BlackRock (BLK), the world’s largest asset manager, released its Q1 2023 report last Friday. In this article, we look at how it performed this year and its plans for the future. The firm saw a decline of 5% in annualized assets under management, and its income dropped by 18% annually. However, the financial giant seems to have grand plans for 2023.

Image courtesy of 123rf. via The Tokenist

BlackRock Sees 5% Decline in Annualized AuM

For a while, it has been all too common to say that BlackRock holds $10 trillion in assets under management (AuM) as a rounded figure. This is no longer the case, even if one is generous. Compared to Q1 2022, BlackRock’s AuM shrunk by 5%, from $9.56 trillion to $9.09 trillion. 

However, from a quarterly perspective, BlackRock’s AuM is up, having increased by +5.7% from Q4 ’22, which was at $8.59 trillion. This exceeded analysts’ expectations. Moreover, BlackRock mitigated annual AuM shrinkage with a 21.7% increase in total net flows, rising to $110.3 billion. 

This was primarily driven by fixed-income ETF trading volume, with BlackRock accounting for 60% at $34 billion in bond ETF net inflows. In the last 12 months, from April 2022, BlackRock’s ETF net flows almost entirely came from institutional businesses:

• Core equity ETFs, at $34 billion, with broader exposure to market sectors with long-term investing strategies.
• At $160 billion, strategic ETFs are ‘smart-beta’ exposure fine-tuned according to stocks’ valuations, momentum, and volatility. These ETFs typically outperform traditional weighted indexes as hybrid strategies that combine passive and active investing.
• At $8 billion, Precision ETFs are exposed to niche ETFs, such as green energy, AI, and cybersecurity. These riskier ETFs are designed to catch trends.

BlackRock’s active institutional investing accounted for $224 billion in net flows in the last 12 months, while institutional index investing accounted for only $2 billion.

BlackRock’s Income Dropped by 18%

With decreased AuM, BlackRock’s annual revenue dropped by 10%, from $4.7 billion in Q1 ‘22 to $4.24 billion. Likewise, year-on-year net income decreased by 18% to $1.15 billion. Much of this downturn came from investment advisory performance fees, going down from $98 billion to $55 billion. 

In stock metrics, BlackRock’s net income fell by $7.93 per share, underperforming Bloomberg’s expected $7.67 per share.  When it comes to earnings per share, year-on-year, they dropped from $9.46 to $7.64 (diluted). This is lower than FactSet’s polling at $7.78. 

Lastly, Blackrock cut total expenses by 4.5% to $2.8 billion. Considering suppressive macro conditions during this hiking cycle, it was no surprise that BlackRock exceeded total net flows while Aladdin’s revenue remains unperturbed. 

BlackRock Counts on Recession to Replace Hikes?

Despite some Republican ESG pushback, BlackRock is unlikely to lose its central position. Like Microsoft’s deeply rooted Windows, it is challenging to unroot complex systems that facilitate reliance and delicate balancing. BlackRock CEO Larry Fink sees only opportunities moving forward:

“I believe today’s crisis of confidence in the regional banking sector will further accelerate capital markets growth, and BlackRock will be a central player,”

Expectedly, the Fed’s hiking cycle had a deleterious effect on banks’ fixed-income securities. On Monday, BlackRock’s Chief Investment Officer of Global Fixed Income, Rick Rieder, called into question whether the Federal Reserve needs to do any more interest rate hiking. As Wednesday’s CPI report shows, the inflation rate had its sharpest single-month drop, going from 6% to 5%.

At the same time, the more indicative core CPI (minus food/energy) is still at an elevated 5.6%, above the current Fed funds rate. The Fed will likely set two more 25 bps hikes this year to continue the momentum. In either the Fed pivot or recession, investors will seek refuge in BlackRock’s Aladdin to mitigate risk.

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