Hire Wire Jun 22 2012

BlackRock's Rice to Depart

By Jason Zweig

Daniel J. Rice III, co-manager of $4.4 billion in energy assets at BlackRock Inc., will leave the firm at year-end, the world's largest asset-management firm said Thursday.

Rice's departure comes after The Wall Street Journal reported potential conflicts of interest between his family's private energy investments and the natural-resources portfolios he managed for BlackRock's clients.

Rice's flagship BlackRock Energy & Resources Fund has outperformed 96% of its peers over the past decade. His family also had sunk some $65 million in their private firm, Rice Energy, which operates in the same natural-gas industry that he invests in for the BlackRock funds.

His outside interests weren't publicly disclosed, a BlackRock spokeswoman said, because the firm wasn't required to do so.

Rice Drilling, a subsidiary of Rice's family firm, formed a joint venture in 2010 with Alpha Natural Resources, a coal and natural-gas company that later became the largest holding in Rice's biggest mutual fund.

The fund's unrealized losses on Alpha Natural Resources recently exceeded $100 million, or more than 20% of its decline in performance over the past year. BlackRock said the fund's decision to invest in Alpha had nothing to do with Rice's family interests and that Alpha's recent losses are in line with a sectorwide slump in coal stocks.

Rice Drilling sold $60 million in high-yield debt to private investors last year. Rice's affiliation with BlackRock was cited in online marketing materials for the offering. That, said some legal experts, might have raised the perception that Rice was using his professional affiliation to help raise money for his personal interests.

"While there were no actual conflicts of interest, BlackRock and I both understand the desire to avoid even the appearance of one," Rice said in a statement emailed by a BlackRock spokesman. He declined to address specific questions about his outside activities.

"BlackRock is committed to avoiding not only actual conflicts of interest, but even the appearance of a conflict," the BlackRock spokesman said in an another emailed statement.

BlackRock said previously it is confident Rice's outside investments didn't cause any material conflict with the interests of BlackRock's fund investors.

Denis J. Walsh III and Dan Neumann, who previously co-managed BlackRock's five energy-related funds with Rice, already have taken over the funds. Rice will continue to manage $700 million in private institutional accounts but will hand them off to his co-managers by December.

During the transition, said the firm's spokesman, "BlackRock has put in place a number of enhanced procedures to ensure there is not even any perception of a conflict, while serving the best interests of our clients."

Rice had run portfolios at BlackRock and a predecessor since 1984.

He is likely to resume managing money after he leaves BlackRock. , but the spokesman said the firm won't be hiring him as a subadvisor, or outside manager, for any of its accounts.

This story first appeared on WSJ.com.

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