BlackRock's Profit Jumps 21% as Investors Surge into Bond Funds--Update
July 17 2020 - 9:45AM
Dow Jones News
By Dawn Lim
Money management giant BlackRock Inc.'s quarterly profit rose
21% as investors leaned on bond funds to make new bets in volatile
markets roiled by the coronavirus pandemic.
A quarter ago, asset managers came under acute pressure as
markets sold off. But after the Federal Reserve rushed in to
stabilize markets, many investment firms reaped the benefits of the
Fed's intervention in the second quarter. Higher asset prices
translate to bigger revenues for managers like BlackRock as they
take a cut of fees on money they oversee for investors.
The investment firm posted second-quarter profit of $1.2
billion, or $7.85 a share, up from the year-prior period of $1
billion, or $6.41 a share. Its revenue rose 4% to $3.6 billion.
The world's largest asset manager ended the quarter with $7.3
trillion it manages for clients and beat Wall Street analysts'
revenue and profit estimates.
BlackRock's gains signal that the firm stands to cement its
power in a world shaken by Covid-19. The firm, the world's largest
exchange-traded-funds manager, has vast reach across the plumbing
of the financial and trading systems.
In an interview with The Wall Street Journal, Chief Executive
Laurence Fink said BlackRock clients are looking for more
contextual information and support during these uncertain
times.
"We're seeing an economy that is almost bipolar," he said. "Some
parts of the economy are doing quite well, and some parts are doing
quite poorly."
BlackRock's exchange-traded-funds arm did a brisk business as
traders and financial institutions used ETFs to zip in and out of
markets, make wagers, or hedge their portfolios during
unprecedented volatility. ETFs are collections of instruments that
trade like stocks on exchanges. BlackRock's ETFs took in net $51
billion in the latest quarter, up from over $36 billion in the
year-ago period. Bond ETFs saw an influx of money with more
complex, higher fee ETF strategies generally taking in the bulk of
all kinds of ETF flows.
BlackRock's active-equity strategies took in record inflows, as
investors sought the expertise of managers that seek to beat rather
than mirror markets.
BlackRock sells software, including a suite of tools called
Aladdin, to banks and other institutions to evaluate financial
risks. Its technology-services revenue -- which includes fees from
Aladdin -- rose by 17%. Many investors have struggled to price in
the risks of their trades with the U.S. stock market rallying even
as the U.S. faces a downturn.
That technology gives BlackRock a vantage point into markets and
helped the firm land a coveted, but highly scrutinized, role in
helping the Fed buy ETFs and bonds to support credit markets. The
firm is waiving fees on any Fed money going into its ETFs.
The biggest piece of BlackRock's revenue -- money it makes from
managing client money as well as securities lending revenue --
rose.
The firm wasn't immune to the challenges of the quarter.
BlackRock said that price changes to some products reduced revenue.
The firm continues to face an escalating fight with other
investment firms for dollars and clout. It expects to undertake
more fee reductions on products after announcing some earlier this
year. The fee wars have put acute pressure on issuers both big and
small.
BlackRock's earnings are also significant because they help show
how money moved through the firm's sprawling lineup of investment
strategies in the quarter. Those flows provide cues into how
investors are behaving more broadly.
Investors were cautious even as the market rallied with the
coronavirus shutting down swaths of the economy. BlackRock
investors pulled money from BlackRock's equity funds, mirroring a
broader flight across the industry from equity to bond funds.
Investors drove about a quarter of the net new money BlackRock took
into cash products -- a less lucrative business for the money
manager -- but still a way to park money with the firm until they
are ready to move into other funds.
Big investment institutions pulled money from BlackRock indexed
products but added net flows to the firm's actively managed
products. Money coming in from retail investors helped to offset
outflows from institutional clients.
In coming months, Wall Street will be watching for signs of
whether BlackRock plans to be more aggressive with acquisitions in
the asset-management or technology sphere. In a tough market
environment, many predict a shakeout in the asset management space.
BlackRock is known to be willing to make contrarian bets and be
tactical.
During the last financial crisis, BlackRock swooped in to buy
the investment-management business of Barclays. The 2009 deal
turned the firm into a behemoth.
Write to Dawn Lim at dawn.lim@wsj.com
(END) Dow Jones Newswires
July 17, 2020 09:30 ET (13:30 GMT)
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