BlackRock's Profit Beats Estimates as Clients Add Money

  • Firm's net income falls 8% on market rout, higher tax rate
  • Asset manager recorded $35 billion in long-term net inflows

BlackRock Inc., the world’s largest money manager, reported third-quarter profit that beat analyst estimates as retail clients and institutions added money.

Net income decreased 8 percent to $843 million, or $5 a share, from $917 million, or $5.37, a year earlier, partly reflecting a higher tax rate, the New York-based company said Wednesday in a statement. Adjusted earnings of $5 a share beat the $4.58 average estimate of 19 analysts surveyed by Bloomberg.

BlackRock’s profit was hurt by a market rout that saw the Standard & Poor’s 500 Index posting its worst third-quarter since 2011. Chief Executive Officer Laurence D. Fink has been expanding offerings including exchanged-traded funds and improving the performance of actively managed funds, helping attract $35 billion in long-term net inflows in the quarter.

"It is essentially from our positioning worldwide of talking about the long term, focusing on outcomes," Fink said in a phone interview. "The market action doesn’t change a pensioner trying to build savings for the future. Our risk management platform worldwide allowed us to navigate noise of the quarter."

BlackRock’s shares rose 2.3 percent to $322.47 on Wednesday, paring their loss for the year to 9.8 percent. That compares with a 14 percent decline for the S&P’s 19-company index of asset managers and custody banks.

The firm’s net income declined as it coped with foreign-exchange losses and a plunging market, which hurt investments. Earnings per share were higher in the third quarter of last year because of a lower tax rate.

BlackRock’s revenue increased 2.1 percent to $2.91 billion from the same period last year as the firm brought money into most of its products.

Fixed Income Grows

Retail investors added $6.6 billion to BlackRock’s funds during the quarter, led by fixed-income products. iShares ETFs attracted $23.3 billion, with strong flows into U.S. Treasuries. Institutions contributed $5.9 billion to the firm’s active strategies while pulling $707 million from index funds, particularly in equities.

As the Federal Reserve prepares to raise interest rates, BlackRock’s fixed-income business continues to expand.

"The narrative about high rates and what that means for fixed income flows is an incorrect viewpoint," said Fink during the third-quarter earnings call, noting that clients are focused on meeting liabilities. Many clients have under-invested and have a gap between liabilities and the duration of bonds, he said.

BlackRock’s assets under management fell to $4.51 trillion from $4.72 trillion in the prior quarter.

BlackRock on Tuesday rolled out its first social impact-labeled U.S. mutual fund, which will shun tobacco, weapons and alcohol companies while investing in stocks that aim to improve health and the environment.

Market Breakdown

The firm, as the biggest provider of ETFs, was among those affected by the market breakdown on Aug. 24. That day’s volatility caused wild price swings for hundreds of ETFs, prompting questions from regulators over why the investment products traded at such steep discounts to their underlying net asset values. Earlier this month, BlackRock suggested potential ways to avoid future issues, including halting the U.S. equity market if a certain number of shares stop trading.

"We want to be a constructive voice as we resolve" the issue, Fink said in the interview, referring to market structure. "It is a shock that is unacceptable. The marketplace did not perform as it should have."

Soon after the market breakdown in August, business returned to normal.

"Even the next day after the 24th there were inflows," Fink said.

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