BlackRock Inc., the world’s biggest money manager, said first-quarter earnings rose fivefold after the acquisition of Barclays Global Investors added assets and lifted fees.
Net income increased to $423 million, or $2.17 a share, from $84 million, or 62 cents, a year earlier, the New York- based company said today in a statement. Excluding some costs, BlackRock’s profit was $2.40 a share, missing the $2.44 average estimate of nine analysts surveyed by Bloomberg.
Chief Executive Officer Laurence D. Fink has built BlackRock into the world’s biggest asset manager with the Dec. 1 purchase of London-based Barclays Plc’s investment unit, which added the largest lineup of exchange-traded funds and more than doubled assets to $3.36 trillion. Investors deposited $8.9 billion into long-term funds at BlackRock, while removing $39.6 billion from cash and money-market funds.
“The flows picture is looking generally solid for BlackRock with the passive funds,” Jeffrey Hopson, an analyst with Stifel Nicolaus & Co. in St. Louis, said before the results were announced. “The only areas that aren’t doing as well on the flows are the money-market funds and quantitative funds,” which use mathematical models to pick securities.
Hopson, who rates BlackRock shares a “buy,” expected the company to earn $2.46 a share excluding some items. Earnings in the year-earlier period were reduced by 73 cents a share by declines in the value of co-investments alongside investors in its own funds.
Investors put $4.6 billion into stock index funds, and $900 million into active equity strategies during the quarter, BlackRock said. Quantitative funds, which use mathematical models to pick stocks, had $8.8 billion in outflows. Index bond funds and exchange-traded funds gathered $13.6 billion, while investors pulled $14.4 billion from active bond funds as institutions made changes to asset allocations, BlackRock said.
“Following last year’s sharp rally in global equity markets and significant tightening of credit spreads, institutional investors stepped back to reassess their asset allocation strategies,” Fink said in today’s statement.
Inflows into passive funds and alternative products will help add $200 billion in new business annually over the next five years, President Robert Kapito said in an April 9 interview.
BlackRock’s $15.2 billion purchase of BGI is the biggest to combine an active manager with one that manages passive investments, such as ETFs. BlackRock’s iShares unit managed $509 billion in assets, as of March 31. Alternative strategies such as hedge funds account for $102 billion.
Exchange-traded fund assets in the U.S. surged 67 percent to $750 billion in the year ended in February, according to data from the Investment Company Institute in Washington, as investors sought low-cost alternatives to active funds. Mutual funds in the U.S. held $10.97 trillion as of February, according to the ICI.
BlackRock expanded its equity business with the 2006 purchase of Merrill Lynch & Co.’s money-management unit. Including the equity assets from its BGI purchase, BlackRock now has about 47 percent of its assets, or $1.58 trillion, in stock funds. BlackRock’s stock funds alone hold more in assets than Boston-based Fidelity Investments, which managed $1.5 trillion as of Dec. 31. BlackRock has about a third in bonds, placing it ahead of rival Pacific Investment Management Co.
BlackRock announced earnings before the start of regular U.S. trading. BlackRock shares have declined 8.7 percent this year, compared with the 9.8 percent gain in the Standard & Poor’s 500 Index.
To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at firstname.lastname@example.org.