* Earnings before special items exceed Wall St's estimates
* Assets under management hit a record $3.94 trillion
* Equity funds attract $33.7 billion of new money
* Investors leave bond funds
By Aaron Pressman and Jed Horowitz
NEW YORK, April 16 BlackRock Inc's
first-quarter net income rose 10.5 percent as investors, growing
more confident in the economy, gravitated toward stock funds,
the world's largest money manager said on Tuesday.
For the first time since the financial crisis struck in
2008, equity funds emerged as the dominant investment vehicle,
giving the New York-based company a boost because they are more
profitable than bond funds.
During the quarter, BlackRock customers added $33.7 billion
to equity offerings, representing the lion's share of $39.4
billion of new flows into long-term funds.
Low yields on fixed-income securities and fears that bond
investments will lose more value when interest rates eventually
rise contributed to the shift, BlackRock Chief Executive
Laurence Fink said. He also said that investors globally are
getting more confident about U.S. stocks.
"One thing that is evident is that economists have
miscalculated the robustness of the U.S. economy," he said in an
Even though investors have been pouring money into
exchange-traded stock funds and other equity products, Fink
hesitated to call the trend "a great rotation" out of less risky
"As investors move back to equities, they're cautious," said
Fink, who built his career as a bond salesman, in a conference
call with analysts. They are trying to balance their need for
higher returns at the same time that they are seeking low-risk
investments, he said.
As a consequence, BlackRock is focusing on adding balanced
strategy products that will appeal to an aging population facing
low returns from rock-bottom interest rates.
Profit margin rose to 40 percent on an adjusted basis from
38.6 percent adjusted one year earlier. BlackRock attributed the
jump to strong expense control as well as the higher fees that
equity products generate.
Shares of BlackRock fell in morning trading but rebounded
later in the day. They were up 0.53 percent, or $1.34, at
$255.20 in mid-afternoon trading on the New York Stock Exchange.
The shares have gained 23.5 percent so far this year, surpassing
a 10.2 percent gain for the Standard & Poor's 500 Index.
MORE CONFIDENCE IN U.S. ECONOMY
Along with the tilt toward equities, investors withdrew more
money than they added to BlackRock's bond funds, pulling out a
net $2.6 billion. They withdrew $2.2 billion from currency
funds, while adding $9 billion to multi-asset portfolios and
$1.5 billion to core alternative funds.
Retail mutual fund assets fell 1 percent from a year earlier
to $421.1 billion, representing 11 percent of assets. BlackRock
replaced four of its stock fund managers recently, and Fink said
it is "committed to improving performance" in its actively
managed fund sector.
BlackRock is making a particularly big push into
exchange-traded funds, an area it entered in 2009 when it bought
iShares from Barclays. It is the biggest U.S. provider of ETFs,
which made up 22 percent of its assets under management at March
31, and is stepping up sales efforts after losing market share
to new competitors that were competing on price.
In March, BlackRock expanded a three-year partnership with
Fidelity Investments, which now promotes 65 iShares ETFs to its
clients without charging a commission. Previously, BlackRock
paid Fidelity to list just 30 such funds.
Long-term net inflows into iShares have shifted from
emerging market products in January and February to broader U.S.
market indexes in March and April, particularly
"If you look at the overall trends, there has been huge
investing in U.S. equities as the world started believing in the
U.S. economic story," Fink said in the conference call.
He also promoted the firm's international ETFs, saying
investors need to replicate broad returns in global markets that
are increasingly integrated.
For years, they ignored Japan, but as the country emerges
from its long period of deflation, money is pouring into ETFs
focused on Japanese securities, he said. The same is true for
Mexico-focused funds that reflect that country's "great economic
All told, inflows into stock ETFs accounted for $20.4 billion
out of $25.6 billion of all new flows into iShares last quarter,
while revenue in the funds climbed 22 percent to $687 million.
BlackRock also is creating more hedge fund and other
"alternative" investment products to help customers beat average
market returns, Fink said. BlackRock oversees more than $1.5
billion of assets in such funds.
The firm ended the quarter with record total assets under
management of $3.94 trillion, including new money and market
BlackRock's net income rose to $632 million, or $3.62 a
share, from $572 million, or $3.14 a share, a year earlier.
Excluding costs to launch a closed-end fund, a new
compensation plan and other one-time items, earnings were $3.65
a share. On that basis, they beat analysts' average forecast of
$3.58 a share, according to Thomson Reuters I/B/E/S.
In March, BlackRock told its staff it would reduce headcount
by nearly 300 employees, or about 3 percent, according to an
internal memo obtained by Reuters. The cut is part of a
reorganization that began last year.
In another major cost shift, BlackRock is de-emphasizing its
strategy of making large acquisitions and focusing on the more
efficient alternative of expanding existing businesses through
improved asset management and marketing.
Compensation expenses, lifted by severance costs during the
quarter, totaled a higher-than-usual 36 percent of total
revenue, Chief Financial Officer Ann Marie Petach said in the
conference call. Executives, who are selectively adding managers
and salespeople, said they expect to end 2013 with more
employees than they have today.