By Dawn Lim

One of BlackRock Inc.'s most well-known co-founders, Barbara Novick, is taking a stab at retirement for the second time.

Ms. Novick led the firm's public-policy efforts, building a lobbying machine that allowed BlackRock to avoid the same regulations as banks and fueling its rise into the world's largest money manager with $7.8 trillion under management. She tried to leave last year but stayed on as the coronavirus pandemic unnerved markets. She says this time it's for real.

On Wednesday, BlackRock told employees that Ms. Novick, 60 years old, would transition from her role as vice chairman to become a senior adviser on Feb. 1.

Roughly a year ago, she told colleagues she would leave the firm by summer. But her success in getting BlackRock heard by regulators made her too big to bail when the pandemic shook markets. Chief Executive Larry Fink asked Ms. Novick to stay on for a few more months.

In that time, the Federal Reserve took aggressive measures -- including hiring BlackRock last March to buy bonds and funds -- to stave off collapse in key financial markets. Ms. Novick and her team were on calls with officials to give them real-time market updates and would continue to be on speed dial with Washington in the months that followed, as regulators debated what needed fixing so markets could withstand the next shock.

"You never want to run an experiment like this, and all of a sudden you're in it," Ms. Novick said. "You see product by product and market by market what worked well and what needs to be addressed."

The difficulties Ms. Novick has faced in leaving aren't unique to BlackRock. Many Wall Street firms are led by close-knit groups of senior executives who built them into behemoths and are now wrestling with when to hand over the reins, and to whom.

BlackRock, founded in 1988, is in the process of grooming its second generation of leaders.

Mr. Fink, 68, told board directors last year that he was committed to staying on. Until Ms. Novick departs, half of BlackRock's eight co-founders are running the firm. Joanna Cound and Kate Fulton will lead the public-policy group while the firm looks for a successor to Ms. Novick. Sandy Boss recently took over Ms. Novick's other role supervising BlackRock's shareholder interactions with companies for the funds it runs.

Over the years, Ms. Novick was known to hand regulators data and analytical papers filled with charts and footnotes. A view that she long advocated: "If you start singling out individual funds or firms, you are not getting to the heart of what the risks really are." If she felt a regulator took a position backed by spotty evidence, she pounced.

"They had prepared for battle over time," said a former government official.

All told, BlackRock published 11 position papers outlining lessons from Covid-19. It weighed in on everything from how financial firms kept operations going to how index creators' decision to delay rebalancing reduced forced selling.

When bond exchange-traded funds traded out of sync with the bonds inside them during the pandemic-driven market crisis, some investors worried the instruments were broken. Ms. Novick mobilized BlackRock to be loud about how ETFs were crucial vehicles for investors to shift their bond-market exposure when banks stopped facilitating bond trades.

The firm's roughly 20-person public-policy team was also vocal about how rules on money funds -- which buy ultrasafe, short-term debt -- fell short. Ms. Novick said that the funds were susceptible to runs because investors worried they would face new costs to exit once funds went below a key threshold on the amount of liquid assets they held.

She batted off policy makers who said a potential flaw of some mutual funds was that they promised investors daily liquidity even though their investments weren't readily convertible to cash. After the Financial Stability Board raised those concerns in a 2020 report, she made her displeasure clear during a video conversation that also featured a member of the group, which coordinates financial regulation globally.

"The language used implies funds did not manage liquidity risk and goes on to speculate using the words 'may' and 'could' quite a bit to describe the potential outcomes," Ms. Novick said in December.

More fights lie ahead for BlackRock. Some members of the incoming Biden administration have pledged to beef up the Financial Stability Oversight Council, the panel in charge of monitoring financial risks. Some groups are strategizing how to ignite the debate around whether large asset managers should be designated "systemically important." BlackRock and other firms had persuaded regulators against the idea.

Ms. Novick departs from a firm with significant clout in government, and three former BlackRock employees are set to join the new Democratic administration. She says she doesn't have a job lined up and looks forward to cooking, gardening and minding her granddaughter. The latest board she joined oversees an organization that seeks to increase the ranks of women in finance.

In a firmwide memo, Mr. Fink and president Rob Kapito said they could count on Ms. Novick as "someone whom we can call on for insight and advice."

Write to Dawn Lim at dawn.lim@wsj.com

(END) Dow Jones Newswires

01-13-21 0914ET