With the best known names in the investment banking business reporting massive write downs and losses, stemming from their exposure to subprime mortgages, it is difficult to imagine that any US fund company could actually be growing its business as well as profits in these times. BlackRock Inc. is doing just that. Built up over the last 20 years by Laurence Fink, it has grown to become the largest publicly traded US fund company. A savvy bond investor,Fink started getting out of risky debt in 2005 because he believed that the economy was in a credit bubble. As a result BlackRock did not hold subprime debt in its funds when the crisis struck. Not only that, it has also managed to collect $137.6 billion from investors in 2007, taking its total assets under management to$1.4 trillion. The company is expected to reveal a 26% increase in first quarter earnings when it reports tomorrow. Its performance has not gone unnoticed by Wall Street. Its shares have gone up by 29% in the last one year as compared to an 8.5% drop in the S&P 500 index.
A sign of confidence in its ability to handle investments is that it has been chosen by the US Federal Reserve to manage almost $30 billion of Bear Stearns investments after it was acquired by JP Morgan Chase and Co. It was also called in last year to manage Florida's Local Government Investment Pool, when it got into trouble over its subprime investments and faced a run on it by investors.
Merrill Lynch happens to own 49% of BlackRock's equity. What makes this fact particularly interesting is that Merrill Lynch itself could not avoid being hit by by the subprime crisis . It reported a loss of nearly $10 billion for the fourth quarter of last year after writing down $16.7 billion from its subprime mortgages. It has also had to raise almost $11 billion in fresh loans and equity from sovereign wealth funds from Asia and the Middle East. And while Merrill Lynch is desperately unloading its impaired debt, BlackRock is increasing investments in real estate and hedge funds.It is also advising investors to buy riskier assets such as bank loans, mortgages and high yield debt.'We are telling clients it's time to add more risk,' Fink says.