 2007. In the years since the 200809 crisis, as investment banks have moved to deleverage and governments around the world have imposed restrictions on banks as a result of the Basel III accord and the Dodd-Frank Wall Street Reform and Consumer Protection Act, there has simply been less liquidity sloshing around in the system. That means firms like BlackRock cant buy and sell the securities they need as easily and investors arent getting the prices they want. Liquidity is likely to continue to be under pressure as governments debate regulations, the economic environment remains shaky and banks reduce trading risk. ....