US - Laurence Fink, chairman and chief executive of BlackRock, said billions of assets could flow into perpetual preferred shares issued by European banks looking to recapitalise as they face more stringent capital requirements.
Speaking on an earnings call with analysts yesterday, he said perpetual preferred shares are not currently counted towards tier one capital in Europe, but he hopes that will change as banks lobby regulators. Counting the shares will go a long way in helping to recapitalise Europe's banks as European officials have mooted the possibility of increasing tier one capital requirements to 9%.
"We hope to see a large amount of preferreds issued by banks as they look to recapitalise," said Fink.
Preferred shares could provide, through consistent dividends, the returns institutional investors are no longer getting from the fixed income markets in today's low interest rate environment.
"At these low equity rates, it would be very powerful if regulators would allow perpetual preferreds to be counted as tier one. I believe there'd be billions, and billions, and billions of dollars of interest in the world for that as bond investors need coupons, or in this case, dividends," he said.
Fink also said government policies worldwide have played a major role in market volatility.
He said: "When governments focus is on short-termism, when government is not focusing on how to best prepare an economy for the long-term, it becomes really difficult for investors to focus on long-term investing too.
"The problems of accounting and governmental policy in my mind is causing great disruption in our pension funds and great disruptions in our market place, as fewer and fewer people are able to cope with long-termism."
Generally, he said there has been a "bar-belling" of institutional investor behaviour with some de-risking by moving into passive strategies, and others taking on more risk through either alternatives or by taking advantage of low equity valuations.
Separately he said there has been growth specifically in transition management.
"Transition management is becoming a bigger and bigger business as clients are trying to re-assert how they should position their portfolio, there's much more transitioning being done," said Fink.
Assets at BlackRock hit $3.3trn in the third quarter, down 9% over the three-month period, after market declines battered equity strategies, the firm said yesterday. (Global Pensions; 19 October 2011)
Assets in equity strategies were $1.44trn, down 18% over the quarter while fixed income assets increased 2% to $1.2trn.
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