Blackrock (BLK) Q3 Earnings Call

posted in: Earnings Call, Notes | 0

Blackrock (BLK) CFO Gary Sheldon said this is a challenging environment for all asset managers as the business is changing 

“Our clients are facing significant challenges driven by increased regulation, market volatility, record low interest rates and disruptive technology and that’s a result the asset management industry is changing rapidly. During these times as we’ve done in the past, we reexamined our strategic priorities and evolved our business model with the goal of better serving the needs of our clients and optimizing organic growth in the most efficient way possible for our shareholders.”

The client shift in favor of passive investing has hurt their asset management fee revenue

“While we continue to deliver strong growth, base fee growth has recently lagged growth and average assets under management as client appetite and portfolio construction decisions impact our business mix. In the current environment, client mixed shift has favored index over active, fixed income and cash over equities and government funds over prime funds in the money market space.”

Blackrock (BLK) CEO Larry Fink said he witnessed outflows in their products which focus on the European equities markets

“Across client segments, inflows were led by U.S. in emerging markets equities and debt as investors view the U.S. as a relatively safe haven and emerging markets have gained momentum as commodity prices stabilize. Meanwhile we saw outflows from European equities in the political and policy uncertainties both from the continent and the United Kingdom.”

And he says that insurance companies are becoming more and more comfortable utilizing fixed income ETF’s in their portfolio

“Insurance companies are also increasingly employing fixed income ETFs in a broad range of applications. A recent study from Brennan’s Associates found that ETF demand from insurers is likely to increase. Of insurers in the study, 52% of these companies expect to increase their use of fixed income ETFs in the next year and BlackRock is well-positioned to work with large insurers as our investment strategies and techniques evolve.”

Blackrock (BLK) President Rob Kapito says there is $50 trillion of cash globally sitting on the sidelines

“So we have found there is such a significant amount of cash that’s on the sidelines because rates are so low and equities have not returned what people have expected that the money that is potentially in motion is probably the largest. We’ve done studies to show that globally there’s 50 plus trillion that’s sitting in cash. And I don’t think anybody knows how big that can be relative to the size of the markets. So depending upon changes in interest rates and changes in equity volatility, a lot of that money can come into motion.  So it’s not only coming into areas of retirement. It’s overall. And the studies that we show range anywhere from 38% to 60% of clients’ portfolios are now sitting in cash. So we think that a lot of that money will start to move once people, once we get through the election and once we get through the next decision on where interest rates are going to be.”