BlackRock Earnings Fall 8% as Investors Favor Cheaper Products -- WSJ
October 16 2019 - 03:02AM
Dow Jones News
By Dawn Lim
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (October 16, 2019).
BlackRock Inc.'s profits fell by 8% in the third quarter as the
investment giant's assets shifted into less lucrative products.
Investors sent $84.2 billion in net new money into BlackRock
during the three-month period. The firm's assets rose to $6.96
trillion from $6.44 trillion a year ago.
BlackRock became the world's largest money manager with the rise
of exchange-traded funds that trade rapidly and index funds that
track markets cheaply. The third quarter's mixed returns show its
fortunes are tied to the ebb and flow of markets and how investors
steer money.
The firm saw far bigger net inflows into ETF and index products
over its actively managed products. It also saw larger net inflows
into cash and bonds over equity funds, a sign of growing investor
caution. The moves mean that new money is generally finding its way
into less profitable strategies.
BlackRock Chief Executive Larry Fink said he isn't fazed by the
shift.
"What we're trying to do is win more of our clients' share of
wallets," he said. "I can't control the mood and atmosphere of the
world and markets."
Wall Street has come to terms with a new normal where a deluge
of assets no longer automatically guarantees higher profits for
money managers.
BlackRock's revenues were in line with analysts' expectations;
profits exceeded their estimates.
BlackRock's investment advisory, administration fees and
securities lending revenue -- the biggest component of its revenue
-- increased by over 3%.
That increase was muted by the rise and fall of markets. A
stronger U.S. dollar helped to lift assets in BlackRock's U.S.
strategies while reducing the assets -- and the fees BlackRock was
able to collect -- in more lucrative international strategies. A
selloff in overseas markets also reduced the share of assets in its
funds that invest internationally.
BlackRock said price changes to some products ate into revenue.
Performance fees -- the money BlackRock gets for beating markets in
actively managed strategies -- fell 19.9%.
The mixed returns for BlackRock bode new troubles for an
industry roiled by a price war. In addition, there is a new
uncertainty for asset managers: Many e-brokerages have eliminated
the costs to trade ETFs on major platforms. Some industry
executives have said this could make asset managers more
susceptible to shifts in investor sentiment because investors can
trade in and out free.
Mr. Fink said in an interview the elimination of such
transaction costs helps major players like BlackRock and could help
drive more money into products such as its fixed-income ETFs.
"We look at this as another barrier that has fallen down," he
said of the elimination of commissions.
Already, bond exchange-traded funds are a growing piece of the
cash engine that is the firm's iShares ETF business. All types of
BlackRock's bond funds took in about $35 billion in net flows while
equity funds added roughly $10 billion in net flows.
The firm offers everything from software for Wall Street to
funds to tools to build portfolios. There are signs that it is
making progress diversifying its revenue streams. BlackRock, which
has fierce ambitions to make a bigger dent in private markets, took
in $5 billion in net inflows and investor pledges into illiquid
alternatives in the third quarter.
The firm has a suite of software it sells to financial
institutions that is used to evaluate risks. These sales helped
increase technology services revenue by about 30%.
BlackRock is also looking outside the U.S. for new growth.
Looser regulations on foreign asset managers in China is pushing
firms like BlackRock to explore new ways to make their fortunes in
the world's second largest economy.
Mr. Fink said the firm's conversations with potential partners
in China have been "meaningful" and "deliberate." He has traveled
to China this year and expects to return soon.
As the 2020 presidential race in the U.S. ramps up, Mr. Fink,
whose close ties to Washington and governments has prompted some
observers to ponder his political ambitions, said Tuesday that
"right now my focus is BlackRock."
Patrick Thomas contributed to this article.
Write to Dawn Lim at dawn.lim@wsj.com
(END) Dow Jones Newswires
October 16, 2019 02:47 ET (06:47 GMT)
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