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 The New York-based asset manager, which now manages $4.4 trillion in
assets, said it had positive net flows across equity, fixed-income,
alternatives and multi-asset funds during the quarter.
"Even with all of the turmoil in the markets that we saw a few weeks
ago, every day during that turmoil, we had net inflows," Chief
Executive Officer Laurence Fink said in an interview on Thursday,
referring to the company's retail client base. Fink noted most of
that turmoil was due to "fast money" exits, with hedge funds moving
out of their positions rather than any broad-based selling among
long-term investors.
Revenue at BlackRock grew 9 percent to $2.67 billion, with revenue
generated by performance fees paid by investors for outsized
earnings in some funds surging 46.3 percent to $158 million from a
year earlier.
BlackRock's quarterly results exceeded Wall Street estimates, but
analysts tempered that beat by noting that some of the upside came
from non-operating drivers and larger-than-expected gains on
investments.
"It was certainly a fine quarter from an earnings standpoint, but
these performance fees and expense items are certainly lumpy and
some of them are one time in nature," said Edward Jones analyst Jim
Shanahan.
Shares of BlackRock were down 0.7 percent at $307.95 in afternoon
trading on the New York Stock Exchange.
Of the $26.7 billion that investors poured into long-term funds
during the quarter, roughly half came from retail investors who
accounted for $14 billion of long-term net inflows during the
quarter. Retail fund assets at the end of March totaled $508.7
billion, representing 12 percent of total assets under management at
the end of March.
While institutional investors put money into lower-fee institutional
index funds, they pulled money out of actively managed funds.
Institutional investors had net outflows of $8 billion from actively
managed equity funds and $7 billion from actively managed
fixed-income during the quarter.
That could be a concern going forward, according to Edward Jones'
Shanahan. Most of the growth delivered during the quarter was in
lower-fee institutional index portfolios rather than actively
managed funds and other high-fee products, he said.
FLOWS ACROSS ASSET CLASSES
BlackRock has remained largely insulated from the market volatility
experienced in early 2014, because its broad menu of investment
products, exchange-traded funds and mutual funds span various asset
classes and world regions, analysts say.
BlackRock's strong performance through the market volatility
"highlights the flexibility of their model and their ability to
drive revenue from different sources of their business," said
Gabelli & Co analyst Macrae Sykes.
Investors poured $15.6 billion into BlackRock's fixed-income funds
and $3.8 billion into equity funds. They added $5 billion to
multi-asset portfolios, while adding $2.3 billion to alternative
funds.
With the bulk of long-term net inflows going into fixed-income
during the quarter, Fink noted that much of the investor interest
there has shifted toward "unconstrained" fixed-income products that
are not targeted to any duration. A lot of those flows are driven by
money moving into defined contribution plans and the de-risking of
pension plans, he said.
BlackRock's strength in fixed-income comes as rival bond-market
money manager Pimco has been shedding assets.
In a research report on Monday titled "Investors Return to the Bond
Market, Just Not to Pimco," Morningstar's Michael Rawson said Pimco
Total Return Fund saw a net $3.1 billion outflow in March while
intermediate-term bond funds had a $7.4 billion inflow for the same
time period.
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Fink, when asked about Pimco, said he doesn't comment on
competitors, but said BlackRock is in a "great position" with both
institutional and retail clients. And analysts see the giant money
manager playing a bigger role in fixed-income.
"There's an ability (for BlackRock) to take share in fixed-income,
given what we've seen on the competitive landscape with some of the
bigger firms" in the industry, Sykes said.
INSTITUTIONAL ACTIVE LAGS
BlackRock has been working to strengthen its U.S. active equity
business, which has lagged in recent quarters.
In all, institutional investors pulled $12.6 billion from active
funds, with the bulk of those outflows coming from active equity and
fixed-income. BlackRock has been working on bulking up its U.S.
active equity business, but said "it will take time to build
long-term track records."
The company last month named JPMorgan Chase & Co's Christopher Jones
as chief investment officer (CIO) for stocks in the Americas to head
BlackRock's Fundamental Active Equity team in the Americas. Jones,
formerly CIO for JPMorgan Asset Management's growth and small-cap
U.S. equity team, will also be the global co-head of fundamental
equity, alongside Nigel Bolton, head of BlackRock's European equity
team.
Analysts are looking for more growth in the company's actively
managed and higher-fee products, rather than lower-fee index funds.
"Flows are certainly volatile, but this concentration of flows in
institutional index funds is in my mind a negative development and
continues this pressure on weighted average fee rates," Edward
Jones' Shanahan said.
BUILDING BLACKROCK'S BENCH
BlackRock earlier this month announced a reorganization of its
senior management ranks as it works towards an eventual succession
plan for Fink, 61. The company said it would be shifting at least 10
senior executives into new or expanded roles in June as it seeks to
groom its next generation of potential successors to Fink.
But Fink reiterated on Thursday that he has no plans to depart
anytime soon.
"I'm not going anywhere," he said. "It was just a continuation of
our building out our bench."
The idea of the reorganization is to allow senior managers to take
on greater responsibility and gain a broader experience within
different divisions of the company, he said.
BlackRock reported net income of $756 million, or $4.40 per share,
up from $632 million, or $3.62 per share, a year earlier.
Excluding certain long-term compensation expenses and other one-time
items, earnings were $4.43 a share. On that basis, they beat
analysts' average forecast of $4.11 a share, according to Thomson
Reuters I/B/E/S.
(Reporting by Ashley Lau in New York with additional reporting by
Jennifer Ablan; editing by Franklin Paul, James Dalgleish, Linda
Stern and Chris Reese)
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