BlackRock results fell short of sharply reduced expectations in what it described as the worst market environment in decades as falling markets and a rising dollar drove assets under management down to $8.5tn.
The world’s largest money manager’s adjusted earnings fell 30 per cent to $7.36 per share on $4.4bn in revenue for the quarter ending June 30. Analysts polled by Refinitiv had been expecting $7.90.
BlackRock and other asset managers have been hit hard by volatile markets that have unsettled investors and pushed down the value of the portfolios from which they draw management fees.
The group has delayed hiring for some senior positions until 2023 and total compensation fell by 5 per cent from the first quarter. Although there is no firm-wide hiring freeze, it described itself as being “prudent” on discretionary spending.
Assets under management fell for the second quarter in a row after peaking at $10tn at the end of 2021.
As a global manager, BlackRock has also felt the impact of a rising dollar, which has reduced the value of fees derived in other currencies. While revenue was down 6 per cent overall, base fees were flat in constant currency terms.
“The first half of 2022 brought an investment environment that investors have not seen in decades . . . 2022 ranks as the worst start in 50 years for both stocks and bonds,” Larry Fink, the group’s founder and chief executive, said on an earnings call. “
Fink hailed the group’s ability to generate $90bn in net inflows despite the grim news, saying it was “demonstrating our ability, once again, to deliver industry-leading organic growth even in the most challenging of environments”.
BlackRock’s shares, which have already lost 35 per cent of their value in 2022, were down 1.7 per cent in pre-market trading.
Operating margins fell slightly to 43.7 per cent dragged down by higher expenses for technology as well as travel and entertainment, even as revenues fell.
“Even [BlackRock] isn’t immune to a market downturn. However, we were impressed with [their] ability to sustain robust asset inflows in choppy markets,” said analysts at Edward Jones, adding that they expected the group would continue to spend aggressively on strategic growth areas. “While this will likely dampen profit margins in the near-term, we think it bolsters their competitive advantage.”
The group’s iShares exchange traded funds platform drew the bulk of new money, with $52bn in net inflows, and its cash platform reached record levels with $21bn in net new money as customers fled to safety and took advantage of rising interest rates.
“We think the bond ETF assets will triple by the end of the decade . . . .rising rates will bring a whole group of investors,” Fink said.
Retail funds fared worse, with net outflows of $10bn, and BlackRock’s performance fees for its advisory services were down sharply year on year. But products that use environmental, social and governance (ESG) criteria continue to attract new money and now managed $473bn in assets.
The company’s technology division proved to be a bright spot. Revenue rose 5 per cent year on year, although it was down from the first quarter, and Fink said the company had received record new mandates for its Aladdin system which helps other financial services companies manage risk.
Executives also noted that the AUM figures do not include several very large institutional mandates that BlackRock has recently won from AIG and General Dynamics, among others.
“BlackRock has always capitalised on market disruption and emerged stronger,” said Gary Shedlin, the chief financial officer. “We have navigated these choppy waters before.”