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Sideways: BlackRock walks a governance tightrope

BlackRock’s contract with the Federal Reserve to support the corporate bond market leaves the world’s biggest asset manager with no room for governance error.

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BlackRock’s Larry Fink and New York Federal Reserve president John Williams: Both seem keenly aware that the slightest hint of impropriety in their unusual relationship could cause enormous reputational damage

BlackRock was already under scrutiny after chief executive Larry Fink repositioned the firm in January to place greater emphasis on environmental, social and governance (ESG) criteria.

Fink’s journey from mortgage-bond trading hotshot at First Boston in the 1980s to apostle of ethical investing in 2020 struck many rivals as self-serving and unconvincing, although the strong relative performance of ESG products during the Covid-19 crisis should go some way to dampening those criticisms.

The crisis also saw BlackRock win the most controversial mandate of the year so far, with the appointment of its financial markets advisory group as agent for the Federal Reserve’s first foray into the direct support of the credit markets.

The US central bank did not hold a competitive tender for the mandate and was slow to release details of its contract with BlackRock, which exacerbated suspicion about the potential for valuable information to flow from the specialist advisory unit to other parts of the asset manager.

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