BlackRock Closes In on the Once Unthinkable, $10 Trillion in Assets

Its assets under management rose 30% to $9.5 trillion, from $7.3 trillion a year earlier, cementing its dominance as the world’s largest money manager. Known for its funds that track markets and trade rapidly on exchanges, BlackRock’s returns reflect the market’s tremendous rally since the depth of the pandemic and Chief Executive

Larry Fink’s

push to build a company that serves nearly all types of investors.

While the firm’s returns were lifted by a slate of assets rising to record highs, its fortunes remain tied to markets and shifts in investor sentiment. Mr. Fink will now have to navigate an environment where the pandemic and the central banks’ intervention in markets are changing the economy in radical ways. Prices for things from used cars to oil have risen as the U.S. economy opens up.

And, as the largest shareholder of many of the country’s largest companies for investors, Mr. Fink thinks inflation is likely here to stay.

“I don’t think it’s temporary,” he said.

He said government policies that focused on protecting domestic jobs and America’s supply chain will have inflationary effects. He added that most of the businesses he is talking to are behind on their hiring plans for 2021. This is going to lead to wages rising.

“We’re making structural changes that are going to change the framework of inflation,” he added.

He projects that inflation will exceed 2% annually over the next five years or so.

BlackRock said it was raising base salaries by 8% for active employees up to and including director levels.

Shareholders weren’t thrilled by the prospect of higher wages eating into future profits. BlackRock stock fell by more than 3% in morning trading.

Although BlackRock adjusted profits beat analysts’ estimates, the amount of new money it took in was less than what Wall Street had projected.

BlackRock added roughly $81 billion of new investor money, down from the $100.2 billion haul in a year earlier. Part of the fall came from one big pension fund withdrawing indexed assets in the first half of the year.

Money moving through the company’s sprawling lineup of exchange-traded funds, index products and other funds is a barometer of Wall Street sentiment and where major investors are making bets.

Amid the surge in stocks, bond funds have lost some of their luster this year. Investors added $41.29 billion in money to BlackRock’s bond funds in the second quarter, down from $60 billion in the year-ago quarter.

Some investors are demanding higher yields to be compensated for the risks of inflation.

“Inflation is more damaging to fixed income because the cash flows don’t mean as much as it used to for investors,” said Kyle Sanders, an analyst with Edward Jones.

Some $23 billion of new flows in the quarter went into money funds and cash management products.

With interest rates so low, BlackRock has had to cough up money to prevent yields of money-market funds from dipping below zero in recent months. In the second quarter it gave up some $160 million to prevent yields from turning negative. That is about twice what it gave up in the first quarter.

The firm continues to drive the cost of many funds ever lower, squeezing competitors across the industry. This strategy has cemented the dominance of its exchange-traded funds that trade like stocks on exchanges. That business took in $75 billion in new flows in the quarter.

BlackRock’s business of funds run by bondpickers and other portfolio managers that make active bets continues to gain new investor flows. Despite being a smaller chunk of the firm’s assets, this business generated $1.8 billion in base fees and securities lending revenue in the quarter, on par with the $1.8 billion from index-tracking strategies and ETFs.

Mr. Fink said that active flows helped buoy growth. “Our quarter really yells at that,” he said. “That is indicative of the importance of the active side of BlackRock.”

BlackRock sells software, including a suite of tools called Aladdin, to banks and other institutions to measure risk. Technology-services revenue—which includes fees from Aladdin—rose by about 14%.

BlackRock has also been trying to become a bigger purveyor of funds that can profit from governments’ new focus on climate risks. It generated $35 billion in net flows from sustainable-branded funds in the quarter.

As the firm grows bigger, it faces more scrutiny on how it is wielding shareholder votes on behalf of millions of investors. Mr. Fink said Wednesday that BlackRock is studying ways to let more people whose money the firm is investing for exercise their own voting power.

Corrections & Amplifications
Chief Executive Larry Fink said Wednesday that BlackRock is studying ways to let more people whose money the firm is investing for exercise their own voting power. An earlier version of this article incorrectly said he said the statement on Tuesday. (Corrected on July 14)

Write to Dawn Lim at dawn.lim@wsj.com