BlackRock’s results failed to slash expectations in what it called its worst environment in decades, as falling asset prices and a stronger dollar cut assets under management to $8.5 trillion.
The world’s largest fund manager posted revenue of $4.4 billion in the quarter ended June 30, and adjusted earnings fell 30% to $7.36 a share. Analysts polled by Refinitiv had expected $7.90 a share on revenue of $4.65 billion.
BlackRock and other asset managers have been hit hard by volatile markets that have rattled investors and depressed the value of the portfolios they draw management fees from.
The group has delayed hiring for some senior roles until 2023, with total spending on employee compensation and benefits down 5% from the first quarter. Despite no company-wide hiring freeze, BlackRock is trying to cut costs by “younger” their workforce: hiring less experienced people to fill open positions.
Assets under management fell 11%, the second consecutive quarter of declines after peaking at $10 trillion at the end of 2021. State Street Asset Management reported Friday that its AUM also fell 11% to $3.5 trillion.
As a global manager, BlackRock has also felt the impact of a stronger dollar, which has lowered the value of fees in other currencies. While revenue was down 6% overall, base expenses were flat in constant currency.
“The first half of 2022 presents macro-financial and economic challenges that investors haven’t seen in decades. . . . 2022 is the worst start in 50 years for stocks and bonds,” said Larry, founder and CEO of the group Larry Fink said on the earnings call.
Despite the grim news, Fink praised the group’s ability to generate net inflows of $90 billion, saying it “demonstrates our ability to deliver industry-leading capital flows even in these most challenging environments”. . . BlackRock’s position has never been stronger. “
Shares of BlackRock, which have lost a third of their value in 2022, were down slightly in early trade.
Operating margin compressed to 43.7%, dragged down by higher technology, travel and entertainment expenses, even as revenue fell.
“even [BlackRock] Not immune to market downturns.However, we are impressed [their] Edward Jones analyst Kyle Sanders said he expects BlackRock’s continued spending on strategic growth areas “likely to dampen margins in the near term” [but] We think this enhances their competitive advantage. “
The group’s iShares exchange-traded fund platform attracted the bulk of new investor capital, with net inflows of $52 billion, and its cash platform hit a record $21 billion in net new capital as clients fled to safety and took advantage of Interest rates rise.
While some market experts predict that volatile markets will cause investors to reduce their allocations to ETFs and other passive instruments, that has not been the case so far. Gary Shedlin, BlackRock’s chief financial officer, said institutional investors are increasingly using ETFs to reposition their portfolios, rather than buying and selling individual stocks and bonds outright.
“We expect bond industry ETF assets to nearly triple to $5 trillion by the end of the century. . . Rising interest rates will bring in a whole new class of investors,” Fink said.
Retail funds fared worse, with net outflows of $10 billion, and performance fees for BlackRock Advisory Services fell sharply year-over-year. But products using environmental, social and governance (ESG) standards continue to attract new funding, with $473 billion in assets currently under management.
The company’s technology division proved to be a bright spot. Revenue rose 5% year over year, and Fink said it had received a record new mandate for its Aladdin system, which helps other financial services firms manage risk.
“BlackRock has been taking advantage of market volatility and getting stronger,” Schedlin said. “We’ve sailed in these choppy waters before.”
AUM figures do not include several very large outsourced investment management agency mandates that BlackRock has recently won from the likes of AIG and General Dynamics. “We’re going to see acceleration. . . We think that’s a real opportunity for us,” Fink said.