The Ties That Bind: BlackRock and Biden
We believe the line between Wall Street and Washington, D.C., has always been a little blurry. But, as the new Biden administration has taken the helm of the White House this year, it’s growing harder and harder to see where Wall Street begins, and Washington, D.C. ends.
We feel the current reality is that big investment firms have even more influence on our nation’s policies.
Take BlackRock, Inc. (BLK), for example. BlackRock is the biggest investment firm globally, offering its investment fund lineup to more than 35 million retirement plans, supporting over 100,000 financial advisers who construct investment portfolios for their clients and serving investors in more than 100 countries around the world.
At the end of the first quarter of 2021, BlackRock had more than $9.0 trillion in assets under management (AUM). To put this into perspective, only two countries in the world have GDP figures larger than BlackRock’s total AUM: U.S. GDP totals around $21 trillion, and China’s GDP comes in at $14.7 trillion. Even fiscally responsible Germany only has a GDP of $3.8 trillion.
It’s not too surprising then that American Presidents have sought the expertise and advice of former and current BlackRock executives. President Joe Biden and Vice President Kamala Harris even followed former President Barack Obama’s lead, turning to BlackRock when they sought out economic and financial advisors for the new Presidential cabinet.
Brian Deese, a former BlackRock investment executive, serves on the National Economic Council. Adewale Adeyemo, former chief of staff to BlackRock’s chief executive, is the top official at the Treasury Department. Formerly the global chief investment strategist at BlackRock, Michael Pyle is now the chief economic advisor to Vice President Harris. I should note, Deese, Adeyemo, and Pyle all also worked with the Obama administration.
This pipeline flows in both directions. BlackRock has hired several policymakers and regulators who served past administrations. For example, Dalia Blass was an official with the SEC and now leads external affairs at BlackRock; Thomas Donilon was a national security advisor to President Obama and is currently chairman of BlackRock’s research business.
So it’s no understatement to point out that BlackRock has strong ties to Washington, D.C., and the firm now has a profound influence on the Biden administration. The question is: is this influence good or bad for Wall Street? Well, the answer to that question depends on which corner of Wall Street you’re standing on.
Consider the following. A recent article from The Wall Street Journal pointed out that money management firms like BlackRock and J.P. Morgan Asset Management are buying up entire residential communities and turning the homes into rental units. The demand for properties from these firms adds to the bidding wars we are seeing for properties and is helping drive home prices even higher.[1]
Now, suppose you’re an individual looking to achieve the American Dream of homeownership and hope to take advantage of the low mortgage rate environment. In that case, you may be less than pleased that BlackRock is scooping up properties. Bidding against a big firm like BlackRock or J.P. Morgan can be next to impossible.
But for central banks, BlackRock’s and its peers’ foray into the real estate market may eliminate some risks to the unwinding of easy money policies. Central banks worldwide flooded their respective economies with stimulus in the past 18 months, whether through interest rate cuts, bond-buying programs, or both. Now, with economies recovering from the COVID-19 pandemic, they face several risks if they taper their stimulus programs too fast or too slow.
Regarding the real estate market, if the Federal Reserve waits too long, it risks further inflating the housing market. Due to a limited number of homes on the market and strong demand, existing home prices have soared to a median of $350,000. That represents a 25% year-over-year increase and a new record high.[2]
The term “housing bubble” is already being tossed around, and we all know too well the havoc unwinding a housing bubble creates.
On the flip side, if the Fed were to withdraw its stimulus too soon—i.e., halt its bond-buying program or aggressively raise key interest rates—it risks popping that “housing bubble” and sending home prices tumbling. That, of course, could quickly derail the recovery.
Having large investment firms, like BlackRock and J.P Morgan, supporting the demand for properties across the country, provides some cover for the Fed. They presumably will assess any correction in housing prices relative to the rents they can earn. If so, a correction in prices may keep them in the market as active buyers helping support housing prices.
This would certainly be the hope of the current administration, so it’s not too far-fetched to think that BlackRock’s foray into the housing market may ultimately serve a dual purpose.
Please click here for important disclosures.
Reference Articles
https://www.blackrock.com/corporate/literature/annual-report/blackrock-2020-annual-report.pdf
https://www.businessinsider.com/what-to-know-about-blackrock-larry-fink-biden-cabinet-facts-2020-12
[1] https://www.wsj.com/articles/if-you-sell-a-house-these-days-the-buyer-might-be-a-pension-fund-11617544801
[2] https://www.nbcnews.com/business/real-estate/how-did-housing-market-turn-white-hot-it-wasn-t-n1273108