BlackRock Assets Fall Below $8 Trillion, Earnings Outweigh Strong ETF Demand

Oct 13 (Reuters) – BlackRock Inc. (BLK.N) posted a smaller-than-expected drop in quarterly profit on Thursday as strong demand for exchange-traded funds and other low-risk products cushioned the impact on fee income from a global market slump, but its assets under management fell short of expectations.

The threat of a recession, rising interest rates and the Ukraine crisis have hit both bonds and stocks this year, keeping investors on the defensive in a blow to the likes of BlackRock. Global market uncertainty has increased in recent weeks as the UK government’s fiscal plans have thrown British markets into chaos; BlackRock clients have significant exposure in pension vehicles at the center of the drama.

The company’s assets under management (AUM) fell to $7.96 trillion in the third quarter, down 16% from a year earlier, as a stronger dollar reduced the value of investments in Europe and Asia.

“The speed at which central banks are raising rates to control inflation coupled with slowing economic growth is creating extraordinary uncertainty, heightened volatility and lower levels of market liquidity,” said BlackRock Chief Executive Officer Larry Fink, in a conference call.

The world’s largest asset manager, which makes most of its money from fees charged for investment advisory and management services, posted a 16% drop in adjusted earnings to $9.55 per share.

That beat analyst expectations of $7.07 a share, according to IBES data from Refinitiv.

Shares of the company, down 42% year-to-date, fell on Thursday, hitting a nearly 2-1/2-year low amid broader market weakness after a high inflation reading in the US. USA

AUM declined below analyst expectations of about $8.5 billion at the end of the second quarter. “Given the lower-than-expected AUM result, that sets a lower bar for revenue generation in the fourth quarter,” said Kyle Sanders, an analyst at Edward Jones.

Overall net inflows were positive in the quarter, with long-term net inflows of $65bn, as momentum from ETFs offset the impact of retail clients withdrawing around $5bn. Year-to-date inflows totaled $248 billion.

“We see revenues 6% to 8% lower in 2022 due to weak market conditions, but keep in mind that long-term asset inflows are still positive,” Cathy Seifert, vice president of CFRA Research, said in a statement. a note. CFRA maintains a “strong buy” view of BlackRock shares.

Net inflows to ETFs were approximately $22 billion in the quarter, driven by $37 billion of inflows into bond ETFs.

BlackRock Chairman Robert Kapito said the company was helping clients adjust portfolios in light of higher yields in fixed income. “We saw $37 billion of net inflows into bond ETFs, which is the second best quarter we’ve ever had in history… I think we’re going to see dramatic, large inflows into fixed income over the next year as prices increase.” interest rates,” he said.

BlackRock’s third-quarter revenue fell 15% to $4.31 billion. Net income fell to $1.4 billion, or $9.25 a share, for the three months ended Sept. 30, from $1.68 billion, or $10.89 a share, a year earlier.

The benchmark S&P 500 index (.SPX) it has lost nearly 25% year-to-date, with analysts expecting more pain as the US Federal Reserve remains hawkish.

BlackRock plans to pause discretionary hiring plans for the rest of the year as market conditions may take longer to recover than in previous economic downturns.

“While we continue to have a deep belief in our strategy and the long-term growth of the global capital markets, we have begun to more aggressively manage the pace of certain discretionary spending,” said Chief Financial Officer Gary Shedlin.

BlackRock is a major provider of liability-driven investment (LDI) strategies for UK pension plans, which are racing to sell assets, including UK government bonds, or gilts, to raise cash and shore up derivative positions before they the Bank of England decides. support intended to keep them afloat.

Fink said BlackRock has about 20% of the UK ILD market, or about $250bn. On Wednesday, he said that he had private talks with the government there.

“As of this morning, the gold market was flat, so it looks like a lot of the rebuilding on these products may have been done and the market should be a little more normalized,” Fink said Thursday.

Reporting by Manya Saini in Bengaluru and Davide Barbuscia in New York; Edited by Devika Syamnath, Megan Davies, Mark Potter and David Gregorio

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