Analyzing Carl Icahn's Allegations about BlackRock: Is He Right?
BlackRock’s 2Q15 earnings
On July 15, BlackRock (BLK) reported better-than-estimated 2Q15 earnings—helped by large inflows in the asset managers’ fixed income funds segment.
Its revenue crossed the $2.9 billion mark for the first time. It was up by 5% over the year—driven by growth in base fees. It beat analysts’ forecasts of $2.85 billion.
The operating income surged 10% since last year to $1.2 billion. This led to a jump of 220 bps (basis points) in operating margins to 42.60%. EPS (earnings per share) of $4.84 were higher than consensus estimates of $4.80.
iShares drives inflows
Assets under management rose 3% YoY (year-over-year) to $4.72 billion. Cash assets under management fell 7% to $271.5 billion due to seasonal outflows, while advisory assets under management fell to $12.9 billion.
Long-term net inflows were $17.5 billion in the Americas while net outflows from the EMEA region (Europe, the Middle East, and Africa) were $24.1 billion. Net outflows from the Asia-Pacific region were $0.7 billion.
The cornerstone of Blackrock’s asset base remains its popular iShares ETFs. It acquired the iShares ETFs from Barclays Global Investors in 2009. Net inflows across BlackRock’s iShares offerings were $10.3 billion for 2Q15. Equity iShares were responsible for 85% of this figure.
The revenue from iShares reached $866 million for the second quarter—34% of the $2.5 billion in fund-related fee revenue for BlackRock and almost 30% of its total revenue of $2.9 billion.
Another category where BlackRock did extremely well for a second consecutive quarter was its active fixed income funds. They saw net inflows of $9.1 billion. These funds, along with BlackRock’s actively managed equity funds, attract the largest fees as a percentage of assets. This makes them the company’s most profitable offerings in terms of margins. To put things in perspective, BlackRock’s active fixed income funds have a fee-to-asset ratio in excess of 0.20%—compared to a figure of less than 0.06% for indexed fixed-income funds. The company earned $387 million from active fixed-income funds in 2Q15.
Peers like State Street (STT), Franklin Resources (BEN), Northern Trust (NTRS), and Bank of New York Mellon (BK) haven’t reported their second quarter earnings yet.
Asset management firms have a weight of ~15% in the Financial Select Sector SPDR ETF (XLF).
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