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BlackRock Profit Rises 19% as Assets Surge to $8.7 Trillion -- 3rd Update

01/14/2021 | 04:41pm EST

By Dawn Lim

BlackRock Inc.'s quarterly profit rose 19% as investors turned to the money-management giant's funds through election uncertainty, vaccine breakthroughs and a year-end rally.

The investment company posted fourth-quarter profit of $1.5 billion, or $10.02 a share, up from $1.3 billion, or $8.29 a share, a year earlier. BlackRock's revenue rose 13% to about $4.5 billion in the final three months of 2020.

BlackRock has used its scale to undercut the prices of rival funds in popular index strategies while focusing on growing more lucrative areas of the business such as private equity.

Rising markets benefited BlackRock as pensions, endowments and investors took bullish bets on the prospect of a return to global growth after the devastation from the Covid-19 pandemic and central bank interventions. The firm benefited as investors turned to its illiquid strategies to juice returns in a low interest rate environment. It also benefited as investors wanted to make quick wagers in the volatile markets in the lead-up to an election result.

BlackRock took in new money into more lucrative actively managed funds and areas like alternatives to stock and bonds. Money flowed into equity, fixed income and alternative investments. The biggest chunk of the new money went into bond funds.

The world's largest asset manager continues to grow larger. The firm hit a new milestone of $8.68 trillion in assets under management.

The asset figure "is huge, large, and eye popping," BlackRock Chief Executive Larry Fink said in an interview. "We're still a very small component of the world's capital markets."

He added, "I believe we have huge opportunity going forward."

The company brought in $126.9 billion in new investor money in the quarter, down slightly from $128.8 billion in the year-earlier quarter.

BlackRock's iShares funds that trade on exchanges and mirror markets took in $79 billion in new flows in the fourth quarter, up from $75.2 billion in the year-earlier period.

BlackRock isn't immune to the broader market pressures. It has had to waive fees from money funds -- which go into ultrasafe, short-term debt -- to keep yields from falling below zero, and expects to continue to do so in the coming months. It also saw outflows from its multiasset business line in the fourth quarter. BlackRock's business of lending out shares took in lower revenues than the year-ago period.

On a call with analysts Thursday, the firm said operating margins as adjusted in the coming year would be in line with 2020's. The prospect of flat operating margins contributed to the stock falling more than 4% Thursday. Not helping the stock: For many investors, strong performance at BlackRock is business as usual.

"The flows are really good, but expected," said Credit Suisse analyst Craig Siegenthaler.

BlackRock's sprawling lineup of financial products has insulated it from price squeezes other smaller firms face. Many rival companies are expected to deliver outflows in the uncertain economy, struggling to stand out in a competitive industry with smaller scale and less brand recognition.

"The industry is still shrinking while BlackRock has outsized growth," according to Edward Jones analyst Kyle Sanders.

At the end of 2020, BlackRock jumped into the business of creating customized indexes for wealthy customers. It entered a deal to buy a direct-indexing business at the end of 2020, betting on growing interest by individuals for portfolios tailored to their values. The $1 billion acquisition of Aperio Group gives it additional ballast to take on Morgan Stanley, which announced an acquisition of Eaton Vance and its direct-indexing firm Parametric.

BlackRock sells software, including a suite of tools called Aladdin, to banks and other institutions to measure risk. Technology-services revenue -- which includes fees from Aladdin -- rose by 11% in the fourth quarter. BlackRock on Thursday announced it is taking a stake in Clarity AI, an analytics and data science platform focused on sustainability, to bolster its Aladdin platform.

The returns cap off a year in which BlackRock gained significant clout in Washington. The Federal Reserve chose the firm to buy bonds and funds on its behalf earlier in 2020. Three people who have worked at BlackRock are set to join the new Democratic administration.

As BlackRock grows, Mr. Fink has to navigate the demands from politicians and the public on how BlackRock should use its perch as a major shareholder for its funds to effect change. The firm faces challenges to its global ambitions in a protectionist environment.

Even as trade tensions have heated up, China remains a strategic focus for BlackRock. Mr. Fink urged continued conversations with the world's second-largest economy.

"I don't believe it's in the interest of American investors to cut off the Chinese market," Mr. Fink said.

Write to Dawn Lim at dawn.lim@wsj.com

Corrections & Amplifications

This item was corrected at 6:32 p.m. ET to show that BlackRock announced it was taking a stake in Clarity AI on Thursday, not Wednesday.

(END) Dow Jones Newswires

01-14-21 1641ET

Stocks mentioned in the article
ChangeLast1st jan.
BELIEVE -0.79% 15.798 Real-time Quote.-5.76%
BLACKROCK, INC. -3.10% 800.92 Delayed Quote.-9.72%
CREDIT SUISSE GROUP AG -2.72% 8.88 Delayed Quote.2.89%
MORGAN STANLEY -0.97% 98.86 Delayed Quote.1.70%
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Last Close Price 826,55 $
Average target price 1 010,62 $
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Derek N. Stein Global Head-Business Operations & Technology
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