BlackRock departures spur talk about Fink’s future

updated with correction

A quartet of recent high-profile departures from BlackRock (BLK) Inc. (BLK) hasn't unnerved investors, but speculation that Chairman and CEO Laurence D. Fink could be next is raising broader questions about the firm's prospects.

Analysts say a lack of any common thread has left them largely unconcerned about successive announcements in June of exits by:

• Robert Doll, senior managing director and chief equity strategist;
• Susan L. Wagner, a founding partner and vice chairman;
• Robert Capaldi, senior client strategist; and
• Daniel Rice, a high-profile money manager.

BlackRock (BLK)'s size and scale, with an industry-leading $3.6 trillion in assets under management, make it difficult to attribute too much importance to any individual, according to a number of analysts and investment consultants.

Mr. Fink — who has been the public face of BlackRock since he and a handful of colleagues left First Boston in 1988 to found the firm — likely is the exception to that rule.

Mr. Fink's departure “would have a bigger impact than anything we've seen,” said Jason Weyeneth, research analyst with Sterne Agee Group Inc., New York.

BlackRock's stock would take a hit, as Mr. Fink is widely seen as a “strong leader who pulls it all together,” agreed another New York analyst, who declined to be named.

Talk that Mr. Fink could be tapped as Treasury secretary in a second Obama administration is focusing attention on his role, even as some analysts have become more concerned this year about the gap between the potential of the firm he helped create and its performance.

Among the roughly 20 analysts covering BlackRock's stock, “buy” recommendations still outnumber “sells” and “holds,” but the preponderance of enthusiasm about the firm since BlackRock acquired San Francisco-based Barclays Global Investors and its $1.8 trillion in AUM in 2009 has waned somewhat over the past year.

Analysts at Citigroup Inc. in January, and Credit Suisse Group in March, downgraded recommendations on BlackRock's stock to “neutral” from “buy,” citing signs of lower organic growth prospects.

On June 28, Macquarie Group (U.S.) announced a similar downgrade to “neutral” from “outperform,” noting that BlackRock's organic growth has trailed large competitors such as T. Rowe Price Group Inc. and Franklin Resources Inc. recently after topping them for much of the period between 2001 and 2008.

In a phone interview, Macquarie analyst Edward Ditmire said BlackRock has enormous potential, but the company “still has a lot of work to do” to show that the transformational acquisitions of Merrill Lynch Investment Management in 2006 and BGI in 2009 have created something more than a conglomerate.

Asked about signs of growing sell-side angst, BlackRock executives offered a different interpretation of their firm's earnings results over the past year or so. Patrick Olson, a managing director overseeing global strategy and investor relations, said net flows have been underwhelming for most money managers over the past year.

However, for those willing to “peel back the onion and understand the revenue story,” BlackRock's numbers show the firm's broad menu of capabilities helping the company navigate the tough environment relatively well, while leaving BlackRock poised to benefit strongly once investors feel confident enough to take on more risk again, Mr. Olson said.

For example, BlackRock's retail and iShares ETF businesses, which account for just less than one-third of the firm's AUM but 65% of its revenue, have posted solid growth over the past year, allowing the firm to continue reporting higher revenue even as ongoing turmoil in Europe and a clipped risk appetite have weighed on BlackRock's more than $2 trillion institutional business, Mr. Olson said.

One money management consultant, who declined to be named, said he agrees with Mr. Fink's contention, on recent earnings calls, that BlackRock is uniquely positioned to thrive. But he added BlackRock has “not proven beyond a reasonable doubt that they've actually figured out how to operationalize themselves successfully.”

For many observers, the focus now has shifted from the vision — which led Mr. Fink and his lieutenants to transform a leading fixed-income manager into the biggest money management firm ever over the space of a decade — to questions of execution.

TThe people responsible for that execution are a far more diversified group today than the one that led BlackRock during its first two decades. Its leadership team is well on the way to transitioning to a new generation, after being dominated for 20 years by the firm’s founders, including:

• Mr. Fink;
• Ms. Wagner;
• Robert Kapito, now president;
• Bennett W. Golub, chief risk officer;
• Barbara G. Novick, chair of BlackRock (BLK)'s government relations steering committee;
• Ralph Schlosstein, former president, who left in early 2008; and
• Keith Anderson, former global CIO of fixed income, who also left in early 2008.

Leading BlackRock (BLK) executives today include Robert W. Fairbairn, senior managing director and head of BlackRock's global client group, who came to the firm when it acquired MLIM; Edwin Conway, managing director and head of BlackRock's U.S. and Canada institutional business, from Blackstone Alternative Asset Management; Mark McCombe, BlackRock's Asia Pacific chairman, who previously served as CEO of HSBC in Hong Kong; and Matthew Botein, a former executive with Blackstone and Highfields Capital, who serves as head of BlackRock Alternative Investors.

Even so, market veterans differ on how disruptive the prospect of Mr. Fink's departure would be now for BlackRock. Some say that possibility shouldn't be feared. Donald H. Putnam, managing partner of investment bank Grail Partners LLC, said BlackRock has built the money management sector's “first truly effective global management team” that can succeed with or without Mr. Fink.

One BlackRock veteran, who declined to be named, said Mr. Fink was the visionary but Mr. Kapito has been running the company's day-to-day operations, will determine its future success. He predicted a smooth transition, should Mr. Fink move on.

Another BlackRock veteran, who requested anonymity, said that — in a business where personal relationships remain crucial — Mr. Fink's talent for “smoothing things over” would be sorely missed should he leave. That could prove a real issue if BlackRock still has to “work a lot of the kinks out” from the BGI acquisition, he said.

Neither Mr. Fink nor Mr. Kapito could be reached for comment.