As for tech, Rieder has the Tesla and various Apple products. On one wall of his Midtown Manhattan office is a 75-inch smart TV. On it, he brings up a spreadsheet of his flagship $32.8 billion BlackRock Strategic Income Opportunities Portfolio, known as SIO. The boxes are too small to read without squinting.
Of course, that’s a byproduct of Rieder’s approach. He’s convinced that BlackRock, which oversees $1.8 trillion of fixed-income assets, has better access to data than anyone in the world. He plans to leverage that by taking the firm’s best ideas from around the globe, revving up its risk management system, and melding them into a single fund that will be a steady winner without taking any big bets.
Among the 400 people within BlackRock’s global fixed-income group, more than 200 contribute to the portfolio, he says. His office gets so packed in the morning strategy meeting that someone once passed out. For the firm’s army of fund managers, the brainstorming sessions provide can’t-miss opportunities to gain an edge.
BlackRock’s SIO is among the dozens of “unconstrained” funds that became popular after the financial crisis, as global interest rates fell to record lows and investors looked for ways to profit. They give star managers such as Rieder the flexibility to go anywhere and buy anything.
“The moniker ‘unconstrained’ almost sounds like you’re swinging from the chandeliers—I actually don’t buy that at all,” he says. “Nirvana for this fund is making 2 basis points every day and clients don’t have to worry about the risk you’re taking.”
It’s perhaps fitting that a two-decade veteran of Lehman would obsess over avoiding big risks. Rieder climbed the bank’s ranks to head its global principal strategies team and started his own hedge fund, R3 Capital Partners, while working there in 2008. That turned into a volatile situation: R3 lost 44 percent that year before bouncing back with a 54 percent gain in 2009, which is when Rieder found his new home at BlackRock.
He and co-manager Bob Miller have guided SIO to a 3.1 percent average annual return over the past five years, better than 80 percent of aggregate fixed-income funds tracked by Bloomberg. Last year was the best of the past five, with a 4.8 percent gain. The fund has never lost more than 1 percent over the course of a year. Other funds have had better returns but not without steep setbacks along the way.
“Rick is a very data-driven and deliberate manager who is rarely ever surprised in the markets,” says Paul Tudor Jones, founder and chief investment officer of Tudor Investment Corp., a $7 billion hedge fund. “He works as hard as anybody in front of a screen, and it shows in his performance.”
One measure that defines Rieder’s approach is the Sharpe ratio, the standard created by Nobel laureate William Sharpe for measuring performance relative to risk. It takes the fund’s average return minus the risk-free rate and divides by the standard deviation of returns.
Over the past five years, of the 13 open-end aggregate bond funds based in the U.S. with at least $10 billion in assets, BlackRock’s SIO ranks second in Sharpe ratio, at 1.52. Eleven of the 13 funds have a ratio lower than 1, indicating the risk is greater than the added return.