BlackRock quarterly profit rises on active ETFs and performance fees

By Pritam Biswas and Colin Barr

April 14 (Reuters) – BlackRock reported a rise in first-quarter profit on Tuesday, reflecting strong flows into its exchange-traded funds and a sharp increase in performance fees, and its shares rose more than 4%.

Total net inflows were $130 billion, mostly into the asset manager’s iShares ETFs. Its private markets business drew inflows of $9 billion in the quarter.

“BlackRock is a scale operator across public markets, private markets and technology,” said Chief Executive Laurence Fink. “That combination is proving more valuable every day.”

The company reported a net profit of $2.21 billion, or $14.06 per share, for the quarter. BlackRock said its adjusted earnings were $12.53 a share, topping analysts’ expectations by 99 cents. 

Assets under management stood at $13.89 trillion, up from $11.58 trillion a year earlier.

Investment advisory performance fees reached $272 million in the first quarter, representing a significant spike above the $60 million in the same period last year.

Tuesday’s early share price gains came against a backdrop of a flat U.S. market, but the stock remains down more than 2% this year, lagging behind its smaller rival State Street. The S&P 500 index lost 4.6% in the first quarter.

PRIVATE MARKETS

Investors have been watching for clues on the health of BlackRock’s investments in private credit, an industry that has drawn in huge sums of investor capital in recent years but has been hit by significant outflows from some managers of late. 

The bankruptcies of U.S. auto parts supplier First Brands and car dealership Tricolor last year brought attention back to the risk element in a sector that has been criticized by some for a lack of transparency. 

BlackRock said on Tuesday that it had $320.4 billion of assets in its private markets business in the first quarter, down from $322.6 billion at the end of last year. The figures reflect $9.1 billion of net inflows and $8.5 billion of returns of capital, along with a $2 billion drop in market values.

Fink said on a conference call that demand for private credit products is “structural,” reflecting the retreat of banks from some markets following the 2008 financial crisis and increasing global indebtedness. “That isn’t changing,” the CEO said.

While retail investors have pulled back from some private credit funds, institutional demand is “accelerating,” Fink said, as the higher returns and low leverage of private credit offerings have made them a core part of how investors build portfolios.

The wider spreads in the market point to shifting short-term sentiment that may create challenges for some providers, he said – a situation that favors BlackRock competitively.

“It’s pretty clear that BlackRock has built a diverse and growing platform that truly meets their client’s entire portfolio needs as they seem to be able to put up strong flows, performance and P&L in all seasons,” Evercore ISI analysts said in a note.

(Reporting by Pritam Biswas in Bengaluru and Colin Barr in New York; Editing by David Goodman, Keith Weir and Bill Berkrot)