1. Economics
October 11, 2017

BlackRock’s success boosted by focus on passive funds

BlackRock, the world’s biggest asset manager, is set to control close to $6tn in the coming months, judging by the company’s third-quarter results released on Thursday.

The company’s success is in part due to its focus on passive funds, automated alternatives to fund managers. Nearly $1.5bn a day is transferred into BlackRock’s mainly passive funds, the Financial Times reported.

“We’re seeing clients looking to put more money to work,” BlackRock’s chief executive Larry Fink told CNBC‘s “Squawk Box” shortly after the results were released.

Demand for low-cost passive investment vehicles like exchange-traded funds (ETF’s) is increasing.

Passive funds’ share of all global assets will grow to about 22 percent by 2020, up from 11 percent in 2012, according to the consultancy PwC.

In the US, passive funds now control more than 30 percent of all assets.

BlackRock’s passive funds

BlackRock is the world’s biggest provider of ETFs.

In the wake of the financial crisis back in June 2009, BlackRock acquired iShares from Barclays for $13.5bn.

BlackRock’s third-quarter report revealed that its iShares ETFs business took in $52.3bn worth of new money led by $33.1bn in equity inflows, up from $51.26bn a year earlier.

Assets under management for iShares totalled $1.64trn, accounting for 27 percent of BlackRock’s total assets. Meanwhile, the company said cash assets rose 6 percent from a year earlier to $425.4bn.

BlackRock also reported a 8.2 percent rise in quarterly profit, beating Wall Street estimates and net income rose to $947m, a 10 percent increase on the year before.

However, Fink, who founded BlackRock in 1988, told CNBC that the company still faces a variety of challenges across global financial markets.

One of the greatest problems we still have in the world is how much money is sitting on the sideline. Even in places like Japan, there’s $5trn in cash earning negative return. In Germany 72 percent of savings are in bank accounts. We’re seeing some of that unlocked, we’re seeing people put some of that money to work.