BlackRock's Inflows Soar Despite Profit Slip -- 2nd Update

By Kirsten Grind 

BlackRock Inc. said investors poured a record amount of new money into the firm last year partly because of turmoil at rival Pacific Investment Management Co.

Clients committed $181 billion to mutual funds and separately-managed accounts managed by BlackRock, the world's largest asset manager. The surge was the highest annual amount since Laurence Fink, chairman and chief executive, co-founded the firm in 1988. Quarterly inflows of $87.8 billion during the final three months of 2014 also set a record.

The disclosures came as New York-based BlackRock reported a 3% drop in fourth-quarter earnings, and the company missed analyst expectations' for revenue. BlackRock's shares rose 0.53% to $347.59 in morning trading.

Mr. Fink said in an interview that he believed some of BlackRock's new money came from Pimco, the Newport Beach, Calif.-based manager that struggled to keep clients following the loss of star manager Bill Gross in September. Investors pulled $150 billion from Pimco's mutual funds during 2014, according to fund tracker Morningstar Inc., including $103 billion from a flagship fund once managed by Mr. Gross.

BlackRock has used advertising and client communications in recent months to position itself against Pimco and recruit its clients.

But in a later conference call, Mr. Fink said much of the new funds were unrelated to BlackRock's "West Coast friend and competitor." It is difficult for asset managers to know where new money originates unless clients disclose that information.

A spokesman for Pimco didn't immediately return a request for comment.

The flow of new money into BlackRock helped push its assets to $4.65 trillion during the fourth quarter, up 8% from $4.33 trillion in the year-ago quarter.

But a decrease in performance fees during the fourth quarter dropped earnings to $813 million, or $4.77 a share, compared with $841 million, or $4.86 a share last year. Mr. Fink attributed the bulk of the decline in fees to a one-time boost in the year-ago quarter from the liquidation of a financial crisis-related fund. Revenue rose slightly to $2.78 billion from the year-ago quarter.

Analysts polled by Thomson Reuters had estimated $4.67 a share in earnings and $2.87 billion in revenue.

Jim Shanahan, a senior analyst with Edward Jones, described the quarter as strong for investor inflows, but said he wasn't excited that much of that money went to index funds and exchange-traded funds that generate lower fees.

Of $87.8 billion of inflows in the quarter, about half went into the firm's ETFs, which track baskets of securities and trade on an exchange. It is unclear how much went into BlackRock's index funds, as it doesn't break out those numbers. Other index funds saw inflows of $22.8 billion during the quarter.

"Their fee rate continues to fall," Mr. Shanahan said. "I feel like they should be doing better than they are."

BlackRock's results also revealed more struggles in its active equity business, with institutional clients like pension funds and endowments pulling a net $5.5 billion from its funds during the quarter. Only 37% of its active stock funds beat their benchmarks or peers over a one-year period during the quarter, the company said.

Mr. Fink said BlackRock is two years into a five-year turnaround effort with that business and said it would take time for new portfolio managers and other changes to take hold. Stock fund managers broadly suffered in 2014, with more than 70% underperforming their category benchmarks and outflows across all funds, according to fund research firm Morningstar Inc.

"I would like to be further along than we are, but we're not," Mr. Fink said in an interview.

BlackRock raised its dividend to $2.18 a share from $1.93 in the third quarter, while boosting its share-buyback program by 6 million shares under its existing plan for a total of as many as 9.4 million shares.

Citigroup Inc. analyst William Katz reaffirmed his buy rating on the company Thursday morning, citing "booming flows" and "strong capital management."

In an interview before the analyst call, Mr. Fink said he believes plunging oil prices have caused a major redistribution in wealth, which is fantastic for the U.S. consumer.

Michael Calia contributed to this article.

Write to Kirsten Grind at [e-mail]

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