BlackRock's Third-Quarter Profit Climbs on Steady Inflows, Higher Fee Revenue -- 2nd Update
October 13 2020 - 12:40PM
Dow Jones News
By Dawn Lim
Money-management giant BlackRock Inc.'s quarterly profit rose
22% as investors turned to its massive lineup of funds across
markets.
The returns are a sign that the world's largest money manager
with $7.8 trillion in assets continues to grow despite all parts of
the economy and markets being upended by the coronavirus pandemic.
Its long shadow over the industry is increasingly forcing weaker
rivals to play defense.
BlackRock rose over the past decade on the back of
exchange-traded funds that mirror markets. But in an ironic twist,
the company scored roughly the same amount of new investor money
into strategies that track markets and funds that trade on
exchanges as those run by managers that attempt to beat markets in
the third quarter. So-called active strategies took in net $47.1
billion while index and iShare exchange-traded funds took in $50.5
billion in the quarter.
The latest haul into active funds is potentially more profitable
given many of these strategies charge higher fees. The inflows also
show continued returns for Chief Executive Larry Fink's strategy of
building a broad superstore that sells everything from financial
technology to private equity to money funds where investors park
cash.
"Covid has changed many industries for the better and many for
the worse, " Mr. Fink said in an interview. "Our job is to
transcend those issues and help clients address their long-term
needs."
BlackRock shares rose 4.8% midday Tuesday, defying the broad
market's fall. BlackRock shares produced a total return of about
98%, compared with the S&P 500's roughly 59% return since the
market's low in March.
For the latest quarter, the investment company posted a profit
of $1.36 billion, up from $1.1 billion in the same period a year
earlier. BlackRock's revenue rose 18%, beating analyst
estimates.
Fees into active strategies are a ballast at a time when index
funds have become a commodity and the prices of popular
market-tracking strategies have plunged near zero.
BlackRock has been an aggressor, undercutting other companies
and crushing smaller rivals. Some money managers have merged with
others or sold themselves to survive, with the broader industry now
bracing for even more consolidation. Just last week, Morgan Stanley
said it was buying fund manager Eaton Vance Corp.
Many in the industry, including BlackRock, are skeptical that
mergers of struggling investment businesses can actually be a
panacea to the pressures they face.
"We're going to benefit from the disruption that it's going to
create," the firm's finance chief Gary Shedlin told analysts
Tuesday morning. "Large scale integrations are not easy."
BlackRock has no desire to buy other firms simply to add cost
benefits of scale, he added.
BlackRock's fortunes are closely tied to big institutions such
as pensions, insurers and sovereign-wealth funds. Those investors
have turned to its funds to enter and exit markets as volatility
ratchets up in the lead-up to the U.S. election. BlackRock's
iShares ETFs took in $41 billion in new investor money in the
latest quarter, roughly in line with a year earlier, with bond
products making the most of the flows.
The firm also gained net new money from retail channels, joining
a chorus of other asset managers that have benefited from renewed
interest in investing from all types of people. The latest wave of
individual and other investors has made Robinhood Markets Inc. a
household name.
Mr. Fink said BlackRock is capturing more retail money as wealth
managers and financial advisers use more preset portfolios that
contain BlackRock products. BlackRock's presence on the desktop of
advisers has given more visibility to the firm at a time many
wealth managers aren't traveling and are instead dealing with
clients remotely.
The biggest driver of revenue -- investment advisory,
administration fees and securities lending -- rose 8%.
BlackRock sells software, including a suite of tools called
Aladdin, to banks and other institutions to measure risk.
Technology-services revenue -- which includes fees from Aladdin --
rose by about 9%.
Rising markets in the wake of central-bank actions world-wide
lifted the prices of assets that BlackRock holds for clients in
many markets. Higher asset prices translate to bigger revenues for
managers because they take a cut of fees on money they oversee for
investors. The firm wasn't immune to the challenge of a
low-interest rate environment created by the Federal Reserve in
response to the pandemic.
BlackRock, which also runs a cash-management business, began
waiving fees on money funds that invest in government securities to
prevent yields from falling below zero. The firm expects it will
have to waive more charges going into 2021.
As BlackRock has grown, the company has attracted more scrutiny
from academics on the unintended effects of its economic power as
well as activists and politicians who question if the company is
doing enough as a fund investor in so many companies around the
world. Mr. Fink's challenge is to make sure the company addresses
those concerns while also continuing to grow.
Wall Street is watching closely how the company staves off the
threat from banks plotting bigger asset-management businesses as
well as formidable rivals such as Vanguard Group.
Mr. Shedlin told analysts that the firm will continue to look at
ways to tactically add to its technology and distribution reach as
well as its private markets investment business.
Write to Dawn Lim at dawn.lim@wsj.com
(END) Dow Jones Newswires
October 13, 2020 12:25 ET (16:25 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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