PIMCO and BlackRock go strolling down K Street
By Jennifer Ablan and Matthew Goldstein
Wall Street may hate financial regulatory reform, but lobbyists certainly love itâ€”especially ones working on behalf of giant asset managers PIMCO and BlackRock, which control a total of nearly $5 trillion in assets.
Last year, PIMCO and BlackRock both upped their lobbying expenditures in a big way.
The not-for-profit group OpenSecrets.org reports that Bill Grossâ€™s Pacific Investment Management Company spent $450,000 on lobbyists last year, up from $120,000 in 2010. BlackRockâ€™s spending on lobbyists rose to $2.5 million in 2011, up from $1.45 million in the prior year.
A BlackRock spokeswoman says the increased spending is a reflection that the firm has â€śmore regulatory issues to deal with.â€ť PIMCO didnâ€™t respond to a request for comment.
The asset managers are ramping up their spending on lobbying at a time federal regulators are considering whether to treat the firms as â€śsystemically important financial institutions,â€ť something that could subject both to more oversight going forward. BlackRock, with more than $3.5 trillion in assets under management, has written several letters to regulators arguing that it doesnâ€™t pose a threat to the financial system since it isnâ€™t making leveraged bets with customer money.
Regulators also are considering rules that could make some of the derivatives tradingÂ by PIMCO, with $1.4 trillion in assets under management, more costly. In our Special Report, Twilight of the Bond King, Matt and I talked about the more than a dozen meetings lobbyists and representatives for PIMCO have had with regulators to discuss plans to impose tighter controls on derivatives trading.
As we reported, derivatives have long been a staple of the trading strategy in PIMCOâ€™s Total Return Fund, the $250 billion bond behemoth managed by Gross. The worldâ€™s largest bond fund uses derivatives — financial instruments that derive their value from another security — to generate some of the fund’s returns.
Whether it was coincidence or not, Gross addressed the issue of PIMCOâ€™s reliance on derivatives in his most recent investment letter to customers.
In the March note entitled â€śDefense,â€ť Gross says from 1980 to 2011, the firm employed an offensive strategy that utilized â€śprudent derivative structuresâ€ť to generate â€śconsistent alpha.â€ť In the note, he said the firm, for the time being, was shifting to a more defensive posture in light of the heightened risk that remains in the world financial markets. As part of that new strategy, Gross says PIMCO will â€śde-emphasize derivative structures that are fully valued and potentially volatile.â€ť
Gross says he doesnâ€™t know how long this new defensive posture will last. One can only wonder whether some of it also is a response to the new interest regulators are showing to complexity in the financial markets and firms deemed too big to fail.
Update: The BlackRock comment came from a spokeswoman, not a spokesman. We’ve fixed the text.