World's Largest Asset Management Firm Sees Promise of Market Comeback

(Bloomberg) - The co-founder of BlackRock Inc. thinks the market is ready for a comeback.

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Nearly $9 trillion is currently held in money market funds, and a similar amount is held in cash alternatives at banks, Robert Kapito, president of the world's largest asset manager, said Tuesday at the Asia-Pacific Finance and Innovation Symposium in Melbourne.

He said the stock market has shrunk as investors have turned to private assets, and that these funds will be a "huge force" in the stock market." Capito said, "It's going to be something you're going to have to watch closely, you don't want to miss it.

Read more Belgrade's Capito 'salivating' over $7 trillion in cash

The speed at which investors decide to sell their cash will depend on the Fed's next move on the interest-rate front. Strong U.S. economic growth and persistently high inflation make it more likely that the Fed will raise rates rather than cut them, pushing borrowing costs as high as 6.5% next year, strategists at UBS Group AG said.

Capito has pointed to the cash pileup in the money markets. In January, Capito said he was watching trillions of dollars of cash lying dormant with investors, which could soon be reallocated to bonds if interest rates fall. He said at the time that much of the cash in the money market could be diverted to model carriers and exchange-traded funds.

BlackRock is seeking to position itself as a one-stop shop offering a full range of investment options, including alternative assets that are in greater demand by institutional clients such as pensions, endowments and sovereign wealth funds. Currently, alternative assets account for approximately 3% of BlackRock's assets, but generate approximately 10% in fees.

-Written with the help of Ainsley Thomson.

(Kapito of BlackRock provides further comment).

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