BlackRock boosted by risk-taking clients

A BlackRock building is seen in New York June 12, 2009.

BOSTON (Reuters) - BlackRock Inc (BLK.N) says its clients are again embracing risk, a trend that could solidify the money manager's increasingly dominant position in the funds industry.

Helped by strong flows into bond funds and alternative investments, BlackRock powered to a better-than-forecast 46 percent rise in third-quarter profit despite big outflows from its cash products.

The earnings report, which could be its last before completing a takeover that will make it the world's largest asset manager and expand its reach into retail products like exchange-traded funds, pushed BlackRock's shares to a 52-week high at one point on Tuesday.

The flows "prove that despite (its) scale, BlackRock can still show impressive organic growth," said Pablo Echavarria, analyst for Turner Investment Partners, which owned 451,146 shares of the company according to its most recent filings.

Speaking on a conference call with analysts, BlackRock Chief Executive Laurence Fink said that clients are starting to move money out of cash as they move past their worst fears from the financial crisis.

"A whole beginning of restabilization happened" since April, he said. "Clients are putting money back to work in the markets," he said in a separate prepared statement.

Fink, who co-founded BlackRock in 1988 as a one-room fixed income shop, also said that investors recently put $1.5 billion into the company's funds of hedge funds.

But he added that banks benefit from federal deposit insurance and pose a competitive threat to cash vehicles offered by BlackRock and other money managers. "It is an industry issue and we will have that drag for some time," he said.

BlackRock reported a net outflow of $16.5 billion during the quarter as investors pulled money out of low-margin cash-management products faster than they moved it into bond and equity products. In the second quarter BlackRock had a net inflow of $15.2 billion.

Still, BlackRock shares were up $4.72 or 2.1 percent at $235.15 on Tuesday afternoon on the New York Stock Exchange. The shares are up 68 percent this year and touched a 52-week high of $240.00 earlier Tuesday.

Calyon Securities analyst Chris Spahr said investors were pleased by the flow of funds into higher-fee products and by Fink's remarks that BlackRock's pipeline of new investments from clients is holding up well.

CUTTING COSTS

Investors were also cheered that BlackRock said it is hitting cost-cutting goals, Spahr said, adding, "That gives us more confidence."

Total operating expenses fell $76 million, or 9 percent, in the third quarter, including $52 million in savings from staff cuts and $30 million less paid out to partners because of lower assets in cash funds.

BlackRock said profit rose to $317 million, or $2.10 per share, in the quarter from $217 million, or $1.67 per share, a year earlier.

Analysts had expected $1.93 per share, according to Thomson Reuters I/B/E/S. The estimate and earnings are adjusted for costs including integration charges for BGI and compensation obligations for large shareholders PNC Financial Services Group (PNC.N) and Bank of America Corp's (BAC.N) Merrill Lynch unit.

BlackRock said revenue for the quarter fell to $1.14 billion, from $1.31 billion a year earlier. Analysts had expected $1.12 billion.

However, revenue rose from the second quarter's $1.03 billion as an increase in total assets tied to market gains drove up fee income. Investment advisory and administration fees were $913 million in the third quarter, compared with $850 million in the second quarter.

BlackRock will be the world's largest money management firm when its $13.5 billion purchase of Barclays Global Investors closes by year-end. Fink said the deal is on track to be done by December 1.

BlackRock said assets under management were $1.435 trillion at the end of the third quarter, up 14 percent from a year earlier and up 4 percent from the second quarter.

BlackRock's performance has stood out from other asset managers this year even as most have benefited from rising markets that drew investor cash out of money market funds and into stock and bond funds.

The name of the combined entity will be BlackRock Inc, according to Fink and a company spokesman, rather than being changed to BlackRock Global Investors as originally planned.

(Reporting by Ross Kerber and Svea Herbst-Bayliss; editing by John Wallace and Matthew Lewis)