BlackRock is poised for growth in fixed income

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The Basel Committee advises on interest rate risk

BlackRock reported record net inflows into exchange-traded funds in 2022 and said every active fixed-income investor uses ETFs in their investment portfolios.

The asset manager reported a record $123 billion in net inflows into bond ETFs in 2022 in its full-year results. In the fourth quarter of last year, BlackRock bond ETFs had $47 billion in net inflows, the second-best quarter in its history.

Larry Fink, BlackRock

Lawrence Fink, Chairman and CEO of BlackRock, said the results indicate that BlackRock launched more than 85 exchange-traded funds globally in 2022 alone.

“We’ve had over 70 different iShares ETFs with annual net inflows in excess of $1 billion,” he added. “Our growth has been well diversified across core equities, fixed income, factors, sustainability and objective product categories.”

In Fixed Income, Fink said BlackRock has six of the 10 largest ETFs to raise for assets in 2022.

He added, “More and more bond risk will be used by ETFs, and I think this will become one of the most important shifts in the entire capital markets.”

Fink highlighted that most people make the mistake of thinking ETFs are passive, but that they are a liquid tool that allows investors to bypass the exposure they are looking for. Therefore, active investors will use fixed-income ETFs along with their strategies and buying individual bonds will not go away. BlackRock expects the fixed-income ETF industry to reach $15 trillion in the next few years.

“This is the beginning of a significant expansion of bond ETFs as a component of the entire bond market.” Fink added. “In the US, ETFs are only 2.3% of the bond market, so we have a lot of runway.”

He continued that there are many opportunities for clients to take advantage of the market turmoil to rethink portfolio construction and consider the possibility of generating renewable income from bonds, or to reallocate to sectors that may be more resilient in the face of rising inflation.

Robert Capito, BlackRock

Earlier this year, investors used iShares bond ETFs to express their preference for short-term Treasurys, said Robert Capito, president of BlackRock, on the results call. Recently, high-yield corporate bonds Long-term ETFs were driving the inflows.

Capito continued that the role of bonds in the portfolio is becoming increasingly relevant for the first time in years as investors can earn attractive returns without taking on a lot of time or credit risk.

“Just a year ago, two-year US Treasury notes were yielding almost 90 basis points, and today they are gaining more than 4%, with corporate bonds gaining more than 5% and high-yield 8%,” Capito added. Clients come to Blackrock to help them pursue generational opportunities in the bond market. Fixed income spreads in both positive and negative are ready. “

In total, iShares had $220 billion in net inflows in 2022, representing organic asset growth of 7% and underlying fee growth of 3%.

private markets

In 2022, BlackRock will raise $35 billion in capital for its private markets platform, with particular strength in private credit and infrastructure.

Gary Sheidling, BlackRock

“We now have approximately $34 billion in committed capital distributed to institutional clients in a variety of strategies, which represents approximately $260 million in future annual core fees,” Gary Schedlin, chief financial officer, said on the results call.

Fink added that investors’ need for income and uncorrelated returns on the back of rising inflation, combined with a more challenging market for public equities, will continue to drive demand in private markets.

One of the biggest opportunities in infrastructure investment over the coming years will be renewable energy in the United States after the passage of the Inflation Control Act. In addition, supply shocks in Europe in 2022 have led to an increased focus on energy security and investments in renewable energy.

Termination of employee service

BlackRock assumed a liability of $91 million that consisted primarily of severance pay and accelerated amortization of previously awarded deferred compensation awards to approximately 500 employees, or 2.5% of the global workforce.

Since last July, Schedlin said, BlackRock has been aggressively pacing its discretionary spending in order to better prepare for 2023 and focus resources on areas of greatest opportunity.

“We recently restructured the size and shape of our workforce to free up investment capacity for our most important growth initiatives by taking a purposeful and disciplined approach to how we shape our teams,” said Schedlin. “Not only will we increase the investment capacity of these initiatives, but we will also create opportunities for amazing talent.”

BlackRock currently expects employee numbers to be broadly flat in 2023 and will expand its innovation centers across all regions.

financial results

BlackRock reported an 8% decline in full-year revenue from 2022 to $17.9 billion, which the asset manager said was primarily driven by the impact of significantly lower markets, higher dollar value on average assets under management, and lower performance fees. . Operating income of $6.7 billion and earnings per share of $35.36 decreased 13% over the same time period.

Long-term net inflows for the full year were $393 billion, reflecting 4% organic asset growth and positive organic core fee growth, led by record inflows into bond ETFs, large outsourcing mandates and growth in private markets.

Fink said the company generated $230 billion in long-term net inflows into the US, and the flows were positive around the world. Three regions.

Source: BlackRock

“We saw record net new sales for Aladdin, underscoring its importance in periods of market volatility,” added Fink.

BlackRock is seeing strong demand for outsourcing solutions and Fink expects this to continue in 2023. He said that in the past two years BlackRock has won several significant outsourcing mandates totaling more than $300 billion in assets under management from existing and new customers.

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