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Oct 11, 2017

BlackRock profit rises as it closes in on US$6 trillion in assets

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BlackRock Inc (BLK.N) closed in on US$6 trillion in assets under management as investors stormed into their index funds and the bull market in U.S. stocks raged on, it said on Wednesday.

BlackRock, the world's biggest asset manager, reported an 8.2 per cent rise in quarterly profit, beating Wall Street estimates as it attracted $96 billion into its funds, about half of that into relatively low-cost exchange-traded funds (ETFs).

The increase in assets under management to US$5.98 trillion, along with strong investment performance pushed up revenues by 14 per cent.

Index-tracking ETFs have gained popularity among investors in recent years and are responsible for the lion's share of the billions in cash that BlackRock pulls in annually. But they have become a source of consternation to traditionalist stock pickers who typically charge higher fees.

Third-quarter profits spiked to US$947 million, or US$5.78 per share, in the quarter from US$875 million, or US$5.26 per share, a year earlier.

Excluding items, the company earned US$5.92 per share. Analysts expected US$5.56, according to Thomson Reuters I/B/E/S.

"The earnings beat was driven by higher revenues, with each category beating, but with performance fees the largest driver," analysts for Credit Suisse Group AG wrote in a note.

The stock fell 0.5 per cent in light premarket trading after initially moving up about 2 per cent. Shares have risen 24.6 per cent this year.

Revenues from the company's smaller technology business rose 15 per cent to US$175 million during the quarter.

"It's going to be one of our biggest competitive advantages," Chief Executive Officer Laurence Fink told Reuters.

BlackRock's ability to choose winning investments has improved, with 82 per cent of assets in its funds ranking in the top half of their categories for three-year performance, according to recent Credit Suisse research that cited Thomson Reuters Lipper data.

By BlackRock's reckoning, more than 8 in 10 dollars that clients hold across its active funds are in products that are beating their benchmarks over three years.

The "actively managed" funds gathered US$5.8 billion for BlackRock during the quarter, and helped the company book more fees for beating performance targets. Performance fees rose by US$133 million to US$191 million from a year ago.

BlackRock said in March it will cut fees, change portfolio managers or rely more on data-crunching for a number of equity products.