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BlackRock hits record $6-trillion assets, helped by Trump tax law

People enter BlackRock Inc. headquarters in New York, U.S.

Victor J. Blue/Bloomberg

BlackRock Inc charged past a record $6-trillion in assets, its profit beating Wall Street forecasts, as investors flooded into the relatively low-cost funds of the world's largest asset manager.

A new U.S. tax law, which sliced corporate and individual income rates, also helped the company's results in the fourth quarter ended Dec. 31. BlackRock said on Friday it saw a $1.2-billion tax benefit related to the law and raised its quarterly cash dividend by 15 per cent.

"We've been winning more share of wallet," Chief Executive Larry Fink told Reuters.

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"Fees are really important and are becoming more important."

Fink said the tax reform was putting more money in his clients' pockets, which they would need to invest, and that the increased cash could allow him to invest more in the company's future. He declined to identify such investments but said they were discussed at the company's board meeting.

The New York-based company's shares were up 2.8 per cent at midday. Its shares have gained 47 per cent over the last year, including dividends.

"Just when we thought, after the third-quarter report, things couldn't get better, it seems that they did," said Edward Woods, portfolio manager at Bahl & Gaynor Inc, which owns BlackRock shares.

Strong economic growth, tame inflation and supportive government policies propped up assets in 2017, with most countries' equity markets recording gains, often at double-digit percentages.

BlackRock has the largest lineup of exchange-traded funds (ETFs), many of which "passively" track segments of the market at a relatively low fee. Investors' embrace of those funds caught many of BlackRock's once-larger competitors flat-footed.

BlackRock said its iShares ETF business took in $54.8-billion in new money in the quarter, up from $49.3-billion a year earlier. The $367-billion the company took in from investors in 2017 overall was a record, while assets under management expanded to $6.29-trillion.

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"Our view is this acceleration – we saw 18 per cent growth rate last year – we think something like that is going to continue for the next couple of years," said Jennifer Grancio, a managing director at BlackRock focused on the iShares business.

Portfolio managers at BlackRock who try to beat the market also posted a strong year, with 76 per cent of the fund's actively managed assets in funds ranked in the top half of their Thomson Reuters Lipper category over three years as of November, according to Credit Suisse Group AG.

"As more funds flow into passive investing, active management should have better performance, and I think that's what we're experiencing," said Fink. "There is a need for passive, there is a need for active."

BlackRock shareholders and analysts said they are keeping a close eye on how fast expenses are rising and fees are falling given the demand for lower-fee products.

General and administration expenses for the quarter rose 26 per cent in the quarter to $448-million, compared to the year-ago period. Meanwhile, BlackRock earned an annualized $19.28 for every $10,000 it managed during the quarter, down from $19.51 the prior quarter, excluding cash-like money-market funds, according to Reuters' calculations.

Fink, whose succession plan has long been subject to speculation, said he has no intention to leave his post.

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But he added that "we won't be here forever" and that the company had issued a one-time equity grant "to a small group of senior leaders" that will pay out over five to seven years and is "focused on ensuring the interest of the next-generation leaders, individuals who we believe will play critical roles in BlackRock's future."

BlackRock's net income surged to $2.3-billion, or $14.07 per share, from $851-million, or $5.13 per share, a year earlier.

The company said its effective tax rate would fall to 23 per cent, from closer to 30 per cent, which could boost its profitability 6 to 7 per cent this year, according to Edward D. Jones & Co LP.

Excluding the benefit from the new tax law, BlackRock earned $6.24 per share. Analysts on average expected the company to earn $6.02 per share, according to Thomson Reuters I/B/E/S.

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