BlackRock struggles to turn record inflows into revenue
Boston — It’s tough trying to be the Amazon.com of ETFs.
While BlackRock raked in a record $74bn in exchange-traded fund flows in the second quarter, that did not translate into revenue gains that analysts had hoped for.
Like Amazon did with online retailing, BlackRock got into the ETF arena early and has focused relentlessly on building its business by volume — gathering as much investor money as possible.
And just like Jeff Bezos, who ceded profit to win share and trounce rivals, BlackRock CEO Larry Fink has seen expenses rise.
BlackRock ended the quarter with $5.69-trillion in assets under management, up from the preceding quarter, when managed assets totalled $4.89-trillion.
The company’s net income rose 8.6% to $857m in the second quarter.
Revenue, while up — it rose 6% to $2.97bn — missed analysts’ estimates. And BlackRock’s second-quarter costs increased in almost every category including employee compensation, and distribution and servicing costs.
Asset managers are facing pressure as money flows out of more expensive active funds into lower-fee passive products, where prices are headed to zero.
The world’s largest provider of the products is in a better position than most, having entered the ETF business with the purchase of Barclays Global Investors in 2009.
At the same time, BlackRock continues to cut prices on the products, announcing this month a steep cut on a $10bn exchange-traded fund that offers exposure to the mortgage-backed bond market.
In October, BlackRock reduced fees on 15 core ETFs aimed at price-sensitive retail customers and financial advisers, and in December reduced expenses on six smart beta ETFs.
BlackRock continues to focus on improving its active business. This year, it fired more than 30 people in its active-equities group and moved billions of dollars into cheaper funds where quants play more of a role.
It is also trying to adapt to industry pressure by investing in technology. It has made several acquisitions that management says will help diversify its revenue stream and drive more money into its products.
The firm last month agreed to buy financial tech company Cachematrix and took a minority stake in European robo-adviser Scalable. It owns robo firm FutureAdvisor.
The firm’s average ETF fee slid to about 33 basis points last year, or 33c for every $100 invested, from about 40 basis points in 2009, according to data from Morningstar.
The firm’s average mutual fund fee slid to 108 basis points from about 138 basis points during the same period.