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Investors are creating a “barbell effect” in fixed income markets by opting for low-cost exchange traded funds and alternative assets rather than traditional bond funds, BlackRock chief executive Larry Fink said on Monday.
As the world’s largest money manager announced a new high of $10.6tn in assets under management, Fink pointed to record inflows to BlackRock’s ETF products as well as high levels of client interest in infrastructure products that invest in energy and data centres.
“Assets are in motion” as investors still sitting on huge cash piles prepare for a US rate cut as early as September, and realise that they have missed a big equity rally this year, Fink said.
Equity investors are already quite bifurcated between passive index funds and high-fee private equity funds that promise uncorrelated returns. Now that same split is coming to fixed income, he added.
“We used to talk about equity having more of a barbell effect. I think we’re starting to see that here in the bond market,” he continued. “It’s a moment when people are recalibrating out of cash and it’s going to be heavily into fixed income . . . ETFs and also the alternative income oriented products” such as private credit and infrastructure debt funds.
BlackRock is “very well positioned for that”, Fink said, because of its huge iShares ETF business and its pending acquisition of Global Infrastructure Partners, which is on track to close by the end of September.
Fink’s remarks to analysts came as the world’s largest asset manager reported revenue of $4.81bn for the quarter ending June 30 — up 8 per cent year on year thanks to the higher AUM but slightly below the $4.84bn expected by analysts polled by Bloomberg.
Improved margins helped push net income up 9 per cent from a year earlier, to $1.5bn. The adjusted figure of $1.56bn topped expectations of $1.47bn.
Assets under management were up 1.7 per cent quarter on quarter. Net inflows of $82bn in the quarter missed expectations of $112bn. Equity inflows fell to $6bn, with flows dragged down by institutional clients rebalancing. Fixed income inflows were depressed by the loss of a single institutional client that pulled $20bn.
BlackRock two weeks ago announced the purchase of Preqin, a private markets data provider, as it continues to push into alternative assets and technology. Its ETF inflows have been boosted by strong interest in its bitcoin product.
‘BLK’s spending to bolster its capabilities in private markets will help reduce its reliance on low-fee generating iShares ETFs and position the firm to capitalise on the strong long-term growth opportunity within private assets,” Edward Jones analyst Kyle Sanders wrote.
BlackRock has long traded on a much higher multiple of earnings than its traditional asset management peers, but in the past six months its shares have lagged behind the broader financial sector, rising 1.4 per cent since the start of the year compared with about 12 per cent for financial companies in the S&P 500.
Martin Small, chief financial officer, said the company was on track to hit its long-term goal of 5 per cent annual organic fee growth, and that expenses were on track for a low single-digit per cent increase, apart from the acquisitions.
Shares in the asset manager closed 0.6 per cent lower on Monday.
