The BlackRock Emerging Frontiers Fund has suffered massive losses after taking a big punt on Russian equities just before Russia invaded Ukraine.
The fund lost more than 10% in value last month, according to the Bloomberg news agency, after it tried to claw back losses sustained in January by increasing its exposure to Russian stocks.
In total, the fund had around 9% of its total gross assets in a country that has become a pariah on the world’s financial markets.
“We travelled to Russia at the end of January to assess the situation on the ground given our large net long position there. We believe the risk/reward of being long Russian equities is favourable relative to the risk we see of conflict," the hedge fund said in a letter to clients sent out before the invasion.
Russia’s stock market is currently closed after a massive selling spree in the wake of the invasion of neighbouring Ukraine.
FT exclusive: BlackRock, the world’s largest asset manager, has taken about $17bn in losses on its Russian securities holdings because of the invasion of Ukraine https://t.co/LKY3ioTWEA pic.twitter.com/sJcK4ZeTJx
— Financial Times (@FinancialTimes) March 11, 2022
The world’s largest asset manager is estimated by the Financial Times to have lost around US$17bn in its punt on Russian stocks; that seems a lot – and it is – but in the context of BlackRock’s total assets of around US$10,000bn, it is painful but manageable.
BlackRock's exposure to Russian assets is primarily driven by index strategies, held across dozens of different portfolios.
A month ago Russian securities represented 0.18% of total assets under management (AUM) but now represent less than 0.01% of client assets.
"Any client impact would also depend on their initial asset allocation and the timing of their allocations to or away from this market during the period.
"BlackRock will continue actively consulting with regulators, index providers and other market participants to help ensure our clients can exit their positions in Russian securities, whenever and wherever regulatory and market conditions allow,". a spokesperson said.
The news of the poorly timed punt follows yesterday's reports that California-based fund manager Pimco is on the hook for billions of dollars if Russia defaults on its sovereign debt.
Pimco has underwritten credit swaps, a derivative that protects holders of sovereign bonds, worth at least US$1bn while also holding US$1.5bn of its Russian debt Itself, according to the Financial Times.
-- adds BlackRock statement--