BlackRock hit by falling markets and lower fees

Falling markets and lower performance fees pushed BlackRock’s revenues, net income and assets under management down 15 per cent year on year in the third quarter.

The world’s largest money manager reported AUM of $8tn, down from $8.5tn in June and below analysts’ expectations of $8.3tn. Much of this was because of falling markets, which hit its giant index funds hard.

Revenue fell 15 per cent year on year to $4.3bn, partly because of the rising dollar. The group, which has seen total AUM fall from a peak of $10tn last year, has suffered a substantial drop in performance fees this year as clients and funds have experienced losses.

But BlackRock still reported $65bn in long-term net inflows to its investment products, despite high profile criticism from both left and right over its environmental, social and governance investment policies.

Much of this came from institutional clients, which compensated for outflows from retail customers. Short-term cash managements products had substantial outflows as clients took advantage of rising interest rates, bringing the total for the group to $17bn in net inflows.

BlackRock is also winning institutional mandates to serve as what it called an “outsourced chief investment officer”, while revenue from proprietary technology, notably its Aladdin investment management platform, was up 6 per cent year on year.

Net income was down 16 per cent at $1.4bn, but adjusted earnings per share of $9.55 were boosted by buybacks that reduced the share count and substantially beat analyst expectations of $7.07, as polled by Bloomberg. The group also benefited from a lower than expected tax rate and a higher valuation of its stake in wealth management platform iCapital.

The operating margin fell to 42 per cent from 43.7 per cent last quarter, as revenue dropped faster than expenses. “Declining profit margins are not great, but we expect further deterioration at peers,” said Kyle Sanders, analyst at Edward Jones. “What does make them stand out in a positive light is that they are still gathering assets.”

BlackRock has been hit by complaints and withdrawals from Republicans for its efforts to pressure companies to consider the long-term impact of climate change. Texas has earmarked its stock for divestment because it contends it “boycotts” fossil fuels, and Republican state treasures have pulled more than $1bn out of BlackRock. Elected Democrat officials meanwhile complain that the money manager is not doing enough to persuade companies to move more quickly to cut emissions.

“I am now being attacked from the left and the right. I must be doing something right,” said chief Executive Larry Fink on Wednesday at the Institute of International Finance. BlackRock noted that despite the Republican withdrawals, overall in the US, the group had net inflows of $84bn.