BlackRock First-Quarter Profit Climbs 20% as Assets Increase

Apr 17, 2014 4:38 pm ET

(Updates with closing share price in fifth paragraph.)

April 17 (Bloomberg) -- BlackRock Inc., the world’s biggest money manager, said first-quarter profit rose 20 percent as investors added money to its funds, boosting assets and the fees for managing them.

Net income increased to $756 million, or $4.40 a share, from $632 million, or $3.62 a share, a year earlier, the New York-based company said today in a statement. The shares fell as much as 3 percent after the firm said institutional clients pulled money from active stock and bond strategies.

BlackRock Chief Executive Officer Laurence D. Fink, 61, has expanded his management team and reorganized leadership as the firm seeks to improve the performance of its active products, appeal to individual investors and win more money into its funds globally. BlackRock attracted about $27 billion in the quarter, down from $40 billion in the last three months of 2013.

New money “represented a less attractive mix as three- quarters of the inflows were into index products,” Daniel Fannon, a San Francisco-based analyst as Jefferies Group LLC, wrote in a note to clients.

BlackRock shares fell 0.6 percent to $308.38 at the close of trading in New York, and have declined 1.9 percent this year. The Standard & Poor’s 18-company index of asset managers and custody banks has slipped 5.3 percent, including reinvested dividends.

Management Reorganization

BlackRock is growing faster than peers as the firm attracted money across its product offerings, Fink said today in an interview. Revenue rose 9 percent from a year earlier to $2.7 billion. Assets increased 1.8 percent during the quarter to $4.4 trillion.

BlackRock this month expanded its top management ranks, grooming the next generation of leaders in the biggest management reorganization since 2012. The firm on April 6 named Charles Hallac, 49, co-president and appointed Rob Goldstein chief operating officer. At least 10 senior executives were given new roles.

“My intention is to be here for many, many years,” Fink said, adding he and President Robert Kapito, 56, “aren’t going anywhere.”

BlackRock’s growth had been largely fueled by acquisitions, culminating in its 2009 purchase of Barclays Plc’s investment unit, which helped it expand into passive investments. The firm manages everything from open-end mutual funds to private hedge funds, exchange-traded products and real estate.

SIFI Designation

BlackRock along with Pacific Investment Management Co. and Fidelity Investments has been lobbying regulators and lawmakers to avoid being labeled systemically important financial institutions, or SIFIs. The designation could lead to tighter capital, leverage and liquidity rules like those faced by banks.

BlackRock is “working actively with regulators to help build a constructive solution,” and recently sent the Financial Stability Board a letter about the impact of asset managers on market stability, Fink said today in a conference call with investors and analysts.

“While we share the FSB’s desire for a safer market environment and we agree with their focus on products rather than firms, we argue that leverage rather than size should be the primary screen when determining the appropriate level of regulatory scrutiny,” he said.

Retail Business

BlackRock’s retail business added $14 billion in net new money, with $9.8 billion coming from outside the U.S. That was driven by investor demand for non-traditional bond strategies. The BlackRock Strategic Income Opportunities Portfolio run by Rick Rieder drew $2.7 billion in the quarter.

“This is just the beginning, this groundswell movement towards an unconstrained type of fixed-income product,” Fink said today, saying the firm is “looking at creating more unconstrained type of products” and that they’ve seen more interest from defined-contribution funds. “This is going to accelerate in a very large way.”

Institutional investors pulled $7 billion from actively managed fixed-income products and $8 billion from active stock offerings. BlackRock said the redemptions were concentrated with three big investors.

“The only sour notes are the loss of assets from three, large institutional clients,” Erik Gordon, a professor at the Ross School of Business at the University of Michigan in Ann Arbor, wrote today in an e-mail.

--With assistance from Alexis Leondis in Washington.