BlackRock Profits Rise 23% in Q3, Helped by Actively Managed Funds

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Black rock Inc.

BLACK 3.84%

third quarter profit rose 23% in a volatile period for the markets as the company cashed more money into its lucrative actively managed funds.

The fund management company reported profit of $ 1.68 billion, or $ 10.89 per share, for the quarter ended in September, compared to $ 1.36 billion, or $ 8.87 per share, a year earlier. The company exceeded analysts’ earnings expectations.

BlackRock’s revenue increased 16%. Actively managed funds, funds where managers pick and choose investments, accounted for just over half of the $ 75 billion in net new money that BlackRock collected in the last quarter. Asset managers can generally charge higher fees for funds they actively manage compared to index linked funds.

The growth of high-fee funds has helped BlackRock grow profits while continuing to compete with its rivals with its low-fee products. It has also made the company’s income less vulnerable to market fluctuations that displace index assets.

“A lot of people say, ‘the asset is dead,’” CEO Larry Fink said in an interview Wednesday. “I have invested in more teams and products there.”

BlackRock has grown into the world’s largest asset manager through passive index funds and exchange traded funds.

Fund managers’ assets and profits have exploded over the past year with the Federal Reserve pumping money into the economy and the stock market skyrocketing.

Today, investors have turned more bearish amid growing concerns over rising inflation, slowing US economic growth, global energy shortages and contagion from debt-laden real estate developer China Evergrande Group. The liquidation of emerging markets and the poor returns of the S&P 500 in the last quarter held back the growth of BlackRock’s assets.

“I am convinced that inflation is more than transient,” said Mr Fink. As the Federal Reserve weighs in on a rollback of its easy money policies, Mr Fink said he hopes the Fed will let short-term rates rise slightly in the process, giving savers a bit more return. “Low interest rates around the world are really hurting savers. ”

BlackRock now oversees $ 9.46 trillion for investors, up from $ 7.8 trillion a year earlier, but slightly less than in the second quarter. Choppy markets kept BlackRock from coming close to $ 10 trillion in assets, a symbolic step in the rise of the company and Mr. Fink.

The company has invested $ 33 billion in new money in equity products, $ 27 billion in fixed income strategies and approximately $ 31 billion in multi-asset products. He also added $ 6.5 billion in alternatives to stocks and bonds, an area where pensions and endowments have poured in amid low interest rates.

Near-zero interest rates reduced what BlackRock could earn on securities lending when the company lends shares of companies held in its funds for additional income.

The low rates have caused the yields on money market funds to fall. BlackRock recorded net outflows from this cash management business line in the last quarter. The company continues to waive fees on money market funds, which invest in short-term debt, in order to keep investor returns above zero. The slowdown in short-term borrowing by the Treasury Department to avoid hitting the debt ceiling has reduced the pool of Treasuries in which money market funds typically invest, compounding fund challenges.

“Washington politicized him. Both sides are guilty of this, ”Mr. Fink said, speaking of the debt ceiling. “The question ‘Are we as a country going to pay our bills? I never dreamed in my lifetime that the question would one day be asked.

BlackRock’s operating margin for the third quarter was 38.3%, down from 40.2% a year earlier, in part due to business acquisition costs. An 8% pay rise for many employees – a reflection of the war for talent in finance – added new costs for BlackRock in September.

In the last quarter, BlackRock raised some $ 1 billion for the first-ever mutual fund managed solely by a foreign company for Chinese individuals. It is moving forward with its growth plans in China even as US-China tensions escalate.

As investors wait for a resolution to Evergrande’s debt problems, Mr Fink said the situation would likely result in “a few losers” and that any Chinese policy aimed at reducing its economy’s reliance on real estate could slow down the country’s growth. BlackRock is one of the managers who hold Evergrande’s debt in funds.

He said the Chinese government’s crackdown on over-indebted real estate developers is in line with Beijing’s policies to steer Chinese investors to other Chinese companies and change the way people prepare for retirement.

“It fits the way they try to develop their financial markets,” he said.

Write to Dawn Lim at [email protected]

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