By Dawn Lim 

Money management giant BlackRock Inc.'s quarterly profit rose 21% as investors leaned on bond funds to make new bets in volatile markets roiled by the coronavirus pandemic.

A quarter ago, asset managers came under acute pressure as markets sold off. But after the Federal Reserve rushed in to stabilize markets, many investment firms reaped the benefits of the Fed's intervention in the second quarter. Higher asset prices translate to bigger revenues for managers like BlackRock as they take a cut of fees on money they oversee for investors.

The investment firm posted second-quarter profit of $1.2 billion, or $7.85 a share, up from the year-prior period of $1 billion, or $6.41 a share. Its revenue rose 4% to $3.6 billion.

The world's largest asset manager ended the quarter with $7.3 trillion it manages for clients and beat Wall Street analysts' revenue and profit estimates.

BlackRock's gains signal that the firm stands to cement its power in a world shaken by Covid-19. The firm, the world's largest exchange-traded-funds manager, has vast reach across the plumbing of the financial and trading systems.

In an interview with The Wall Street Journal, Chief Executive Laurence Fink said BlackRock clients are looking for more contextual information and support during these uncertain times.

"We're seeing an economy that is almost bipolar," he said. "Some parts of the economy are doing quite well, and some parts are doing quite poorly."

BlackRock's exchange-traded-funds arm did a brisk business as traders and financial institutions used ETFs to zip in and out of markets, make wagers, or hedge their portfolios during unprecedented volatility. ETFs are collections of instruments that trade like stocks on exchanges. BlackRock's ETFs took in net $51 billion in the latest quarter, up from over $36 billion in the year-ago period. Bond ETFs saw an influx of money with more complex, higher fee ETF strategies generally taking in the bulk of all kinds of ETF flows.

BlackRock's active-equity strategies took in record inflows, as investors sought the expertise of managers that seek to beat rather than mirror markets.

BlackRock sells software, including a suite of tools called Aladdin, to banks and other institutions to evaluate financial risks. Its technology-services revenue -- which includes fees from Aladdin -- rose by 17%. Many investors have struggled to price in the risks of their trades with the U.S. stock market rallying even as the U.S. faces a downturn.

That technology gives BlackRock a vantage point into markets and helped the firm land a coveted, but highly scrutinized, role in helping the Fed buy ETFs and bonds to support credit markets. The firm is waiving fees on any Fed money going into its ETFs.

The biggest piece of BlackRock's revenue -- money it makes from managing client money as well as securities lending revenue -- rose.

The firm wasn't immune to the challenges of the quarter. BlackRock said that price changes to some products reduced revenue. The firm continues to face an escalating fight with other investment firms for dollars and clout. It expects to undertake more fee reductions on products after announcing some earlier this year. The fee wars have put acute pressure on issuers both big and small.

BlackRock's earnings are also significant because they help show how money moved through the firm's sprawling lineup of investment strategies in the quarter. Those flows provide cues into how investors are behaving more broadly.

Investors were cautious even as the market rallied with the coronavirus shutting down swaths of the economy. BlackRock investors pulled money from BlackRock's equity funds, mirroring a broader flight across the industry from equity to bond funds. Investors drove about a quarter of the net new money BlackRock took into cash products -- a less lucrative business for the money manager -- but still a way to park money with the firm until they are ready to move into other funds.

Big investment institutions pulled money from BlackRock indexed products but added net flows to the firm's actively managed products. Money coming in from retail investors helped to offset outflows from institutional clients.

In coming months, Wall Street will be watching for signs of whether BlackRock plans to be more aggressive with acquisitions in the asset-management or technology sphere. In a tough market environment, many predict a shakeout in the asset management space. BlackRock is known to be willing to make contrarian bets and be tactical.

During the last financial crisis, BlackRock swooped in to buy the investment-management business of Barclays. The 2009 deal turned the firm into a behemoth.

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

 

(END) Dow Jones Newswires

July 17, 2020 09:30 ET (13:30 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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