BLK BlackRock Inc

By Dawn Lim and Allison Prang 

Investors pulled cash from BlackRock Inc. for the first time in three years, the latest sign of investor unease about the direction of global markets.

The world's largest money manager said Tuesday that clients withdrew a net $3.1 billion during the third quarter. That is BlackRock's first quarterly outflow since the second quarter of 2015. It took in a net $96.1 billion in the third quarter of last year.

The pullback was more evident on Wall Street than Main Street, with the biggest client withdrawals coming from large institutions instead of retail investors. Institutions pulled $30.8 billion from BlackRock's index equity funds in the quarter.

"We're seeing more and more clients just pausing," BlackRock Chief Executive Laurence Fink said in an interview, "and trying to get their long-term views recalibrated."

The withdrawals could portend more trouble for other asset managers that are already wrestling with slowing demand for Wall Street's most popular investment products, a pricing war and investor anxiety about everything from rising interest rates to trade tensions.

Net inflows into all U.S. mutual funds and exchange-traded funds fell 46% in the first three quarters of 2018 compared with the year-ago period, according to data tracked by Morningstar.

Even cheaper funds that mimic indexes -- the most popular investment product of the past decade -- are experiencing reduced interest. Indexing pioneer Vanguard Group collected $62.6 billion in net inflows in the third quarter of 2018 but that was down from $76.9 billion a year ago.

BlackRock was one of the biggest beneficiaries of the decadelong industry shift to low cost, passively managed investments. But that part of its business is slowing, as well. Net flows into its index mutual funds and iShares exchange-traded funds were $11.7 billion during the third quarter, compared with the net flows of $70 billion a year ago.

What hurt BlackRock most in the third quarter were the actions of its institutional investors, who pulled a net of $30.85 billion from non-ETF equity index funds. Mr. Fink attributed that to "ongoing divergent monetary policy and geopolitical uncertainty."

The outflows include changes in funds held in cash management accounts. One corporate client pulled about $23.5 billion from an cash management account set aside for uses such as merger and acquisitions, said a person familiar with the matter.

The discussion of outflows came on a day when the company reported third-quarter earnings of $1.22 billion, up 29% from the comparable quarter a year ago. Earnings per share came in at $7.54, up from $5.76.

BlackRock's revenue rose 1.9% to $3.58 billion, which fell below what analysts were anticipating. Revenue from investment-advisory performance fees and distribution fees declined, but revenue from technology services -- which includes BlackRock's Aladdin risk and portfolio management tools -- climbed.

BlackRock had $6.44 trillion assets under management in the quarter that finished in September, up 2.3% from the second quarter of this year.

Shares fell 4.3% in mid morning trading Tuesday. Thus far in 2018, BlackRock shares have fallen about 20%.

There were signs in the third quarter that BlackRock is having success reaching into new areas to offset volatility in earnings and expand the strategies it provides to investors. Technology services revenue rose to $200 million in the latest quarter, up from $169 million, thanks to Aladdin tools that are used by financial institutions to assess risk.

It also is making a push into the world of private equity, real estate and infrastructure and alternative strategies, which represent 2% of its total assets. The firm said it raised $4 billion in new commitments for alternative investments and put $2 billion to work into deals. Some of that new money included $1.5 billion raised so far for a fund run by an energy infrastructure group BlackRock bought in 2017.

Write to Dawn Lim at dawn.lim@wsj.com and Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

October 16, 2018 11:34 ET (15:34 GMT)

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