BlackRock Inc., the world’s biggest asset manager, said fourth-quarter profit increased 22 percent as investors put money into funds, boosting client assets and fees for managing them.
Net income rose to $841 million, or $4.86 a share, from $690 million, or $3.93, a year earlier, the New York-based company said Thursday in a statement. Adjusted profit of $4.92 beat the $4.33 a share average estimate of 19 analysts surveyed by Bloomberg, excluding certain items. BlackRock increased its quarterly dividend by 15 percent to $1.93 per share.
Assets increased 5.6 percent during the quarter to $4.32 trillion as the firm attracted $40 billion from investors. Chief executive officer Laurence D. Fink, 61, has said BlackRock has the potential to increase its asset base by about 5 percent annually by developing new exchange-traded funds and expanding its reach among individual investors. Fink said U.S. stocks may gain 10 percent this year, after surging 30 percent in 2013.
“They look very strong to me,” Luke Montgomery, a research analyst who covers asset managers at Sanford C. Bernstein & Co. in New York, said in an interview. “The flows are very encouraging across the board.”
BlackRock shares have gained 44 percent in the past 12 months, including reinvested dividends, compared with the 39 percent increase in Standard & Poor’s 20-member index of asset managers and custody banks.
Investors put $24.1 billion into BlackRock’s stock ETFs while pulling $3.5 billion from the fixed-income ETFs. Active bond funds had deposits of $4.3 billion as their stock counterparts saw deposits of $892 million. Multi-asset products, which invest in a mix of stocks, bonds and other assets, attracted $17.4 billion.
“Our client mix continues to shift toward higher fee retail and iShares business,” Fink said Thursday during a conference call with analysts and investors.
The firm, which emerged largely unscathed from scandals including one in 2003 when competitors were accused of market timing, has drawn regulatory scrutiny recently. The firm on Jan. 8 agreed to end an analyst survey program that New York’s Attorney General concluded could be used to execute trades based in part on nonpublic information. BlackRock didn’t admit or deny the attorney general’s findings.
Also last week, BlackRock said one of its employees is facing a civil proceeding by an Italian securities regulator that alleges he used nonpublic information to avoid losses for clients last year. BlackRock conducted its own investigation and found no evidence to support the allegations, according to a regulatory filing.
“Especially in today’s regulatory climate, it is vital that every employee of BlackRock look to do the right thing in every situation every day,” Fink said in the earnings statement. He declined to comment on the investigations during a telephone interview today.
Large money managers such as BlackRock are among nonbank financial companies that the U.S. Financial Stability Oversight Council is evaluating to determine whether they require Federal Reserve oversight. FSOC discussed and agreed to review BlackRock and Fidelity Investments, two people with knowledge of the matter said in November.
Fink said large firms such as BlackRock weren’t responsible for the 2008 financial crisis. Risks lie with certain products, potentially those that use leverage, Fink said.
BlackRock acquired Barclays Global Investors in December 2009 to expand into passive investments. It offers actively managed stock and bond funds; the iShares unit, which is the world’s largest provider of ETFs; hedge funds; and portfolios that use mathematical models.
Money managers, which earn fees based on the assets they manage for clients, traditionally benefit from rising stock markets and investor deposits into higher-fee active funds. The Standard & Poor’s 500 Index increased 9.9 percent during the fourth quarter as the MSCI All Country World Index of global stocks rose 6.9 percent.
U.S. stocks may rise 8 percent to 10 percent this year, Fink said during the telephone interview. Despite the rally, investors aren’t going all into stocks, Fink said, adding deposits during the fourth quarter illustrate that.
BlackRock’s revenue rose 9.4 percent from a year earlier to $2.8 billion, driven by an increase in advisory fees earned for managing client money and the performance fees the firm earns for beating certain benchmarks. Expenses rose 7.2 percent to $1.6 billion on higher headcount and incentive compensation, and fund expenses.
The firm has revamped equity and fixed-income teams to revive deposits into active products. Chris Leavy, chief investment officer of BlackRock’s fundamental equity unit in the Americas, replaced portfolio managers at strategies that represented about 40 percent of the division’s $115 billion at the time. Leavy is currently on medical leave.
BlackRock also reorganized its bond division to give unit heads Rick Rieder and Kevin Holt greater autonomy and accountability. During the third quarter, BlackRock’s active bonds attracted $7.2 billion, the most in almost four years.
The firm is forming a new U.S. retirement group as it continues to push for retirement assets, Fink said during the conference call. Chip Castille, head of BlackRock’s U.S. and Canada defined-contribution business, will lead the new unit, Fink said. BlackRock attracted a net $30 billion in 401(k)-type plan assets in 2013, to reach $526 billion, according to Fink.
In March, BlackRock enhanced its partnership with Boston-based Fidelity to sell more ETFs directly to individual investors.
“We continue to believe the firm faces challenges regarding its positioning with retail ETF users, where we expect a lot of the incremental growth in the ETF market to occur over the next few years,” Montgomery, along with other Bernstein analysts, wrote in a Jan. 10 research note.
ETFs have been the fastest-growing segment of the asset-management business, benefiting firms such as BlackRock, Vanguard Group Inc. and State Street Corp. Assets in exchange-traded products in the U.S. increased 26 percent to $1.7 trillion in 2013, according to data compiled by Bloomberg.