BlackRock Hauls in $205 Billion as Private Assets Accelerate

(Bloomberg) — BlackRock Inc. pulled in $205 billion of client money in the third quarter as the world’s largest fund manager expanded its footprint in private credit and alternative assets.

Investors added $153 billion on a net basis to stock, bond and other exchange-traded funds — which topped $5 trillion for the first time — reflecting the massive growth of the products this year, New York-based BlackRock said in a statement Tuesday.

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Net flows to long-term investment funds were $171 billion, beating the $161.6 billion average estimate of analysts surveyed by Bloomberg, and total assets under management hit a record of $13.5 trillion as markets surged.

“I believe the scale of the opportunity ahead for BlackRock, our clients and shareholders far exceeds what we’ve ever seen before,” Chief Executive Officer Larry Fink said in the statement. “We’re entering our seasonally strongest fourth quarter with building momentum.”

BlackRock’s adjusted earnings per share in the quarter rose 1% from a year ago to $11.55. That beat the average analyst estimate of $11.47. Revenue rose 25% to $6.5 billion from a year ago.

Shares of BlackRock rose as much as 4.7% in New York trading, while the S&P 500 Index declined as much as 1.5%.

The overall net flows into the company’s funds included $34 billion to cash-management and money-market funds, a piece of the business that hit $1 trillion in assets for the first time.

BlackRock completed its $12 billion acquisition of HPS Investment Partners at the start of the third quarter, its third major purchase in about 18 months and part of the firm’s plan to become a leader in the alternative asset space. It previously bought private markets data firm Preqin and Global Infrastructure Partners.

The HPS deal added $165 billion of client assets. Alternatives now total $663 billion of client assets. BlackRock is also seeking to raise $400 billion more by 2030, the company said earlier this year.

The business has already started to pull in higher fees. BlackRock’s performance fees rose about 33% to $516 million, driven by the private markets business.

Those deals also pushed costs higher. Operating expenses totaled $4.55 billion, exceeding analyst estimates of about $4 billion. Employee compensation and benefit costs rose to $2.4 billion as the firm integrated GIP and HPS staffers.

“Short-term, all that growth comes at a price,” Evercore ISI analysts led by Glenn Schorr said in a Tuesday note, adding they believe the costs are “worth it.”

Private Lending

In a CNBC interview Tuesday, Fink said recent blowups in private lending are examples of one-off risks in small corners of corporate credit. The collapses of subprime auto lender Tricolor Holdings and auto-parts supplier First Brands have raised questions about underwriting standards in the industry, but Fink said they aren’t a sign of wider problems.

“Both Tricolor and First Brands are really receivable financing; that’s a very small, small component,” Fink said. “That’s the power of the markets. You can’t hide that long. And I actually believe this is a gratifying thing — you can’t hide long.”

BlackRock is seeking to pull some cash that it had invested in a Jefferies Financial Group Inc. fund that was exposed to the trade debt of First Brands, Bloomberg News previously reported. The partial redemption requests from BlackRock and other investors including Morgan Stanley were made in September as the financial situation of First Brands worsened.

In a call with analysts, both Fink and Chief Financial Officer Martin Small said the firm is spending a lot of time developing its own digital asset technology. Some of its current offerings — a Bitcoin ETF and an Ethereum ETF — were top contributors to organic fee growth in the quarter.

The firm eventually wants to replicate everything that currently sits with traditional wealth management in digital wallets, so investors can access long-term investments like stocks and bonds via blockchain technology, Small said. The executives said more than $4.5 trillion of value is sitting in digital wallets across crypto, stablecoins and tokenized assets.

(Updates with shares in sixth paragraph and Fink comments in 13th paragraph.)

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