BlackRock profit jumps 3.8% in third-quarter

Bloomberg

BlackRock Inc., the world’s largest money manager, said third-quarter profit rose 3.8 percent as the firm cut costs while assets under management increased.
Net income increased to $875 million, or $5.26 a share, from $843 million, or $5, a year earlier, according to a statement on Tuesday. Adjusted earnings of $5.14 a share beat the $4.98 average estimate by 16 analysts surveyed by Bloomberg.
BlackRock, led by Chief Executive Officer Laurence D. Fink, has been able to weather rapid changes in the industry as investors flock to cheaper passive products. Assets under management increased in the quarter 13.6 percent to $5.1 trillion as the firm posted $55 billion in long-term inflows. BlackRock has attracted money by cutting fees in its exchange-traded funds amid competition with Vanguard Group and Charles Schwab Corp.
Total expenses dropped 3.6 percent, reflecting a decline in employee compensation and benefits. BlackRock reduced its workforce by 3 percent earlier this year.
Fink said in May that he expects consolidation as asset managers have trouble beating their benchmarks and a new Labor Department rule, which requires advisers to put their clients’ interests ahead of their own, benefits passive strategies. Janus Capital Group Inc. and Henderson Group Plc agreed to merge earlier this month to create a $320 billion firm, signaling that more such deals among active managers may come as they look for ways to increase revenue and reduce costs.
“Regulatory change continues to have a material impact on our industry,” Fink said in the statement. “In retail, the DOL fiduciary rule will increasingly influence the choices that financial intermediaries make for their clients.”
BlackRock benefited from $51 billion of net flows into ETFs in the quarter. Retail saw $2.2 billion in net outflows, while institutional active had $7.5 billion in net inflows.
Base fees increased 3.7 percent, while performance fees decreased $150 million from the year prior due to strong returns from a hedge fund in the third quarter of 2015. Revenue fell 2.5 percent to $2.8 billion during the quarter from the year prior.
BlackRock, which is based in New York, has joined other industry giants in a race to the bottom on fees to compete for ETF flows. Charles Schwab cut prices this month on five of its ETFs, two days after BlackRock reduced expenses on 15 of its funds.
Shares of BlackRock have risen 4 percent this year compared with an 4.7 percent decline for S&P’s 19-company index of asset managers and custody banks.

The firm is the first big U.S. money manager to report third-quarter earnings, giving an indication of how firms navigated financial markets.