A LETTER FROM OUR CHIEF CLIENT OFFICER

Putting panic in perspective

Mark McCombe |Mar 19, 2020

Mark McCombe, BlackRock’s Chief Client Officer, shares some insights on how clients are managing the market turmoil.

How are markets functioning through this crisis?

Overall, they’ve been functioning reasonably well given the extremely high volatility and volumes that we’ve seen. But we’re certainly seeing some dislocations and liquidity challenges.

The actions that the U.S. Federal Reserve (“Fed”) has taken have helped to smooth those dislocations. In a very short time, it unveiled a set of measures to prevent the financial system’s plumbing from getting clogged. It stands ready to do more, and already has helped restore some order to the proper functioning of markets.

That said, I think clients need to be prepared for the possibility of more temporary dislocations and periods of illiquidity and to potentially adjust their strategies if need be. We’ve seen some clients pause their rebalancing activity when it became too expensive to transact, and we’re working with clients every day to help manage the tradeoff between immediacy and market liquidity.

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The actions that the Fed has taken have gone a long way in helping to smooth market dislocations.

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Given the extremely uncertain duration of this pandemic, how are clients preparing?

Institutional investors across the board are foremost concerned about maintaining liquidity to meet their liabilities. For companies in some of the hardest hit sectors, this pandemic is already proving more severe than even their worst-case Black Swan assumptions. We’re doing everything we can to help them through this extraordinarily challenging time.

Even though the majority of our clients are not facing an existential crisis, all of them are rightly focused on liquidity and liabilities. I think some people may wonder why institutional investors haven’t moved more decisively to take advantage of some of the market dislocations we’ve seen. A big part of the answer lies in the fact that we’re in uncharted waters here and no one knows how long the current crisis will last, so many clients need to focus on things that are more important than the latest market moves.

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Institutional investors across the board are foremost concerned about maintaining liquidity to meet their liabilities.

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For those clients that are able to act opportunistically, what trends are you seeing?

Many of our clients, particularly pension plans, are looking at the yields available from dividend-paying equities as very attractive compared to what’s available from investment grade bonds, particularly considering the long-term upside potential of equities.

Within equities, we’ve seen many of our clients shifting their exposure toward the quality and minimum-volatility factors, which is consistent with the broader risk-off sentiment. But we’re also seeing renewed interest in active equity strategies, as clients are increasingly looking to active management as a potential way to add both alpha and risk mitigation in a difficult environment for beta exposures.

The collapse in Treasury yields is impacting many of our clients, but for those with long-dated liabilities, the pain is particularly acute. As a result, many of our pension and insurance clients are now sharpening their focus on private markets as a potential source of higher yields.

And with all of the turmoil surrounding China, it’s easy to lose sight of the fact that Chinese equities have actually held up rather well this year, and we continue to see interest from clients in using the current selloff as an opportunity to build long-term allocations.

Mark McCombe
Senior Managing Director, Chief Client Officer
Mark McCombe oversees all global client segments and is accountable for driving growth for client businesses in the U.S. and Canada.
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Making sense of market turmoil
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Making sense of market turmoil