BlackRock’s Tech Services Unit Flourishes as Advisory Fees Lag
BlackRock, the world’s biggest money manager, is intensifying its effort to market its portfolio construction services to brokers and registered investment advisors as it seeks to diversify its core earnings base, executives said Friday after reporting second-quarter results that missed analysts’ consensus estimates.
Market volatility and fee pressure on the company’s actively managed funds weighed on the company’s second-quarter results. BlackRock reported a 2% decline in revenue and a 7% fall in profit from the year-earlier quarter.
The New York-based asset manager has identified technology, including its Aladdin Wealth software aimed at helping advisors gather and manage assets, as a way to broaden its connection beyond institutional investors.
“Our goal is to make Aladdin Wealth the leading technology platform for wealth managers and deepen our value proposition with our partners and financial advisors,” Chief Executive Larry Fink in an earnings call with analysts. “[I]ndustry consolidation, shifting product usage and regulatory requirements are creating the need for more holistic, more flexible technology-driven solutions at both institutions and wealth managers.”
BlackRock developed Aladdin for hedge funds and other large customers, but has been pushing it to downstream advisors. Morgan Stanley last year integrated Aladdin into brokers’ workstations, saying it would help them convince customers to show their held-away assets as the brokers model portfolios.
BlackRock, to be sure, attracted a record $151 billion of new assets to manage during the quarter, but much of the inflow came into low-fee fixed-income ($110 billion) and money-market ($26 billion) funds. Its iShare ETFs attracted $36.1 billion, up from $30.7 billion in this year’s first quarter and $17.8 billion in last year’s second quarter.
The company ended the second quarter with $6.84 trillion of assets under management, up from $6.51 trillion three months earlier. Its total revenue, though, fell 2% from the second quarter of 2018 to $3.52 billion. Net income of $1.01 billion was off 7% from a year ago.
Investment advisory, administration fees and securities lending revenue fell $41 million from a year ago, while performance fees were off from the year-earlier quarter by $27 million.
Technology services generated $237 million of revenue during the quarter, up 20% from the year-earlier period, on increased sales of Aladdin and contributions from French software firm eFront that BlackRock bought in May. The tech services unit represented 6.7% of BlackRock’s total revenue.