As finance executives face a range of challenges in the current environment, they must avoid becoming defensive and instead serve as leaders in the search for solutions, says Ann Marie Petach, CFO and senior managing director at asset management firm BlackRock.
The hurdles currently confronting finance executives include the sustained volatility in financial markets, historically low interest rates, demographic changes, uncertainty about the outcome of the debt crisis in Europe, regulatory changes in response to the financial crisis and risk management challenges, Petach told finance executives attending the Alexander Hamilton Best Practices Summit in New York City.
Investors and the public at large, including the Occupy Wall Street protestors only blocks away from the conference site in lower Manhattan, are justifiably upset about the impact of the financial crisis on their retirement savings and other investments. “The public is not happy,” Petach says. “They expect change.” Finance executives must accept the inevitability of change rather than trying to prevent it, she adds
Petach notes that BlackRock has submitted a number of comment letters to regulators and standard-setting agencies that are mulling how to revise the relationship between issuers and auditors, in part to encourage them to develop an integrated solution rather than three independent approaches that would be much more challenging for companies to follow.
She encourages corporate finance executives to make efforts to educate legislators, and points to BlackRock's participation in the current debates about exchange-traded funds as an example. “If we were defensive and said change shouldn't come about, I don't think we'd get anywhere,” Petach says.
On the volatility front, the financial crisis that began in 2008 highlighted how assets that perform well one year may become next year's dogs. “The only asset class that performed relatively consistently across this time frame was multiasset class,” Petach says.
Finance professionals should also look for ways that their companies can benefit from current circumstances, Petach says. “There are some great opportunities to pursue your own strategic objectives.”
She cites the low level of interest rates. From an investment standpoint, low interest rates are particularly problematic, Petach says, estimating that public pension funds are underfunded by 30% while households' retirement savings are 40% below where they should be.
However, companies can benefit from the low rates. Petach notes that BlackRock increased its credit line to $3.5 billion from $2.5 billion this year, while extending its maturity to five years. The company also raised $1.5 billion in term debt that it used to buy back its stock from Bank of America and facilitate the bank's sale of shares to the public, increasing its public float.
“Now we have about 60% of our shares broadly held by public, and we've become a member of the S&P 500, which we were previously excluded from because of our small float,” Petach says.
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