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BlackRock Profit Rises as Market Offsets Redemptions

BlackRock Inc. Chief Executive Officer Laurence D. Fink
Chief Executive Officer Laurence D. Fink is recommending investors put cash into equities as bond yields have shrunk to record lows. Photographer: Jerome Favre/Bloomberg

BlackRock Inc., the world’s biggest asset manager, reported higher first-quarter profit as rising markets more than made up for client redemptions and a continuing shift to lower-fee passive products.

Net income at the New York-based firm rose 0.7 percent to $572 million, or $3.14 a share. Rising markets and foreign-exchange swings lifted assets to $3.68 trillion. BlackRock fell the most in four months as customers removed a net $48 billion in the quarter.

Chief Executive Officer Laurence D. Fink has been urging clients to invest in equities as markets have rallied. BlackRock has started a new advertising campaign aimed at making it better known and is seeking to increase higher-fee assets as investors have turned away from actively-managed funds in recent years. The firm’s share of fees from active funds has fallen as investors moved money into BlackRock’s iShares ETFs.

“We saw renewed confidence in global markets driven by European stability following the European Central Bank’s announced liquidity plan together with positive economic data in the U.S., leading investors to seek out macro exposures primarily through index products,” Fink said in today’s statement.

BlackRock fell as much as 3.9 percent, the most since Dec. 8, and declined 2.7 percent to $196.32 at 10:18 a.m. in New York. Before today, the shares gained 4.4 percent in the 12 months through April 17, compared with the 8.3 percent decline in the 20-member S&P index of asset managers and custody banks.

ETFs Gain

BlackRock drew $18.2 billion into its iShares ETFs in the quarter, compared with deposits of $1.1 billion into active bond funds and redemptions of $4.5 billion from active stock funds.

BlackRock’s net withdrawals were driven by a $36 billion redemption from a single institutional fixed-income client. Excluding that previously-disclosed redemption and withdrawals from cash funds, BlackRock said clients added $25.7 billion during the quarter.

Money managers such as BlackRock, which earn fees based on the assets that they manage for clients, traditionally benefit from rising stock markets and investor deposits into higher-fee stock and bond funds. The MSCI ACWI Index of global stocks rose 11 percent in the first quarter and the U.S. benchmark Standard & Poor’s 500 Index rose 12 percent.

‘New World’

BlackRock’s assets rose about 1 percent to $3.68 trillion from a year earlier and increased 4.9 percent compared with the prior quarter. BlackRock’s investment advisory fees fell about 0.4 percent compared with a year earlier.

Investors put an estimated $73 billion into active funds industrywide this year through March, while depositing $34 billion into passive funds, according to data compiled by Morningstar Inc. in Chicago. U.S. exchange-traded products had their best ever start to a year, attracting new assets of $55.6 billion in the first three months of 2011, according to data compiled by BlackRock.

BlackRock in February started a “new world” campaign to tell clients how to invest in an uncertain market. Four-page inserts appeared in publications including the Wall Street Journal and the Financial Times as part of the branding initiative. Fink and other BlackRock executives have spoken publicly about how investors can be harmed by staying in cash-like products and focusing on short-term investing.

BlackRock’s Acquisitions

The firm, which acquired Barclays Global Investors in December 2009, offers actively managed stock and bond funds, passive strategies, hedge funds and portfolios that use mathematical models, giving it the broadest array of products among money managers.

Fink, who co-founded BlackRock in 1988, has built the firm through a series of acquisitions, including the 2006 purchase of Merrill Lynch & Co.’s investment unit. BlackRock acquired the hedge fund-of-funds business of Quellos Group LLC in 2008. The company last year expanded the alternatives division, which manages hedge funds, real estate funds and private-equity strategies.

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