BlackRock invokes Envestnet's fresh promise in pushing iShares by model portfolios on earnings call where merciless analysts pepper its execs with questions about sub-5% organic asset growth
Assets soared to $10.5 trillion and earnings per share beat their bogey, but the New York City money manager just keeps sinking because growth relies too much on market gains.
5 min read- Analysts grilled BlackRock about sub-5% organic asset growth despite $10.5T milestone.
- BlackRock highlighted Envestnet and Aperio as growth drivers amid slowing inflows.
- Envestnet partnership powers BlackRock's model portfolio flows, targeting RIAs.
- Envestnet is consolidating asset manager relationships, favoring BlackRock.
- Sipp, a key figure in the BlackRock-Envestnet relationship, may become Envestnet CEO.
Brooke's Note: In its high-flown conferences with Wall Street, BlackRock and other big firms seem to almost go out of their way to not mention RIAs and other independent advisors, which are practically the only channel or class of investment management that can make a claim to market share growth. But it comes out. In BlackRock's case, it had so much good news – the $10.5-trillion milestone and better-than-predicted-earnings - that it rightfully thought it might power its way through 45 minutes of analyst unpleasantness. Analysts had other ideas. They zeroed in on an apparent continued slowing in net new organic asset growth by the behemoth, which may or may not have an air of permanence. Needing to show that the slowdown is temporary, RIAs quietly made their appearance as BlackRock cited both Envestnet and Aperio as promising sparks of growth. Both serve up SMAs and Envestnet also serves up model portfolios. The beauty for BlackRock is that the discussion of investment performance, open architecture and compressing passive fees gets obscured. Its funds end up as ingredients and the model and SMA results are managed more holistically. It'll be interesting to see if RIAs are OK with model portfolios and SMAs stuffed to the gills with BlackRock ETFs. Maybe so.
BlackRock executives – one after the other – scrambled to assure Wall Street analysts today (Apr. 12) that they can find a way to get organic growth and profit margins headed back in the right direction…again.
Envestnet and Aperio featured prominently on today's earnings call as top executives took turns trying to soften discouraging quarterly results with encouraging results from some of its smaller investments.
“Retail net inflows of $7 billion were led by continued growth in Aperio [20%],” said BlackRock chief financial officer Martin Small in a repeat of earlier calls. See: BlackRock brass cited 'Aperio' again and again, today, amid analysts' grilling about 'depressed flows' -- it bought the direct-indexing unit in the feverish grab of 2020-2021
Thank Envestnet for drawing a bead of light on financial advisors, who "are increasingly looking to customize whole portfolios at scale, driving growth across our SMA and managed model platforms,” Small added.
"Our partnership with Envestnet is one channel powering flows to model portfolios.”
Leaning in
Envestnet, which has more than $5 trillion of AUA from more than 105,000 advisors, has grown increasingly cozy with BlackRock, bringing a BlackRock star Josh Warren into its c-suite in September.
BlackRock buys Envestnet's love for $123 million to crack its 'open-architecture' platform and sets stage for another juicy Envestnet acquisition
BlackRock is also Envestnet's largest shareholder – albeit holding a minority stake. See: BlackRock buys Envestnet's love for $123 million to crack its 'open-architecture' platform and sets stage for another juicy Envestnet acquisition
Envestnet, in turn, is using BlackRock as part of its select group of managers – muscling out smaller incumbents – for its model portfolios after years of a wider range, said Tom Sipp, executive vice president business lines, on Envestnet's third-quarter call in October.
“We work with 800 [to] 900 asset managers as part of our marketplace today," Sipp said.
"We're going to work with a smaller group…call it a handful of major asset management partners [including BlackRock], and the economic relationship with those partners will be very different than what Envestnet's experienced with the asset management community before.
“And then they'll also lean in from a marketing distribution, sales footprint perspective,” he said.
Sipp is a leading choice to replace Bill Crager who resigned as Envestnet CEO in January. An executive search is underway. See: Bill Crager signals comity with Lauren Taylor Wolfe and Envestnet also has a Sipp secret weapon, analyst says
Story Timeline
Nuanced questions
The BlackRock call today started off well enough with the company announcing its staggering $10.5 trillion in AUM, which was enough “forget-the-rest oomph” to dominate headlines at both the Wall Street Journal and Bloomberg.
Bill Crager signals comity with Lauren Taylor Wolfe and Envestnet also has a Sipp secret weapon, analyst says
The money manager also reported earnings of $10.48 a share, or $9.81 after one-time items, handily beating the FactSet consensus analyst estimate of $9.40 a share.
The earnings per share beat came from net income rising 36% from a year earlier to $1.57 billion.
But the tone of the call shifted once Bank of America Merrill Lynch analyst Craig Siegenthaler asked critical, nuanced growth questions that seem to plague all asset managers.
“So, if we exclude fee rate issues like divergent beta, when [can] BlackRock get back to 5% base… organic growth? And, with the law of large numbers a factor, what is your confidence that this objective is still achievable at your current $10 trillion AUM size?” he asked.
CEO Larry Fink responded by saying: “Martin?”
Shares stumble
Small then launched into a long answer.
“So, over the last six months, we see organic base-fee growth ticking up and trending more halfway or halfway-plus to our long-term targets. It's not a straight line, but we're moving to target,” he said, in part.
Apparently, Wall Street investors didn't love the response. BlackRock shares dropped $22.56 or 2.87% to close at $763.40 and are down more than 3% year-to-date, while the market is up more than 9%.
Not fully satisfied with the answer on inflows, JPMorgan Chase analyst, Ken Worthington asked about another inflow issue.
“Fixed income flows have picked up for the U.S. mutual fund industry so far this year, but the industry [doesn't] show a proportionate pickup for BlackRock."
BlackRock president Rob Kapito blames rate “noise.”
“I do think the noise that's out there focused on inflation and the fact that you can still earn 5%, which is very attractive right now is causing the delay in more allocations to fixed income.”
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