BlackRock stems outflows from active funds

BlackRock, the world's largest fund manager by assets under management, halted outflows from its problematic actively managed equities business in the first quarter, thanks in part to investor enthusiasm for European stock markets.

The company posted the first net inflows to active equity funds in five quarters, helping push its total assets to $4.77tn at the end of March, up 8 per cent on a year earlier.

Larry Fink, BlackRock chief executive, said rising demand for both actively-managed and index-tracking funds in Europe reflected the eurozone economy's strong start to the year, and the start of quantitative easing by the European Central Bank.

"Europeans do not heavily own equities," Mr Fink told the Financial Times. "They have traditionally been heavily oriented to fixed income products, but now with negative yields in Europe, many investors have no choice but to focus on other asset classes."

BlackRock eked out a $546m inflow into its actively managed equity funds across the world in the three months to the end of March. Together with $16.7bn added to its iShares equity market tracker funds and $36.3bn in flows to its bond funds, the company boasted net flows of $70.4bn in the quarter.

Revenues grew 2 per cent to $2.7bn, and net income was up 9 per cent to $830m, boosted by a lower-than-expected tax charge.

Mr Fink said work to improve its actively managed equity business was continuing, including "cauterising and rebuilding" its US active funds.

BlackRock has been hampered by a poor performance record in this business, as well as the strong investor trend towards cheaper index-tracking funds, which outperform actively managed funds on average over time.

BlackRock's revenue and profit growth suffered from the surging value of the US dollar, which meant its overseas business - which accounts for almost two-thirds of its fees - earned less in dollar terms.

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The effect on BlackRock has been mitigated by the impact the devaluation of the euro has had on market confidence, helping European stock market up 15 per cent in the first quarter and swelling BlackRock's fees.

Mr Fink declined to predict the surge in European markets would continue, however. "Europe is benefiting from the euro, lower oil prices and, finally after six years, a more robust banking system," he said. "The question is whether this a sugar high or not. Are we seeing real fiscal reform? We will answer that in the second or third quarter."

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