BlackRock quarterly profit rises on active ETFs and performance fees

Flags fly on the front of BlackRock headquarters in New York. (AP Photo/Mark Lennihan, File)

BlackRock reported a rise in first-quarter profit on Tuesday, reflecting strong flows into its exchange-traded funds (ETFs) and a sharp increase in performance fees, sending its shares up 4.1 per cent in early trading.

Total net inflows were US$130 billion, mostly into the asset manager’s iShares ETFs. Its private markets business drew inflows of $9 billion in the quarter.

“BlackRock is a scale operator across public markets, private markets and technology,” said Chief Executive Laurence Fink. “That combination is proving more valuable every day.”

The company reported a net profit of $2.21 billion, or $14.06 per share, for the three months to March 31. BlackRock said its adjusted earnings were $12.53 a share, against analyst expectations of $11.54.

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Assets under management stood at $13.89 trillion, up from $11.58 trillion a year earlier.

Investment advisory performance fees, meanwhile, reached $272 million in the first quarter, representing a significant spike above the $60 million in the same period last year.

Tuesday’s early share price gains were against a backdrop of a flat U.S. market, but the stock remains down more than two per cent this year, lagging behind its smaller rival State Street. The S&P 500 index lost 4.6 per cent in the first quarter.

Private markets

Investors have been watching for clues on the health of BlackRock’s investments in private credit, an industry that has drawn in huge sums of investor capital in recent years but has been hit by significant outflows from some managers of late.

The bankruptcies of U.S. auto parts supplier First Brands and car dealership Tricolor last year brought attention back to the risk element in a sector that has been criticized by some for a lack of transparency.

BlackRock said Tuesday that it had $320.4 billion of assets in its private markets business in the first quarter, down from $322.6 billion at the end of last year. The figures reflect $9.1 billion of net inflows and $8.5 billion of returns of capital, along with a $2 billion drop in market values.

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Fink said on a conference call Tuesday that demand for private credit products is “structural,” reflecting the retreat of banks from some markets following the 2008 financial crisis and increasing global indebtedness. “That isn’t changing,” Fink said.

And while retail investors have pulled back from some private credit funds, institutional demand is “accelerating,” Fink said, as the higher returns and low leverage of private credit offerings have made them a core part of how investors build portfolios. The wider spreads in the market point to shifting short-term sentiment that may create challenges for some providers, he said – a situation that favors BlackRock competitively.

(Reporting by Pritam Biswas in Bengaluru and Colin Barr in New YorkEditing by Leroy Leo, David Goodman and Keith Weir)