The world’s largest fund managers last week shone a spotlight on the difficulties the industry faced as two of them reported their second-quarter earnings results to US brokers and investors. Both BlackRock and State Street suffered further revenue declines in fee revenues.
But BlackRock chief executive, Larry Fink, and State’s Street’s Ron O’Hanley were upbeat about the future as they sought to play to their respective organisations’ strengths. Fink pointed out that BlackRock had the most diverse investment strategy and product offerings of any manager, supported by its big technology platform which improved client engagement. State Street has its US$32.8 trillion securities servicing and custody business, which has had a relatively strong year so far.
State Street’s slide deck for investors on its earnings call
BlackRock’s slide deck for investors on its earnings call
BlackRock enjoyed good flows into its fixed income range, especially active fixed interest, as investors de-risked during the quarter. Fink pointed out, too, that passive fixed interest, through its pioneering fixed income ETF, was likely to double over the next five years. BlackRock was the first manager to launch a fixed interest ETF, in 2002, but they still made up only about 1 per cent of the US105 trillion global bond market, he said. He predicted that they would rise to at least 2 per cent in five years.
“Beyond ETFs and across our investment platform, we’re seeing greater demand for ESG and for sustainable investments,” Fink said. “BlackRock has invested to develop significant expertise in this space. We are leveraging our insights and technology to analyse sustainability-related risk and opportunities across asset classes, so we can better deliver long-term results and opportunities for clients across index, active and alternative investment strategies.”
BlackRock’s total operating income and margins were down for the q2uarter against the previous corresponding quarter. Operating income fell from US!.443 billion to US$1.278 billion.
With securities servicing, O’Hanley said: “We continue to believe our front-to-back strategy positions us well for success in the medium and long term. And while we may currently be seeing some stabilisation in servicing fees, we have not yet returned to growth. As such, we will be updating and sharpening our core business strategy as well as conducting a fundamental reassessment of our technology ecosystem. We have established teams to focus on reinvigorating revenue growth, accelerating the simplification of our operations model, and reducing non-personnel expenses.”
More generally, including SSGA, the funds management arm, he said: “Our focus right now is finding better ways to reignite revenue growth and generate additional expense reductions, while driving sustainable improvements in our operating model.
“This means addressing and surmounting the wave of asset manager pricing pressure, completing our executive client coverage rollout, using the increased capacity we have achieved for balance sheet optimization to restart growth in securities lending and trading, and leading in alternatives and ETF servicing, where we are second to none.”
State Street’s total revenue was down 6 per cent compared with the previous corresponding quarter, to US$2.9 billion. Servicing and management fees were both down slightly, but total costs remained flat, which O’Hanley said showed the cost control program was working.