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 itâespecially 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 Grossâs Pacific Investment Management Company spent $450,000 on lobbyists last year, up from $120,000 in 2010. BlackRockâs 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 âmore regulatory issues to deal with.â PIMCO didnât 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 âsystemically important financial institutions,â 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 doesnât pose a threat to the financial system since it isnât 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 PIMCOâs Total Return Fund, the $250 billion bond behemoth managed by Gross. The worldâs 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 PIMCOâs reliance on derivatives in his most recent investment letter to customers.
In the March note entitled âDefense,â Gross says from 1980 to 2011, the firm employed an offensive strategy that utilized âprudent derivative structuresâ to generate âconsistent alpha.â 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 âde-emphasize derivative structures that are fully valued and potentially volatile.â
Gross says he doesnât 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.