BlackRock, Inc. (NYSE:BLK), the largest asset manager, looks to capture a niche mortgage market in the UK, according to Financial Times. Lower returns in fixed income markets have driven clients towards other asset classes, as BlackRock looks to fund £0.5 billion of loans.
BlackRock is working with Fleet Mortgages to create a platform where each can complement other’s needs; Fleet Mortgages is a Buy-to-Let lender, where the company lends clients to rent out its place. BlackRock manages the clients and creates loan pools for clients based on the return and risk. On the other hand, Fleet manages to provide the platform for clients who make their investment options. The relationship of both comes where mortgage are placed into particular investment entities which are processed for securitization. Securitization means where the loans are packaged and sold like bonds to investors who have access to returns from these mortgage assets.
Bob Young, CEO Fleet Mortgages, said: “They saw there’s an opportunity for those clients who want to take a position in mortgage assets to actually own the risk on the assets directly, BlackRock manage clients directly, then we originate pools of loans for clients based on what those clients are looking for risk and return wise.”
The return is comparatively higher than investing in other asset classes; however, it carries the same risk as to investing in real-estate. The buyer gets into trouble if the value of the property goes below the mortgage value. The need in this unusual development arises as lower yield bonds have pressurized asset managers to keep up with their returns including insurance companies and pension funds.
Many institutional investors are realizing the importance of peer-to-peer lending platforms and have started to invest in them. Funding Circle is a platform for lending small businesses, where BlackRock is also amongst the investors. It is quite similar to Fleet in terms of the platform and purpose with loans.
SOURCE: The Country Caller
