One Hedge Fund, Two Crypto Stakes, $15.5T in AUM: BlackRock's Q3 Had Layers 🧅

BlackRock's third-quarter earnings beat hinged on a single hedge fund that measures performance once a year in the third quarter, according to the asset manager's filing. The fund drove performance-fee income to $630 million, roughly $200 million above analyst estimates and up from $305 million in the second quarter. Most of the jump came from liquid alternatives, BlackRock's hedge-fund-style products, whose fees climbed from $100 million to $409 million in one quarter. BlackRock did not name the fund and did not identify it in its earnings release. The performance fees accounted for nearly half of BlackRock's $668 million revenue increase from the second quarter.

The firm still posted broad-based growth: adjusted earnings per share rose 38% to $15.93 against estimates of $14.12, revenue climbed 19% year over year to $7.75 billion versus the $7.52 billion consensus, and total net inflows reached $205.47 billion compared with the $171.91 billion expected. Assets under management hit a record $15.49 trillion, up 15% year over year though slightly below the $15.67 billion estimate. Adjusted operating margin came in at 47.8%, a 320 basis point increase from a year earlier. Shares rose about 3% in pre-market trading following the release.

Crypto exposure contributed to the quarter as well. BlackRock booked an $80 million gain on its stake in Securitize, a firm that tokenizes funds and stocks, after Securitize stock jumped 15% in September on a US regulatory exemption. It added a $22 million gain on Circle, issuer of the USDC stablecoin, a token pegged to the US dollar, against a $115 million loss on the same stake a year earlier. Both gains came from higher valuations, not asset sales, and Circle stock fell 11% in a single day in September, illustrating the speed of valuation changes in the asset class. BlackRock said higher income outside its core business helped drive adjusted EPS growth of 38%, while adjusted operating income rose 27%.

Chief executive Larry Fink said BlackRock enters its "seasonally strongest fourth quarter with accelerating momentum." The hedge fund behind this quarter's fee jump does not reach its next annual measurement date until the third quarter of 2027. BlackRock has given a similar explanation before: in 2020, then-finance chief Gary Shedlin attributed a fee jump to "a single hedge fund that locks annually in the third quarter."