BlackRock results fell short of sharply reduced expectations in what it described as the worst environment in decades as falling asset prices and a rising dollar drove assets under management down 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. Analysts polled by Refinitiv had been expecting $7.90 a share, on revenue of $4.65bn.
BlackRock and other asset managers have been hit hard by volatile markets that have unsettled investors and pushed down the value of the portfolios from which they draw management fees.
The group has delayed hiring for some senior positions until 2023 and total spending on employee pay and benefits fell by 5 per cent from the first 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.
Assets under management dropped 11 per cent, marking the second consecutive quarterly drop after peaking at $10tn at the end of 2021. State Street’s asset management arm reported on Friday that its AUM had also fallen 11 per cent to $3.5tn.
As a global manager, BlackRock has also felt the impact of a rising dollar, which has reduced the value of fees derived in other currencies. While revenue was down 6 per cent overall, base fees were 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 compressed to 43.7 per cent, dragged down by higher expenses for technology as well as travel and entertainment, even as revenues fell.
“Even [BlackRock] isn’t immune to a market downturn. However, we were impressed with [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.
While some market experts have predicted that volatile markets will lead investors to cut their allocations to ETFs and other passive vehicles, so far that 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. But products that use environmental, social and governance (ESG) criteria continue to attract new money and now manage $473bn in assets.
The company’s technology division proved to be a bright spot. Revenue rose 5 per cent year on year, and Fink said the company had received record new mandates for its Aladdin system, which helps other financial services companies manage risk.
“BlackRock has always capitalised on market disruption and emerged stronger,” said Shedlin said. “We have navigated these choppy waters before.”
The AUM figures do not include several very large institutional mandates for outsourced investment management that BlackRock has recently won from AIG and General Dynamics, among others. “We are going to see an acceleration . . we see this as a real opportunity for us,” Fink said.