Why Institutions Are Preferring BlackRock’s Debt-Passive Funds
BlackRock (BLK) Institutional Clients division is now managing a record $3.3 trillion—about 56% of the company’s total AUM (assets under management) as of September 30, 2017. Of this amount, ~$1.11 trillion was in active funds and ~$2.19 trillion was in index funds for its institutional clients.
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In 3Q17, BlackRock’s institutional index attracted flows of $16.0 billion, of which $36.9 billion went to fixed-income offerings for liability-driven solutions, partially offset by outflows of $19.6 billion in equities. These investments reflect institutional deployment more for active fixed income management than for equities.
The division’s active fund offerings saw inflows of $0.2 billion in 3Q17, led by inflows of $3.5 billion in multi-assets, due to demand for the LifePath target-date series.
The division also saw inflows of $0.5 billion in fixed income, partially offset by outflows of $3.3 billion in equities from fundamental and scientific and $0.5 billion in outflows from alternatives.
Rising base fees
In 3Q17, the division’s assets under management rose $131 billion from 2Q17, thanks to positive market changes of $71 billion in equities, $8.1 billion in multi-asset offerings, $3.1 billion in fixed income, $16 billion in long-term inflows, and a favorable foreign exchange impact of $31 billion. The division’s total base fees rose to $738 million in 3Q17, accounting for 27% of the company’s total fees, compared with $721 million in 2Q17.
Institutional investors poured funds largely into fixed income passive strategies and withdrew funds from passive and active equity offerings, reflecting lower expectations for equity market returns in coming months.