BlackRock’s Larry Fink Highlights ‘Iron Effect’ as Investors Return to Fixed Income

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Investors are creating a “barbell effect” in fixed income markets by choosing low-cost exchange-traded funds and alternative assets over traditional bond funds, BlackRock CEO Larry Fink said Monday.

While the world’s largest money manager reported a new high of $10.6 trillion in assets under management, Fink pointed to record inflows into BlackRock’s ETF products, as well as high levels of client interest in infrastructure products that invest in energy and data centers.

“Assets are moving,” Fink said, as investors who still hold huge piles of cash brace for a U.S. interest rate cut as early as September, realizing they missed out on a big rally in stocks this year.

Equity investors are already divided between passive index funds and high-fee private equity funds that promise uncorrelated returns, he added. Now the same divide applies to fixed income.

“We’ve been talking about the impact of equities on the stock market. And I think we’re starting to see that here in the bond market,” he continued. “It’s a moment where people are reevaluating their investments away from cash and are going to be moving heavily into fixed income… ETFs and alternative income-oriented products” like private credit and infrastructure debt funds.

BlackRock is “very well positioned for that,” Fink said, due to its massive iShares ETF business and its pending acquisition of Global Infrastructure Partners, which is set to close by the end of September.

Fink’s comments to analysts came as the world’s largest asset manager reported revenue of $4.81 billion for the quarter ended June 30 — up 8 percent year-on-year on higher assets under management but slightly below the $4.84 billion analysts had expected in a Bloomberg survey.

Improved margins helped push net income up 9% from a year earlier to $1.5 billion. The revised $1.56 billion topped expectations of $1.47 billion.

Assets under management rose 1.7% q/q. Net inflows of $82 billion in the quarter missed expectations of $112 billion. Equity inflows fell to $6 billion, with inflows falling due to rebalancing among institutional clients. Fixed income inflows fell due to the loss of one institutional client, which withdrew $20 billion.

BlackRock announced two weeks ago that it had bought Preqin, a privately held market data company, as it continues its push into alternative assets and technology. Its ETF inflows have been boosted by strong interest in its bitcoin product.

“BLK’s spending to strengthen its private markets capabilities should help reduce its reliance on iShares’ low-fee exchange-traded funds, and enable the company to capitalize on the strong long-term growth opportunity within private assets,” wrote Edward Jones analyst Kyle Sanders.

BlackRock has long traded at multiples well above the earnings of its traditional asset management peers, but in the past six months its shares have lagged the broader financial sector, rising 1.4 percent since the beginning of the year compared with about 12 percent for financial companies in the S&P 500.

The company is on track to meet its long-term goal of 5 percent annual membership fee growth, and expenses are on track to increase in the low single digits, excluding acquisitions, said Martin Small, the company’s chief financial officer.

Shares of the asset management company closed down 0.6 percent on Monday.