BlackRock Inc. posted increases in everything from revenue to assets in the first quarter, but the world's largest asset manager wasn't immune from the dynamics causing headaches for many in its industry.
The New York firm pulled in a net $64.6 billion, thanks largely to investors seeking out lower-cost funds that track the performance of indexes. Assets under management rose 14% from a year ago, to $5.42 trillion. Profits were up 31%.
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But clients who are losing faith in more traditional stock pickers continued to pull money from that unit of BlackRock. Investors withdrew a net $6.8 billion from BlackRock's actively managed equity products during the first quarter.
BlackRock is in the midst of overhauling its stock-picking business in an effort that has included layoffs, pricing changes and a greater emphasis on computer models that inform investments.
"Active equities is not dead at BlackRock," Chief Executive Laurence Fink said in an interview. The firm is working to mitigate outflows in problem areas and bring in new money in areas that have delivered more consistent performance, he said.
BlackRock, as part of its overhaul, will be offering its Main Street customers lower-cost quantitative stock funds that rely on data and computer systems to make predictions, an investment option previously available only to large institutional investors. Mr. Fink said the firm's quantitative funds started 2017 with "probably the best performance of any year" after a difficult 2016.
The performance of existing quantitative funds improved in the first quarter compared with the same period a year ago. Over one year, 18% of those assets underperformed their benchmark or peers, down from 59% at the end of the first quarter of 2016. Over three years 15% of assets underperformed, compared with 16% a year ago.
During the first quarter BlackRock attracted net new money in indexed funds, actively managed fixed-income funds and multiasset strategies. But the big driver was its giant iShares ETF business, which attracted a net $44.6 billion into equity exchange-traded funds. The equity ETFs inflows were about 70% of total iShares net inflows during the period.
Some in the money-management world are seeking out mergers as a way to survive the industry shift to lower-cost funds. Mr. Fink said he expects more consolidation ahead.
"We're the last financial services industry that hasn't had the consolidation, unlike banks and insurance companies and brokers," he said.
In all, BlackRock reported a profit of $862 million, or $5.23 a share, in its first quarter, up from $657 million, or $3.92 a share, a year prior. Excluding certain items, BlackRock earned an adjusted $5.25 a share, up from $4.25 a year prior.
Revenue increased 7.6% to $2.82 billion. Analysts polled by Thomson Reuters had projected $4.89 a share in adjusted earnings on $2.87 billion in revenue.
Some analysts questioned whether some of the firm's ultralow-cost ETFs had led the firm to fall short of Wall Street's revenue expectations.
But Mr. Fink said revenue from fund fees was in line with expectations. Firm executives attributed the difference between the firm's revenue and analyst expectations in part to foreign-exchange movements and other factors.
BlackRock shares, up 1.7% over the past three months, were down 1.6% in afternoon trading.
--Austen Hufford contributed to this article.
Write to Sarah Krouse at email@example.com
(END) Dow Jones Newswires
April 19, 2017 14:16 ET (18:16 GMT)