UPDATE 3-BlackRock profit up, but outflows worry investors

* Q2 adj EPS $2.37, beating Wall St view

* Revenue rose 97 pct to $2.03 billion

* Assets under management fall 6 pct to $3.15 trillion

* Shares fall as much as 5.6 pct on outflow concerns
(Updates with details from conference call, share activity)

By Emily Chasan

NEW YORK, July 21 (BestGrowthStock) – BlackRock Inc (BLK.N: ), the
world’s largest money manager, posted a better-than-expected
increase in second-quarter earnings on Wednesday, but its
shares fell amid mixed results in client outflows.

The stock fell as much as 5.6 percent as the firm’s clients
continued to pick up passively managed low-fee products like
exchange-traded funds at the expense of more-lucrative actively
managed products.

“We still like the stock, but are not sure this is the
‘return to normal’ quarter that we were hoping for,”
Ticonderoga Securities analyst Doug Sipkin said in a note to
clients.

BlackRock, which oversees $3.15 trillion in client assets,
said net income rose to $432 million, or $2.21 per share,
compared with $218 million, or $1.59 per share, a year
earlier.

Adjusted earnings per share were $2.37, topping the
analysts’ average estimate of $2.29, according to Thomson
Reuters I/B/E/S.

Revenue rose 97 percent to $2.03 billion, while analysts
were expecting $2.01 billion. The company benefited from the
addition of its iShares ETF business, from its $13.5 billion
acquisition of Barclays Global Investors late last year.

“It is very lumpy,” BlackRock Chief
Executive Officer and founder Laurence Fink said on a
conference call with investors. “We have witnessed in the
second quarter very large inflows and very large outflows.”

BlackRock said the volatile stock and foreign exchange
markets were largely responsible for a 6 percent drop in assets
under management to $3.15 trillion from about $3.4 trillion in
the first quarter.

Still, BlackRock said its big merger was helping it win new
business.

The asset manager said it saw net new business of $28.4
billion in long-term products, but also $33.9 billion of
outflows from institutional investors related to its merger.

More than half of BlackRock’s inflows in the quarter came
from iShares investors, while it saw some big outflows in
actively managed equity products and actively managed
quantitative funds.

The firm saw $12.9 billion of inflows from iShares
investors, $8.7 billion from institutions and $6.8 billion of
inflows from retail and high-net-worth investors, it said.

Some investors have reduced their overall exposure to
BlackRock after the merger to address concerns about having too
many assets concentrated at one firm. Fink said on the call
that he expected one large client to pull out about $15 billion
in the third quarter for that reason.

BlackRock said new business in its pipeline was $59.5
billion as of July 15, including that expected withdrawal.

The company said fixed income assets under management
increased to $1.08 trillion, while equity assets under
management fell to $1.38 trillion amid overall market
volatility.

Much of its net new business in fixed income came from its
iShares business. The company saw net outflows in fixed income
active strategies, continuing the trend among its clients to
switch to lower-fee passively managed products.

BlackRock said its actively managed quantitative funds,
which make investments based on mathematical formulas, saw net
outflows in the quarter, and cash management products saw
outflows of $24.9 billion.

Fink said he thought cash outflows could be smaller in the
future if money market funds start competing better with bank
deposits.

The company said it was making “major strides” on its
merger integration, and most of those costs were now behind
it.

Employee compensation and benefits rose to $315 million in
the quarter, also due to the acquisition, excluding merger
integration costs of $4 million.

BlackRock said its board had approved a repurchase of up
to 5.1 million shares to neutralize the effects of stock and
option grants to employees over the next several years.

The firm’s shares were down 2.9 percent at $144.98 in
morning trading after falling as low as $141.01.

Stocks

(Reporting by Emily Chasan; Editing by Lisa Von Ahn)

UPDATE 3-BlackRock profit up, but outflows worry investors