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Institutional Segment Continues to Be Major Segment for BlackRock

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Institutional investors prefer ETFs

BlackRock (BLK) managed total assets of $2.9 trillion as of September 30, 2016, for its institutional investors. The assets form 62% of the company’s total assets under management. Of these total assets, the company is now managing $1.0 trillion in active funds and $1.9 trillion in index funds, reflecting a clear preference for low-cost exchange-traded funds and passive funds.

In 3Q16, BlackRock Institutional saw active long-term inflows of $7.5 billion. These inflows were led by multi-asset inflows of $6.5 billion across the Lifepath target date series and solutions offerings. The company’s institutional index long-term net outflows of $1.4 billion were led by equity net outflows of $4.9 billion, partially offset by fixed income inflows of $3.4 billion.

BlackRock posted an operating margin of 40% in 2015 as compared to the following operating margins of its competitors:

  • Bank of New York Mellon (BK): 22.7%
  • State Street (STT): 23.9%
  • JPMorgan Chase (JPM): 31.6%

Together, these companies account for 9.0% of the Vanguard Financials ETF (VFH).

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Improved markets

In 3Q16, managed assets for institutional clients increased by $117 billion over the previous quarter, mainly due to a $114 billion rise in the value of portfolio holdings, inflows of $6 billion, and a negative foreign exchange impact of $9 billion. The rise in asset valuations was led by equities, which appreciated $76 billion due to market changes, followed by a rise in fixed income of $25 billion.

Institutional asset management is low on margins, and fees are highly competitive and low. In 3Q16, the division’s total base fees fell to $706 million as compared to $719 million in the previous quarter. Institutional base fees made up 29% of the company’s total fees. Institutional clients demand more diversified offerings in multi-risk solutions and global investment platforms.

Continue to the next part for a look at BlackRock’s restructuring phase and how its expenses have fallen.

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