April 16 (Bloomberg) -- BlackRock Inc., the biggest publicly traded asset manager in the U.S., reported first-quarter earnings that fell short of analysts' estimates because of declines in hedge-fund and real-estate investments.

Net income rose 24 percent to $241.7 million, or $1.82 a share, from $195.4 million, or $1.48, a year earlier, the New York-based company said today in a statement. Excluding some items, profit was $1.90 a share, missing the $2 average estimate of nine analysts surveyed by Bloomberg.

BlackRock, run by Chief Executive Officer Laurence Fink, has increased profits for six straight quarters, though it hasn't been immune to falling global markets. The company was forced to mark down the value of investments made alongside clients in its own hedge funds and real-estate pools. Most of the $35.2 billion in inflows during the quarter went to low-fee cash funds as investors fled stocks and bonds.

``There were a lot of pitfalls BlackRock could have fallen into, which they avoided,'' said Robert Lutts, who oversees $500 million including BlackRock shares as chief investment officer at Cabot Money Management Inc. in Salem, Massachusetts. ``You need to be impressed with these results.''

BlackRock rose 21 cents to $205.40 at 4:15 p.m. in New York Stock Exchange composite trading. The stock has fallen 5.3 percent this year, compared with the 12 percent decline in the Russell 1000 Financial Services Index.

Assets Edge Up

Revenue rose 29 percent to $1.30 billion. The fund markdowns reduced earnings by 12 cents a share.

BlackRock's fund inflows, which topped all publicly traded competitors last year, sputtered in the quarter. Assets under management rose 1 percent to $1.36 trillion from Dec. 31, as net inflows were mostly offset by market depreciation of $27.4 billion.

BlackRock's equity assets declined 7 percent to $426.9 million during the first quarter, while bond assets were mostly unchanged at $514.7 billion.

Investors put $35.1 billion into cash funds and $3.3 billion into so-called alternative investments such as hedge funds and real estate. They pulled $3.2 billion from stock and bond funds.

BlackRock Solutions, the company's risk-management advisory unit, gathered $62.5 billion in new business, mainly helping investors liquidate their portfolios.

BlackRock said it expects to win contracts covering a $105.8 billion in assets among all it units.

Performance fees fell 73 percent from the previous quarter to $41.5 million, while investment-management fees fell 2.4 percent to $1.1 billion.

Raising the Bar

``Solid quarter but clearly the bar just got too high for BlackRock,'' Douglas Sipkin, a Wachovia Corp. analyst, said today in a note to clients.

Sipkin, who last week cut his rating on BlackRock shares to ``market perform,'' expected the company to earn $1.99 a share.

BlackRock's expenses rose 23 percent to $904.4 million, driven by higher compensation, largely from incentive fees for exceeding market benchmarks. Employee compensation rose 35 percent to $468.95 million from a year earlier.

The company doesn't expect to incur additional charges on its money-market funds, Chief Financial Officer Paul Audet said on a conference call today with investors and analysts. The funds no longer hold any debt issued by structured investment vehicles. In the fourth quarter, BlackRock spent $18 million to support the net asset value of two enhanced cash funds whose values fell as the credit markets got squeezed.

Overseeing Bear

BlackRock was picked March 24 by the Federal Reserve to oversee $30 billion of Bear Stearns Cos.' investments after the fifth-largest U.S. securities firm agreed to be acquired by JPMorgan Chase & Co. BlackRock was called in last year to temporarily manage a Florida state money fund, after investors pulled money because of concerns about possible losses on subprime-related securities.

BlackRock's Fink said investors should sell U.S. Treasuries because a surge in prices has made them too expensive.

``The next bubble is in U.S. Treasuries,'' Fink said on a conference call today with analysts and investors.

BlackRock's bond-fund returns in the first quarter were ``mediocre'' as the firm avoided Treasuries, which have jumped this year, according to Fink.

Treasuries of all maturities have returned 3.8 percent this year, the best annual gain since 2000, according to an index compiled by New-York based Merrill Lynch & Co. Investors sought refuge in U.S. government debt as global credit-market losses at banks and securities firms widened to $245 billion since the start of 2007.

Riskier Debt

BlackRock, which began avoiding risky debt starting in 2005, is telling investors to get back into riskier debt such as mortgage-backed securities.

The company in September 2006 acquired Merrill's investment unit. In October, BlackRock completed the acquisition of a Quellos Group LLC division, which added more than $20 billion in hedge-fund assets.

New York-based Merrill, the third-biggest U.S. securities firm by market value, owns 49 percent of BlackRock, making it the company's largest shareholder. Pittsburgh-based PNC is second- biggest, with a 34 percent stake.

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

Last Updated: April 16, 2008 16:21 EDT