* Q4 EPS $3.93 vs $3.05 year earlier
* Adjusted EPS of $3.96 beat Wall St view of $3.73
* Investors added $47 bln to long-term funds
* Assets under management totaled $3.8 trillion
By Aaron Pressman
Jan 17 BlackRock Chief Executive Laurence Fink
may finally be proving to skeptics that he was right to spend
$15 billion buying Barclays' investment business to create the
world's largest money manager.
The New York-based firm said Thursday that its
fourth-quarter profit increased 24 percent on a 14 percent
revenue gain. Investors poured $47 billion into BlackRock
long-term funds, including $31 billion into higher-fee stock
Shares of BlackRock closed up 4.4 percent at $232,
the highest level since shortly after the Barclays deal closed
in December 2009.
The former Barclays exchange-traded fund unit, iShares, has
been a stellar performer all along -- it brought in $36 billion
of new business alone in the fourth quarter. But investors spent
years disappointed with Fink as the rest of the combined firm
struggled with performance and integration issues that depressed
Now, after overhauling underperforming funds, cleaning up a
real estate investing mess and launching a massive branding
campaign aimed at individual investors and their advisers, Fink
is pleasing investors with expanding profit margins. Shares of
BlackRock, which traded for less than $170 during the summer,
have gained 24 percent in just the past two months.
And Fink is back on the expansion trail, snapping up Credit
Suisse's ETF business last week and opening a new line
of cheaper "core" ETFs in the United States in October.
"We are seeing proof that the investments we have made in
people, products and technology over the past three years are
paying off," the CEO said on a call with analysts. "This quarter
we saw positive asset flows across every client channel in every
Big money managers make their profits by charging fees as a
percentage of assets under management. And because it doesn't
cost the firms much more to manage their portfolios when asset
values -- and fee revenues -- rise, they should show increasing
profit margins in bull markets.
From 2008 through 2011, however, BlackRock's annual adjusted
profit margin was stuck in range of 38 percent to 39 percent
even as stock markets staged one of the biggest recovery rallies
Finally, in 2012, Fink's firm has cracked the 40 percent
mark for the year, reaching almost 43 percent for the fourth
With bond yields stuck near historic lows and equity markets
surging, investors have begun to shift their money to stock
funds after years of sticking with more conservative
fixed-income products. That benefited BlackRock and other money
managers since fees on stock funds tend to be higher than those
on bonds funds.
New York-based BlackRock benefited doubly from the strong
global equity markets. The MSCI All-Country World Index
gained 2.5 percent in the fourth quarter and
13.4 percent over the past year, increasing the value of
BlackRock's asset base to a record $3.8 trillion, and
encouraging investors to put more money to work in its
higher-fee stock funds.
Analysts said the results demonstrated that even a firm as
large as BlackRock could still post strong growth. Glenn Schorr
at Nomura Securities called the results "a pretty darn good
quarter," with customer inflows, revenue and profits all coming
in ahead of analyst expectations.
"Momentum in asset gathering was very strong, driven by its
ETF business," added analyst Mac Sykes at Gabelli & Co.
The fourth-quarter shift toward stocks mainly reflected
growing concerns about the riskiness of bonds, CEO Fink said on
a call with analysts. Interest rates are so low that an increase
of 15 hundredths of a percentage point could wipe out a year of
performance gains, Fink said.
"What we are seeing is clients understanding the embedded
risk at these low interest rates for bonds and now migrating
into equities," Fink said.
The trend toward stocks appeared to have accelerated into
2013. Investors added $7.5 billion into U.S.-based equity mutual
funds last week, the biggest weekly inflow in 11 years,
according to data from Lipper, a unit of Thomson Reuters.
"So far this year, we're seeing strong inflows after a
strong fourth quarter," Fink said on the call.
BlackRock's net income totaled $690 million, or $3.93 per
share, in the fourth quarter, compared with $555 million, or
$3.05 per share, a year earlier. Analysts, on average, expected
BlackRock to earn $3.73 per share, excluding certain items,
according to Thomson Reuters I/B/E/S. On that basis, BlackRock
As the largest manager of ETFs, BlackRock also benefited
from growing investor desire to use the low-cost, index-based
funds instead of actively managed funds that have tended to
underperform the market in recent years.
Of the $47 billion added to BlackRock's long-term funds,
almost $36 billion went into iShares. Investors withdrew $5.4
billion from BlackRock's actively managed equity funds and $374
million from active bond funds.
BlackRock new line of even cheaper "core" iShares ETFs,
better positioned to compete with offerings from Vanguard Group
and Charles Schwab Corp, attracted $4.6 billion from
customers in the quarter.