Bloomberg News

Fink Says BlackRock Clients ‘Confused’ as Governments Fiddle

October 19, 2011

(Updates shares in third paragraph.)

Oct. 19 (Bloomberg) -- Laurence D. Fink, chief executive officer of BlackRock Inc., said clients are “confused” and fleeing risky assets because of government policies that fail to address long-term problems.

“Worldwide, clients are de-risking,” Fink, 58, said today on a conference call with analysts and investors. “Our clients are confused.”

BlackRock’s shares fell 4.7 percent to $148.92 at 4 p.m. in New York after saying clients removed $10.2 billion from the firm’s funds and market declines erased an additional $303.9 billion in the quarter ended Sept. 30. Withdrawals and market declines reduced assets managed by New York-based BlackRock by 8.6 percent in the quarter to $3.35 trillion.

Fink, who co-founded the company in 1988 and has built it through acquisitions, said a crisis of “confidence” has prompted clients to delay investment decisions. The firm said its new business pipeline of $65.2 billion will shrink because one institutional investor plans to end a $36 billion assignment and manage it internally to cut costs.

“This is a challenging environment and the firm is going to feel the effects of that environment,” Jeffrey Hopson, an analyst in St. Louis at Stifel Nicolaus & Co., said in an interview. “The new business pipeline is going down and there’s a sense that clients aren’t moving around their assets.”

Profit Rises

BlackRock’s net income increased to $595 million, or $3.23 a share, from $551 million, or $2.83, a year earlier, the company said today in a statement. Excluding certain one-time items, BlackRock earned $2.83 a share, compared with the $2.66 average estimate of 14 analysts surveyed by Bloomberg.

Investment advisory fees rose 8.6 percent from the prior year to $1.95 billion, while revenue at the BlackRock Solutions unit, which advises governments and institutions on troubled assets, rose 16 percent to $117 million. Performance fees, which are tied to returns earned by funds, fell 20 percent to $91 million.

Several of the firm’s hedge funds have fallen below their previous peaks, meaning they can’t charge a performance fee, Ann Marie Petach, the company’s chief financial officer, said on the conference call.

Clients Pull Money

Investors removed $8 billion from BlackRock’s active stock funds during the quarter, while adding $9.8 billion to index- tracking products including the firm’s iShares exchange-traded funds. Clients pulled $14 billion from BlackRock’s fixed-income funds, driven by a single withdrawal of $9.1 billion from an institutional investor, which BlackRock said had “minimal revenue impact.”

Earnings were curbed by an 18 percent slump in global stocks during the quarter, as European leaders clashed over how to assist Greece and American lawmakers struggled to agree on raising the federal government’s debt limit.

Ineffective and short-term government policies around the world have worsened investor concerns about the economy, said Fink. He cited the European stress tests for banks earlier this year as an example of the failure by regulators to reassure investors. Dexia SA passed the tests earlier this year, only to be broken up and nationalized three months later.

‘Glaring Example’

“This is a glaring example of how the government has unsettled the marketplace,” Fink said.

BlackRock, which in 2009 acquired Barclays Global Investors to combine stock and bond picking with index-tracking products such as exchange-traded funds, said market uncertainty has prompted clients to “bar-bell” portfolios by blending active and passive products. That has led BlackRock to expand products such as hedge fund-like mutual funds, commodities and private- equity strategies as investors are reassessing their investments.

Fink has built the firm through a series of acquisitions, including the 2006 purchase of Merrill Lynch & Co.’s investment unit. BlackRock acquired the hedge fund-of-funds business of Quellos Group LLC in 2008. The company this year has expanded the alternatives division, which manages hedge funds, real estate funds and private-equity strategies.

--Editors: Christian Baumgaertel, Larry Edelman

-0- Oct/19/2011 16:00 GMT

-0- Oct/19/2011 16:25 GMT

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net -0- Oct/19/2011 15:22 GMT


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