BlackRock tops $9 trillion on record inflows

BlackRock Inc.'s assets under management hit a new high — $9.01 trillion — in the quarter ended March 31, another milestone in the long growth trajectory of the world's largest money manager.

Earnings data released April 15 showed that BlackRock's AUM rose 3.8% in the first quarter.

The New York-based firm not only recovered from a 12.9% decline in AUM to $6.47 trillion in the first quarter of 2020, caused by the early impact of the outbreak of COVID-19 on markets, its assets rose 39.3% for the year ended March 31.

"Like other money managers, BlackRock's strong earnings results in the first quarter 2021 reflect the tailwind after last year's COVID fallout with a growth in AUM of 39% over the year ended March 31," said Catherine Seifert, vice president and equity analyst, CFRA Research Inc., New York, in an interview.

BlackRock's AUM totaled $7.43 trillion in the fourth quarter 2019 prior to the coronavirus outbreak.

BlackRock executives were upbeat during their April 15 earnings call with analysts.

Laurence D. "Larry" Fink, chairman and CEO, told analysts on the call that the firm's net inflows for the three-month period were "very diverse," coming from many strategies.

Gary S. Shedlin, senior managing director and BlackRock's chief financial officer, noted on the call that the total net investment inflow of $171.6 billion in the first quarter was a new high for a three-month period and was the fourth consecutive quarter of net inflows of more than $100 billion.

Mr. Shedlin also cited the resilience of Aladdin, the firm's portfolio management technology tool, as "a key differentiator throughout the COVID crisis," that he and Mr. Fink see, "making it central to constructing sustainable portfolios of the future," according to a transcript of the earnings call.

Mr. Shedlin said first-quarter net inflows included $133 billion into long-term assets, reflecting "the strength of our broad-based franchise with positive flows across every asset class, investment style, client channels and region."

In contrast, the firm's total net inflow in the quarter ended Dec. 31 was $126.9 billion and $35 billion in the first quarter 2020.

BlackRock's net inflows in the quarter ended March 31 were led by its iShares exchange-traded fund unit at $68.5 billion, (prior quarter, $78.8 billion); cash management, $39.2 billion ($8.9 billion); retail investors, a new record high of $36.5 billion ($35.3 billion); and institutional, $27.6 billion ($2.1 billion). Net outflows from BlackRock's advisory/other business were $187 million in the quarter ended March 31, compared with $1.8 billion in the prior quarter.

BlackRock's revenue in the quarter ended March 31 was $4.4 billion, down 1.8% from the prior quarter but up 18.5% from the same quarter a year earlier.

ETF products continue to drive BlackRock's revenue growth.

In the quarter ended March 31, BlackRock's $2.81 trillion of combined ETF AUM brought in $1.4 billion of revenue, more than any other individual investment approach, according to the firm's earnings report.

In the latest quarter, ETF revenue was much larger than that of other revenue streams – distribution fees ($340 million); technology services, including the Aladdin risk-management system ($306 million); performance fees ($129 million); and advisory and other services ($31 million).

ETFs also were BlackRock's leading revenue source over the past decade.

In full calendar years, the firm's ETF revenues were $4.6 billion of a total of $16.2 billion in revenue in 2020; $3.3 billion of $11.4 billion in 2015; and $1.9 billion of $8.6 billion in 2010, earnings reports showed.

Other equity analysts expressed optimism about BlackRock's corporate performance.

"BlackRock is at its core a passive investor … in an environment where retail-advised and institutional clients are expected to seek out providers of passive products as well as active asset managers that have greater scale, established brands, solid long-term performance and reasonable fees, we believe that BlackRock is well positioned," said Greggory Warren, a sector specialist equity analyst at Morningstar Inc., Chicago, in a report about the firm's first quarter 2021 earnings.

Despite "secular and cyclical headwinds to make AUM growth difficult for … U.S. managers over the next five to 10 years," Mr. Warren said he expects BlackRock to generate 3% to 5% average annual organic AUM growth between 2021 and 2025.

To Mr. Warren's point about BlackRock's predominant passive strategy tilt, earnings data for the quarter ended March 31 showed that institutional passively managed strategies totaled $3 trillion, accounting for 33% of total AUM but just 7% of combined base fees and securities lending revenue, reflecting lower pricing.

As of the same date, ETFs totaled $2.81 trillion or 31% of total assets and 39% of total base fees/securities lending; institutional active strategies totaled $1.52 trillion, 17% of total AUM and 18% of base fees/securities lending; retail strategies were $934 billion, 11% of AUM and 32% of base fees/securities lending; and cash, $704 billion, 8% of total assets and 4% of total base fees.

Unlike the firm's steady revenue growth, BlackRock's net income has fluctuated more over time.

Net income was $1.2 billion in the quarter ended March 31, down 22.5% compared to the previous quarter and up 48.8% from the first quarter 2020.

Over the longer term, BlackRock's full-year net income was $4.9 billion in 2020; $3.3 billion in 2015; and $2.1 billion in 2010, earnings reports showed.

Net income fluctuation between quarters and years is fairly common, sources said, given market vagaries.

"BlackRock is so diversified by product line, client type and region among other things, that when one business segment zigs, another zags, causing the firm to have more stability that its competition," said Daniel Sondhelm, CEO of Sondhelm Partners, Alexandria, Va., which advises money managers on marketing and distribution strategies, in an email.

Another component of BlackRock's diverse offerings is its Aladdin risk-management system, "a significant differentiator for the firm," CFRA's Ms. Seifert said.

"With so many investors moving from 'we'd like to have a sustainable mandate' to making ESG a baseline necessary investment, Aladdin will give investors the ability to get intel on ESG and other strategies," she said.

Aladdin's revenue "won't move the needle for a money manager as large as BlackRock, but it does provide BlackRock with another leg up in addition to its scale, product development capability and massive distribution network," Ms. Seifert said.

Mr. Fink told analysts on the earnings call that "we've been investing in all aspects of our Aladdin technology to better serve our clients' needs."

As for future growth, Mr. Shedlin said during the call: "Fundraising momentum remains strong and we have approximately $27 billion of committed capital to deploy for institutional investors in a variety of alternative strategies representing a significant source of future base and performance fees."