* Base fees rise to record $2.2 billion
* Negative outflows hit iShares business
* BlackRock sees shift in fixed-income interest
By Ashley Lau
July 18 BlackRock Inc, 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
"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
Much of weakness in outflows during the quarter came from
the iShares flagship emerging markets equity, fixed income and
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
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
"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
"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
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.