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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