If you look back at my posts about pension funds over the last year or so you will see that I predicted that they will not be able to honor their commitments. I have been watching private equity firms overpaying for assets, which will result in a fall of value, and then pension funds will have to sell liquid assets like stocks. Well lets watch this over the next year as we have not seen the bottom of the stock market, not even close ...Aivars Lode
Plummeting markets from coronavirus pandemic dragged assets under management below $7 trillion
Money management giant BlackRock Inc.’s profits fell by 23% in the first quarter, as a global pandemic and waves of selling gripped the investment world.
Investors added a net $35 billion in new money to the firm’s coffers, down by about half from the prior-year period. Most of the money coming into the firm went to cash, a sign heightened investor caution is driving money into less profitable businesses for the investment industry.
Flows into other investment products were negative for the quarter, an aberration for the firm.
Asset managers are confronting the most acute pressures the industry has faced since 2008. Many customers—which include pensions, endowments and individuals—have turned to forced selling in a rush for cash as more businesses close and jobless claims rise. Money managers also had to grapple with seizing bond markets that had ripple-effects across fixed-income mutual funds and ETFs.
Measures of BlackRock performance, such as adjusted earnings, beat analyst expectations in a quarter expected to be more painful for smaller rivals. BlackRock’s shares rose 3.6%.
“The world is facing a challenge that is truly unprecedented in our lifetimes,” said BlackRock Chief Executive Laurence Fink in a call with Wall Street analysts.
Mr. Fink said the firm has had record calls and outreach to clients in recent weeks. He added that tough times give the firm a chance to differentiate itself.
The firm and its chief executive, Mr. Fink, are emerging central players in the U.S. government’s effort to shore up the U.S. economy after the coronavirus shock to businesses and markets. BlackRock was tapped to steer as much as hundreds of billions of dollars in bond purchases for the U.S. central bank in March.
But the company felt the hit when markets started sharply swinging from the impact of coronavirus.
Plummeting markets dragged the world’s largest money manager’s assets under management below $7 trillion at the end of the quarter. BlackRock ran $6.5 trillion for all kinds of investors on March 31. That was down from $7.43 trillion at the end of 2019.
BlackRock’s exchange-traded funds unit known as iShares added roughly $14 billion in overall net flows, the worst quarter since 2018. In a sign of the competition BlackRock faces, the world’s second-largest money manager, Vanguard Group, took in roughly three times BlackRock’s haul of ETF net flows.
At BlackRock’s iShares unit, a crown jewel for the firm, trading of its ETFs ratcheted up in past weeks.
Salim Ramji, BlackRock’s iShares head, said ETFs weathered the market stress on Thursday’s analyst call. He also said that model portfolios—ready-made investment mixes for wealth managers and other investors—fueled growth for the firm’s ETFs.
BlackRock also sells software, including a suite of tools called Aladdin used to evaluate financial risks, to banks and other institutions. The software sales helped increase quarterly technology services revenue by 34%.
Rob Goldstein, BlackRock chief operating officer and the head of its BlackRock Solutions business that includes Aladdin, said the firm was working to make Aladdin a bigger piece of the plumbing connecting parts of Wall Street.
The appearances of Mr. Goldstein, alongside Mr. Ramji, signal that BlackRock has become more willing to stretch and showcase a new generation of leaders in new roles. Mr. Fink, and top lieutenants BlackRock president Rob Kapito and finance chief Gary Shedlin typically run the calls.
“I hope you got a sense of the depth of the leadership team at BlackRock beyond Rob Kapito and myself,” said Mr. Fink.
Overall for the quarter, BlackRock posted a first-quarter profit of $806 million, or $5.15 a share, down from the year-prior period of $1.05 billion, or $6.61 a share. Those earnings included one-time items such as a donation by the firm to expand its own charitable arm. The firm’s adjusted profits fell less, by 2%.
BlackRock took in roughly $75 billion in new money in the first seven weeks of the year, but subsequently posted outflows across indexed products, ETFs, as well as products run by managers who pick and choose investments. Inflows into cash saved the day.
BlackRock’s weaker flows foreshadow pain for rivals.
“This is a quarter where a lot of money moved out of risky assets into the sidelines,” said Craig Siegenthaler, an analyst with Credit Suisse.
BlackRock and other asset managers will have less severe profit declines this quarter compared with a swath of banks that had to book severe losses to their balance sheets to account for defaults of loans, some predict.
“Banks are being punished much more this quarter for what will happen in the future,” said Kyle Sanders, an analyst with Edward Jones, “The worst pain may be yet to come for asset managers.”
Roughly $35 billion in net flows left BlackRock fixed-income products in the first quarter.
In a different business, BlackRock took in roughly $7 billion in net flows and investor pledges for illiquid alternatives to stocks and bonds, a priority for the firm.
The firm’s first quarter revenue rose 11%. The biggest piece of revenue, which comes from investment advisory, administration fees and security lending, rose by roughly 9%.
By Dawn Lim - Wall Street Journal
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