Net inflows declining
BlackRock (BLK), the world’s largest asset manager, saw $14 billion in long-term flows in the second quarter, helped by $5 billion inflows from retail and $18 billion in ETFs, partially offset by outflows of $9 billion from the Institutional segment. The pace of new flows has declined substantially from $55 billion in the previous quarter and $94 billion in the second quarter of last year.
The slowing pace of inflows indicates weaker investor confidence amid high valuations, a flattening yield curve, rising rates, and trade conflicts. The asset manager posted earnings per share or EPS of $6.66 versus estimates of $6.55, helped by revenue growth of 11% due to higher assets under management and technology services growth.
The demand for active management is rising due to market uncertainty demanding fund managers’ services. Out of $14 billion in long-term flows, BlackRock added $7.9 billion through active offerings. Active offerings contributed ~46% of the company’s total fees. Alternative asset managers (XLF) including Blackstone (BX) and Carlyle Group (CG) could see higher flows toward their active offerings in the upcoming quarters.
BlackRock’s ETFs offerings through iShares saw major inflows, $15.9 billion out of $17.8 billion were deployed in debt-related offerings, reflecting a shift toward a safer asset class. Equity offerings attracted $1.4 billion, reflecting weaker expectations from broad markets. Fixed-income holdings lost $4.6 billion in valuations, whereas equities appreciated $7.9 billion on a rebound from the previous quarter.
Another ETFs provider, State Street (STT), is also expected to see weaker inflows towards ETFs offerings.
BlackRock’s Institutional clientele has withdrawn from equities—active as well as passive funds, with a higher pace in passive funds. Institutions increased their allocation to passive debt funds, multi-assets, and active alternative funds in the second quarter. Overall, institutionally managed assets declined sequentially to $3.43 trillion from $3.54 trillion, mainly due to foreign exchange losses of $65 billion and outflows of $8.8 billion, partially offset by an appreciation in holdings of $47 billion.
BlackRock’s earnings have also been affected by the strong dollar, which has resulted in foreign exchange losses of $87.5 billion for the total managed assets of $6.3 trillion in the second quarter.