Key Takeaways
- • BlackRock's $1.7 billion Obsidian hedge fund declined 20% as of March 20, 2020, driven by coronavirus-induced turmoil in fixed-income markets including ratings downgrades, liquidity evaporation, and emergency Federal Reserve policy shifts.
- • The fund is down more than 19% year-to-date despite posting strong 2019 returns of 13%, demonstrating the severity of March 2020 market dislocation for credit-focused strategies.
- • Obsidian, a 24-year-old fixed-income hedge fund managed by Stuart Spodek, invests across rates, mortgages, and corporate credit, exposing it directly to the unprecedented credit market stress of early 2020.
- • Fixed-income markets experienced severe distress characterized by municipal bond ETF discounts, investment-grade-to-junk downgrades of major companies, and margin calls on mortgage-backed securities funds, creating a challenging environment for credit investors.
- • Despite the fund's losses, BlackRock was simultaneously engaged by the Federal Reserve to lead multiple bond-buyback programs across mortgages, ETFs, and investment-grade corporate credit, highlighting the firm's systemic role during the crisis.
Summary
BlackRock's Obsidian hedge fund, the firm's flagship 24-year-old fixed-income strategy with $1.7 billion in assets under management, experienced significant losses in March 2020 as the coronavirus pandemic created unprecedented disruption in credit markets. The fund fell 20% as of March 20, 2020, according to sources familiar with its performance. For the full year-to-date through March, Obsidian was down more than 19%, a stark reversal from its strong 2019 performance of 13% returns.
Managed by Stuart Spodek, Obsidian operates across the fixed-income universe, focusing on rates, mortgages, and corporate credit. The fund's March decline reflects the extraordinary stress gripping credit markets during the onset of the pandemic. Fixed-income investors faced a confluence of adverse developments: ratings agencies downgraded investment-grade corporate debt to junk status, market liquidity evaporated across multiple segments, municipal bond exchange-traded funds traded at steep discounts to net asset value, and the Federal Reserve implemented emergency measures including reducing its benchmark rate to near zero. Funds specializing in mortgage-backed securities particularly suffered, with some facing aggressive margin calls from lenders, prompting litigation in at least one instance against RBC.
The broader credit market environment deteriorated as distressed debt managers fielded inbound capital calls and institutional investors reassessed portfolio positioning. Despite these challenges, BlackRock itself played a central stabilizing role, enlisting the Federal Reserve to lead bond-buyback programs across mortgages, ETFs, and investment-grade corporate credit. BlackRock declined to comment on Obsidian's specific performance figures.
Managed by Stuart Spodek, Obsidian operates across the fixed-income universe, focusing on rates, mortgages, and corporate credit. The fund's March decline reflects the extraordinary stress gripping credit markets during the onset of the pandemic. Fixed-income investors faced a confluence of adverse developments: ratings agencies downgraded investment-grade corporate debt to junk status, market liquidity evaporated across multiple segments, municipal bond exchange-traded funds traded at steep discounts to net asset value, and the Federal Reserve implemented emergency measures including reducing its benchmark rate to near zero. Funds specializing in mortgage-backed securities particularly suffered, with some facing aggressive margin calls from lenders, prompting litigation in at least one instance against RBC.
The broader credit market environment deteriorated as distressed debt managers fielded inbound capital calls and institutional investors reassessed portfolio positioning. Despite these challenges, BlackRock itself played a central stabilizing role, enlisting the Federal Reserve to lead bond-buyback programs across mortgages, ETFs, and investment-grade corporate credit. BlackRock declined to comment on Obsidian's specific performance figures.
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