BlackRock Inc (BLK.N), the world's largest money manager, said on Thursday that its second-quarter profit rose 32 percent, citing strong global demand from its retail and institutional clients and growth in markets.
Despite outflows from its iShares exchange-traded funds business, as investors pulled out money in the wake of expected changes to the Federal Reserve's stimulus program, BlackRock generated $11.9 billion in long-dated net new business for the quarter.
"We're seeing more and more interest in multi-asset (products), where clients are looking for exposure but want to navigate around" an uncertain environment, Chief Executive Officer Laurence Fink said in a conference call with analysts.
More than 90 percent of the $11.9 billion net long-term inflows generated during the quarter came from multi-asset products, which had inflows of $11.1 billion.
Net income at the New York-based company totaled $729 million, or $4.19 per share, up from $554 million, or $3.08 per share, a year earlier.
Excluding a one-time tax benefit from a charitable contribution, earnings were $4.15 a share, beating analysts' average forecast of $3.82, according to Thomson Reuters I/B/E/S.
The company ended the quarter with assets under management of $3.9 trillion, including new money and market gains, and generated record base fees of $2.2 billion.
OUTFLOWS FROM iSHARES
Total net long-term flows, however, were tempered by rare outflows - $963 million - from the company's iShares exchange-traded funds, as investors exited the funds in the wake of signs in late May from the Federal Reserve that it would begin tapering its bond buying program.
"The ability to exit quickly and the ability to exit efficiently and in bulk are part and parcel of our value proposition," Fink said, defending the June outflows.
Investors who used iShares funds to take on risk in the beginning of the year, redeemed nearly $15 billion in iShares in the three weeks following the Fed's May 22 comments, Fink said on the call.
About $7 billion of redemptions were from iShares fixed-income products, a BlackRock spokeswoman said, with the majority of the remaining outflows coming from emerging markets products.
Much of weakness in outflows during the quarter came from the iShares flagship emerging markets equity, fixed income and commodities funds.
Fink added that the most "handholding" came from iShares, "where we saw extreme volatility," Fink said, noting that many investors were using the products for exposure to the market.
"In the case of June, it was negative beta exposure, not positive beta exposure, and that's okay," Fink said.
BlackRock, the largest U.S. provider of exchange-traded funds, bought iShares from Barclays in 2009. The unit now accounts for roughly 22 percent of its total assets under management.
Fink, who said he sees the potential for the ETF market to grow to $5 trillion, said there still needs to be more education around how the investment vehicles, which represent a basket of securities that typically tack an index, behave in times of market volatility.
"We need to make sure that the quality of products can withstand ... the tests of bouts of illiquidity, the tests of variances in the markets," he said.
'GREAT ROTATION' IN FIXED-INCOME Fink said BlackRock is seeing a rotation within investor interest in fixed-income, with flows moving into actively managed products.
"We expect to see flows moving into more flexible, nontraditional fixed-income products," Fink said, noting that flows into flexible bonds across the industry increased seven-fold, year-to-date, compared to the same period last year. At the same time, traditional bond flows have fallen nearly 80 percent, he said.
BlackRock's flagship funds, Multi-Asset Income and Strategic Income Opportunities, each gathered more than $1 billion in net new assets.
While flows for the quarter overall beat analysts expectations, Edward Jones analyst James Shanahan said flows have largely been uneven and inconsistent.
"We would like to see more consistently positive flow trends," said Shanahan, noting that part of the challenge is BlackRock's sheer size, as it has become more of a proxy for the market. "When you manage almost $4 trillion, your results are going to more closely approximate trends in the market."
Shares of BlackRock were up 2.4 percent at $278.94 a share in afternoon trading on the New York Stock Exchange. The shares have gained about 34 percent so far this year.
(Reporting by Ashley Lau in New York; Editing by Lisa Von Ahn and Chris Reese)