BlackRock’s Larry Fink warns of ‘substantial’ impact of markets on earnings

BlackRock’s Larry Fink admitted that “negative markets had a substantial impact” on the world’s largest fund manager last year, wiping out $1.4 billion of its assets and squeezing profits.

In an internal memo seen by the Financial Times, the chief executive said the operating environment “is unlike anything we’ve seen in decades”.

His comments come as asset managers across the industry have suffered a sharp drop in assets under management in one of the toughest market environments in recent history. Global stocks and bonds fell nearly 20% and 14% respectively last year.

Reporting its fourth quarter results, BlackRock said its assets under management had grown from a record $10 billion a year ago to $8.6 billion. Revenue fell 15% to $4.3 billion from the same period a year ago.

The New York-based manager, known for its iShares line of index funds and actively managed products, reported adjusted earnings per share for the quarter of $8.93, down 16% year-over-year .

But from the third quarter, assets under management rose from $8.6 billion to $8.6 billion, beating analysts’ expectations after a surge in cash flow from clients.

Flows into BlackRock’s products, excluding money market funds, soared to $146 billion in the fourth quarter, more than double the previous three months.

Fink said in his note that inflows have been “strong” during the year, with most of that money coming from institutional clients. The group announced net capital outflows from retail investors, as the performance of active funds suffered across the sector.

BlackRock’s bond exchange-traded funds under its iShares brand hit a 12-month high, generating $123 billion in net inflows. The fund group’s private markets business also raised $35 billion from clients last year, mostly through private credit and infrastructure.

The fund group has come under fire over the past year from Republicans for its attempts to engage with companies about the long-term impact of climate change. This has led some state treasuries to withdraw BlackRock’s investments.

BlackRock and other asset managers have also come under cost pressure due to the revenue squeeze.

Earlier this week, BlackRock announced it would cut 500 jobs globally, a reduction of around 2.5% in its total workforce. The results also showed BlackRock took a restructuring charge of $91 million in the fourth quarter.

Kyle Sanders, an analyst at Edward Jones, said BlackRock “entered 2022 with ambitious hiring plans; however, continued economic uncertainty and margin pressures have forced the company to suspend hiring.

“We expect more aggressive cost-cutting measures to be implemented in 2023, which includes headcount reductions,” he added.

A person close to BlackRock said headcount would be broadly flat this year and there were no further cuts on the cards.

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