BlackRock's Fink Says He Never Believed in El-Erian's `New Normal' Economy

Laurence D. Fink, chief executive officer of BlackRock Inc., said he never thought the U.S. would enter a prolonged phase of below-average economic growth described by Mohamed El-Erian, CEO of Pacific Investment Management Co.

“We never believed in the ‘new normal,’ ” Fink said today on a conference call presenting fourth-quarter earnings for New York-based BlackRock. “We were always talking about a U.S. economy growing 3 plus percent.”

Accelerating growth, fueled by government stimulus and a second round of asset purchases by the Federal Reserve, has prompted economists to lift forecasts. El-Erian, who helped coin the term “new normal” about two years ago to describe the long-term impact of the worst recession since the Great Depression, in December raised his U.S. economic forecast, while cautioning that the recovery may not last.
Source:http://www.bloomberg.com/news/
Fink, although he never fully embraced Pimco’s philosophy, previously used the term new normal to describe a gradual recovery as the U.S. emerged from the credit crisis.

“We believe we are in the midst of a recovery in our economies, albeit a slow one,” Fink said in an interview with Bloomberg Television on June 12, 2009. “We’re not forecasting an economy that’s back to normal. It’s more a new normal.”

Fink, 58, built BlackRock from a bond shop into the world’s largest asset manager with a series of takeovers, including the 2009 purchase of Barclays Global Investors.

‘Greatest Failures’

The firm didn’t benefit as much as Pimco from more than $600 billion in industrywide deposits into bond mutual funds in 2009 and 2010. A former bond trader, Fink today said it was “one of the greatest failures” of BlackRock that it didn’t attract a larger share of that money.

Pimco’s $240 billion Total Return Fund doubled in size since 2007, and became the world’s largest mutual fund as investors fled to the safety of bonds. Pimco’s mutual funds attracted $64 billion in deposits in 2010, according to data from Morningstar Inc. in Chicago.

The $3.4 billion BlackRock Total Return fund, which has beaten 93 percent of peers over the past five years, declined 11.1 percent in 2008, according to data compiled by Bloomberg. The Pimco Total Return fund rose 4.7 percent in 2008, and has beaten 99 percent of peers over the past five years.

“We did not benefit like some of our great competitors did in the fixed-income flows, and it was a disappointment,” Fink said today. “And obviously our performance in 2008 was a chief cause of that.”

Equities Shift

Pimco is forecasting an end to the 30-year bond rally that has fueled much of its growth, and last year started expanding into equities.

BlackRock, which acquired Merrill Lynch & Co.’s money- management unit in 2006 to expand its equity business, has almost half of its $3.56 trillion in managed assets in stocks. Fink said today that BlackRock stands to benefit if an improving market prompts investors to “re-risk” and move from bonds to equities.

Under Pimco’s philosophy, the growth in the U.S. economy will be below historical norms for years to come because it is saddled with high levels of debt, higher unemployment, faces more regulation and a smaller role in the world economy.

El-Erian, 52, in December raised the forecast for the U.S. after stimulus from the Federal Reserve, saying the economy will grow 3 percent to 3.5 percent in the fourth quarter of 2011, compared with its previous forecast of 2 percent to 2.5 percent.

The median forecast for U.S. GDP growth in 2011 rose to 3.1 percent in January, up from 2.6 percent in December, according to a monthly Bloomberg News survey of economists.

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net.

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net.