BlackRock, Top Holder of Russia Debt, Frets Over More Sanctions

(Bloomberg) -- Reputation risk is back on the table as money managers grapple with animosity between the Russia and U.S. after the Syria strikes.

While firms such as GAM have bought the dips in Russian assets and researchers including Capital Economics say the economy is in good shape, investors from AllianceBernstein to BlackRock say they’re worried by potential reputational damage and the risk of future sanctions.

Russian fundamentals look attractive to BlackRock money manager Gerardo Rodriguez, yet he’s cautious due to the difficulty in predicting which individuals or companies may get hit next. BlackRock is the biggest holder of Russian ruble debt, according to public filings data compiled by Bloomberg.

BlackRock, Top Holder of Russia Debt, Frets Over More Sanctions

"It’s not clear what the strategy of the U.S. is when it comes to their relationship with Russia," Rodriguez said from New York. "That makes it difficult to assess the potential for new sanctions or other initiatives."

Many buy-side managers have avoided publicly discussing Russian assets as they hear out client concern and debate selling of their holdings. Ownership of sanctioned assets can prompt compliance departments to open reputational risk reviews.

“We are very cautious on Russian corporate debt as we don’t think the market has fully appreciated the increase in sanctions risk as well as the serious implications of SDN designation," said Shamaila Khan, the director of emerging-market debt at AllianceBernstein, referring to the U.S. Treasury’s "Specially Designated Nationals" category.

Russian sovereign bonds due in 2047 have fallen to 95 cents on the dollar from a high of 107 cents in January. The ruble is the third-worst performer among 31 major currencies and Russian stocks rank among the biggest losers this year.

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