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'Right time to invest in toxic assets'

By Zhang Ran (China Daily)
Updated: 2009-04-17 07:59

Laurence D Fink is quite a busy man these days. He travels around the world frequently, trying to convince his clients, many of whom are institutional investors and sovereign funds, that this is the best time to buy distressed mortgage debt in the United States.

His trip to China is for the same reason.

"I am here to tell my clients that this is the best opportunity to invest in distressed mortgage debt," the chief executive of BlackRock, one of the largest asset management firms in the world, told China Daily in Beijing yesterday.

Fink declined to disclose the names of clients he would be meeting with during his visit. But one thing is for sure. A year ago, when China Investment Corp (CIC) was inviting bidders to manage its overseas assets, over a hundred financial firms flew in to participate in the bidding.

But the financial world has been transformed over the last six months ever since Lehman Brothers went bankrupt and AIG collapsed, making BlackRock a more prominent force in the financial world.

Since it now faces fewer competitors, the opportunities for BlackRock are obvious. It has become more attractive to sovereign entities, given the highly possibility of it being selected by the US Treasury as one of the top five fund managers that will purchase troubled assets from US banks under the 'public-private investment program (PPIP)'.

Under the PPIP, select fund managers would get government loans on favorable terms for purchasing these "distressed mortgage assets" if they can raise $500 million from investors within three months. Fink's China visit now is aimed at raising money to buy these assets since the US is expected to announce the first batch of asset managers next month.

"The opportunity is unique, as the PPIP will help in the economic recovery process. Investing in the PPIP is safer than equity market investment," Fink said.

But, is the housing market close to bottoming out? Fink certainly seems to think so.

"The growth rate in prices of secondary houses is the leading indicator of consumer sentiment. If we do not stabilize secondary house prices, we cannot stabilize the economy or the equity markets."

Fink also said there could be a significant risk of inflation as soon as the economy starts to recover, possibly in six months.

"Economic recovery efforts in the United States and abroad have raised the specter of inflation, with signs that they are already feeding a recovery in prices for oil and other commodities," he said.

"We are recommending to our clients worldwide to start to move some of their government treasury bonds and money market funds to inflation-protected notes."

Fink was identified by the Financial Times as one of the 50 people who could frame a way forward from the economic crisis.

(China Daily 04/17/2009 page13)