BlackRock has been accused of failing to protect pension fund clients by threatening to halt trading in certain funds at the height of this week’s UK bond market tumult.
In a memo sent on Wednesday morning, BlackRock told clients using its liability-driven investing strategies that it would freeze “funds more at risk of assets being exhausted” and move the assets to cash.
One professional trustee said the actions left pension schemes potentially unable to take steps to protect their members.
“What we had seen, which was disconcerting for trustees, is that they can’t buy or sell,” said David Fogarty, a professional trustee with Dalriada, a trustee firm.
The restrictions affected BlackRock clients using its liability-driven investing strategies that lay at the heart of the turmoil.
BlackRock, along with rivals including Legal and General Investment Management, Insight Investment and Schroders, runs a range of LDI funds for pension schemes that use derivatives to hedge against adverse movement in interest rates and inflation.
The sharp moves in gilt yields sparked demands from some asset managers for clients to stump up extra cash to cover shortfalls in their derivatives positions. Some pension funds were forced to sell gilts to raise cash, exacerbating the market mayhem.
BlackRock, which sits between the pension schemes and banks on such derivatives trades, told its clients that it would no longer demand additional collateral.
BlackRock is “not proceeding with any further recapitalization events until further notice”, said the email to LDI clients, which was seen by the Financial Times and was sent at about 11am, before the Bank of England announced its emergency intervention to stabilise the gilt market.
Fogarty said: “If you run out of collateral they were saying, ‘we will close the position’, without going back to ask for more money from the fund. It is protecting their positions against contagion but it is not protecting their pension funds.” He added that other LDI managers put in place similar restrictions.
A pensions expert said: “BlackRock would have been on the hook for a default in its LDI funds if it had not taken these steps and that is obviously a reputational hit that it wanted to avoid.”
BlackRock did not immediately respond to a request for comment.