Nov. 18 (Bloomberg) -- BlackRock Inc., the largest publicly traded asset manager in the U.S., is cutting jobs for the first time in its 20-year history as slumping financial markets force the mutual-fund industry to shrink.

Dismissal notices are being issued this week, New York- based BlackRock said in a memo yesterday to its 5,500 employees. Some employees in the BlackRock's alternative-investment division were told yesterday they their jobs were being eliminated, said a person familiar with the matter. Bobbie Collins, a BlackRock spokeswoman, said details wouldn't be made public until next year.

``Times like these require fiscal discipline,'' the unsigned memo said. ``We expect it of the companies in which we invest, and we must expect it of ourselves.''

BlackRock said Oct. 21 that third-quarter earnings fell 15 percent, the first drop in two years, as investors pulled money from its funds. Assets declined 12 percent to $1.26 trillion. Fidelity Investments, the world's largest mutual-fund company, Janus Capital Group Inc. and Putnam Investments are among the money managers that plan to eliminate 3,500 positions to cope with market losses and client defections.

Market Pressure

BlackRock's memo, a copy of which was obtained by Bloomberg News, didn't disclose the number of people and the positions affected.

``Considering the pressure that has been brought to bear on asset levels and revenues at BlackRock, this is not a surprise,'' Robert Lee, an analyst with Keefe, Bruyette & Woods Inc. in New York, said in an interview. ``You can't adjust your expenses fast enough.''

BlackRock manages about $71 billion in its alternative- investment unit, which has hedge funds, real estate and private- equity funds. The firm has $502 billion in bonds and $351 billion in stock funds.

Lee, who rates BlackRock shares ``market-perform,'' said administrative, transaction processing and marketing jobs are typically the first to go, while investment-management jobs are the last.

BlackRock fell 16 cents to $106.24 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have declined 51 percent this year, compared with the 55 percent drop in the 16- member Standard & Poor's index that tracks asset management firms and custody banks.

The S&P 500 Index has tumbled 41 percent this year, the biggest decline since 1931. Credit-related losses and writedowns at financial firms have topped $966 billion, threatening global economic growth.

Global Cuts

Banks and brokerages worldwide have announced more than 166,000 job cuts since the subprime-mortgage market's collapse last year. Citigroup Inc., the fourth-biggest U.S. bank by market value, said yesterday it will slash 52,000 workers.

``A wide variety of businesses across industries and regions have reported weak third-quarter results and even weaker expectations for fourth quarter 2008 and for 2009,'' BlackRock said in the memo, which was reported by the Wall Street Journal yesterday. ``BlackRock is not immune.''

Chief Executive Officer Laurence Fink, 56, who co-founded the company in 1988, said last week he saw signs of ``capitulation,'' a broad selloff that usually comes before the end of a bear market.

Fund Withdrawals

``A year ago, I said we won't see a bottom until we see a capitulation,'' Fink, said at a Nov. 11 investment conference in New York. ``We are seeing a capitulation,'' and a recovery may begin by mid-2009, he said.

The bankruptcy in September of Lehman Brothers Holdings Inc. and losses at a money-market fund run by Reserve Management Corp. triggered $53.8 billion in withdrawals from BlackRock's cash and securities-lending funds during the three months ended Sept. 30. Investors also pulled $6.7 billion from stock and bond funds.

Fidelity, based in Boston, is cutting 3,000 jobs, or 7 percent of its 44,400-member workforce, after assets declined about 13 percent in the first nine months of the year. Denver- based Janus is eliminating about 115 jobs, or 9 percent. Boston- based Putnam said yesterday it fired 12 fund managers and eliminated 35 other positions, a reduction of about 2 percent.

The fund industry employed 168,000 people as of 2007, according to Washington, D.C.-based Investment Company Institute. About 27 percent of those employees were fund managers, while 36 percent provide services to investors and their accounts, according to ICI. Jobs related to fund administration accounted for 11 percent, and distribution and sales jobs accounted for the remainder.

To contact the reporters on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net.

Last Updated: November 18, 2008 16:35 EST