BlackRock Inc. (BLK:US), the world’s biggest money manager, said third-quarter profit increased 14 percent as assets rose on investor deposits into its stock exchange-traded funds and active bond products.
Net income rose to $730 million, or $4.21 a share, from $642 million, or $3.65, a year earlier, the New York-based company said today in a statement. BlackRock gathered $25 billion into its products in the quarter, pushing assets above $4 trillion for the first time.
Chief Executive Officer Laurence D. Fink, 60, has reorganized BlackRock’s businesses as he seeks to revive investor deposits into active products and attract more individual investors to passive ETFs. The division that manages active bonds, revamped last year to give more accountability to unit heads Rick Rieder and Kevin Holt, attracted $7.2 billion -- the most in almost four years. The iShares ETF unit, which opened new equity products last year with lower fees, gathered $21.1 billion into stock funds in the quarter.
“Long-term flows remain positive,” Daniel Fannon, an analyst at Jefferies & Co. in San Francisco, said today in a note to clients.
BlackRock gained (BLK:US) 2.9 percent to close at $290.47 in New York trading. The shares have advanced 41 percent this year, compared with the 31 percent increase in the 20-member Standard & Poor’s index of asset managers and custody banks.
Excluding certain items, adjusted earnings of $3.88 a share matched the average estimate (BLK:US) of 20 analysts surveyed by Bloomberg.
The firm acquired (BLK:US) Barclays Global Investors in December 2009 to expand into passive investments. It offers actively managed stock and bond funds; is the largest provider of ETFs through its iShares unit; and runs portfolios that use mathematical models.
Fink has said BlackRock has the potential to increase its assets by about 5 percent annually by developing new ETFs and expanding its reach among individuals. BlackRock’s assets increased 6.2 percent to $4.1 trillion during the quarter.
Money managers such as BlackRock, which earn fees based on the assets they manage for clients, traditionally benefit from rising stock markets and investor deposits into higher-fee active funds. The MSCI All Country World Index of global stocks rose 7.4 percent in the third quarter.
BlackRock’s revenue rose 6.6 percent to $2.5 billion, driven by an increase in the advisory fees the firm earns for overseeing client money. Expenses rose 4.2 percent to $1.5 billion.
Investors pulled $1.5 billion from BlackRock’s fixed-income ETFs, and removed $5.1 billion from actively managed stock funds.
Fink said today during a conference call with investors that he is pleased with the performance of BlackRock’s active equity products, and that the “idiosyncratic” withdrawals were a result of international uncertainty in the markets. Deposits into active fixed-income products were fueled by BlackRock’s performance and the fact that institutional clients had more cash on hand to invest, Fink said.
As BlackRock has sought to improve deposits into active stock funds, Chris Leavy, chief investment officer of BlackRock’s fundamental equity unit in the Americas, replaced portfolio managers at strategies that represented about 40 percent of the division’s $115 billion. Leavy is currently on medical leave.
In March, BlackRock enhanced its partnership with Boston-based Fidelity Investments to sell more ETFs directly to individual investors. Fink said today that the relationship will help stabilize quarterly investor deposits.
ETFs have been the fastest-growing segment of the asset-management business, benefiting firms such as BlackRock, Vanguard Group Inc. and State Street Corp. (STT:US) In the 12 months ended Aug. 31, ETF assets in the U.S. increased 21 percent to $1.47 trillion, according to data from the Washington-based Investment Company Institute, the fund industry trade group.
Fink said during a telephone interview today he thinks the U.S. will avert a default by the end of the month, yet the debate is dissuading foreign investors from buying U.S. securities.
“Do I believe there will be some resolution and that we don’t default? The answer is still yes,” Fink said.
Policy indecision is prompting uncertainty and keeping many investors on the sidelines, he said in the conference call with investors.
“The narrative in Washington surrounding the debt ceiling debate is reducing the confidence in investors and business leaders leading to a short-term focus and risk aversion,” Fink said.
Investors pulled about $60 billion from U.S. bond funds in the third quarter, while adding $27 billion to stock funds, according to estimates from the ICI. BlackRock had about one-third of its assets in fixed income as of Sept. 30, and about half in equities.
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