BlackRock second quarter profits fall 11%

BlackRock’s second-quarter profits fell 11% on reduced fee income in tough market conditions,
as iShares loses ground and senior staff leave.

Net income at BlackRock, the world’s largest money manager, fell to $554m, from $619m on the previous year.

BlackRock’s second-quarter revenue declined 5% year-on-year, to $2.2bn. Investment advisory and related fees dropped 5% to $2bn. Performance-based fees fell 18% to $41m, though there are prospects of a boost later in the year as the firm’s fixed income Obsidian fund is up 20%, while some of its hedge funds have performed well. 

Chief executive Laurence Fink said investors had moved out of higher risk – and higher fee – investing, in favour of bonds and short-term securities.

“For the remainder of 2012, unfortunately, all eyes are still going to be on politics and the economy,” Fink said. The ongoing Eurozone crisis is causing investors to avoid risk, while in the US the upcoming elections and the budget will add to the uncertainty.

Declining worldwide markets cut $76.8bn from BlackRock’s long-term assets during the quarter, as currency moves lost a further $16bn.

But the performance of BlackRock’s iShares unit, the biggest ETF provider, stemmed some of the decline in profits. Investors added a net $6.1bn into iShares ETFs in the quarter

BlackRock’s assets under management at June 30 totalled $3.56trn, down 3% during the quarter and down 3% from a year earlier. Fink added that, since the quarter ended, iShares has taken inflows of $3.5bn in July so far.

Despite the inflows, BlackRock’s ETF unit has lost market share in the United States to rival Vanguard Group, particularly in some of the largest and most basic fund categories where Vanguard charges much lower fees, Reuters said.

Fink also acknowledged the underperformance in its actively managed equity funds, of which only 39% beat their benchmarks or average performance of peers over the past year.

BlackRock has seen the departure of three senior long-standing executives in a month, causing concern about their replacement. Founding partner Susan Wagner announced her retirement from the executive, as has high profile equity strategist Bob Doll (pictured), after 30 years at the firm. Robert Capaldi, senior client strategist and adviser to Fink, with 15 years’ experience at the firm, also left. Energy portfolio manager Daniel Rice is also leaving at the end of the year.

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