Updated Version 3 - BlackRock Attracts $205 Billion in Client Funds, Quarterly Profits Exceed Expectations

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Reuters Oct 14 - BlackRock BLK.N reported third-quarter profits that exceeded Wall Street expectations, attracting total inflows of $205 billion, driving the share price of the world's largest asset management company up 5% in premarket trading on Wednesday.

This quarter, bolstered by stocks related to artificial intelligence, the S&P 500 continued its steady upward momentum, hovering near record highs, which prompted investors to pour funds into asset managers such as BlackRock.

"Market fundamentals are strong and well-supported, with new technologies driving higher margins and increased earnings momentum," CEO Larry Fink said in a statement.

BlackRock’s assets under management—which largely determines its profitability—increased from $13.46 trillion a year ago and $15.34 trillion in the second quarter to $15.49 trillion.

This growth was mainly due to two factors: firstly, BlackRock’s flagship iShares exchange-traded funds (ETF) attracted $134.5 billion in new net inflows; secondly, portfolio valuations continued to rise amid strong equity markets.

According to data compiled by the London Stock Exchange Group (LSEG), the company reported adjusted earnings per share of $15.93, beating Wall Street’s estimate of $14.13.

This strong performance will help alleviate pressure on BlackRock's share price, which has underperformed the broader market this year amid concerns about a slowdown in market activity due to investor caution.

Despite ongoing market resilience, surging bond yields and the broad expectation that the Federal Reserve's recent interest rate hikes mark the beginning of a tightening cycle have raised questions regarding the sustainability of the current rally.

If yields continue to rise for an extended period, the market could face pressure as investors shift funds to safer assets to lock in better risk-adjusted returns.

This quarter, BlackRock’s fixed income products saw net inflows of $78.2 billion, indicating strong investor demand despite the recent substantial sell-off in U.S. Treasuries.

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Private Credit Redemption Pressure Eases

In recent years, BlackRock has accelerated its push into the private credit market. This asset class generally commands higher management fees than the company’s main profit driver—its range of ETF products—which rely on hefty fund inflows to boost returns.

The company has announced plans to achieve over $35 billion in revenue by the end of this decade, with more than 30% coming from private markets and technology.

The private credit sector has been under close investor scrutiny amid concerns about lenders’ exposures to software companies—which are seen as particularly vulnerable to the disruptive impact of artificial intelligence—and about the opacity of valuations.

Such concerns have triggered a surge in investor redemption requests over the past few quarters. However, this pressure appears to be easing, with most large private credit fund managers reporting a slowdown in redemption requests in the third quarter.

For BlackRock’s HPS Corporate Lending Fund, the redemption request rate dropped to about 11.5% in the latest quarter, down from 13.3% in the second quarter.

Although BlackRock does not separately disclose the revenue generated from its private markets, this segment recorded $15.31 billion in net inflows for the quarter.

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