Key Takeaways
- • BlackRock's $1.7 billion Obsidian hedge fund fell 20% as of March 20, 2020, driven by coronavirus-induced turmoil in fixed-income markets including ratings downgrades, liquidity evaporation, and emergency Federal Reserve rate cuts to near zero.
- • The 24-year-old fund, managed by Stuart Spodek, is down more than 19% year-to-date through March 20 after posting strong 13%+ returns in 2019, representing a dramatic reversal in performance.
- • Obsidian's portfolio—concentrated in rates, mortgages, and corporate credit—was acutely exposed to March 2020 market dislocations, with mortgage-backed securities funds facing margin calls and broader credit market stress affecting municipal bonds and investment-grade corporates.
- • The Federal Reserve enlisted BlackRock to lead multiple bond-buyback programs across mortgages, ETFs, and investment-grade corporate credit, creating a notable conflict-of-interest dynamic as the parent company managed crisis liquidity while its hedge fund suffered substantial losses.
Summary
BlackRock's Obsidian hedge fund, the firm's oldest and a $1.7 billion fixed-income strategy, experienced severe losses in March 2020 as coronavirus-induced market dislocation ravaged credit markets. The fund fell 20% as of March 20, marking a sharp deterioration from its strong 2019 performance of over 13%. Year-to-date through mid-March, Obsidian was down more than 19%, according to sources familiar with the fund's performance.
The fund, managed by Stuart Spodek, operates as a specialized fixed-income vehicle investing across rates, mortgages, and corporate credit. This concentrated exposure proved particularly vulnerable during the March 2020 liquidity crisis. Fixed-income markets faced multiple simultaneous shocks: ratings agencies downgraded well-known companies' debt to junk status, bid-ask spreads widened dramatically as liquidity evaporated, and the Federal Reserve emergency-cut its benchmark rate to near zero in an unprecedented policy response. Municipal bond ETFs traded at steep discounts to net asset value, while mortgage-backed securities funds faced margin calls from lenders. One distressed fund reportedly sued its lender, RBC, over aggressive margin calls.
The timing created an unusual dynamic for BlackRock. While Obsidian suffered significant losses tied to its core fixed-income holdings, the Federal Reserve simultaneously enlisted BlackRock to lead three major bond-buyback programs targeting mortgages, ETFs, investment-grade corporate credit, and other instruments. This arrangement positioned the parent company as a crisis liquidity provider even as its flagship hedge fund absorbed substantial mark-to-market losses. BlackRock declined to comment on the fund's specific performance at the time.
The 24-year-old Obsidian fund's March 2020 decline underscored the severity of credit market stress that spring and highlighted concentration risk in specialized fixed-income strategies, despite strong historical track records.
The fund, managed by Stuart Spodek, operates as a specialized fixed-income vehicle investing across rates, mortgages, and corporate credit. This concentrated exposure proved particularly vulnerable during the March 2020 liquidity crisis. Fixed-income markets faced multiple simultaneous shocks: ratings agencies downgraded well-known companies' debt to junk status, bid-ask spreads widened dramatically as liquidity evaporated, and the Federal Reserve emergency-cut its benchmark rate to near zero in an unprecedented policy response. Municipal bond ETFs traded at steep discounts to net asset value, while mortgage-backed securities funds faced margin calls from lenders. One distressed fund reportedly sued its lender, RBC, over aggressive margin calls.
The timing created an unusual dynamic for BlackRock. While Obsidian suffered significant losses tied to its core fixed-income holdings, the Federal Reserve simultaneously enlisted BlackRock to lead three major bond-buyback programs targeting mortgages, ETFs, investment-grade corporate credit, and other instruments. This arrangement positioned the parent company as a crisis liquidity provider even as its flagship hedge fund absorbed substantial mark-to-market losses. BlackRock declined to comment on the fund's specific performance at the time.
The 24-year-old Obsidian fund's March 2020 decline underscored the severity of credit market stress that spring and highlighted concentration risk in specialized fixed-income strategies, despite strong historical track records.
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