investment advisory and administrative fees

BlackRock, Inc. (BLK) is by some measures the biggest investment management company across the globe, with more than $7.4 trillion in assets under management at the end of 2019. As a major publicly traded company with a market capitalization of more than $84 billion, BlackRock provides investment and technology services to both institutional and retail clients around the world. The firm offers a variety of funds and portfolios investing in vehicles such as equities, money market instruments, and fixed income. Clients look to BlackRock for access to mutual funds, investments focused on objectives related to retirement income and college savings, and exchange-traded funds. BlackRock is the parent company for the iShares group of ETFs, the largest global provider of ETFs. BlackRock reports as a single business segment, deriving the majority of its revenue from investment advisory and administrative fees charged to its clients. Among BlackRock’s major competitors are The Vanguard Group and T. Rowe Price Group, Inc. (TROW).

In fiscal year 2019, BlackRock earned $4.5 billion in net income on $14.5 billion of total revenue. As compared with fiscal year 2018, this represents a year-over-year (YOY) increase in net income of 4%. Operating income for 2019 was $5.6 billion, up 1.7% YOY. $14.5 billion in revenue for 2019 represents a 2.4% YOY gain in this area.

Besides modest overall YOY gains in revenue, operating income, and net income, BlackRock also saw an operating margin of 38.2% in 2019, as compared with 38.4% in 2018. Perhaps most notably, end-of-year assets under management climbed by an impressive 24.3% YOY as of the end of 2019.

As indicated above, BlackRock operates as a single business segment and does not report on income for individual parts of its business. However, it does divide its revenue according to categories for “Investment advisory, administration fees and securities lending revenue,” for “Investment advisory performance fees,” for “Technology services revenue,” for “Distribution fees,” and for “Advisory and other revenue.”

BlackRock derives the majority of its revenue from investment advisory and administration fees levied over time and typically based upon predetermined percentages of assets under management. This category of BlackRock’s business includes fees related to the firm’s equity, fixed income, multi-asset alternative, and cash management services. In 2019, this category accounted for $11.8 billion in revenue, or north of 80% of total revenue. This was up 1.9% YOY.

In contrast with administrative fees, performance fees are assessed to certain types of BlackRock accounts when performance exceeds a predetermined threshold. Performance fees accounted for $0.5 billion in revenue, or more than 3% of total revenue in 2019. This was up 9.2% YOY, making it one of the fastest-growing parts of BlackRock’s business.

BlackRock offers a range of technology systems, risk management, and other digital distribution tools to select insurance company, bank, pension fund, and asset manager clients. At $1.0 billion in revenue for 2019, approaching 7% of total revenue, this is not a major source of BlackRock’s income. In 2019, however, it was the fastest-growing component of BlackRock’s reported business, with revenue for the year up 24.1% YOY.

BlackRock levies fees associated with the distribution and service of its various products, as well as for support services related to investment portfolios. In 2018, this category represented the second-largest portion of BlackRock’s revenue stream, with $1.1 billion in annual revenue, or more than 7% of total revenue for the year. This was down 7.4% YOY.

BlackRock also separates out a category of revenue associated with its advisory services for global financial institutions, regulators, and governments. These fees are set at a fixed rate. In 2019, this category accounted for $0.3 billion in revenue, or about 2% of total revenue. This was down 8.2% YOY.

While BlackRock’s revenue growth has signaled overall strength, the company has come under increased public scrutiny. In 2019, BlackRock fired two executives who had engaged in romantic relationships with subordinates. The company reportedly broadcast this news to all of its roughly 16,000 employees, all but ensuring that the information would be made public. While the move indicated a commitment to transparency and accountability to the company’s rules and policies, it may have also prompted closer scrutiny by potential clients and others in the financial world alike.