BlackRock Net Profit Falls 3.7% in Q2/16 as Fees Falter, AUM Rises

Jul 14 2016 | 8:50pm ET

By Trevor Hunnicutt (Reuters) - BlackRock profit fell 3.7 percent in the second quarter as global market turmoil spurred investors to shift from stocks to cash and bonds, hurting fee income at the world's largest asset management company.

New York-based BlackRock said on Thursday the revenue it takes in from fees for managing money and lending out securities fell 1.8 percent to $2.49 billion from the same period a year ago, even as the total assets it manages rose to nearly $5 trillion.

On June 23, Britain's shock vote to leave the European Union briefly sent the financial markets into a tailspin. BlackRock's second quarter ended June 30.

"Equity markets have rebounded a lot," BlackRock CEO Larry Fink said in an interview. "We have a lot of wind at our back today."

BlackRock's net income fell to $789 million, or $4.73 per share, from $819 million, or $4.84 per share, a year earlier. Revenue was down 3.5 percent, to $2.8 billion.

On an adjusted basis, the company earned $4.78 per share, roughly in line with the average analyst's estimate, according to Thomson Reuters I/B/E/S.

Even so, BlackRock shares slipped 0.6 percent to $355.19, compared with a gain of about 0.8 percent by its peers in a Dow Jones index tracking U.S. asset managers.

Analysts said sales of BlackRock funds were lower than they had expected. BlackRock attracted $1.54 billion in "long-term" net flows in the second quarter, compared with outflows of $7.30 billion in the year-earlier quarter.

"The environment is just that challenging," said Edward Jones analyst Kyle Sanders, who nonetheless rates the stock a 'buy'. "People are accustomed to pretty good growth numbers and they didn't get that this quarter."

Money that shifted aggressively into bond exchange-traded funds (ETFs) helped, accounting for about two-thirds of the $15.67 billion in new cash that moved into the iShares ETF business, up from $10.85 billion a year earlier.

BlackRock's overall assets under management rose to $4.890 trillion from $4.721 trillion a year earlier.


But those strong sales of bond ETFs were offset by the results in its actively managed business, where portfolio managers work to beat the markets. Active outflows totaled $12.8 billion in the quarter.

A key focus for BlackRock has been boosting performance in its active stockpicking business, which generates higher fees than index-tracking ETFs.

The company has focused on integrating new stock fund managers and boosting team performances.

During a reshuffling announced in January, Fink and BlackRock President Rob Kapito combined the "scientific" and more traditional "fundamental" stock team under four managers. In May, BlackRock revealed it recruited Mark Wiseman, the head of Canada's biggest public pensionfund, to oversee its stockpicking operations.

BlackRock's Fink described the performance of the active stockpicking strategies as "a mixed bag."

About 63 percent of assets in the company's "fundamental" active equity business outperformed over the last year, BlackRock said, while the "scientific" team's figure was 40 percent. That group mines reams of data for insights on how to pick stocks.

Inflows of $5.5 billion to fixed-income products and $1.4 billion into higher fee "alternatives" such as hedge funds helped offset $2.2 billion in withdrawals from equity strategies, and $3.1 billion that moved out of strategies that invest across many assets.

In Depth

Royalties: The Alternative Assets of the Music Industry

Jul 8 2016 | 7:01pm ET

Recent market volatility has investors seeking greater insight into alternative...


Moore Capital PM Fired After Raucous Hamptons Party

Jul 7 2016 | 10:47pm ET

A portfolio manager for Louis Bacon’s $15 billion hedge fund Moore Capital Management...

Guest Contributor

With ASEAN Sentiment So Poor, Now is the Time to Prepare

Jul 15 2016 | 10:38pm ET

Conventional wisdom holds that markets in the Asia-Pacific region are destined to...