by Stephen Gandel at Fortune
Carl Icahn thinks investors are headed over a cliff in a “party bus” driven by BlackRock.
On Wednesday, Icahn accused the giant money management firm of pumping air into a bubble in high-yield debt by pushing seemingly safe investments on individual investors that were actually filled with what he claims are risky bonds. At one point, Icahn compared what BlackRock BLK -0.23% is doing today to what the banks did in 2007 when they sold billions of dollars of faulty subprime mortgage bonds.
“They are putting their name on this stuff and people are buying it,” said Icahn. “Blackrock is an extremely dangerous company.”
Icahn made the comments while sitting next to BlackRock CEO Larry Fink on stage at the Delivering Alpha investment conference, which is put on by CNBC and Institutional Investor magazine. Icahn honed in on BlackRock’s sale of high-yield exchange traded funds. He said the ETFs offer the appearance of liquidity, making the high-yield bond market seem safer than it is.
Icahn also noted that BlackRock’s ETFs often get exposure to high-yield bonds through credit default swaps, which he suggested would make the liquidity problem even worse, but he didn’t explain how. A recent prospectus for BlackRock’s $13 billion iShares iBoxx High Yield Corporate Bond ETF HYG -0.31% makes no mention of its use of CDS. A spokesperson for BlackRock said the fund is not invested in CDS. The fund does hold some cash, along with high-yield corporate bonds.
But a BlackRock mutual fund that also invests in high-yield bonds, the BlackRock High Yield bond fund BHYAX 0.13% , does use derivatives to get some of its exposure to