BlackRock, the world’s largest independent asset manager, has reported asset under management of USD1.31trn at the end of December, and while net income for 2008 was down 21 per cent to
BlackRock, the world’s largest independent asset manager, has reported asset under management of USD1.31trn at the end of December, and while net income for 2008 was down 21 per cent to USD786m, the firm says it has an encouraging pipeline of new business for the coming year.
BlackRock saw a 23 per cent year-on-year increase in operating income to USD1.59bn, and non-operating losses of USD419m. Net income for the year was USD786m, down 21 per cent from 2007. Total revenue increased 5 per cent from 2007 to USD5.06bn.
The firm says the increases in operating income and revenue reflect strong net new business flows in the first half of the year, exceptional growth in the advisory business, a balanced business model by asset class, client type and geography, and strong cost management discipline, dampened by extremely negative markets in the second half of the year, particularly the fourth quarter.
Negative non-operating results were driven by BlackRock’s use of its balance sheet to co-invest capital alongside its clients, and to seed new products. The majority of this capital is invested long term in alternative products, including real estate, distressed products, hedge funds and private equity. The hostile markets in 2008 affected the mark-to-market value of these investments.
The full-year non-operating expense of USD381m represents a decline of around 25 per cent from the peak investment portfolio value of some USD1.4bn last June and reflects market movements on the underlying assets.
BlackRock’s assets under management increased by USD48.6bn during the fourth quarter thanks to USD129.1bn of net new business, a 10 per cent organic growth rate, partially offset by a USD80.5bn decline in asset values due to adverse markets and foreign exchange fluctuations.
For the full year, net new business totalled USD167.6bn, a 12 per cent organic growth rate, but this was outweighed by a USD217.1bn decline in asset values due to market falls and the strengthening US dollar.
As of January 16, the firm’s pipeline of new business wins funded or to be funded totalled USD59.5bn, including USD21.1bn of fixed income, equity and alternative portfolios, USD5.5bn of cash management products, and USD32.9bn of advisory assignments, excluding BlackRock’s involvement as a manager of the US Federal Reserve’s mortgage-backed securities purchase programme.
‘Without question, 2008 has been the most difficult market environment in memory, with many markets frozen and assets suffering extreme price declines,’ says BlackRock chairman and chief executive Laurence D. Fink (photo).
‘Problems accelerated in the second half of the year and 2009 is beginning on difficult footing with greater headline risk of growing unemployment, weak earnings and increased bankruptcies. Investors of all sizes are affected: pensions, insurance companies, banks, sovereign wealth funds, retail investors and their retirement accounts.
‘Hostile markets have substantially eroded portfolio values and caused investors to pull back from both traditional and alternative investments. Clients are reviewing their asset allocation strategies and rethinking their approach to asset/liability management. Increasingly they are looking for solutions that span asset classes; they are looking for strategic partners, not product providers. BlackRock has long embraced this type of client service model.
‘Throughout the year, we worked with our clients as they migrated to liability driven solutions, outsourced fiduciary management, sought investment opportunities appropriate to their risk tolerances, struggled to assess the value of assets and address balance sheet challenges, or just wanted to talk about developments in the markets.
‘The strength and potential of our platform is evident in our 2008 new business momentum, but our financial results were significantly harmed by the sharp decline in markets. Management fees, performance fees and non-operating income all suffered. All of our current seeds and co-investments have been marked to market, in some cases to levels below what cash flow analysis might suggest. It should be noted, however, that real estate and private equity markets typically lag public markets, and further declines may be expected in 2009.’
