Could we see at the beginning of the end for Blackrock?
Of course, how can we ask this question for a company that has more than $7 trillion in assets under management. This is, by far, the largest manager of money in the world.
That said, there are some headwinds. We are seeing something taking place that are very upsetting. In fact, if it persists, this could end Blackrock.
While many will cheer that, as they say, be careful what you wish for. This could cause a lot of carnage and impact markets for a long time.
So let us take a look at what is going on.
Commercial Real Estate
One of the things affecting Blackrock is their portfolio has a lot of commercial real estate. This is a sector that was absolutely battered and there is questions whether it will come back.
If we consider what took place the last few years, we can see how the remote work craze is not fading. We know downtown areas, at least in the United States, is rather vacant. This is having a major impact upon the real estate values there.
Blackrock is one of the major players in this sector. Their portfolio is getting hammered due to this. It is not much different than we see with some of the regional banks. One of the biggest issues is they have real estate portfolios that cannot be leveraged. If nobody is willing to accept that as collateral, this puts them in a tough position.
Here we see the same thing, just on a larger scale. Reports are that Blackrock is refusing requests to liquidate. This is one advantage it does have. With a bank, when a customer wants to withdraw the deposit, that cannot be stopped. Blackrock is another story. It can fend off a run by simply denying request for withdrawal.
This will help to sustain it longer yet it might not save it.
Liquidity
At the core of this is liquidity.
This is what bit the banks in the butt and it could take down Blackrock. What people do not consider is what happens if the company needs to liquidate $250 billion in assets. Where does the market come from?
Here we see where the company is so big that is cannot possibly find the liquidity needed to move its asset. This presents a major problem since they cannot stall redemptions forever.
At some point, they have to return the money.
Of course, money managers never consider this. The goal is always to keep growing regardless of the situation. When dominating an asset class, things are very rosy on the way up. However, if the market turns, this can get very nasty.
It is what we can see with Blackrock.
The main issue is how do you unload $7 trillion in assets? Naturally, there is no way to do it. This means that Blackrock could find itself in a situation where it needs to fire sale some things.
It also might not end well for all involved. The losses could be staggering.
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