BlackRock’s Fink blames investment climate ‘not seen in decades’ for lost profits

BlackRock’s results fell short of sharply lower expectations in what it described as the worst environment in decades, as lower asset prices and a stronger dollar drove assets under management to $8.5 trillion.

Adjusted earnings for the world’s largest financial manager fell 30 percent to $7.36 per share, versus $4.4 billion in revenue for the quarter ended June 30. Analysts surveyed by Refinitiv had expected $7.90 per share, on revenue of $4.65 billion.

Black stone Other asset managers were hit hard by volatile markets, which rattled investors and drove down the value of the portfolios from which they derive management fees.

The group postponed appointments to some senior positions until 2023 and total spending on employee salaries and benefits fell 5 percent from the first quarter. Despite the lack of a company-wide hiring freeze, BlackRock is trying to cut costs by “small” its workforce: hiring less experienced people to fill open positions.

Assets under management fell 11 percent, marking the second consecutive quarterly decline after peaking at $10 trillion at the end of 2021. State Street’s asset management arm reported Friday that assets under management also fell 11 percent to 3.5 trillion. dollar.

As a global manager, BlackRock has also felt the impact of a stronger dollar, reducing the value of fees derived from other currencies. While revenue was down 6 percent overall, core fees were flat in terms of constant currency.

The first half of 2022 saw a set of financial and macroeconomic challenges that investors have not experienced in decades. . . 2022 ranks as the worst start in 50 years for both stocks and bonds.” Larry FinkThe group’s founder and CEO said on an earnings call.

Fink praised the group’s ability to generate $90 billion in net flows despite the dismal news, saying it “proves our ability to deliver industry-leading flows even in these most challenging environments…BlackRock’s position has never been stronger.”

Shares of BlackRock, which lost a third of their value in 2022, fell slightly in morning trading.

Operating margins shrank to 43.7 percent, impacted by higher expenditures on technology as well as travel and entertainment, even as revenue declined.

“until [BlackRock] Not immune to market downturn. However, we liked it [their] “The ability to sustain strong asset flows in volatile markets,” said Kyle Sanders, an analyst at Edward Jones, adding that he expects continued BlackRock spending on strategic growth areas “likely to dampen profit margins in the near term.” [but] We believe it enhances their competitive advantage.”

The group’s exchange-traded fund platform iShares attracted the bulk of new investor money, with $52 billion in net inflows, and its cash platform hit record levels with $21 billion in net new money as clients fled to safety and took advantage of higher interest rates.

While some market experts have predicted that volatile markets will prompt investors to cut their allocations to ETFs and other passive instruments, this has not yet been the case. Gary Shedlin, chief financial officer of BlackRock, said institutional investors are increasingly using ETFs to rearrange their portfolios rather than directly buying and selling individual stocks and bonds.

We expect bond industry ETF assets to nearly triple to $5 trillion by the end of the decade. . . Fink said higher interest rates will bring in a whole new set of investors.

Retail funds fared worse, with net outflows of $10 billion, and BlackRock’s performance fees for its advisory services dropping sharply year-over-year. But products that use ESG standards continue to attract new money and now manage $473 billion in assets.

The company’s technology department has proven to be a bright spot. Revenue was up 5 percent year on year, and Fink said the company received record new mandates for the Aladdin System, which helps other financial services firms manage risk.

“BlackRock has always benefited from market turmoil and has come out stronger,” Shedlin said. “We’ve sailed these choppy waters before.”

The Asset Under Management (AUM) numbers do not include several of the very large institutional mandates for external investment management that BlackRock recently won from AIG and General Dynamics, among others. “We’ll see an acceleration. We see this as a real opportunity for us,” Fink said.