BlackRock’s results were disappointing in light of falling asset prices and rising dollar, which led to assets under management dropping to $8.5tn.
The world’s largest money manager’s adjusted earnings fell 30 per cent to $7.36 per share on $4.4bn in revenue for the quarter ending June 30. Refinitiv polled analysts and found that they expected $7.90 per share on revenues of $4.65bn.
BlackRockOther asset managers have been hard hit by volatile markets, which have upset investors and pushed down portfolio values from which they receive management fees.
The group delayed hiring for senior positions up to 2023. Total employee benefits spending fell by 5% in the second quarter. Although there is no firm-wide hiring freeze, BlackRock is trying to hold down costs by “juniorising” their work force: hiring less experienced people to fill open positions.
After peaking at $10tn at 2021’s end, assets under management saw a 11% drop. This was the 2nd consecutive quarter-end decline in assets under management. State Street’s asset management arm reported on Friday that its AUM had also fallen 11 per cent to $3.5tn.
BlackRock’s global manager role has seen the dollar rise, which has had a negative impact on the value of fees earned in other currencies. While revenue declined by 6 percentage points overall, base fees remained flat in constant currency terms.
“The first half of 2022 brought on a combination of macro financial and economic challenges that investors have not seen in decades . . . 2022 ranks as the worst start in 50 years for both stocks and bonds,” Larry Fink, the group’s founder and chief executive, said on an earnings call.
Fink hailed the group’s ability to generate $90bn in net inflows despite the grim news, saying it was “demonstrating our ability to deliver industry-leading flows even in these most challenging environments . . . BlackRock’s position has never been stronger.”
BlackRock’s shares, which had lost one-third of their value in 2022, were down slightly morning trading.
Operating margins dropped to 43.7 % due to increased expenses for technology, travel, and entertainment, even though revenues declined.
“Even [BlackRock] isn’t immune to a market downturn. We were nevertheless impressed by [their] ability to sustain robust asset inflows in choppy markets,” said Kyle Sanders, analyst at Edward Jones, adding that he expected BlackRock’s continued spending on strategic growth areas “will likely dampen profit margins in the near-term [but] we think it bolsters their competitive advantage.”
The group’s iShares exchange traded funds platform drew the bulk of new investor money, with $52bn in net inflows, and its cash platform reached record levels with $21bn in net new money as customers fled to safety and took advantage of rising interest rates.
Some market experts predicted that volatility would lead investors to reduce their allocations to ETFs or other passive vehicles. However, this has not been the case. Gary Shedlin, BlackRock’s chief financial officer said that institutional investors are increasingly using ETFs to reposition their portfolios rather than buying and selling individual stocks and bonds directly.
“We expect bond industry ETF assets will nearly triple and reach $5tn at the end of the decade . . . Rising rates will bring a whole new set of investors,” Fink said.
Retail funds fared worse, with net outflows of $10bn, and BlackRock’s performance fees for its advisory services were down sharply year on year. However, products that are based on environmental, social, and governance criteria (ESG) continue to attract new capital and currently manage $473bn of assets.
The company’s technology division proved to be a bright spot. Revenue increased 5% year-on-year and Fink stated that the company received record numbers of mandates for its Aladdin software, which assists other financial service companies in managing risk.
“BlackRock has always capitalised on market disruption and emerged stronger,” said Shedlin said. “We have navigated these choppy waters before.”
BlackRock won several large institutional mandates for outsourcing investment management from AIG, General Dynamics and others. These AUM numbers do not include these large institutional mandates. “We are going to see an acceleration . . we see this as a real opportunity for us,” Fink said.