BlackRock Inc., the world's largest asset manager, reported better-than-expected quarterly profits on Tuesday, showing resilience in what has been a punishing market for fund managers.
CEO Larry Fink nonetheless told Reuters his industry faces a "hostile" environment as investors migrate to products like index funds, which typically carry lower fees than actively managed funds.
Even as BlackRock absorbed $55.1 billion in cash in its core products, revenue fell 2.5 percent due to lower performance fees. A favorable tax rate and income from non-core investments helped the company beat analyst forecasts.
BlackRock has managed to stand above the fray because it owns iShares, the leading exchange-traded fund brand. Still, its transition from being primarily an active asset manager to a more passive one has not been without pain.
"Even in these hostile headwinds that we see as an industry, I think we will benefit over the long run," Fink said in an interview.
Most recognizable ETFs charge low fees and aim to track the market rather than beat it.
BlackRock sliced fees on some ETFs further during the latest quarter to draw in new business. Investors are expected to leave funds that pay brokers sales commissions due to an upcoming U.S. Labor Department rule, and BlackRock has said its ETFs can benefit.
Overall, the company's net income rose 3.8 percent to $875 million, or $5.26 per share, in the third quarter from $843 million, or $5.00 per share, a year earlier.
After adjustments to strip out some compensation, distribution and tax costs, BlackRock said it earned $5.14 per share, beating the average analyst estimate of $5.00, according to Thomson Reuters I/B/E/S.
At Sept. 30, the bond and index fund manager had $5.1 trillion in assets under management.
BlackRock's iShares ETF business took in $51 billion in new money - more than double its inflows a year ago. It accounted for 93 percent of the cash the company took into its long-term funds, a grouping that excludes short-term cash accounts.