BlackRock Profit Rose 23% in 3rd Quarter, Helped by Actively Managed Funds

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Money-management firm beats analysts’ earnings expectations with 16% growth in revenue

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BlackRock’s revenue increased 16%. Actively managed funds, funds where managers pick and choose to invest, represented a little more than half of BlackRock’s $75 billion in net new funding during the latest quarter. Asset managers can typically charge higher fees for the funds they actively manage versus index-linked funds.

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The increase in high-fee funds helped BlackRock increase its profits, while continuing to undercut rivals with its lower-fee products. This made the company’s revenue less sensitive to market fluctuations that move index assets.

“A lot of people say, ‘Active is dead,'” Chief Executive Larry Fink said in an interview Wednesday. “I’ve invested in more teams and products out there.”

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BlackRock became the world’s largest asset manager on the strength of passive index funds and exchange-traded funds.

Many index managers are working their outsized low-margin strategies with more expensive funds and actively managed products. The largest index firms consider it important to reduce their reliance on indexing because they cannot rely on a sustained rally to drive growth and profits over the long term.

Money managers’ wealth and profits have soared over the past year as the Federal Reserve pumped money into the economy and the stock market boomed.

Now investors are further bearish on rising concerns about high inflation, slowing US economic growth, global energy shortages, and the transition to debt-laden property developer China Evergrande Group. One Emerging Markets Selling And weak S&P 500 returns in the latest quarter hit BlackRock’s asset growth.

“I believe inflation is more than fleeting,” Mr Fink said. As the Federal Reserve weighs a pullback of its easy-money policies, Mr. Fink said he expects the Fed to allow short-term rates to rise slightly in the process, giving savers a slightly higher yield. “Low rates around the world are really hurting savers.”

BlackRock now oversees $9.46 trillion for investors, up from $7.8 trillion a year ago, but slightly lower than in the second quarter. Chatting markets prevented BlackRock from approaching $10 trillion in assets, a symbolic milestone for the rise of the company and Mr. Fink.

BlackRock’s more than $3 trillion exchange-traded-fund business often benefits in volatile markets when traders want to use ETFs to move in and out of trades quickly. In the third quarter, BlackRock’s exchange-traded fund generated about $58 billion in net inflows. ETFs are bundles of investments that trade like stocks on exchanges.

Across the board, the company raised $33 billion in new equity products, $27 billion in fixed-income strategies, and approximately $31 billion in multiset products. It also added $6.5 billion in stock and bond options, an area that has seen pensions and endowments rise amid low interest rates.

Overall, the firm’s third-quarter net inflow of $75 billion was down about 40% compared to $129 billion in the year-ago period.

When the company lends shares of companies sitting in its fund for additional revenue, BlackRock cuts interest rates to nearly zero.

Yields in money-market funds have declined because of lower rates. BlackRock saw a net outflow from that cash-management business line in the latest quarter. The company continues to waive fees on money-market funds — which invest in short-term debt — to keep investors’ earnings above zero. The Treasury Department has slowed short-term borrowing to avoid debt limits, shrinking the pool of Treasury bills that money-market funds typically invest in, mitigating the fund’s challenges. As Democrats try to advance an ambitious spending agenda, Democrats and Republicans have fought for months over which debt limit Congress will raise.

“Washington has politicized it. Both sides are to blame,” Mr. Fink said, speaking of the debt ceiling. “Are we going to pay our bills as a country?” I never dreamed in my lifetime that This question will never be asked.

BlackRock’s operating margin for the third quarter was 38.3%, up from 40.2% a year ago, driven by corporate acquisition costs. The 8% wage increase for many employees—a reflection of the war for talent in finance—added new costs for BlackRock in September.

Last quarter, BlackRock raised nearly $1 billion for the first mutual fund run entirely by a foreign company for Chinese individuals. It is moving forward with plans to escalate into China, even as US-China tensions escalate.

As investors await a solution to Evergrande’s debt problems, Mr Fink said the situation would result in “some losers” and that any policy by China to reduce its economy’s reliance on real estate for the country’s development. can slow it down. BlackRock is one of the managers who have holdings in Evergrande debt funds.

He said the Chinese government’s crackdown on over-leveraged property developers is in line with Beijing’s policies to bring Chinese investors into other Chinese corporations and change the way people prepare for their retirement.

“It’s in line with how they’re trying to build their capital markets,” he said.

Dawn Lim [email protected]

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