BlackRock’s profit declines but assets again top $6 trillion
Money manager faces heightened competition rippling across asset management world
BlackRock Inc.’s first-quarter profit declined as the world’s biggest money manager faces heightened competition and the after-affects of a late 2018 market rout. The New York firm posted quarterly profit of $1.05 billion (U.S.), or $6.61 a share, down from $1.09 billion, or $6.68 a share, a year earlier. Analysts polled by FactSet were expecting a profit of $6.04 a share.
Revenue declined by 6.6% to $3.35 billion, which roughly fell in line with Wall Street estimates. That happened even as clients added more money to its asset management products and the firm’s assets rebounded to more than $6 trillion.
As of March 31, the firm had assets under management of $6.5 trillion, up 3% from a year earlier.
Shares of BlackRock opened about 2% higher.
BlackRock became a behemoth during the past decade with the rise of funds that replicate markets cheaply and are easily traded. It also has a range of investment strategies that aim to beat markets, and it provides software for Wall Street.
But the substantial chunk of the firm’s assets in low-cost, market-mimicking products leaves BlackRock exposed to stock-market swings and a price war rippling across that part of the asset management world.
“The first quarter was resoundingly stronger than what we were worried about when we walked into the door at the end of the fourth quarter,” said Chief Executive Laurence Fink in an interview.
Mr. Fink is pushing to make software offerings from BlackRock as well as more lucrative and illiquid alternatives to stocks-and-bond funds bigger contributors to revenue. The firm is aiming to broaden tools it offers for clients to build portfolios, and hopes the moves can help keep BlackRock’s empire diversified and insulated from a market fall.
Earlier this year, the firm said it was cutting roughly 500 jobs, giving overseas regional heads more power over institutional sales teams, and rotating several managing directors into new roles.
The impact of the market rout last year took a toll on the money manager. Base fees—what BlackRock collects as a proportion of the assets it manages— fell 5%, largely because of lower value it started the year with after a tough 2018, though pricing changes to stay competitive also played a smaller role. Operating margins declined.
Net inflows added to its asset management products rose to about $59 billion in the quarter, up from about $55 billion in the previous year. Overall net inflows—an indicator of money entering the firm including cash management accounts— rose to $64.7 billion in the latest quarter from roughly $57 billion. Net inflows are the difference between investor money going into the firm and money taken out. They determine future profits.
The firm’s roughly $2 trillion iShares exchange-traded-fund lineup raked in roughly $31 billion in net inflows in the first quarter, down from $35 billion in the previous year.
In a sign that investors are turning more cautious, BlackRock posted net outflows of $26 billion from equity strategies. It had nearly $80 billion in net inflows into fixed-income investments.
Mr. Fink told the Journal he found investors unwilling to take more equity risk a “surprise.”
Technology is a key priority for BlackRock, which offers a suite of tools called Aladdin that financial institutions use to measure risk. Technology-services revenue rose 11% to $204 million. BlackRock struck a deal this year to acquire French software firm eFront, in a bid to add to its technology offerings.
Known for its massive stockand-bond offerings, the firm is continuing to press into the world of private markets. Becoming a bigger manager of alternatives to stocks and bonds allows the firm to capture growing appetite among pensions, endowments and sovereignwealth funds for uncorrelated returns.
In a shift, BlackRock broke out lucrative private markets from liquid alternatives and hedge funds in its latest quarterly earnings report, a sign of its focus on illiquid plays. The firm added roughly $6 billion to its illiquid business this quarter.
In a sign BlackRock is open to using acquisitions to grow in that part of the business, Chief Financial Officer Gary Shedlin told analysts Tuesday morning, “We’ll continue to see what’s out there and be opportunistic.”