Blackrock is breaking records. The manager with the largest AUM was the first company to surpass $10 trillion in assets.
More on the Loss of $1.7 Trillion
The problem is that the big ones fall the hardest. This year BlackRock created another record but of the wrong kind. The fund lost the largest amount in the first six months, losing $1.7 trillion in client’s money.
CEO and Chairman Larry Fink quickly attributed the performance to the first half of the 2022 market carnage when disclosing the performance last week.
Though many firms could not avoid the market moves, some tried to overcome them. However, BlackRock looked like giving up. By the end of June, only about 25% of its funds were able to surpass the benchmark. This is down from a third in 2009 when BlackRock purchased Barclays Global Investors and became a leader in ETFs.
Divergence is more pronounced in equities, especially across industries where active asset classes become passive. In the case of BlackRock, around $21 billion flowed out of active equity in the past decade. Around $730 billion was pumped into indexed equity. The firm has passive asset holdings of more than ten times its active asset class now.
The roots of BlackRock lie in its active fixed-income assets. Larry Fink founded Blackrock in 1988 with a strategy to create value through security selections. The portfolio managers followed a highly disciplined investment process as per the prospectus filing in the 1999 IPO listing.
In December 2002, the firm launched its first ETF, a US domiciled bond. However, it did not catch up like stock ETFs. The past ten years saw $280 billion flowing into the fixed-income assets of BlackRock.
Fixed income assets now form the chunk of actively managed business of the firm. BlackRock had $954 billion of bond funds and managed actively as of June 30 compared to $393 billion of active stock assets. Though the Passive assets have grown – it was 1.5 times active assets, but the gap is still lower than equity.
This all might change this year with the collapse of the bond market. Clients of BlackRock have taken out more than $20 billion from active fixed income funds in the first of 2022 from a total of $200 billion leaving the industry. Some of this money is flowing into passive funds. In 2022, BlackRock gained $39 billion in the new ETFs and $25 billion in other indexed funds.
Till recently, ETFs were seen with suspicion. In 2015, sitting with Fink at the show, investor Carl Icahn called BlackRock the most dangerous company. He argued that the company’s ETFs were illiquid bond warped liquid wrappers. He had said that it would hit a black rock.
In March 2020, the bond market froze, but ETFs performed efficiently. Fink said last week that he expects the bond ETF market to triple and touch $5 trillion by the decade’s end.
