(Reuters) - Tumultuous markets and financial problems in Europe are hurting profits in the asset management industry, according to Laurence Fink, chief executive of BlackRock Inc (BLK.N), the world’s largest asset manager.
“This (volatility) is not a good short-term trend for the asset management business,” Fink said, speaking in New York at a Barclays Capital conference on Monday.
He said BlackRock, which oversees more than $3.6 trillion, will seek to maintain its profit margin by being “even more disciplined” on expenses.
Most large investors continue to shun equities and other relatively risky assets and favor fixed-income securities, Fink said.
The trend may be appropriate in the short term but not over the long term, he said.
For long-term investors “it makes no sense to have a portfolio of bonds, other than being frightened of the world,” Fink said. “Right now, maybe being frightened of the world is a good position to be in.”
BlackRock’s iShares exchange-traded fund business has recovered from problems last year, Fink said, which he blamed on poor management at one particular fund. Performance of the iShares Emerging Market ETF (EEM.P) trailed its benchmark index generating substantial “tracking error,” he said. The problem has been corrected, he said.
BlackRock’s share of net new money coming into U.S. ETFs was 26 percent to 27 percent in the first three quarters of 2010 but fell to 16 percent in the fourth quarter. It has since bounced back to 24 percent in the second quarter of 2011, Fink said.
He said BlackRock’s ETF performance was “poor in the last year and much of it was our doing.”
“It wasn’t because of the success of Vanguard,” he added. “It was because of the failure of BlackRock.”
Asked about his favorite stocks, Fink first joked that he was not a portfolio manager. “I’m the overhead,” he said.
But he said BlackRock sees long-term value in some beaten-down European blue chip stocks like Siemens AG (SIEGn.DE) and Nestle NESN.VX.
“Even in financial services, I do believe there are some great opportunities in Europe,” he said, pointing specifically to insurance giant Allianz (ALVG.DE), which owns U.S. money manager Pimco.
Shares of New York-based BlackRock dropped $2.35, or 1.6 percent, to $148.72 in afternoon trading on the New York Stock Exchange. The shares have fallen 19 percent over the past three months, almost double the decline in the Standard & Poor’s 500 Index.
Reporting by Aaron Pressman; Editing by Steve Orlofsky and John Wallace