Laurence D. Fink made BlackRock Inc. the world’s largest asset manager with last year’s purchase of Barclays Global Investors. Now he must convince shareholders that his firm hasn’t become too big to grow.
BlackRock, the top performer among the 10 largest publicly traded asset managers last year, has become the worst performer this year, declining 36 percent in New York trading. Investors haven’t been able to get a clear picture of how much money BlackRock can attract into its funds as markets remain volatile, said Jeffrey Hopson, an analyst with Stifel Nicolaus & Co. Inc. in St. Louis.
“If BlackRock can establish that they can still grow at a competitive rate, that will help the shares,” Hopson said. “Flows are the number one thing we’re looking at.”
BlackRock will publish more information on new assets today when it releases second-quarter results. Earnings per share, excluding some items, probably rose to $2.30 from $1.75 a year earlier, helped by the Dec. 1 acquisition of BGI, according to the average estimate of 11 analysts surveyed by Bloomberg.
The $15.2 billion BGI purchase added the biggest lineup of exchange-traded funds and more than doubled assets under management to $3.36 trillion. After the transaction, some investors who had money with both managers withdrew some funds as they consolidated their accounts and reassessed portfolios.
BlackRock’s long-term funds attracted a net $8.9 billion new client money in the three months ended March 31, down from $41.8 billion during the prior quarter. Fink has said investors shouldn’t annualize fourth-quarter figures to estimate future earnings.
Investors in the U.S. deposited about $50 billion into stock and bond mutual funds in the quarter ended June 30, with most of that going into fixed-income funds, preliminary data from the Investment Company Institute in Washington show. Exchange-traded funds pulled in $30.5 billion during the quarter, according to Morningstar Inc. in Chicago.
Investors have been reluctant to put money to work after the Standard & Poor’s 500 Index tumbled 12 percent in the three months ended June 30. The VIX, or the Chicago Board Options Exchange Volatility Index, reached a one-year high of 45.79 on May 20, on concern the European debt crisis may spread and economic growth will slow in the U.S.
BlackRock’s 36 percent decline in New York Stock Exchange composite trading this year makes it the worst performer in the 202-member Russell 1000 Financial Service Index, which is down 1.4 percent. The stock surged 73 percent in 2009, four times the rate of index, helped by news of the BGI purchase.
“The valuation had really gotten ahead of itself,” Macrae Sykes, an analyst with Gabelli & Co. in Rye, New York, said in an interview. “People are still getting clarity on the integration,” he said.
Investors also sold the stock after Fink said in March that BlackRock would use cost savings from the acquisition to reinvest in certain business units, including ETFs. That prompted Citigroup Inc. analyst William Katz to cut his forecast for BlackRock’s margins and earnings estimates.
Katz, in a March 31 note to clients, also said that BlackRock’s shares would fall as Wall Street analysts “realign” their earnings estimates based on the firm’s decision to spend money on its units.
$200 Billion Deposits
Nine of the 14 analysts who cover BlackRock rate the shares a “buy,” while five of them rate them “hold,” Bloomberg data show. Katz, who had the only “sell” rating on the shares, switched to “hold” in April.
BlackRock may average $200 billion in annual investor deposits over the next five years, translating into net new business of 5 percent to 6 percent, President Robert Kapito said in an interview in April.
BlackRock, co-founded in 1988 by Fink, began as a fixed-income firm and has expanded through a series of acquisitions. In 2005, BlackRock bought State Street Research & Management to add more stock, real estate and hedge funds. In 2006, it expanded its equity business with the purchase of Merrill Lynch & Co.’s money-management unit. In 2008, BlackRock acquired a division of Quellos Group LLC to add hedge-fund assets. The purchase of BGI, the biggest seller of index-tracking ETFs, was its largest takeover.
The firm now has about 12 percent of its assets in mutual funds aimed at individuals, 15 percent in ETFs and the majority in institutional products.