Opinion: Waning BlackRock Flows Nothing for Rivals to Cheer

BlackRock’s shriveling fund inflows are nothing for rivals to cheer. The manager of over $6 trillion of assets around the world saw new money flows plunge by more than 80 percent year-on-year to $20 billion in the second quarter as clients slashed stock holdings. Fellow investment titan Vanguard is also pulling in fewer dollars this year. While rivals have chafed at the duo’s dominance, this weakness should send shivers up their spines.

For the giant run by Larry Fink, it was the worst showing on asset inflows in two years, largely driven by investors taking $22 billion out of equity funds. There was a silver lining, though, as it was the firm’s low-cost index funds that suffered the biggest withdrawals by institutional clients while relatively high-margin, actively managed multi-asset funds gained $7 billion of new money.

BlackRock, the biggest asset manager in the world, is in no danger of running short of profit. Revenue increased at an 11 percent clip in the second quarter, and the Republican tax cuts, signed into law last December, helped earnings jump 26 percent from a year earlier.

But new money is the industry’s lifeblood, and BlackRock attracted it at barely one-quarter of the average pace of the past two years. Inflows at privately held Vanguard, which manages some $5.1 trillion, fell by more than half in the first five months of this year, to $82 billion, according to Morningstar.

The picture for smaller rivals may be somewhat different, but it’s not rosy. While U.S. mutual funds overall pulled in $580 billion of new money in the 12 months to the end of May, more than 99 percent of it went into low-cost index and exchange-traded funds, according to Morningstar. That’s dangerous for their profit margins.

The investing environment has turned noticeably chillier, too. Last year’s bubbly anticipation of tax cuts and faster growth has morphed into fears of trade wars and investment restrictions on national-security grounds. The S&P 500 Index is up 67 percent over the past five years, but less than 5 percent since the start of this year. If investors are starting to take money off the table, the pain will be felt all around.

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CONTEXT NEWS

– BlackRock on July 16 reported that net asset inflows totaled $20 billion in the three months ended June 30, off more than 80 percent from the same period a year earlier and down nearly two-thirds from the previous quarter. At $14.5 billion, inflows of long-term assets were down 84 percent from a year earlier.

– The company earned $1.1 billion in the latest quarter, up 26 percent from the same period a year earlier. At an adjusted $6.66 a share, earnings exceeded the consensus analyst estimate of $6.55, according to Thomson Reuters I/B/E/S. Revenue for the quarter rose 11 percent to $3.6 billion.

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(Editing by Richard Beales and Martin Langfield)

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