BOSTON (Reuters) - BlackRock Inc posted a worse-than-expected 14.7 percent drop in third-quarter profit on Tuesday as slumping markets and the worsening credit crisis sparked outflows from its money-market funds and saw its hedge fund fees plummet.
The largest publicly traded U.S. asset manager also had a big nonoperating loss from its seed capital investments made in its funds.
"Every asset class has suffered and all market participants have been affected," Laurence Fink, chairman and chief executive of BlackRock, said in a statement.
Despite the "extraordinarily difficult" environment, BlackRock's new business pipeline was strong and stood at $62.3 billion as of October 19, the company said.
Third-quarter net income fell to $217.7 million, or $1.62 a share, from $255.2 million, or $1.94 a share, a year earlier. After adjusting for compensation plan costs partially funded by its two main shareholders, Merrill Lynch and PNC Financial Services, earnings were $1.71.
Analysts on average had expected earnings of $1.88 a share, according to Reuters Estimates.
The latest results included a nonoperating loss of 58 cents a share from adverse market effects on co-investments and seed capital investments. In the year-earlier quarter, BlackRock had a nonoperating gain of 23 cents a share on such investments.
Assets under management, the main driver of revenue and profit at money managers, fell to $1.26 trillion at the end of September from $1.3 trillion a year ago, and $1.43 trillion at the end of June.
This was mainly due to $69.1 billion in market losses due to the plunge in equity markets and $41.6 billion of net outflows from BlackRock's money-market funds due as scared investors stampeded out of the industry in September.
Investors exited the money-market funds industry in the last two weeks of September after the Reserve Primary Fund "broke the buck," or saw its net asset value fall below $1 a share.
The strengthening of the U.S. dollar also led to a $20.7 billion drop in assets, BlackRock said.
BlackRock said its money-market funds have had net inflows of $13.8 billion in the fourth quarter. "(But) the money-market industry faces continuing challenges and is expected to remain highly volatile," BlackRock said.
Performance fees earned mostly on hedge funds dropped to $55 million in the third quarter from $149 million in the year-earlier quarter. That led to a 3 percent drop in investment advisory fees earned of $1.14 billion, the firm said.
BlackRock is owned 49 percent by Merrill Lynch & Co
BlackRock shares closed down 3.7 percent at $143.22 on Monday. The shares, which are down 34 percent so far in 2008, are among the top performers in the sector this year.
(Reporting by Muralikumar Anantharaman; Editing by Lisa Von Ahn and Maureen Bavdek)
