BlackRock Falls Most in Year After Missing Estimates

Laurence D. Fink, of Black Rock Inc.
A file photograph shows Laurence D. Fink, chairman and chief executive officer of Black Rock Inc., at a news conference in New York. Photographer: Rick Maiman/Bloomberg

BlackRock Inc.’s first-quarter profit fell short of analysts’ estimates as investors slowed deposits into its funds, sending shares of the world’s biggest asset manager down the most in a year.

BlackRock’s profit excluding some costs was $2.40 a share, the New York-based company said today in a statement. The average estimate of nine analysts surveyed by Bloomberg was $2.44.

Net income rose fivefold to $423 million as BlackRock benefited from the first full quarter following its purchase of Barclays Global Investors. Some investors who had invested with both managers before the acquisition withdrew money because they ended up with too much overseen by a single firm. Investors also reassessed their holdings after 2009’s rally in global markets.

“There were some dislocations, which we’re hoping are short-term,” Jeffrey Hopson, an analyst with Stifel Nicolaus & Co. in St. Louis, said in an interview. “This doesn’t change our view that the BGI transaction will prove to be an excellent one.”

The stock fell $18.07, or 8.6 percent, to $192.95 at 4:01 p.m. in New York Stock Exchange composite trading, the most since a 9.1 percent drop on April 20, 2009. The decline left BlackRock at its lowest price since Sept. 2.

Fund Flows

Net outflows from cash-management funds were $39.6 billion, BlackRock said, compared with the $400 million of deposits during the fourth quarter of 2009. Net inflows into long-term funds were $8.9 billion, following $41.8 billion of deposits during the prior quarter.

Chief Executive Officer Laurence D. Fink has overseen BlackRock’s growth since its founding, including the Dec. 1 purchase of London-based Barclays Plc’s investment unit. The acquisition added the biggest lineup of exchange-traded funds and more than doubled assets under management to $3.36 trillion. Investors moved money from active to passive funds during the first quarter as they re-evaluated their investments, Fink said today in a conference call with investors.

“Some clients were actually de-risking,” Fink said of investors with large profits in stock and credit markets who put money into passive strategies.

Investors deposited $4.6 billion in stock index funds and $900 million in active equity strategies during the quarter, BlackRock said. Quantitative funds, which use mathematical models to pick stocks, had $8.8 billion in outflows.

Investment Allocations

Index bond funds and exchange-traded funds, or ETFs, gathered $13.6 billion. Investors pulled $14.4 billion from active bond funds as they made changes to asset allocations. Investors have agreed to add $35.2 billion into BlackRock funds as of April 20.

First-quarter revenue at BlackRock more than doubled to about $2 billion, while expenses rose 87 percent to $1.3 billion, driven by compensation costs.

BlackRock’s $15.2 billion purchase of Barclays Global Investors was the biggest transaction to combine an active manager with one that manages passive investments, such as ETFs. Indexed strategies including ETFs account for about $1.7 trillion in assets at BlackRock. Active portfolios account for about $1.2 trillion and money funds for about $300 billion. The remainder is in advisory assets.

Exchange-traded funds are typically designed to mimic the performance of indexes. Unlike mutual funds, whose shares are priced once daily after the end of each trading session, ETFs are listed on an exchange where shares are bought and sold throughout the day like stocks.

Low-Cost Alternatives

ETF 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. During the first quarter of 2010, ETF flows were $7.7 billion, according to data from Morningstar Inc. in Chicago.

Deposits into ETFs slowed during the first-quarter as institutional investors sold their holdings, mainly for tax reasons, Fink said today in the conference call. BlackRock’s IShares unit held $509 billion in assets as of March 31.

“What we’ve learned is that you see a lot of seasonality in the index products,” Fink said.

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.


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