BlackRock Profit Falls 3.7% as Market Swings Curb Asset Growth

  • China scare, Brexit vote hurt assets and fees in first half
  • Clients shifted money from equities to bonds, cash products

BlackRock Inc., the world’s largest money manager, said second-quarter profit fell 3.7 percent as performance fees declined and clients shifted money from stocks to lower-fee fixed income and cash investments.

Net income in the three months through June declined to $789 million, or $4.73 a share, from $819 million, or $4.84 a share, a year earlier, the New York-based company said Thursday in a statement. Adjusted earnings of $4.78 a share beat the $4.77 average estimate by 16 analysts surveyed by Bloomberg.

BlackRock is the first big U.S. money manager to report second-quarter earnings, giving a glimpse of how firms navigated financial markets that were rattled by Britain’s vote to leave the European Union. Chief Executive Officer Laurence D. Fink, who earlier this year cut about 3 percent of the workforce in BlackRock’s biggest round of layoffs, has said the vote will weaken global economic growth.

"Market volatility and macro concerns this year have presented challenges for the asset management industry," Macrae Sykes, an analyst at Gabelli & Co., said before results were released.

The Brexit vote added to a number of events that fueled financial market volatility this year, such as the selloff in oil in the first quarter and concern about China’s economy. Global equities lost $2.5 trillion in market value on June 24, the day after the British vote, only to recoup most of the losses when central banks signaled they were ready to support markets.

“Our clients are facing unprecedented challenges as they attempt to navigate the current investment environment,” said Fink said in the statement. “Political and macroeconomic uncertainty, historically low yields and elevated market volatility are leading clients to pause, as evidenced by more than $55 trillion in bank deposits in the US, China and Japan alone.”

Fink has predicted consolidation in the asset management industry as firms have difficulty beating their benchmarks and a new Labor Department rule will benefit passive strategies. In addition to BlackRock, Pacific Investment Management Co. and Grantham Mayo Van Otterloo & Co. have cut jobs this year.

BlackRock has been able to benefit from the shift toward passive investing, because it is the largest provider of exchange traded funds. The firm’s shares have risen 5 percent this year, compared with a 6.3 percent decline for Standard & Poor’s 19-company index of asset managers and custody banks.

Clients added a net $1.5 billion in long-term assets during the quarter, led by $10 billion in inflows into the firm’s fixed income ETFs. Assets under management increased to $4.9 trillion from $4.7 trillion at the end of March.

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