Blackrock Shows Mixed Results, Citing Inflation Concerns

Blackrock Inc. reported an annual increase in assets under management of $937.8 billion in the second quarter of this year despite total net inflows falling during the three-month period and missing forecasts.

Assets under management in the second quarter increased to $9.43 trillion, compared with $8.49 trillion in the year-ago period, the world’s largest asset manager said on July 14. Net inflows fell to $80.2 billion, below expectations of between $92 billion and $105 billion, from $89.6 billion in the year-ago period, it said.

“BlackRock generated an industry-leading $190 billion of total net inflows in the first half of 2023,” Chairman and CEO Larry Fink said in the quarterly results statement. “Our strong investment performance and deep partnerships with clients have led to sustained organic growth,” which was “combined with improving market and currency movements,” he said.

Long-term net inflows dropped to $57 billion, compared to the previous quarter's $103 billion, driven by steep declines in the Americas and the Europe, Middle East and Africa regions. Net inflows in the Americas dropped to $28 billion in the second quarter from $90 billion during the year-ago period.

ETFs received $48 billion in new cash, though still down from the $70 billion in the same quarter last year. Fink said that clients have consolidated more businesses with the firm that helped boost ETF inflow. Cash management accounted for $23 billion of inflows in the second quarter, the asset manager said in its statement.

"The firm's flow mix remains skewed toward lower fee strategies, which continue to weigh on organic base fee growth," Goldman Sachs said in a note to clients.

Blackrock’s shares fell 1.59 percent on July 14 after the earnings were released. The stock is up year-to-date 1.1%.

Revenue

New York-based Blackrock said revenue fell 1.4% to $4.4 billion in the second quarter from a year earlier, driven by the impact of market movements over the past 12 months on average assets under management. Average assets under management increased 2% to $9.2 trillion in the second quarter from the same period last year.

Blackrock, which makes most of its money from investment advisory and administration services fees, reported a 25% rise in its second-quarter adjusted profit. The adjusted profit of $9.28 a share beat analysts' estimates of $8.46, according to Refinitiv IBES.

Citigroup described the results as "a bit of a mixed quarter," given BlackRock's profit beat but lower-than-expected inflows.

"Revenue growth was tepid and could remain pressured in the near-term until there is more clarity on the path of inflation and economic growth,"Kyle Sanders, senior equity research analyst at Edward Jones, said.

Fink said in an interview with CNBC that he expects the economic environment to remain challenging. "Inflation will be stickier than the market is assuming," he said, adding it will bounce around 2% and 4%. His comments echoed JP Morgan Chase’s Chairman and CEO Jamie Dimon, who described core inflation “stubbornly high” after the bank released its second results.

Fixed-Income

Despite these concerns, Blackrock expects clients to increase their allocations to fixed income assets following the Federal Reserve's interest rate hikes.

“There is finally income to be earned in the fixed income market and we are expecting a resurgence in demand,” Chief Operating Officer Rob Kapito said. “There are trillions . . . that are ready, when people feel rates have peaked, to flood the market and we need to position ourselves to capture that.”

While some analysts believe the Fed could pause after another quarter-point increase at its July meeting, Fink has repeatedly said that rates would have to remain higher for longer.

On the expense side, Chief Financial Officer Martin Small told analysts that it was likely to end 2023 with mid to high single digit growth, as the company continues to invest in its business. The headcount should remain broadly flat.

The company last month laid off employees, impacting less than 1% of its total workforce due to budget reallocations to support critical priorities. It had cut 500 jobs earlier in the year as well.