BlackRock Profit Rises 19% as Assets Surge to $8.7 Trillion -- 2nd Update
15 January 2021 - 5:02AM
Dow Jones News
By Dawn Lim
BlackRock Inc.'s quarterly profit rose 19% as investors turned
to the money-management giant's funds through election uncertainty,
vaccine breakthroughs and a year-end rally.
The investment company posted fourth-quarter profit of $1.5
billion, or $10.02 a share, up from $1.3 billion, or $8.29 a share,
a year earlier. BlackRock's revenue rose 13% to about $4.5 billion
in the final three months of 2020.
BlackRock has used its scale to undercut the prices of rival
funds in popular index strategies while focusing on growing more
lucrative areas of the business such as private equity.
Rising markets benefited BlackRock as pensions, endowments and
investors took bullish bets on the prospect of a return to global
growth after the devastation from the Covid-19 pandemic and central
bank interventions. The firm benefited as investors turned to its
illiquid strategies to juice returns in a low interest rate
environment. It also benefited as investors wanted to make quick
wagers in the volatile markets in the lead-up to an election
result.
BlackRock took in new money into more lucrative actively managed
funds and areas like alternatives to stock and bonds. Money flowed
into equity, fixed income and alternative investments. The biggest
chunk of the new money went into bond funds.
The world's largest asset manager continues to grow larger. The
firm hit a new milestone of $8.68 trillion in assets under
management.
The asset figure "is huge, large, and eye popping," BlackRock
Chief Executive Larry Fink said in an interview. "We're still a
very small component of the world's capital markets."
He added, "I believe we have huge opportunity going
forward."
The company brought in $126.9 billion in new investor money in
the quarter, down slightly from $128.8 billion in the year-earlier
quarter.
BlackRock's iShares funds that trade on exchanges and mirror
markets took in $79 billion in new flows in the fourth quarter, up
from $75.2 billion in the year-earlier period.
BlackRock isn't immune to the broader market pressures. It has
had to waive fees from money funds -- which go into ultrasafe,
short-term debt -- to keep yields from falling below zero, and
expects to continue to do so in the coming months. It also saw
outflows from its multiasset business line in the fourth quarter.
BlackRock's business of lending out shares took in lower revenues
than the year-ago period.
On a call with analysts Thursday, the firm said operating
margins as adjusted in the coming year would be in line with
2020's. The prospect of flat operating margins contributed to the
stock falling about 3% in early afternoon. Not helping the stock:
For many investors, strong performance at BlackRock is business as
usual.
"The flows are really good, but expected," said Credit Suisse
analyst Craig Siegenthaler.
BlackRock's sprawling line up of financial products has
insulated it from price squeezes other smaller firms face. Many
rival companies are expected to deliver outflows in the uncertain
economy, struggling to stand out in a competitive industry with
smaller scale and less brand recognition.
"The industry is still shrinking while BlackRock has outsized
growth," according to Edward Jones analyst Kyle Sanders.
At the end of 2020, BlackRock jumped into the business of
creating customized indexes for wealthy customers. It entered a
deal to buy a direct-indexing business at the end of 2020, betting
on growing interest by individuals for portfolios tailored to their
values. The $1 billion acquisition of Aperio Group gives it
additional ballast to take on Morgan Stanley, which announced an
acquisition of Eaton Vance and its direct-indexing firm
Parametric.
BlackRock sells software, including a suite of tools called
Aladdin, to banks and other institutions to measure risk.
Technology-services revenue -- which includes fees from Aladdin --
rose by 11% in the fourth quarter. BlackRock on Wednesday announced
it is taking a stake in Clarity AI, an analytics and data science
platform focused on sustainability, to bolster its Aladdin
platform.
The returns cap off a year in which BlackRock gained significant
clout in Washington. The Federal Reserve chose the firm to buy
bonds and funds on its behalf earlier in 2020. Three people who
have worked at BlackRock are set to join the new Democratic
administration.
As BlackRock grows, Mr. Fink has to navigate the demands from
politicians and the public on how BlackRock should use its perch as
a major shareholder for its funds to effect change. The firm faces
challenges to its global ambitions in a protectionist
environment.
Even as trade tensions have heated up, China remains a strategic
focus for BlackRock. Mr. Fink urged continued conversations with
the world's second-largest economy.
"I don't believe it's in the interest of American investors to
cut off the Chinese market," Mr. Fink said.
Write to Dawn Lim at dawn.lim@wsj.com
(END) Dow Jones Newswires
January 14, 2021 12:47 ET (17:47 GMT)
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