By Trevor Hunnicutt and Amrutha Gayathri
Jan 15 (Reuters) - Investors drove $54 billion into BlackRock Inc funds during a weak and turbulent fourth quarter for financial markets, driving profits higher, but the company nonetheless missed Wall Street analysts' forecasts.
Net income grew by 6 percent at the world's largest asset manager to $861 million in the quarter, or $5.11 per share, on stronger-than-expected revenue from managing investors' money. The company said it would increase its quarterly cash dividend by 5 percent.
Those investors piled into the New York-based company's iShares brand exchange-traded funds. BlackRock ETFs took in $60.22 billion in new money in the latest quarter, up from $44.19 billion a year earlier.
The lion's share invested in ETFs went into equities, driven by demand for U.S. stocks.
Yet higher headcount, performance fees and other expenses, which Chief Executive Officer Laurence D. Fink credited to compensation and other one-time costs from acquisitions, weighed on BlackRock's income. Expenses were 5 percent higher during the quarter than the prior year.
Excluding factors that the company said do not affect its value, BlackRock earned $4.75 per share, falling short of the average analyst estimate of $4.80, according to Thomson Reuters I/B/E/S.
BlackRock's purchases this year have included FutureAdvisor, which builds a digital investment-advice product; Infraestructura Institucional, a Mexican infrastructure company; and Bank of America Corp's money-market fund business.
"We're investing continually to grow, and we're going to continue to do that," BlackRock CEO Fink told Reuters.
Fink, who warned that financial markets may get worse before they get better, said his company's decisions to invest, rather than to cut costs, helped it attract money even in a turbulent market.
The company's 2009 acquisition of its iShares business from Barclays, for instance, brought BlackRock a business unit now responsible for a quarter of its "long-term" assets and the majority of such inflows this quarter.
Speaking on CNBC, Fink said he saw a borderline bear market but warned that markets may sink an additional 10 percent before rallying higher again.
BlackRock's stock slumped about 5 percent in midday trading Friday in New York, compared with the benchmark S&P 500 index, which was off about 2.6 percent.
The shares are down 13.5 percent since the start of the year, a bit less than the 14 percent drop in the Dow Jones U.S. Asset Managers Index over the same period.
BlackRock attracted total "long-term" net flows of $53.87 billion in the three months ended Dec. 31, down from $87.82 billion in the same quarter of 2014.
The company said those quarterly inflows were its third highest on record. And in a year that has shifted money from mutual funds whose managers pick stocks and bonds to index funds, BlackRock brought $61 billion into its "actively managed" funds.
Across all of its products, BlackRock attracted a net $53.47 billion in long-term equity investments. Net investment in fixed income was $158 million, while $464 million went into alternative investments.
The company's institutional business, where it charges relatively low fees, saw outflows of $13.34 billion during the quarter.
"Clients who had benefited one way or another by success - whether it's success in commodity markets or success in foreign trade - had built up large reserves," said Fink. "Some of those clients are still buying and some of those clients are still seeing a need for domestic purposes," and are spending down reserves.
BlackRock ended the quarter with $4.65 trillion in assets under management, virtually unchanged from a year earlier. (Reporting by Trevor Hunnicutt in New York and Amrutha Gayathri in Bengaluru; Editing by Ted Kerr and Bernadette Baum)