Friday, April 17, 2009

BlackRock Hires Vice Chairman Of U.S. Treasury Borrowing Advisory Committee

Bloomberg reports that Larry Fink's BlackRock has taken over R3 Capital Management, a $1.5 billion credit hedge fund started by ex-Lehman corporate bond trading desk head Rick Rieder. R3, which was previously part of Lehman Brothers and subsequent to Lehman's bankruptcy, was purchased by Rick Rieder and other management members for the paltry sum of $250 million.

Rieder has joined BlackRock as head of its fixed-income alternatives portfolio team and will continue to manage the R3 funds, according to a memo sent yesterday to BlackRock employees. Bobbie Collins, a spokeswoman for the New York-based firm, confirmed the memo today and declined to comment further.

Other members of the R3 team who are joining BlackRock include J. Richard Blewitt, Russell Brownback, Leland Hart, Michael Lipsky, Mike Phelps, John Stein, Josh Tarnow, Paul Tice, and Michael Weaver, according to the memo.

Lehman Brothers in October sold its 45 percent stake in R3for $250 million and made a new $250 million passive investment in R3’s fund, which can’t be divested until May 2011, R3 said in an October statement.

The R3 situation is curious as it basically occurred in a bankruptcy court firesale, with very little disclosure on just what assets and liabilities were being acquired by the R3 general partners from Lehman, and if any of the other Lehman firesales were an indication (Lehman U.S. brokerage assets, Neuberger Berman), the bankrupt estate likely lost out on any potential upside due to Judge Peck's desire to speed through any asset sale at warp speed. However, that should be a concern for the Lehman offical and ad hoc creditor committee (and their legal advisor Milbank Tweed) - if they were ok with hitting whatever lowball bid came their way, it is their issue.

What Bloomberg failed to catch however, is that by hiring Rieder as head its fixed income alternatives team, BlackRock is also retaining the very useful services of the vice chairman of the U.S. Treasury's Borrowing Advisory Committee, and is responsible for critical advisory memoranda to Tim Geithner such as this one, focusing on advice for Treasury debt issuances. Whether or not in this way BlackRock will have a hotline to Tim Geithner's cabinet on all fixed income issues, is not that clear: based on their hot reception of the PPIP they already have that. However, it is disappointing that the public-private incest continues unabated with no disclosure by either the government or BlackRock as to the full motives for this specific retention. This is even more troubling as BlackRock together with PIMCO will be the biggest beneficiaries of the private-public bait and switch, and the last thing they need is for the general population to think there could be some less than arms-length dealings going on behind the scenes. This most recent action would only reinforce these suspicions. Sphere: Related Content
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