By Dawn Lim
Money-management giant BlackRock Inc.'s quarterly profit rose
21% as investors leaned on its bond funds to make rapid bets in
volatile markets roiled by the coronavirus pandemic.
Driving the company's performance, BlackRock's bond
exchange-traded funds did a brisk business in the quarter 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 bond ETFs took in a record quarterly $57 billion in
net flows. The firm also posted net inflows overall into all ETFs
in the second quarter, with more complex, higher-fee ETF strategies
generally taking in the bulk of flows.
"The quarter illuminates the importance of the ETF market,"
Chief Executive Laurence Fink said in an interview.
BlackRock's gains signal that the firm with $7.3 trillion under
management stands to cement its power in a world shaken by
Covid-19. This week, several large financial firms posted quarterly
results, with some able to withstand the impact of the pandemic so
far, and others hurt by continued low rates and a weak economy.
Money management businesses were aided by a rebound in many
markets.
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. Asset
managers take a cut of fees on money they oversee for
investors.
As BlackRock extends its vast reach across the plumbing of the
financial and trading systems, the challenge the firm faces is
maintaining investors' trust that its funds can hold up in market
stress while a pandemic continues to ripple through the markets and
economy.
In afternoon trading, BlackRock stock rose more than 3.7% and
was one of the best performers on the S&P 500, according to Dow
Jones Market Group. The firm beat revenue and profit estimates by
Wall Street analysts, who say the firm's sprawling lineup and
early-mover advantage in areas such as bond ETFs will insulate it
from the market turmoil more than smaller managers.
The investment firm posted a 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.
Among other financial giants that reported earnings this week,
Morgan Stanley posted a 45% earnings jump in the second quarter and
Goldman Sachs posted near-record revenue. Both Wall Street firms'
results were boosted by traders who wagered on volatility and
investment bankers who helped companies raise cash.
Meanwhile big commercial and consumer lenders like JPMorgan
Chase & Co. and Bank of America took provisions for loan losses
that dragged their profits.
"We're seeing an economy that is almost bipolar," BlackRock's
Mr. Fink said. "Some parts of the economy are doing quite well, and
some parts are doing quite poorly."
He said that customers want information and context in this
environment.
Partly helping the firm's revenue gains, 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%.
That technology gives BlackRock a vantage point into markets and
helped the firm's advisory arm land a coveted, but highly
scrutinized, role in helping the Fed buy ETFs and bonds to support
credit markets. A small portion of BlackRock ETF bond flows were
powered by Fed purchases, though the firm is waiving fees on any
Fed money going into its ETFs.
The firm wasn't immune to the challenges of the quarter.
BlackRock said that price changes to some products cut into
revenue. The firm faces 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.
The rise and fall of markets compounded price pressures for
BlackRock. As U.S. stocks rose and the dollar appreciated, so did
assets that BlackRock manages in cheaper products that track U.S.
markets, analysts say. Meanwhile, a fall in other equity markets
outside the U.S. reduced assets -- and fees BlackRock could charge
-- on what are generally more lucrative strategies.
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 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 stock 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. BlackRock's active-equity
strategies took in record inflows, as investors sought the
expertise of managers that seek to beat rather than mirror
markets.
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.
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. PNC Financial Services Group Inc.,
BlackRock's longtime largest investor, recently exited its stake in
the asset manager, locking in a tidy profit.
Write to Dawn Lim at dawn.lim@wsj.com
(END) Dow Jones Newswires
July 17, 2020 15:15 ET (19:15 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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