(Bloomberg News) BlackRock Inc., the world's biggest asset manager, said fourth-quarter profit fell 16 percent as market swings eroded fees.

Net income decreased to $555 million, or $3.05 a share, from $657 million, or $3.35, a year earlier, the New York-based company said today in a statement. BlackRock cut 3.4 percent of its workforce in the quarter, after adding 900 employees throughout the year, bringing the total number of employees to about 10,100 as of Dec. 31.

BlackRock, which saw investment advisory fees fall by 4.5 percent to $1.86 billion, joins Northern Trust Corp. in reducing headcount as market volatility and interest rates near zero reduce income. Chief Executive Officer Laurence D. Fink, 59, after expanding into passive products such as exchange-traded funds in 2009, is adding to multi-asset strategies and hedge fund-like mutual funds as investors have turned away from traditional holdings such as stocks.

"The ETF business was their best-performing business in the quarter," Daniel Fannon, an analyst in the San Francisco office of Jefferies & Co., said in an interview. "Earnings were generally better than expected," said Fannon, who had estimated that BlackRock would earn $2.91 per share during the quarter, excluding certain one-time items.

BlackRock's revenue fell 11 percent from a year earlier to $2.2 billion. Performance fees, earned by funds for beating certain benchmarks, decreased 55 percent to $147 million.

Fink Is Bullish

Assets under management at BlackRock declined 1.3 percent from a year earlier to $3.51 trillion, as global stocks fell 9.4 percent last year amid the European sovereign-debt crisis. Assets increased 5 percent compared with the prior quarter.

Fink said during a conference call today with analysts and investors that he expects market volatility to continue in 2012 as lawmakers in Europe struggle to contain the debt crisis and the U.S. faces a presidential election. Fink said he is bullish on global equity markets because of improving balance sheets at corporations worldwide even as investors have fled stocks.

"Corporations in the United States and many cases in Europe have never been stronger," Fink said today. "The amount of de-risking that has been done worldwide, leads me to have, despite all this uncertainty, a more positive overview," Fink said today.

BlackRock fell 1.7 percent to $184.63 at 11:26 a.m. in New York. The shares lost 4.4 percent in the 12 months through Jan. 18, compared with a 21 percent decline in the 20-member S&P index of asset managers and custody banks.

Jobs In 2012

BlackRock didn't say how many jobs it cut during the quarter. Based on the year-end headcount, a 3.4 percent reduction would translate into about 350 positions. The asset manager doesn't have any plans to eliminate jobs in 2012 and will have some headcount growth, Fink said today.

Northern Trust, the third-largest independent U.S. custody bank, said yesterday it will eliminate about 700 jobs to join larger rivals Bank of New York Mellon Corp. and State Street Corp. in cutting costs as record-low interest rates hobble profit.

Investors have fled actively managed funds, while putting money into lower-cost index funds and ETFs. Investors pulled $9.4 billion from active funds in 2011, while putting $76.4 billion into passive funds, according to data compiled by Morningstar Inc. In the 12 months ended in November, ETF assets increased almost 13 percent to $1.05 trillion, based on data from the Investment Company Institute, the trade group for the mutual-fund industry.

Active Versus Passive

BlackRock's index-tracking equity products attracted $21 billion in investor deposits during the quarter, while the active stock funds lost $8.2 billion to withdrawals. Bond index products attracted about $24 billion, and active fixed-income funds had redemptions of $14.1 billion.

"Even if part of your business is facing challenges, it doesn't mean other parts can't be doing relatively better," Robert Lee, an analyst with Keefe, Bruyette & Woods Inc. in New York, said before the earnings were announced. "They have the ability via the ETF business or the index business to benefit from some of the trends you could argue are eating away at more traditional equity flows." Lee rates BlackRock "outperform."

Excluding certain one-time items, BlackRock earned $3.06 a share, compared with the $2.98 average estimate of 17 analysts surveyed by Bloomberg.

BlackRock, which acquired Barclays Global Investors in December 2009 to add ETFs to the actively run stock and bond funds it oversees, said in July that redemptions related to its takeover of the Barclays Plc unit had come to an end.

Series Of Acquisitions

Fink, who co-founded BlackRock in 1988, has built the firm through a series of acquisitions, including the 2006 purchase of Merrill Lynch & Co.'s investment unit. BlackRock acquired the hedge fund-of-funds business of Quellos Group LLC in 2008. The company last year expanded the alternatives division, which manages hedge funds, real estate funds and private-equity strategies.

BlackRock isn't looking at any "large-platform" purchases, although the firm is considering smaller acquisitions to fill product gaps, Fink said today.