World’s largest asset manager BlackRock to restructure

epa05258649 (FILE) A file photo dated 12 January 2016 showing a view of the New York offices of the financial firm BlackRock in New York, New York, USA. BlackRock reported their financial results for the first three months 2016 ended 31 March 2016. Laurence D. Fink, Chairman and CEO of BlackRock said 14 April 2016 BlackRock generated long-term net inflows of 36 billion USD in the quarter. Adjusted net income for the 1st quarter stood at 711 million USD, compared with 830 million USD in 2015, a change of 14 per cent. EPA/JUSTIN LANE

NEW YORK: BlackRock Inc said on Thursday it will cut 400 jobs and take a US$76mil (RM295.4mil) restructuring charge after posting a 20% drop in first-quarter profit amid a dramatic reversal in financial markets.

The world’s largest asset manager’s investment performance stumbled and its net inflows, albeit still tens of billions of dollars last quarter, fell as US markets marked a rough start to the year.

“We did have a tough quarter,” BlackRock chief executive officer Larry Fink told Reuters. US stocks, corporate bonds and energy all fell sharply in the beginning of 2016 but regained their footing in February. “The entire industry had a tough quarter in active management and we were no different.”

Fink attributed a portion of the earnings shortfall to lower fees collected on so-called “active” investments, including hedge funds and many mutual funds, in which managers study companies and financial markets, making bets on future performance.

The businesses produce higher profit margins than BlackRock’s popular, index-tracking funds, which took in US$27.5bil (RM106.9bil) despite the stormy markets.

Net income fell to US$657mil (RM2.55bil), or US$3.92 per share, in the quarter, from US$822mil (RM3.2bil), or US$4.84 per share, a year earlier.

Overall revenue of US$2.6bil (RM10.1bil) was offset by expenses and taxes of nearly US$2bil (RM7.8bil).

With results adjusted to exclude the restructuring charges, BlackRock earned US$4.25 per share, short of the average analyst estimate of US$4.29, according to Thomson Reuters I/B/E/S.

Performance fees dip

BlackRock’s relative investment performance slipped during the quarter, according to its own metrics.

Nearly two-thirds of the assets in its tax-exempt bond funds lagged their benchmark over one year. Only 41% of assets in the company’s so-called “scientific” active equity business outperformed. That group mines reams of data for insights on how to invest.

BlackRock took in far fewer of the beefy performance fees it earns when products like hedge funds do particularly well. Yet the broader trends that have moved against hedge funds have not hurt BlackRock’s sales, Fink said.

He told Reuters that as part of the restructuring the company will continue to hire to build up the relatively higher-fee “alternatives” unit that includes hedge funds, real estate and infrastructure.

The company will also emphasise growing its sustainable-investing operation, which tailors portfolios to reflect social, corporate governance or other values.

He said the company would also boost technology investments and hiring in its iShares exchange-traded funds business.

Despite the job cuts, it expects to end the year with a higher headcount than it has now as it hires in growth areas.

BlackRock Solutions, a unit that offers a risk-management and investment analytics service, was a bright spot as revenue rose 16% to US$171mil.

Overall, BlackRock attracted total long-term net inflows of US$36.08bil in the quarter, down from US$70.44bil a year ago.

Most of that, US$24.25bil, went into iShares, down from US$35.48bila year earlier, with the lion’s share invested in lower-margin bond ETFs.

Net investment in fixed income was US$52.17bil, while US$2.15bil went into alternative investments.

BlackRock ended the first quarter with US$4.74 trillion (RM18.5 trillion) in assets under management, up from US$4.65 trillion (RM18.1 trillion) at the end of 2015.

Shares of the company rose 1.5% to US$353.65. Up to Wednesday’s close, the stock was up 2.3% since the start of the year, but trading roughly 8% below its all-time high in February 2015. - Reuters