BlackRock's Rick Rieder Is 'Manaical' About Risk in $32.8B Fund
(Bloomberg) -- Rick Rieder frequently describes himself as “maniacal.” And he’s not alone. BlackRock Inc.’s chief executive officer, Larry Fink, agrees.
The global chief investment officer for fixed income at BlackRock is unusually passionate for Wall Street. How else would you describe someone who won’t accept his doctor’s advice on minimum-required sleep? Who seems to relish spending one Saturday each month from sunrise to sunset doing nothing but market research?
As obsessive as Rieder is about investing and a handful of other topics, perhaps what’s more striking is how rigid he is about cutting things out of his life that don’t fire him up. He’ll talk your ear off about why he was an early investor in Tesla Inc. and drives one of its cars (Elon Musk “is a god to me”), and he’ll go to just about any concert with his family (including rapper Pitbull’s show this past New Year’s Eve). But he can’t fathom spending a day at the Metropolitan Museum of Art or catching a midday movie. No time for those things.
That leaves him with a short list of interests: education reform; sports; his alma mater, Emory University; his family; and his bond funds. “What I enjoy doing, I really enjoy doing,” he says. “I’ve given up on the rest of things that I’m kind of interested in.”
Rieder is zealous about education reform. One cold morning in December, he’s revving up a group of students in the gym of Vailsburg Middle School, a charter school in Newark, N.J. Vailsburg is one of more than a dozen charters in Newark run by North Star Academy, of which Rieder is chairman of the board. Exhorting the young students to seize opportunities, he tells them, “Life is not a dress rehearsal! Life is the big event!”
Then he yields to two surprise guests: Ken Daneyko, a New Jersey Devils hockey legend, followed by the team mascot: the NJ Devil.
Rieder also is a rabid Devils fan. Lately, one of his best connections to the franchise is his 24-year-old daughter, who does social media for the team—her desk is three seats away from that of the mascot and she helped arrange his appearance at the school. Another connection is his former boss at Lehman Brothers, Jeffrey Vanderbeek, who owned the team for about a decade before selling his controlling stake in 2013. Lehman, of course, collapsed in September 2008 in one of the central events of the global financial crisis.
The way Fink tells it, Rieder’s drive is what got him in the door at BlackRock in 2009 after 21 years at Lehman. “His particular strength is his headfirst approach to everything he does,” Fink says. “When Rick gets interested in something, either charter schools or conceptualizing what’s going on in the bond market, he does everything with an incredible passion.” Says Fink: “I tend to like passionate people—I’m pretty passionate myself. More than 50 percent of what attracted me to Rick in having him come to BlackRock was his personal being and his character.”
Spend some time with Rieder, and you start to see how his disparate interests circle back on each other and connect. Take his focus on education. He starts with his feeling that students in places such as Newark don’t have fair educational opportunities. “If we don’t give these kids a chance, particularly as the world moves to a service-oriented and technology-oriented economy, it’s really tough,” he says.
Services. Technology. Ding ding ding! That harkens back to Rieder’s (somewhat nerdy) first tweet, in September. In it, while he complained that Twitter cuts him off at four charts per post, one graph showed services inflation exceeding that for goods. Another highlighted the plunging cost of storing a gigabyte of data.
As for tech, Rieder has the Tesla and various Apple products. On one wall of his Midtown Manhattan office is a 75-inch smart TV. On it, he brings up a spreadsheet of his flagship $32.8 billion BlackRock Strategic Income Opportunities Portfolio, known as SIO. The boxes are too small to read without squinting.
Of course, that’s a byproduct of Rieder’s approach. He’s convinced that BlackRock, which oversees $1.8 trillion of fixed-income assets, has better access to data than anyone in the world. He plans to leverage that by taking the firm’s best ideas from around the globe, revving up its risk management system, and melding them into a single fund that will be a steady winner without taking any big bets.
Among the 400 people within BlackRock’s global fixed-income group, more than 200 contribute to the portfolio, he says. His office gets so packed in the morning strategy meeting that someone once passed out. For the firm’s army of fund managers, the brainstorming sessions provide can’t-miss opportunities to gain an edge.
BlackRock’s SIO is among the dozens of “unconstrained” funds that became popular after the financial crisis, as global interest rates fell to record lows and investors looked for ways to profit. They give star managers such as Rieder the flexibility to go anywhere and buy anything.
“The moniker ‘unconstrained’ almost sounds like you’re swinging from the chandeliers—I actually don’t buy that at all,” he says. “Nirvana for this fund is making 2 basis points every day and clients don’t have to worry about the risk you’re taking.”
It’s perhaps fitting that a two-decade veteran of Lehman would obsess over avoiding big risks. Rieder climbed the bank’s ranks to head its global principal strategies team and started his own hedge fund, R3 Capital Partners, while working there in 2008. That turned into a volatile situation: R3 lost 44 percent that year before bouncing back with a 54 percent gain in 2009, which is when Rieder found his new home at BlackRock.
He and co-manager Bob Miller have guided SIO to a 3.1 percent average annual return over the past five years, better than 80 percent of aggregate fixed-income funds tracked by Bloomberg. Last year was the best of the past five, with a 4.8 percent gain. The fund has never lost more than 1 percent over the course of a year. Other funds have had better returns but not without steep setbacks along the way.
“Rick is a very data-driven and deliberate manager who is rarely ever surprised in the markets,” says Paul Tudor Jones, founder and chief investment officer of Tudor Investment Corp., a $7 billion hedge fund. “He works as hard as anybody in front of a screen, and it shows in his performance.”
One measure that defines Rieder’s approach is the Sharpe ratio, the standard created by Nobel laureate William Sharpe for measuring performance relative to risk. It takes the fund’s average return minus the risk-free rate and divides by the standard deviation of returns.
Over the past five years, of the 13 open-end aggregate bond funds based in the U.S. with at least $10 billion in assets, BlackRock’s SIO ranks second in Sharpe ratio, at 1.52. Eleven of the 13 funds have a ratio lower than 1, indicating the risk is greater than the added return.
The strongest Sharpe ratio, of 1.9, belongs to another bond star, Daniel Ivascyn. His $108 billion Pimco Income Fund had net inflows in 2017 of more than $31 billion, as the portfolio continued to beat its peers. (SIO grew by $4.6 billion in 2017.) Rieder was off to a hot start this year, with SIO up 1.3 percent through Jan. 25, the best of the 13. Ivascyn’s was flat.
If there’s a bicoastal rivalry simmering between the two fund managers, neither will admit it. That’s a breath of fresh air in a bond market seemingly dominated by egos. Bill Gross and Mohamed El-Erian famously clashed years ago at Pimco. Jeffrey Gundlach, chief investment officer of DoubleLine Capital LP, has struck a combative tone on Twitter. Fellow West Coast CIO Scott Minerd of Guggenheim Partners has downplayed reported turmoil within Guggenheim.
Rieder says his frustration with the finance industry is that “it’s all about momentum and hearsay, and it just doesn’t work.”
Fortunately for him, he’s in a position to remain above the fray. He usually meets with Fink multiple times a week, swapping his analytical perspective for what his boss gleans from meetings with corporate and government leaders. Rieder is a member of the Federal Reserve Bank of New York’s Investor Advisory Committee on Financial Markets and formerly served as vice chairman of the influential Treasury Borrowing Advisory Committee.
“He sits in a very important seat—he sees so much of what’s going on in the fixed-income world,” says Leon Cooperman, the billionaire founder of hedge fund Omega Advisors. “If I’m thinking of doing something in bonds, I check my own views often against his, because I respect his input. He’s willing to share his views. He’s not a taker.”
After Pimco Managing Director Richard Clarida emerged as a candidate for Fed vice chairman (albeit unsuccessfully), it’s only natural to wonder if a role at the central bank or Treasury could lure BlackRock’s fixed-income chief, who’s advised both institutions. Fink himself was rumored to be a Treasury Secretary candidate if Hillary Clinton became president.
“I can’t see it anytime soon. But at some point in my life, I could see myself doing something in public service,” Rieder says. He links his interest back to his work with the North Star charter schools. “I have some very deep beliefs in terms of doing things that help the broader community.”
For now, though, his focus is on delivering returns. He says meeting with teachers unions and police unions puts in stark relief who’s counting on his leadership at the world’s largest money manager.
Rieder turns back to his favorite descriptor. “We are maniacal about knowing where our risks are,” he says, admitting he could ballpark most of those minuscule numbers sprawled across the big-screen TV in his office without looking. Whether that drive is healthy is up for debate. “I’m not sure if it’s the right answer,” he says. “But it’s the right answer for me.”
Chappatta covers U.S. Treasuries at Bloomberg News in New York.
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