(Bloomberg) -- BlackRock Inc., the world’s biggest money manager, said second-quarter profit fell 11% as slumping markets worldwide eroded fees for overseeing client assets.

Net income decreased to $554 million, or $3.08 a share, from $619 million, or $3.21, a year earlier, the New York-based company said today in a statement. BlackRock’s net income compared with the $3 a share average estimate of seven analysts surveyed by Bloomberg.

Chief Executive Officer Laurence D. Fink, who has built the firm through purchases of rivals, is seeking to expand by attracting investor deposits as the firm’s acquisition spree comes to an end. That’s gotten harder as Europe’s sovereign-debt crisis and slowing economic growth worldwide have prompted investors to pull money out of actively managed equity funds. BlackRock’s assets fell 3% to $3.56 trillion, as market losses totaled $76.2 billion and client redemptions were $29.4 billion during the quarter.

“Active equity will continue to be a challenge for them and others,” Robert Lee, an analyst with Keefe, Bruyette & Woods Inc. in New York, said in an interview before the earnings were announced. Exchange-traded funds “will be a growing source of assets,” said Lee, who rates BlackRock shares outperform.

BlackRock fell 2.2% to $172.50 at 9:46 a.m. in New York. The shares are down 1.2% for this year through yesterday, compared with the 9% gain in the 20-member S&P index of asset managers and custody banks.

Client Withdrawals

Clients pulled a combined $6.5 billion from BlackRock’s active stock and bond funds in the quarter. They withdrew about $5.5 billion from its iShares stock ETFs and deposited $11.7 billion into its iShares bond ETFs. Excluding the impact of the planned disposition of advisory portfolios, which reduced assets by $31.6 billion, the firm said long-term net deposits were $3.7 billion.

BlackRock needs to capture a larger share of deposits going into U.S. equity ETFs, Fink said today.

“We are not happy with our market share in the second quarter in U.S. equity ETFs,” Fink said in a telephone interview today.

Money managers such as BlackRock, which earn fees based on the assets that they manage for clients, traditionally benefit from rising stock markets and investor deposits into higher-fee active stock and bond funds. The MSCI ACWI Index of global stocks fell 6.4% in the second quarter and the U.S. benchmark Standard & Poor’s 500 Index declined 3.3%.

BlackRock’s investment advisory fees fell 5.2% to $2 billion compared with a year earlier. Performance fees, earned by funds for beating certain benchmarks, decreased 18% to $41 million. BlackRock’s revenue fell 5% from a year earlier to $2.2 billion.

Investor deposits into active funds industrywide fell to $39 billion in the three months ended June 30, down 49% from the previous three months, according to data compiled by Morningstar Inc. in Chicago. Deposits into ETFs also tapered off, falling 56% to $25 billion during that same period, Morningstar said.

Revenue for BlackRock Solutions, the unit that advises financial institutions and governments on hard-to-value assets, increased 13% from a year earlier as the unit added new assignments and clients who use the Aladdin investment- management system increased assets.

Maiden Lane

BlackRock, which was selected by the U.S. in 2008 to oversee tainted holdings at the peak of the financial crisis, disposed of advisory assets for investors, mainly related to liquidations of former portfolios held by Bear Stearns Cos. and American International Group Inc., known as Maiden Lane I and Maiden Lane III, the firm said.

“On the one hand BlackRock’s strategic positioning is strong,” Citigroup Inc.’s William Katz, who’s based in New York, wrote in a July 9 note to clients. “On the other hand, flow prospects are mixed and investors continue to question margins and business continuity given seemingly elevated employee turnover.”

Susan L. Wagner, who led BlackRock’s growth by overseeing purchases including the fund units of Merrill Lynch & Co. and Barclays Plc, retired last month, signaling that BlackRock will rely on internal growth for future expansion. Wagner will join BlackRock’s board of directors in October and will continue to serve as a director of DSP BlackRock Investment Managers, the firm’s joint venture in India.

Managers Leave

Wagner’s departure was announced the same month that Robert Doll, former chief equity strategist, said he was leaving and Daniel Rice, who helped manage five energy and natural resource mutual funds, stepped down to avoid the appearance of a conflict of interest. Philipp Hildebrand, the former head of the Swiss central bank, will join BlackRock in October to help expand relationships with institutional clients overseas, the firm said in June.

BlackRock in February started a “new world” campaign to help clients navigate an uncertain market. Fink and other BlackRock executives have urged investors to focus on long-term investing and move out of cash-like products into stocks.

Barclays Stake

The firm, which acquired Barclays Global Investors in December 2009, offers actively managed stock and bond funds, passive strategies, hedge funds and portfolios that use mathematical models, giving it the broadest array of products among money managers.

Barclays, which took a stake in BlackRock at the time of the transaction, in May said it would sell its entire 19.6% holding in the asset manager amid tighter capital requirements. As part of the transaction, BlackRock bought back $1 billion of shares.

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