BlackRock, the world's largest investment management firm, recorded a $1.7 trillion loss in the first half of 2022 – the biggest sum ever lost by a single company in a six-month span, according to Bloomberg analyst Marc Rubenstein.
According to the company's second-quarter earnings report, BlackRock CEO Larry Fink attributed the decline to the collapse of the financial markets, including an environment of rampant price inflation, interest rates and market carnage. (Related: BlackRock president: INFLATION will teach VERY RUDE lessons to today’s consumers.)
Fink pointed out that the first half of 2022 brought an investment environment that they have not seen in decades, and investors are simultaneously navigating high inflation, rising rates and the worst start of the year for stocks and bonds in half a century. Global equity and fixed-income indexes are also down 20 percent and 10 percent, respectively.
Rubenstein also noted that the investment titan focused too much on passive investing, saying that only a quarter of BlackRock's assets were actively managed to beat a benchmark by the end of the second quarter period instead of tracking it seamlessly as passive strategies are supposed to do.
This is down from a third when it acquired Barclays Global Investors in 2009 to become the leading player in exchange-traded funds.
In all, the company's passive equity holdings are 10 times larger than its active strategy. Rubenstein did note that it does operate some active multi-asset and alternative strategies that narrow the gap.
BlackRock's earnings report also highlighted the slower inflows into the New York-based firm's core investment funds, with a total of $69 billion in three months that ended on June 30. This is also $40 billion less than what analysts forecasted and down from the $114 billion in the previous quarter.
The largest holdings managed by BlackRock today focused on technology, with positions in Apple, Amazon, Microsoft and Tesla motors.
Taking into account the losses, its adjusted profit clocked at $1.12 billion or $7.36 per share. This is down from the previous $1.61 billion or $10.45 per share from the same time a year ago. However, this number fell short of the average analyst estimate of $7.90 per share.
Morningstar analysts still have BlackRock as their top pick among more traditional U.S.-based asset managers. "The company's shares are currently trading at a 30 percent discount to our fair value estimate – compared with 20 percent on average for the nine firms in our coverage – and it represents a solid entry point for long-term investors," said Gregory Warren, a senior strategist at Morningstar.
Blackrock making adjustments to improve profits
After witnessing its profits drop, BlackRock confirmed that it is tightening its belt and delaying hiring. General and administrative costs climbed 12 percent year over year and are driven mainly by the higher expenses related to workers returning to the office, including computer equipment to health and safety investments.
The company also revealed that it will be exploring digital assets, despite Fink calling Bitcoin an "index of money laundering" back in 2017.
Fink explained that upon observing how investors are using ETFs to quickly and efficiently gain exposure to thousands of global bonds to recalibrate their portfolios, the challenges associated with high inflation to rising interest rates are attracting more first-time bond ETF users and prompting existing investors to find new ways to use the ETFs in their portfolios.
He revealed that institutional investors are still interested in this market, despite digital currency prices falling this year.
Fink said BlackRock clients are turning heavily to cash as a safety net asset in today's highly volatile market. "Now an inverted yield curve has made cash not just a safe place, but now also a more profitable place for investors," he said.
Watch the video below for more information about BlackRock and how it is using its clients' money.
This video is from the High Hopes channel on Brighteon.com.
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