2nd UPDATE: BlackRock 2Q Profit Up 43% Despite Difficult Market

BlackRock Inc.'s (BLK) second-quarter earnings rose 43% as assets under management at the world's largest money manager grew by 16% from a year earlier.

Despite the strong quarter, Chairman and Chief Executive Larry Fink lashed out at politicians, both domestic and overseas.

"The greatest inhibitor to economic vitality in the U.S. and Europe is politics," he said in a conference call. He hoped the "politics of the U.S. and the politics of Europe will do the right thing, so we, as investors and as leaders of businesses, can focus on the long term and investing in the long term, which then means hiring and job growth."

He said uncertainties surrounding the sovereign debt crisis in Europe and political stalemate on the U.S. debt ceiling caused some investors to sell down their portfolios.

"I think it is a mistake" to de-risk, he said.

In the second quarter, BlackRock had outflows from its equity, alternative and advisory businesses. Its cash management also suffered withdrawals on continued low interest rates.

But the outflows were more than offset by investment performance and growth in fixed income and multi-asset products.

Assets under management rose to $3.659 trillion as of June 30, from $3.15 trillion a year earlier and $3.648 trillion the previous quarter.

BlackRock reported a second-quarter profit of $619 million, or $3.21 a share, up from $432 million, or $2.21 a share, a year earlier. Excluding prior-year acquisition-related costs and other items, earnings were up at $3 from $2.37. It acquired Barclays Global Investors, which manages money for both institutional and individual investors around the world, for $13.5 billion in December 2009.

BlackRock's revenue increased 16% to $2.35 billion mostly owing to increased long-term assets under management. Analysts polled by Thomson Reuters most recently forecast earnings of $2.88 on revenue of $2.32 billion.

Adjusted operating margin also improved to 39.7% from 38.8% in the second quarter last year. Fink said the firm is still working to expand the margin to over 40%. Fink said the firm is still working to expand the margin to over 40%.

Despite investors' caution, BlackRock's new business pipeline remained robust at $84.3 billion at July 14, it said, including $13.0 billion funded since the end of the quarter and $71.3 billion of new mandates to be funded.

Fink said that investors are "barbelling" by increasing exposure to products that track market performance and, at the same time, adding strategies that they hope will generate higher alpha, or returns better than market benchmarks.

Some 90% of BlackRock's revenue in the second quarter came from base fees, 5% of revenue came from BlackRock Solutions and advisory businesses, and 2% came from performance fees. Base fee growth came from higher fees in all long-term asset classes, the firm reported, with 25% of base fees coming from active equity and 23% coming from iShares exchange-traded funds.

The firm has been on a hiring spree in recent months, adding new employees to the real estate, private equity and communications teams. Fink pointed to the downsizing of other firms as creating a great environment for hiring at BlackRock.

BlackRock, which pays out 44% of its earnings as dividends, says the company continues to look at "small liftouts of teams and people," but not big mergers. Fink said the board may also use free cash flow for dividends and stock repurchases. BlackRock in May bought back shares Bank of America Corp. (BAC) held in the money manager for about $2.55 billion, ending a legacy investment the bank inherited from its purchase of Merrill Lynch & Co.

Another major investor, PNC Financial Services Group Inc.'s (PNC) still has a 20% economic interest in BlackRock.

Shares were up 1.4% to $186.20 in recent trading.

-By Amy Or, Dow Jones Newswires; 212-416-3142; amy.or@dowjones.com

--Mary Pilon contributed to this article.

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