Fixed Income AUM Outlook for BlackRock

+6.59%
Upside
800
Market
853
Trefis
BLK: BlackRock logo
BLK
BlackRock

BlackRock (NYSE:BLK) competes with other investment management services companies and banks such as State Street (NYSE:STT), Fidelity Investments, Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS) and UBS (NYSE:UBS).

BlackRock’s actively managed fixed income investments have increased from $371 billion in 2006 to around $537 in 2009. The rise in 2009 was primarily due to the acquisition of Barclays Global Investors (which brought with it $132 billion worth of active equity assets under management), and partially mitigated by a decline in market valuations of financial assets. We expect BlackRock’s growth in managed fixed income investments will continue with improved focus on client servicing and rising fund inflows from emerging markets.

While we expect Blackrock’s actively managed fixed income investments to increase towards $1.12 trillion by the end of our forecast period, Trefis community members expect Blackrock’s fixed income investments will climb to $1.37 trillion, representing upside to our price estimate for BLK stock.

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We currently have a Trefis price estimate of $184 for BlackRock’s stock, about 7% below market price.

Greater Focus on Client Servicing

Banks and investment management firms can limit fund outflows by improving client servicing, especially during economic downturns. Maintaining the size of  assets under management (AUM) is critical for banks to maintain their revenues. Asset management firms compete for funds inflows by offering better customer care with an emphasis on personal interaction. Post financial crisis, we expect the focus on client servicing to increase (with a higher number of relationship managers per client and higher expenses towards client reporting and customer care), which would give a boost to BlackRock’s actively managed fixed income investments.

Rising Inflow of Funds from Emerging Markets

Emerging economies with high GDP growth rates tend to have higher savings rates. Saving is what flows back into the financial markets and contributes to its growth, and this is expected to increase the size of financial markets. As economies in South Asia, Eastern Europe and Latin America develop more robust financial regulatory institutions, more companies are accessing financial markets for debt. This is evident by the declining share of bank credit in the total market size of credit in these economies. This too would contribute to a rise in AUM in fixed income. BlackRock, with its global presence, should benefit in the process.

See our full analysis and $184 price estimate for BlackRock

Trefis Community Forecast

Trefis community members expect BlackRock’s actively managed fixed income investments to increase from $537 billion in 2009 to $1,376 billion by the end of our forecast period, compared to the baseline Trefis estimate of an increase to around $1,120 billion during the same period. The member estimates imply a small upside to our $184 price estimate for BlackRock’s stock.