By Spencer Jakab
It seemed like a case of the BlackRock calling the kettle
black.
When Laurence Fink, chief of the gigantic asset-management firm,
chided executives of large U.S. companies for being too ready to
dole out cash to placate activist investors, some pointed to his
own track record.
BlackRock Inc. has paid out $7.8 billion over the past three
years through stock buybacks and dividends. That is over three
times its net income during that time span, making its payout ratio
far higher than that of the S&P 500.
Look more closely, though: That amount was just 77% of
BlackRock's free cash flow, money available after other corporate
needs are met.
In contrast, to ward off a potential proxy battle, General
Motors Co. recently agreed to buy back $5 billion of stock by next
year. In its case, though, the ratios are flipped. That is a little
over half GM's net income of the past two years but five times its
free cash flow.
Those proportions are something to keep in mind as BlackRock
unveils first-quarter results Thursday. BlackRock's profitability,
despite it being most dominant in the parts of the industry with
the lowest fees, appears impressive. Its growth isn't shooting the
lights out, of course. Earnings per share are seen rising to $4.53
from $4.40 a year ago, according to analysts polled by FactSet.
But what is easy to forget given BlackRock's size--approaching
$5 trillion in assets under management--is what a large share of
fresh assets it is gathering. For example, it already had a 30%
share of index-type assets last year and 7% of emerging-markets
funds. The top 10 asset managers globally, though, got 87% and 75%
of the net new flows in those categories between 2011 and 2013,
respectively. reason is that, much more so than with mutual funds,
size begets size in the exchange-traded products in which BlackRock
rules.
Now trading at a 5% discount to its average forward earnings
multiple of the past decade, BlackRock doesn't appear pricey. While
growth typically has been harder to come by for asset managers as
their size swells, BlackRock's heft is at least as much an asset as
a liability.
It also allows Mr. Fink to put his mouth where his clients'
money is.
Corrections & Amplifications
The top 10 asset managers globally got 87% and 75% of the net
new flows in index-type assets and emerging-market funds between
2011 and 2013, respectively. A previous version of this article
misstated that BlackRock did.
Access Investor Kit for BlackRock, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US09247X1019
Access Investor Kit for General Motors Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US37045V1008
Subscribe to WSJ: http://online.wsj.com?mod=djnwires