Operator:

Good morning. My name is Jennifer, and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the BlackRock Incorporated Second Quarter 2024 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Martin S. Small; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. All lines have been made on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

Laurence D. Fink:

Thank you, Chris. I'd like to begin by addressing what occurred over the weekend. The assassination attempt on former President Trump is abhorrent. I was very relieved he wasn't seriously injured, and I'm thinking about the victims of this shooting, especially the innocent person who was killed. As I wrote to my BlackRock colleagues in the hours immediately following the horrific event Saturday evening, we must condemn political violence of any kind, period. And as Americans, we must stand united to do our part to promote civility and unity for our country and provide hope for all Americans. I'll turn it over to Martin now.

Laurence D. Fink:

Thank you, Martin. BlackRock's core business growth is the strongest we've seen in nearly three years, with a significant upward shift ever since our last earnings call in April. Second quarter core net inflows were approximately $150 billion, excluding lower fee episodic M&A and institutional index activities. Our structural growers areas, like ETFs, models, Aladdin and private markets, are powering steadily higher organic base fee growth. Organic base fee growth represented the best second quarter since 2021. 2024 has been our ETF strongest start in a year on record with $150 billion of net inflows and iShares' June flows were the strongest month in our history and for any other issuer. We are executing on landmark mandates across our platform and on closing our planned acquisitions of GIP and Preqin. Client and stakeholder feedback on both GIP and Preqin has been increasingly enthusiastic. We are on a differentiated path to transform our capabilities and infrastructure and to meet the growing need for private market technology, data and benchmarking. We believe this will deepen our relationships with our clients and deliver value to you, our shareholders. Our growth in private markets provides a whole new engine for premium diversified organic growth and less beta-sensitive revenues, both of which should drive future earnings and multiple expansion. We have strong conviction we are on pace to reach our 5% organic base fee growth target. And the expected third quarter closing of GIP will add on to our organic base fee growth potential, doubling our private markets base fees and adding approximately $100 billion of AUM focused on infrastructure. At BlackRock, we always intensely push ourselves to anticipate where markets are going, what clients will need and how we can deliver better outcomes in better ways to each and every client. We set the standard for buy-side risk management technology by launching Aladdin on the desktops of investors over 20 years ago. We acquired BGI and iShares to redefine whole portfolio investing by blending both active and indexing to build better outcome-oriented portfolio. iShares AUM was about $300 billion when we announced our acquisition in 2009. Today, iShares is approaching $4 trillion of client money. We recently celebrated the five year anniversary of the eFront acquisition, where ACV has now more than doubled since becoming part of BlackRock. We have never been shy about taking big, bold, strategic moves to transform ourselves and most importantly to transform our industry. Our successful business transformations are delivering our strong performance today and opening up meaningful new growth markets for our clients and for our shareholders. We continue on our mission to transform private markets. BlackRock is unique in delivering an integrated approach to help our clients across all aspects of private market investing, enabling a seamless view into investment management, into technology and data onto one single platform. With a strong common culture of serving clients with excellence, together with GIP, we will deliver for our clients a holistic global infrastructure manager across equities, debt and solutions. We will provide the full range of infrastructure sector exposures and we will offer our unique origination across developed and emerging world markets. Our recently announced agreement to acquire Preqin is another step in the transformation of our private markets and technology platform. As private markets grow, data and analytics will become increasingly more important. We believe our planned acquisition of Preqin will help to compete the whole portfolio by delivering high-quality data integrated with workflows. Ultimately, this should drive increased accessibility and efficiencies in private markets. And the combination of Preqin with Aladdin and eFront presents an opportunity to find a common language for private markets, powering the next generation of whole portfolios. We envision we could bring the principles of indexing to the private markets through standardization of data, through benchmarking and through better performance tools. BlackRock has developed a broad network of global corporate relationships through our many years of long-term investments in both their debt and equity. For companies where we are investors, they appreciate that we are long-term, consistent, always-there capital. We are not transactional. We invest early and we stay invested through cycles. Whether it's debt or equity, pre IPO, post IPO, companies recognize the uniqueness of our global relationship, our brand and our expertise across markets and industries. This makes us a valuable partner, in turn unlocks the opportunity and performance we could provide for clients. Unique deal flow and track record of successful exits create a flywheel effect, enabling future fundraising and more scaled funds. Corporates and clients increasingly want to work with BlackRock, and we are executing on the best opportunity sets we've seen in years across iShares, private markets, whole portfolio solutions and Aladdin. Importantly, our business has great breadth with organic growth diversified across our platform. In the first half of 2024, flows were positive in active and index and across all asset classes. Our active platform, including alternatives, contributed $11 billion. ETF remains a secular growth driver, processing $150 billion of net inflows, and already representing more than 70% of our total flows of last year. And our technology services revenue grew double-digit in the first half of the year. Importantly, we have notified fundings for a number of scaled institutional wealth management that we expect to fund over the coming quarters. For example, in the second quarter, we were selected to manage a $10 billion US corporate plan, a multi-billion fixed-income portfolio for a large defined benefit scheme and scientific active equity strategies for several global financial clients. These add to the global mandates which we have seen -- that we have been chosen over the last six months, including a large US RIA, a UK pension fund, a European captive asset management are just a few examples, as we look to onboard these mandates and more in future quarters and delivering the outcomes of our clients and their constituents and what they need. Growing business momentum across our scaled asset management and technology platform is driving strong financial results. BlackRock's operating income was up 12% year-over-year or 160 basis points of margin expansion. Earnings per share was up 12%, and we remain committed to delivering differentiated organic growth at a premium margin to our investors. We continue to generate leading organic growth and our operating margin of 44.1% is over 10 points above the traditional peer average. [indiscernible] 5% yields in cash have kept many investors overweight in cash and nearly $9 trillion still sits in money market funds. Those waiting in cash would have missed out on a broad stock market returns of over 26% over the last year, including 17% so far in 2024. Long-term outcomes and future liability matching needs more than a 5% return. Investors will have to re-risk, which should improve flows into equities and credit markets. BlackRock is always a sheer winner when assets are in motion and a meaningful outperformer in periods of investors re-risking. BlackRock operates from a position of strength. We have a clear path to our 5% organic base fee growth target and we're transforming ourselves to build a firm that can exceed that target. Clients increasingly see the value in the BlackRock model, a single unified platform designed for clients unmatched in breadth, powered by BlackRock and totally built on trust. And it goes beyond clients simply wanting to do more with BlackRock. They are looking for a partner that innovates and helps them grow. The world's largest asset owners want deep strategic partnerships, increased customization and innovation, approaching that might include a creative co-investment opportunities and co-development of strategies. BlackRock's Decarbonization Partners, joint venture with Temasek, is one example of this type of relationship. In the second quarter, we announced that its inaugural fund had a final close above its fundraising target raising $1.4 billion. The first-time fund attracted over 30 institutional clients representing 18 countries. The diversity and debth of the investor base is a testament to our long-standing client relationships and strength of our team. Insurers represent some of our most long-standing relationships in clients and we are leveraging our insurance expertise and diversified global platform to deliver fixed-income technology and increasingly private market solutions. BlackRock manages nearly $700 billion in long-term AUM for insurance clients. And we are the industry leader in managing core fixed income for insurance companies general accounts. Insurance CIOs are expanding their mandate with BlackRock to include private markets and structured assets. Just a few weeks ago, we awarded our first large-scale general account allocation for a private structured credit mandate. We also had success with insurers and dedicated SMAs for infrastructure debt where we have differentiated capabilities. We have deep long-standing relationships across our insurance client channel with a dedicated insurance portfolio management team. We see significant opportunity to work more closely with our insurance clients as we leverage our GA business as a potential durable source of long-term capital for our private debt franchises. The industrial logic that informed our planned acquisition of GIP has only begun even clear in the last six months. There is a generational demand for capital and infrastructure, including the finance data centers for AI and for energy transition. Private capital will be critical in the meeting these infrastructure needs both standalone and through public private partnerships. Clients' reception to GIP has been overwhelmingly positive with strong reverse inquiry from clients excited to partner with a newly scaled infrastructure platform. We see particularly strong demand for opportunities in the AI, data centers and energy transition spaces. Through BlackRock's relationships with corporates and sovereigns, BlackRock is at the center of the investment opportunity being shaped by the demand for generative AI. AI cannot truly happen without investments in infrastructure. These technologies require a new generation of upgrade data centers, which will need enormous amounts of energy to power them. With the AI fueled need to build data centers, we see great potential to monetize the 4.3 gigawatts of power production capacity of generational assets currently owned by BlackRock's infrastructure funds. When we talk to leaders in industry and governments, they express their desire to build out data centers, AI, technology, at the same time to decarbonize. Our Diversified Infrastructure fund recently invested in Mainova WebHouse, a first-of-its-kind partnership, to invest in a hyperscale data center platform in Frankfurt, run entirely on renewable energy. And our planned acquisition of GIP will add a number of global data centers assets in our portfolio. We plan to be a leader in this space, leveraging our expertise to drive capital formation and unique deal flow to generate return for our clients. For decades now, BlackRock has helped investors benefit from the growth of the capital markets, supporting their path to financial security and long-term objectives like retirement. Early in the second quarter, we successfully launched LifePath Paycheck with a subset of committed clients. We expect additional commitment plan sponsors to fund over future quarters and we have a very strong late-stage pipeline. More than half the assets we manage are related to retirement. Our growth investments to enhance our capabilities and strategies like active target date and infrastructure underpin our commitment to improving retirement outcomes. BlackRock continues to create more access and connections between long-term investors and capital markets, both in the United States and throughout the world. Early this quarter, we announced an agreement with the Public Investment Fund, the PIF, to launch an investment management platform in Riyadh, which aims to accelerate the development of our local capital markets and enable foreign investment into the region. We expanded our Jio-BlackRock joint venture in India beyond asset management to brokerage and wealth management. And just last month, we joined a new coalition to mobilize infrastructure investments in the Indo-Pacific region alongside GIP and other global investors. In the US, we announced the new opportunity for BlackRock to help expand domestic capital markets by investing in the creation of the Texas Stock Exchange. The exchange aims to facilitate greater access and increase liquidity in US equity capital markets for investors. Our investment builds on a history of investing in similar market structure opportunities for the benefit of BlackRock clients. ETFs will continue to grow as a technology that provides simple efficient access to capital markets, making investments easier for clients of all sizes. Our investments over time are driving accelerated momentum across our ETF platform. Second quarter ETF flows of $83 billion were positive across our core equity, strategic and precision categories. ETF flows of $150 billion in the first half of 2024 represents a best start to the year in iShares' history and are more than double what they were in the first half of last year. BlackRock leads the ETF industry in flows. We are also facilitating market expansion. Our Bitcoin ETF reached nearly $20 billion in its first six months and is the third highest grossing exchange-traded product in the industry this year. Three of the five top asset gathering bond ETFs are iShares and our active ETFs are growing contributors with $12 billion of net inflows in 2024. We remain focused on innovating our product offerings, particularly with active ETFs, growing bond ETFs with extending distribution partnerships to make iShares the provider of choice across all wealth platforms. In June, we expanded access to our alpha-seeking expertise through the launch of active US equities and high-yield ETFs managed by some of our leading investors. And we are partnering with a number of international banks and brokerage platform to expand distribution and access to our products. Examples include our relationship with ETF savings plan providers and our recent selection as a premier partner to Envestnet. From winning our first client to serving millions of investors today, Aladdin has been the technological foundation for how we deliver our clients across our platform. Aladdin isn't just the key technology that power BlackRock, it also powers many of our clients. We see clients increasingly using the technology investments across the fintech and data ecosystems. We're partnering with clients who are increasingly looking for comprehensive technology solutions across their entire portfolio from risk analytics, investment management and to accounting capabilities. The need for integrated investment and risk technology as well as whole portfolio views across public and private markets is driving durable ACV growth. Years ago, we anticipated that clients would benefit when alternative investments were evaluated inside a portfolio-level risk management framework. As allocation to private markets increased, we knew the ability to seamlessly manage portfolios and risk across public and private asset classes on a single platform would be critical. BlackRock invested ahead of these clients' needs, acquiring eFront in 2019 and going on to integrate it with Aladdin to deliver a whole portfolio view. And our planned acquisition of Preqin will expand our capabilities beyond private markets, investment management and technology to data. We see a significant runway ahead as private market allocations from our clients will continue to grow alongside their need for an integrated enterprise-level investment technology, data and analytics. Much of BlackRock's success and our momentum today has come from anticipating and making calls and what our clients will need as they pursue long-term outcomes like retirement and financial security. We constantly innovate, we constantly evolve, we transform ourselves and we make sure we deliver for each and every one of our clients. We've spent decades building our global network of relationships of data and analytics, integrating technology and these are the key differentiations to deepening our relationship with clients and accessing unique investment opportunity and partnerships. With our planned acquisition of GIP and Preqin and core business strength, BlackRock's capability has never been stronger. We have the most comprehensive platform in the asset management industry integrating across public markets, private markets and our Aladdin technology, and we are creating a differentiating private markets approach. We're building what our clients need for success, a skilled private market platform encompassing investment, workflow through eFront and data and risk analytics through Preqin. By bringing together investments, tech, data across public and private markets, we have the opportunity to drive better portfolio outcomes for investors and open up a diversified higher multiple earning streams for our shareholders, you. We look forward to delivering strong performance for our clients along differentiated growth, which will be an opportunity for you, our shareholders. Operator, let's open it up for questions.

Laurence D. Fink:

Good morning, Alex.

Martin S. Small:

Thanks, Alex. I'll start and I think Larry will add some color. But Q2 organic base fee growth, as I mentioned, was 3%. We had that typically seasonally slow start of the year in Q1. So, 3%, it's just about at our target for where we thought we'd be in May and June. We really see excellent momentum, and I think you got that in Larry's comments. But I'd say on the measures we look at for fee growth velocity sort of last three months, last six months, last 12 months, organic base fee growth, Alex, keeps grinding up by 1 percentage point; it's 1% to 2% and now 3%. And we really feel that markets are on this precipice of a reset. Rate cuts should normalize bond markets, they should normalize fixed-income allocations, they should fuel equities, they should really drive flows. We've been a really meaningful outperformer in these re-risking periods. If I look at sort of previous election cycles, rate reductions, BlackRock had huge upside capture. In '17, '18, '21, we were well above our through-the-cycle targets for organic growth in those periods. And I think when we look at growth, it's going to come from these strong structural growers, and those things grow even faster in supportive markets, ETFs, models, Aladdin, our expanding private markets business. We're closing in and growing our AUM by over $100 billion in private markets with our planned GIP acquisition, and we see that as a huge growth opportunity. So, we'd expect those engines to really capture additional growth that hits our targets, and even on the most modest growth assumptions, I think, for beta end markets to really drive significant differentiated durable earnings and multiple expansion. We look at this all the time as a team. We've achieved our premium organic base fee growth target of 5% on average over the last five years, and BlackRock has a lot of positive leverage to re-risking periods in the market that gives us a great deal of conviction about the path to 5% in the back half of '24 and also our longer-term ambition, I think, to be at 5% or better as we grow private markets and technology.

Operator:

Your next question comes from Craig Siegenthaler with Bank of America.

Craig Siegenthaler:

Hey, good morning, Larry. So, our question is on the outlook for technology services revenue growth. With tech ACV growth at 10%, which is the low-end of your long-term target range, we want to see if you have visibility into the future trajectory given the timing of larger contract wins within your existing pipeline, in conversations with clients. And now that you have Preqin, how will that also impact the 10% to 15% target in 2025 after the deal closes?

Laurence D. Fink:

Craig, but our line of sight, we are in conversations right now with probably the broadest and largest potential Aladdin assignments ever had. So, the conversations we're having are with broad deep conversations than we've ever had and much of it has to do -- the serious big giant conversation we're having right now are based on the ability that Aladdin can provide both public and private data analytics. And two, we deliver. There are many examples where people made big, broad promises, and there were years, I want to underline years, delayed in the implementation. We have a deep history of delivering on time. That doesn't mean it doesn't take long time to do it, but we are -- we have a huge reputation because of our expertise in delivering the technology platform on time. These are very big and complex, and we do it very well. And now with the combination of Preqin alongside eFront and Aladdin, we have probably the biggest opportunity we've had in 10 years or more in delivery even a more differentiated technology and analytical platform. And by doing so, it could really then expand our entire platform in towards the benchmarking and indexing. As you know, that's been a province of other organizations. Historically, asset managers were precluded the SEC to be into this business. This is why we were never in this business. Asset management firms can now be in it, as you know, and we create some type of customized index, but we look at this as a unique opportunity now for BlackRock. With our position, with our role, we are going to do this with the same, I would say, industrial fortitude as we did in the early years when we were just an asset manager needing risk analytics, so we did it ourselves and then we are so proud of what we did ourselves, we offered it in the '90s to our clients. We are going to do this in the private markets. And we're going to -- this is going to take time, but I think we have a real ability to provide a very differentiated platform in this and this is something of sheer excitement. And if we succeed, this will add a whole new revenue line on BlackRock's revenue side. Thanks.

Michael Cyprys:

Hey, good morning, Larry.

Michael Cyprys:

Hey. Just a question on the alts business and GIP with the deal expected to close in the third quarter. Can you just talk about your expectations for flows there in the infrastructure space? What strategies are you in the market raising or could be in the market raising over the next 12 months? And maybe talk about some of the steps that you may be able to take to bring some new products to the marketplace, including extending into the private wealth channel?

Operator:

Your next question comes from Bill Katz with TD Cowen.

Laurence D. Fink:

Good morning, Bill.

Martin S. Small:

Thanks, Bill. So, we're extremely excited about this Preqin transaction. We think it really unlocks a whole new segment of growth for our clients, and we think it unlocks a whole new data services segment for BlackRock. And we see really the opportunity to grow Preqin by connecting it with our complementary Aladdin and eFront capabilities, as well as obviously we have a lot of client relationships and significant distribution reach. We'll continue to offer Preqin Pro in the data products as standalones. I think there's really three things that we're focused on here in driving a successful Preqin transaction. The first is simply driving more sales, building out comprehensive fund deal level databases and really integrating data and workflow into a unified platform that better serves clients. The second is, by innovating and launching new data products. I think it's fairly remarkable when you think about the public markets, you think about this symbiotic relationship that risk models and indexes and data have done to create public market indexing, benchmarking, asset allocation, all of those opportunities are ahead of us in the private markets by bringing together risk models, benchmarks and investable indices. We think this opportunity to index the private markets is really one of the most attractive that we've had in the history of BlackRock. And last, we have the ability to drive a lot of scale. We have data factories. Preqin has data factories, not the primary rationale for the transaction, but we really think that we can drive profitable growth, increased scale and efficiency by making this a seamless operating organization. We've had a really good reaction to the transaction from GPs, from LPs, from service providers, all of which who are strong enthusiastic Preqin clients. They're excited about the opportunity to bring together the eFront and Preqin data sets. And so, we think there's a lot of great opportunities here to continue to grow and we're looking forward to closing the Preqin transaction before the end of the year.

Operator:

Your next question comes from Dan Fannon with Jefferies.

Dan Fannon:

Thanks. Good morning. Wanted to follow-up, you talked a lot -- about a lot of momentum across the business. Fixed income has been a topic for some time, flows have been a bit more mixed here year-to-date. I guess in the conversations you're having, do you still see that as one of the big areas of incremental growth as the interest rate environment evolves?

Operator:

Your next question comes from Ken Worthington with JPMorgan.

Ken Worthington:

Hi. Good morning. Thanks for taking the question. Cash management had a strong quarter. To what extent are you seeing or still seeing different and additional institutional clients migrating out of banks to money market funds to get higher yield? And where would you say the global markets are in terms of this transition to higher-yielding forms of cash management? And then to the last question, you called out re-risking a couple of times. Are you seeing re-risking coming out of cash, or is re-risking really a migration within other asset classes either extending duration or going out the risk curve in equities? What are you sort of seeing in terms of that re-risking?

Laurence D. Fink:

But let me add a little more towards the asset allocation into more re-risking. I think it's a mixed bag, Ken, as we said in our prepared remarks. We're seeing a lot of pension funds who are saying, "I'm at my liability. My assets reached my liability level. I don't need to own as much equities." That's going to be persistent if we continue to have rising equity markets. And on top of that, if -- with rates staying higher longer, that gave those pension funds the liability rate that's set, but obviously if interest rates go back down, the liabilities will go out a little bit. And so, we're seeing some clients actually derisking because they can, but where are they derisking? A lot of clients are not just derisking going from out of equities into cash, they're going into equities into other fixed-income instruments. This is where I believe you're going to see more and more investments into infrastructure where you have less volatility in the investments, higher probable returns, high fixed coupon. So, we're seeing clients around the world recalibrate their risk. There are some clients who were sitting in way excess -- too much cash, and they're obviously paying for that, and we'll see how they re-risk. But overall, I think probably if I had to say the headlines for the first six months, the clients that are overweighted in illiquid strategies like private equity where they had liquidity issues, you saw them keeping more cash balances. If and when the private equity markets unlock itself and there's a little more distribution, maybe you could see some of that cash going out and re-risking. So, you're seeing a whole mixed bag. But I do believe the macro trends towards more bond allocation because of the extensive equity rally over the last 10 years, deeper allocation towards private, especially private credit and infrastructure is going to continue. And I do believe the tools of using ETFs as a core component of portfolios is going to become a larger and larger component of how investors invest. They're going to use more core fixed-income ETFs, more equity ETFs and then barbell against using more -- I would say, more diversified, maybe more illiquid strategies across the board. And I do believe BlackRock is as well positioned for that as any firm in the world.

Laurence D. Fink:

I do, operator. Thank you. And thank you for all joining us this morning and for your continued interest in BlackRock. Our second quarter results are possible because of our deep partnerships with our clients around the world and our One BlackRock approach in everything we do. We are well-positioned to execute on our landmark mandates across our platform and we're closing in on our planned acquisitions of GIP and Preqin. We see unbelievable growth opportunities for our clients and our shareholders for the rest of 2024 and beyond. Everyone, please stay safe, stay cool, have a lovely summer as best you can. Enjoy our political conversations over the next few weeks. Be active, and have a great quarter.

Operator:

Good morning. My name is Katie, and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the BlackRock Incorporated First Quarter 2024 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Martin S. Small; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. All lines have been made on mute to prevent any background noise. [Operator Instructions] Mr. Meade, you may begin your conference.

Martin Small:

Thanks, Chris, and good morning, everyone. It's my pleasure to present results for the first quarter of 2024. Before I turn it over to Larry, I'll review our financial performance and business results. Our earnings release discloses both GAAP and as adjusted financial results, I'll be focusing primarily on our as adjusted results. BlackRock's first quarter results reflect sustained momentum across our entire platform. We ended the quarter with record AUM of nearly $10.5 trillion and one of the strongest opportunity sets ahead across multiple growth engines, including technology, outsource solutions and private markets. Momentum is accelerating and we have line of sight into a breadth of significant mandates in investment management and technology, spanning client channels and geographies. Teams across BlackRock are energized and organized to execute on these opportunities and deliver BlackRock's platform to clients through world-class client service. We've built BlackRock to be a structural grower with industry leadership in secular growth areas like ETFs, private markets, model portfolios and technology. With supportive markets and more optimistic sentiment from clients, we're confident in our ability to both grow assets on behalf of clients and drive profitable growth for our shareholders. First quarter long-term net inflows of $76 billion continue to lead the industry, driving positive organic base fee growth alongside double-digit growth year-over-year in revenue and earnings, as well as 180 basis points of margin expansion. Excluding low fee institutional index equity flows, we saw a $100 billion of long-term net inflows in the quarter. As equity markets powered to record highs in the first quarter, investors who were waiting in cash missed out on significant returns across broader markets. With long-term investing time in the markets is often more important than market timing. Although cash remains an attractive safe haven with the prospect of fewer rate cuts for 2024, the nearly 30% increase in equities over the last year continues to propel clients towards re-risking into stocks and bonds. Clients choose BlackRock for performance. They continue to consolidate more of their portfolios with us, which is driving our growth premium. With more clarity on interest rates and a supportive market backdrop, the assets we manage on behalf of our clients, our units of trust, ended the quarter up $1.4 trillion from a year ago, an increase of 15%. Organic asset and basic fee growth, again, accelerated into the end of the quarter and we see broad base momentum growing across client channels and regions. In the first quarter, BlackRock generated long-term net inflows of $76 billion partially offset by seasonal outflows from institutional money market funds. Total annualized organic base fee growth of 1% reflected seasonally softer flows earlier in the quarter before coming back to target in March. First quarter revenue of $4.7 billion increased 11% year-over-year, driven by the impact of market appreciation over the last 12 months on average AUM and higher performance fees and technology services revenue. Operating income of $1.8 billion was up 17% and earnings per share of $9.81 was 24% higher versus a year ago, also reflecting higher non-operating income. Non-operating results for the quarter included $90 million of net investment gains, driven primarily by mark-to-market non-cash gains on our unhedged sheet capital investments and minority investment [in invest debt] (ph). Our as adjusted tax rate for the first quarter was approximately 23% and included discrete tax benefits related to stock-based compensation awards that vest in the first quarter of each year. We continue to estimate that 25% is a reasonable projected tax run rate for the remainder of 2024, though the actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. First quarter base fee in securities lending revenue of $3.8 billion was up 8% year-over-year and up 5% sequentially driven by the positive impact of market beta on average AUM and positive organic base fee growth. On an equivalent day count basis, our annualized effective fee rate was 3/10 of a basis point lower compared to the fourth quarter. This was mainly due to the relative outperformance of lower fee U.S. equity markets, client preferences for lower fee U.S. exposures and lower securities lending revenue. Performance fees of $204 million increased from a year ago, primarily reflecting higher revenue from alternatives. Quarterly technology services revenue was up 11% compared to a year ago, reflecting sustained demand for our Aladdin technology offerings. Annual contract value or ACV increased 9% year-over-year. Beginning in the first quarter of 2024, earnings recognized from minority investments accounted for under equity method will be presented as part of our non-operating results. Advisory and other revenue increased from a year ago, primarily reflecting this change. In addition, as many of you know, we updated the presentation of expense line items by including a new sales asset and account income statement caption. This category includes distribution and servicing costs, direct fund expense and sub-advisory and other sales asset and account-based expense. Sub-advisory and other expense, which are variable non-compensation expenses associated with asset and revenue growth was previously reported within general and administration expense. We believe this change provides investors a clearer view of both BlackRock's variable non-compensation expense and G&A, which represents more fixed costs. It represents how we'll execute on our financial rubric of aligning investment spend with our highest conviction growth areas, variabilizing more of our expense base and generating fixed cost scale. Total expense increased 8% year-over-year, reflecting higher compensation, G&A and sales asset and account expense. Employee compensation and benefit expense was up 11%, primarily reflecting higher incentive compensation as a result of higher operating income and performance fees. G&A expense increased 6% due to the timing of technology investment spend in the prior year. Sequentially, G&A expense decreased 12%, reflecting timing of technology investment spend and seasonally higher marketing and promotional expense in the fourth quarter. While one quarter's results can be impacted by timing of spend, we expect technology to be one of our primary areas of investment within G&A. Sales asset and account expense increased 5% compared to a year ago, primarily driven by higher direct fund expense. Direct fund expense was up 7% year-over-year, mainly due to higher average index AUM. Sequentially, direct fund expense increased due to higher average index AUM in the current quarter and higher rebates that seasonally occurred in the fourth quarter. Our first quarter as adjusted operating margin of 42.2% was up 180 basis points from a year ago. As markets improve, we remain committed to driving operating leverage and profitable growth. BlackRock's industry leading organic growth is a direct result of the disciplined investments we've made consistently through market cycles. Looking forward, we'll continue to prioritize investments with differentiated organic growth potential or that will expand operating leverage through enhanced scale. In line with our guidance in January and excluding the impact of global infrastructure partners and related transaction costs, at present, we would expect our headcount to be broadly flat in 2024 and we would also expect a low to mid-single-digits percentage increase in 2024 core G&A expense. Our capital management strategy remains consistent. We invest first, either to scale strategic growth initiatives or drive operational efficiency and then return excess cash to our shareholders through a combination of dividends and share repurchases. At times, we may make inorganic investments, where we see an opportunity to accelerate organic growth and support our strategic initiatives. Last month, we announced our agreement to acquire the remaining equity interest in SpiderRock Advisors, a leading provider of customized option overlay strategies in the U.S. wealth market. This transaction expands on BlackRock's minority investment in SpiderRock Advisors made in 2021 and builds on BlackRock's strong growth in personalized separately managed accounts via Aperio and ETF model portfolios. At present, we expect the transaction to close in the second quarter of this year, subject to customary closing conditions. In March, we issued $3 billion of debt to fund a portion of the cash consideration for our planned acquisition of GIP. Our offering consisted of three tranches of senior unsecured notes across 5, 10 and 30 year maturities. The offering was well received by fixed income investors, especially our inaugural 30 year bond. We currently have invested the proceeds of the offering at substantially the same rate as the cost of borrowing, effectively eliminating incremental cost of carrying additional debt prior to the close of the GIP transaction. We continue to target the third quarter of 2024 for the closing of the GIP transaction, which remains subject to regulatory approvals and other customary closing conditions. We repurchase $375 million worth of common shares in the first quarter. At present, based on our capital spending plans for the year and subject to market conditions, we still anticipate repurchasing at least $375 million of shares per quarter for the balance of the year consistent with our January guidance. More positive sentiment from clients and markets persisted into the first quarter. Clients increasingly turned to BlackRock to reposition and redeploy across their portfolios. First quarter long-term net inflows of $76 billion were positive across active and index strategies as well as each of our client and product types. ETF net inflows of $67 billion were led by core equity and fixed income ETFs with net inflows of $37 billion and $18 billion respectively. These inflows were partially offset by seasonal tax trading related outflows from our U.S. style box exposure and precision ETFs. As you will hear from Larry, our Bitcoin IBIT saw surging demand after launching in January, gathering $14 billion of net inflows in the quarter. This is just the latest example of BlackRock’s innovating to provide better access and transparency to a wider range of investment exposures. Retail net inflows of $7 billion were led by continued growth in Aperio as well as renewed demand for active fixed income. Financial advisors are increasingly looking to customize whole portfolios at scale, driving growth across our SMA and managed model platforms. Our partnership with in Envestnet is one channel powering flows through model portfolios. We saw our best growth sales month ever on the platform and year-to-date organic asset and revenue growth has more than doubled compared to this time last year. Sales on the platform aren't just accelerating, they are diversifying. We similarly saw record growth flows and custom models and record AUM and our global allocation models both of which have larger active components. Within SMAs, our previously mentioned acquisition of SpiderRock Advisors will further enhance our product offerings and provide even greater personalization across our wealth segments. Institutional active net inflows of $15 billion were driven by our LifePath target date franchise and outsourcing mandates. We see significant momentum across our whole portfolio capabilities. Our pipeline remains strong as more and more clients turn to BlackRock for outsourcing outflows of $13 billion were concentrated in low fee index equities, as several large clients rebalanced their portfolios amid significant equity market appreciation in the last six months. Our private markets franchise saw $1 billion of net inflows continued demand for our liquid offerings was offset by alpha generation for our clients, reflected in over $3 billion of fund monetization and LP distributions or change in fee basis, primarily for more seasoned private equity solutions programs. Finally, BlackRock's cash management platform saw $19 billion of net outflows in the first quarter in line with institutional money market industry trends. Our cash business can experience seasonal rotations in the first quarter as many institutional clients withdraw these liquid assets for operational purposes, including tax and bonus payments. Cash management flows were impacted by approximately $14 billion of net redemptions during the last week of March ahead of the Good Friday holiday. Outflows were driven by clients redeeming balances to have cash on hand during a time when many businesses are open, but the financial markets are closed. This phenomenon is not uncommon or unique to BlackRock. Balance has largely returned with approximately $20 billion of money market net inflows in the first week of April. BlackRock's differentiated business model has enabled us to continue to grow with our clients driving industry leading organic growth and margins. Looking ahead as markets trend to be more supportive and clients re-risk, we see significant opportunity to expand our market share and consolidate our position with clients. We've set ourselves up to be a structural grower with the diversified platform that we've built. Enthusiasm is growing, momentum's building across the platform. All of us at BlackRock are excited about our future and the growing opportunities for BlackRock, for our clients, for our employees and, of course, for our shareholders. With that, I'll turn it over to Larry.

Operator:

[Operator Instructions] We'll go first to Craig Siegenthaler with Bank of America.

Laurence Fink :

Martin?

Laurence Fink :

I would just add, the breadth of conversations we're having with clients worldwide. Rob Kapito right now is in Asia, the type of conversations we had there. The opportunities we see in Europe, in the U.K., Middle East. These are just very large opportunities, large mandates, big opportunities. And if you then overlay the opportunities and you overlay what infrastructure can do related to the build-out of power with all the AI promise and the need for data centers and the need for power is going to be extraordinary. And all of this is going to lead to much bigger opportunities. And then more importantly, more and more clients are going to be seeking those organizations who deliver the proprietary differentiated products.

Michael Cyprys :

Just wanted to ask about balancing investment spend with margin expansion. In the past, we've heard BlackRock talked about being margin aware. So, just curious how the thinking of that has evolved. What does that mean in today's environment? And how might you quantify the opportunity for margin expansion over time? How do you see some of the levers to achieve that?

Laurence Fink :

Michael, I would just add, as we continue to be investing in AI, our most recent experience of having $2.5 trillion more assets with the same headcount is a real good indication of how we are trying to drive more efficiencies, more productivity. I think this is critical. We're going to bring down an inflation in America. This is how it's going to have to be done, driven through technology and which will increase more productivity. And overall and actually through that process, we continue to drive more productivity. What it also means is rising wages. So people do more and the whole organization is doing more with less people as a percent of the overall organization. That is really our ambition.

Kenneth Worthington :

Fixed income flows have picked up for U.S. -- the U.S. mutual fund industry so far this year, but the same data services that track the industry don't show a proportionate pickup for BlackRock. Your fixed income ETF sales were solid at $18 billion but below levels seen last year. Can you talk about the competitive landscape for fixed income retail and fixed income ETFs, both inside and outside the U.S.? And to what extent do you think investor appetite may have changed in 2024?

Laurence Fink :

Let me just add, operator to Ken's question. Ken, I do believe as an industry, the large pension funds that have an over allocation of private equity and the rotation of money in the private equity area has slowed down precipitously. We are also seeing evidence that more and more clients are keeping a higher balance of cash to meet their liability discharges. And so without the momentum and the velocity of money in private equity, they actually have to keep higher cash balances, too. So I think that is something to be watched to. If there is an unlock in the movement of private equity, I do believe you would see a factor allocation for the industry in fixed income and other income-producing products.

Alexander Blostein :

My question is related to private markets and GIP. Larry, you referred to it again this morning as a transformational deal for BlackRock maybe similar to some of the other large ones you've done. Does this give you enough in terms of what you're trying to accomplish in the private markets broadly? Or do you expect to pursue more acquisitions that are related in this area? And I guess somewhat related to that, growth in private markets, retail products has been quite significant and still early days. Maybe just remind us on how BlackRock is pursuing that opportunity.

Laurence Fink :

I would just add that the feedback we're having from clients, including a dinner I had with a major energy company last night. The opportunity we have for driving more unique proprietary origination is going to be driving accelerated growth for us in the private markets, especially in infrastructure. I do believe the combinations of our two organization is going to open up so many more avenues. Avenues with companies but also avenues with countries. And that being said, look, we're always in the market and are looking for different opportunities and we're not slowing down, looking at different opportunities. We're not here to suggest we're doing anything that is forthcoming because the number one through five things to do is to close GIP. But the doors are knocking at BlackRock to see if there's other opportunities we want to pursue. And if it makes sense one day, we will continue to be open minded to pursue more private market opportunities.

Daniel Fannon :

Martin for your comments on improving trends throughout the quarter for flows, can you put in context what that means for maybe exit fee rate? And also on this pipeline of activity that's building, can you talk about the mix of fees and products more specifically and how that might inform your base fee outlook going forward?

Operator:

We'll go next to Bill Katz with TD Cowen.

Martin Small :

So on the performance fees of $204 million in the quarter, obviously, they're up about 4x year-on-year. If you could put yourself in a time machine and think back to that first quarter in '23, it was a really difficult market. We had SVB, we had some volume in the rate markets, et cetera. So I think it was a tough time. This quarter, we've really seen good performance coming through on our teams, which has been very, very strong and I think reflected in those performance fees. Rough just is about half of that performance fee is coming from kind of our private equity funds and private equity programs where we had some very successful realizations that Larry talked about last year, which was created in some of the distributions associated with that. And the other half is more in illiquid hedge funds in our strategic equity hedge funds and some of our systematic strategies as well. Ultimately, our goal is to deliver long-term performance with clients and where we see performance fee revenues picking up, obviously, there's healthy alignment there and more supportive markets and stronger markets and strong performance, we'd expect a lot of that leverage to drop to a lower comp to revenue ratio. But ultimately, talent is one of our key investments and we'd expect it to be on a go-forward basis.

Brian Bedell :

Maybe just to focus on the multi-asset category and a couple of areas within that. I think Martin, you were talking about obviously the build of the organic growth pipeline and also in conjunction with Larry, with your comments about the conversation pipeline. Can you talk about two areas, in particular, as that developed throughout the year. That would be OCIO deals and then also, as we start up LifePath Paycheck, how you anticipate that contributing to organic growth, I guess, as the year unfolds, obviously very early, but even over the next couple of years?

Laurence Fink :

As I said in my prepared remarks, we have 14 corporations that are preparing to transform their defined contribution plan to LifePath Paycheck. So the conversations we're having with so many other clients is enormous. Many clients wanted to see actual implementation of these plans. As we said in the prepared remarks, the first implementation of the first plan is going to be in the next few weeks. We'll have many announcements about that and we plan to really make that a big issue for us going forward. We believe, as I said before, this is going to change retirement. The movement away from defined benefits to defined contributions have left many, many individuals stranded in making the decisions of their own retirement by themselves. And this eliminates some of the uncertainty for retirement. The Target Date has eliminated a lot of the variability of retirement, but there has been no transformation in terms of bringing -- once you are retired, how do you know what you have. And through this innovation of integrating investment strategies around insurance wrappers can really narrow the outcomes that the individual can have a very narrow corridor of what the dollar amount that they're going to be earning each month. And as I said in my letter, with growing longevity, retirement is going to become a bigger and bigger issue. And having this type of certainty really will alleviate some of the fear. As I said, our conversations are broad. And let me be clear, the conversations are also now beginning in Europe and other places, too. So we look at this as a major component of our future growth rates over the next three to five years. Obviously, it's not the highest fee-based product. It is like a Target Date product. But -- so it's -- but it can generate more connectivity with more clients, deeper relationships with all our clients. And so this is something that I'm very proud of what the firm has created and I do believe it's going to transform BlackRock as a leader in retirement benefits.

Patrick Davitt :

My question is on Europe ETFs. Obviously, the active to passive equity flow mix continues to track more like the U.S. and Europe so far this year. So firstly, could you update us on the defensibility of your positioning around that theme? And to what extent you're seeing more aggressive price competition? And finally, higher level, to what extent you're seeing a real change in how ETFs are bought and sold in Europe that could portend this so called trend continuing more indefinitely?

Operator:

Thank you. Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?

Operator:

This concludes today's teleconference. You may now disconnect.

Operator:

Good morning. My name is Jennifer, and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the BlackRock, Inc. Fourth Quarter 2023 Earnings Teleconference. Participants for today's call will include Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Martin S. Small; President, Robert S. Kapito; General Counsel, Christopher J. Meade and Global Infrastructure Partners, Founder and Chief Executive Officer, Adebayo Ogunlesi. [Operator Instructions] Mr. Meade, you may begin your conference.

Laurence Fink:

Thank you, Chris, and good morning to everybody, and Happy New Year. Thank you for joining us today to discuss BlackRock's fourth quarter and full year results. We're also very excited to announce our agreement to acquire Global Infrastructure Partners, and I'd like to welcome all our new partners from GIP and their Chairman and my friend and founder Bayo Ogunlesi is here with me, alongside with Rob and Martin, we're all here today to answer your questions after our prepared remarks.

Laurence Fink:

Thank you, Bayo. This is another truly transformational moment for BlackRock. Our firm is what it is today because we've taken a long-term view on what market forces will drive outsized growth for our clients and for our firm. We're doing that again today, guiding us always by the needs of our clients. Growing public deficits, a modernizing digital world, advancing energy independence and the energy transition are driving the mobilization of private capital to fund critical infrastructure. Infrastructure investment is a fast-growing market. In a higher rate environment, the ability to drive operational enhancements will be critical to investment performance. Today, we are announcing two transformational changes in anticipation of the evolution we see ahead for the asset management industry and for the entire global capital markets. Our strategic re-architecture of our organization will simplify and improve how we work and deliver for our clients. And the acquisition of GIP will propel our leadership in a fast-growing market for a hard asset infrastructure. These transformations in total are the largest at BlackRock since we acquired BGI nearly 15 years ago. The planned combination of BlackRock's infrastructure platform in GIP will provide clients access to market-leading investments and operating expertise across infrastructure, private markets. The integrated platform will deliver clients substantial scale as the second largest private markets infrastructure manager in the world with over $150 billion in client assets. In addition, GIP will bring dedicated investment in operational improvement teams with track records of delivering deep value enhancements, which have led to impressive returns throughout its existence. With a strong common culture of serving clients with excellence together, we will deliver for our clients or holistic global infrastructure manager across equity, debt and solutions. We will provide the full range of infrastructure sector exposures and will offer unique originations across developed and the emerging markets. BlackRock has developed a broad network of global corporate relationships through many years of long-term investments in both debt and equity. These long-term relationships will help us lead critical investments in infrastructure that will improve outcomes for communities around the globe and generate long-term investment benefits for our clients. I know I speak for the entire BlackRock Board of Directors, BlackRock's leadership team and all of our employees when I say we could not be more excited about the prospects of a BlackRock family with our colleagues from GIP. We similarly look forward to welcoming our new clients and deepening our relationships with those clients who already worked with both of us. BlackRock's industry leadership comes from delivering sustained performance innovating and staying ahead of the needs of our clients. Today, we announced several organizational changes to simplify and improve how we work and how we deliver for clients. In anticipation of the major calls we are making on the future of the capital markets and the entire asset management industry. The strong senior leaders taking on new and expanded roles will keep us more tightly connected, stimulate fresh thinking and help us better deliver for all our clients. Let me now turn on to Martin to cover our 2023 results and take you through the specifics of the transaction, our quarter before I offer further context.

Laurence Fink:

Thank you, Martin. We'll leave plenty of time for your questions later on, but I want to describe how we evaluated bringing our firms together with GIP. Why we think the timing is so opportune and how infrastructure private markets can be so beneficial to all our clients, employees and to you, our shareholders. Infrastructure is a $1 trillion market forecasted to be one of the fastest-growing segments of private markets in the years ahead. A number of long-term structural trends support an acceleration in the infrastructure investments. These include increasingly growing global demand and upgrading digital infrastructure like fiber broadband, cell towers and data centers. Renewed investments to logistical hubs such as airports, railroads, shipping ports as supply chains are rewired, and a movement towards increased energy independence in many parts of the world, supported by de-carbonization infrastructure. In the United States and around the world, there's a public need for greater investment in infrastructure. This growing needs creates significant investment opportunity for clients. The unprecedented need for new infrastructure, coupled with the record high government deficits means that private capital will be needed like never before. That supply-demand imbalance creates compelling investment opportunities for our clients. At the same time, corporates are looking to engage partners in new projects or partially de-risking the existing ones. These dynamics offer clients, especially those investing for retirement the high coupon inflation-protected long duration investments they need, and we believe it will define the future of asset management for the next 20 years. Our acquisition philosophy has always been about growth, not about cost takeouts and or consolidations. Consistently, these combinations have resulted in reaching heights that neither BlackRock nor a merged partners could ever reach on their own. I truly believe that this will be the case again with the integration of BlackRock infrastructure and GIP. Transformational transactions have strengthened our firm, have strengthened our culture and bringing top talent, new skills and experience into our organization. Our culture has evolved as we welcome new teams and colleagues to BlackRock. Today, it represents a blending of the best parts of the cultures that have come together over the years. What's made our acquisition so successful was our steadfast commitment to One BlackRock culture totally connecting to our clients with one platform, shared goals, a common Aladdin technology. And as a result, BlackRock is greater than the sum of any one part, and then that drives BlackRock's differentiating growth model. Reaching this moment is quite personal and emotional for me. Our firm's BlackRock and GIP have similar origin stories. We founded BlackRock on understanding investment risks and the factors and forces driving returns initially in fixed income and then across the equity markets and then globally. We wanted to help long-term investors better manage their risk in their portfolios in a scaled way through technology. That is what drove our early investments in Aladdin and all the investments we made since to enhance our understanding of risk factors to deliver superior outcomes for our clients. GIP started with a similar focus in the infrastructure space. Understanding operational risks and the factors and forces driving business efficiencies like BlackRock's focused on understanding risk and fixed income GIP built an active approach to analyzing and addressing operational risk. My partners and I had the privilege of pioneering the mortgage-backed securities market. Bayo and his GIP partners, in my opinion, pioneered modern infrastructure investing in private markets. And many of the BlackRock and GIP founders grew up in the same firms early in their careers, where we created common routes from shared experiences, most of them good, sometimes bad, and close flight relationships. The integration of BlackRock's existing infrastructure platform with GIP will result in a market-leading comprehensive infrastructure business with truly differentiated origination and asset management capabilities. GIP will be highly complementary and has limited overlap by client and investment programs for BlackRock's existing leading franchises. These include diversified infrastructure, Infradebt, Infra solutions, climate infrastructure and decarbonization partners. BlackRock has invested originally and has invested organically and inorganically growing our infrastructure platform, which has $50 billion in AUM, having tripled since our acquisition of First Reserve in 2017. BlackRock has already demonstrated our access to some of the largest pools of capital in the world. We're winning deals like ADNOC pipeline transaction and being chosen to partner with sovereign wealth funds and governments on significant climate infrastructure strategy. We have the sourcing capabilities, but greater AUM scale will enable us to have more sizable positions. The planned combination of GIP with BlackRock will accelerate investment scale enabling us to grow faster. BlackRock's deep relationships with clients, corporates, governments and sovereign wealth funds can accelerate investment opportunities. GIP's own lending proprietary deal flow -- leading proprietary deal flow has been supported by investment sizes, relationships and strong track record including a long history of successful JVs with large industrial partners. GIP's deals span the world and sectors. Their investments include Gatwick Airport, Edinburgh Airport and Sydney Airport. And Cypress One Data Center in the Port of Melbourne and several other major renewable platforms. Through the future combination of BlackRock and GIP will be able to connect our clients with bigger and better opportunities while also accelerating growth, diversifying revenues and generating earnings for our shareholders. Like Rob and I, Bayo and his partners are all founders. We're excited about the opportunity to have new partners and new colleagues. I'm proud that the consideration of this transaction consists of approximately 75% of BlackRock stock. GIP founders will become among the largest shareholders of BlackRock, and we plan to have Bayo join our Board of Directors post closing of our transaction. There is no question spiritually or financially about whether we are long-term partners. We have the same interest as significant shareholders alongside our broader shareholder base. Our One BlackRock culture has been central to our success over the last 35 years and cultural alignment has been core throughout our history of successful M&A. Here are founding to today, our firm is purpose-driven, focused on clients, focus on risk management and powered by data and technology, bringing our two businesses together result in an influx of top senior private market talent to BlackRock. GIP founders will lead our combined infrastructure platform with teams of talented investors and business builders. They bring with them a strong investment and performance culture and a commitment to working across One BlackRock. I'm confident we'll be looking back on today as another transformational moment in the BlackRock history. In a similar way, when we could look back at our acquisition of BGI, Merrill Lynch Investment Management and our early days building Aladdin. Our ability to adapt and to evolve and to grow has generated a total return of 9,000% for our shareholders since our IPO in 1999. That is well in excess of our S&P return of 490% and representative of a business model serving all our stakeholders. I truly believe we're better positioned than ever before in our history, and I'm very optimistic on the coming years ahead and the opportunities ahead for all of us. BlackRock was built on optimism. When we founded BlackRock, we knew clients would be at the center of everything we do. We had a deep conviction in the long-term growth and the importance of the capital markets in principle and practice, those beliefs remain core to BlackRock today. We are more connected to our clients as ever, thousands of clients on behalf of millions of individuals around the world have entrusted BlackRock with $1.9 trillion of net new business over the last five years. Thousands more use our technology to support the growth and commercial agility of their own business, years of organic growth alongside a long-term growth of the capital markets underpins our $10 trillion of client assets, which grew in 2023 by over $1.4 trillion. In good times and bad times, whether investors are adding or reducing risk, our consistent industry-leading organic growth demonstrates that clients are consolidating more of their portfolios with BlackRock. In 2023, our clients awarded us with $289 billion of net new assets during this period of rapid change and significant portfolio de-risking. BlackRock's differentiated business model has enabled us to continue to grow with our clients and maintain positive organic base fee growth. We've grown regardless of the market backdrop and even if most of the industry has experienced outflows. I think back to 2016 and 2018 when uncertainty and cautious sentiment impacted investment behaviors among institutional and individuals. Many clients de-risked and move to cash. BlackRock stayed connected with our clients. We stayed rigorous in driving investment performance, innovating new products, technologies and providing advice on portfolio design. Once clients were ready to move more actively step back in to stepping back into the markets, they did it with BlackRock, leading to new record flows for client flows and organic base growth at or above our targets. As we've seen before, when investors were ready to put money back to work, they did it with BlackRock. Flows and organic base fee growth accelerated at the end of the year. We generated $96 billion of total net inflows in the fourth quarter, and we entered 2024 with great momentum. I spent much of 2023 on the road, meeting with clients around the world, and I plan to do the same thing in 2024 starting this month. Our partnership approach and the performance we deliver is resonating both in markets where we have a long-standing presence and those where our profile is just beginning and strengthening. Companies and clients increasingly want to work with BlackRock. For companies where we are investors, they appreciate that we are a long-term consistent capital. We invest early and stay invested through cycles, whether it's debt or equity, pre-IPO or post IPO. Companies recognize the uniqueness of our global relationships, our brand and our expertise across businesses, markets and industries. This makes us a very valuable partner and in turn it enables us to be involved in their sourcing and in performance that we provide for our clients. For example, in November, our diversified infrastructure franchise invested $550 million in Stratos, a commercially scaled direct air capture facility in Texas which is expected to be the largest in the world upon completion. Through our funds joint venture partner, Occidental Petroleum, we are providing our clients with investment access to a bespoke energy infrastructure project. This is just a latest example of our sourcing and execution on numerous distinctive deals for clients over the last 18 months. In the United States, we partnered with AT&T and GigaPower JV and invested in Jupiter Power. Beyond the U.S., examples include such investments of Brazeau in Brazil, First Air in South Korea, Acacia Energy in Australia, like Takata Wind Farm in Kenya, just to name a few. Last month, we announced an innovative partnership with Altera that we will see a $2 billion investment in the climate opportunities across BlackRock's private debt and infrastructure equity strategies. This is one of our largest ever private markets mandates. It adds on to our very strong track record investing in the transition, including in emerging markets and extend our over $100 billion transition investment platform. BlackRock's global network of relationships, data, analytics and flexible, adaptable capital means we could source unique deals for our clients and mobilize assets and accelerate innovation and economic growth. Our active investment insights, our expertise, our strong investment performance, similarly differentiating BlackRock to the markets. We saw nearly $60 billion of active net inflows in 2023 compared to an industry outflows. Across our active franchise, BlackRock has delivered durable investment performance with 87% and 92% of fundamental equity and taxable fixed income AUM above benchmarks or peer medium for the past 5-year period. In ETF, BlackRock generated an industry-leading $186 billion of net inflows for 2023. Our long-term leadership of the ETF industry is another testament to our global platform and our deep connectivity with our clients. BlackRock is the most scaled, diversified ETF provider in the U.S. and globally. We are bringing the ETF benefits of liquidity, of price discovery and market efficiencies and access to investors around the world. Nearly half of the 2023 iShares net inflows were from ETFs listed internationally in local markets, led by our European iShares net inflows of $70 billion. BlackRock has the #1 share of the European ETF market where industry flows were up 70% in 2023. Catalyst trends that we saw in the U.S. years ago, like the growth of the fee-based advisory and model controllers are just beginning to take root in Europe. BlackRock takes a client-first approach to product innovation, and we continue to develop products that are suited for the new investment regime. For example, we launched 19 active ETFs in 2023, leveraging the benefits of the ETF structure to help clients reach the outcomes they seek. Some of these strategies provide access to the insights of our active portfolio managers such as Reader and Tony DeSpirito, other use an option strategy to generate income or provide greater downside protection, such as our buy right and buffer ETFs. And in the fourth quarter, we launched a series of LightPath Target Date ETF to provide an easier way to save for retirement, especially for the many Americans who lack access to a workplace retirement plan. Just yesterday, the iShares Bitcoin ETF began trading in another landmark moment that advances ETF innovation and expand access to Bitcoin for investors. We will continue to provide more convenient and cost-effective investment access across asset classes through innovation, through risk management and technology. Aladdin is the operating system united all of BlackRock and its fundamental and foundational to how we serve our clients across our platform. It is the key technology that powers BlackRock and it also powers many of our clients. The need for integrated data, integrated risk analytics and the whole portfolio views across public and private markets is driving the ACV growth of Aladdin. In 2023, we generated $1.5 billion in technology service revenues. Clients are looking to grow and expand with Aladdin, reflecting in strong harvesting activities with over 50% of the Aladdin sales being multiproduct. Through its dynamic ecosystem of over 130,000 users, the Aladdin platform is constantly in the state of innovation. Investments in Aladdin AI copilots, enhancements and openness supporting ecosystem partnerships and advancing whole portfolio solutions, including private markets and digital assets are going to further augment the value of Aladdin for our clients. We led our industry by both being an agent for and adapting to change. Our best years have followed tough years. And just as we continue to innovate and evolve our business to stay ahead of our clients, we are also evolving our organization and evolving our leadership team. As Martin mentioned, we undertook restructuring efforts that were designed to ensure we are aligning resources to our greatest growth opportunities and client needs. As part of this, a number of valued clients, valued colleagues and friends to part of the firm. We truly appreciate the contributions that they made to BlackRock and wish all of them well. We are continuing to anticipate with clients' needs and shaping BlackRock so they could be getting our insights, our solutions and the outcomes that they expect from us. As we look ahead, the rerisking of client portfolios will create tremendous prospects for both our public and private market franchises. These are the times where investors are making wholesale changes to the way they build portfolios, and BlackRock is leading the way in helping investors build the portfolio of the future, one that integrates public markets and private markets, and it's digitally enabled. We view that these changes are a big catalyst for BlackRock, we set ourselves up to be a structural grower in the years ahead with the diversified platform we built. And the need for integration data, technology and risk management will continue to drive demand for Aladdin. BlackRock was founded on the belief in the long-term growth of the capital markets. Our success has been shaped by a number of those calls and how we would evolve. Our client needs have always been our compass as we listen to them today, we have our eyes on themes we believe that will define the next decade of asset management. The continuum of blurring the lines across product structure, the unprecedented need for new infrastructure driving inflation protected current cash flow long-duration returns, the accelerating capital markets and asset management industry around the world. We are positioning ourselves ahead of these transformations by making three major changes in how we work and how we deliver for each and one of our clients. First, we're creating a new strategic global product and solution business that will work across all their investment strategies, asset classes, fund structures while enabling our ETF and index business across the firm. We have always viewed ETFs as a technology that facilitates investing and just as Aladdin technologies has become core to asset management, so has have ETFs. That's why we believe embedding our ETFs and index businesses across the entire firm, and that will accelerate further growth of iShares and every investment strategy within BlackRock. We are looking to the future, and we believe that ETF revolution that iShares lead will only continue to accelerate as BlackRock turns -- as our clients turn at BlackRock for ETFs as a preferred vehicle for investing in strategic and strategies of all types. If you can make an ETF or a Bitcoin, my Gosh, you can make an ETF or anything. Second, we are creating a new international business structure to provide a unified leadership to allow us to be simultaneously more global, but much deeper local in a fast-growing international markets. BlackRock has been a central player in the growth of the global capital markets, and this is including the developing of retirement solutions in every market around the world and bringing the benefits of ETFs to every market to assist them in growing their markets. And third, we are realigning our private markets business to further leverage the potential of GIP and to meet the growing needs of our clients for infrastructure and other private market investments. All of us at BlackRock have a lot of hard work and a lot of exciting work ahead of us. We have a track record of quick, intense and successful integrations. We'll be more naval and aligned with clients through our new architecture and with the aim to be delivering better experiences, better performance, better outcomes for all of our clients worldwide. I see excitement and incredible amount of energy in our offices. While there's a lot of hard work to come, there really is a bright future for all of us ahead of us. Over the past few months, we've seen decidingly more positive sentiment and tone in markets and among clients that are very optimistic will carry into 2024. And once again, we look forward to beginning this next BlackRock chapter with our new partners and colleagues at GIP. We entered 2024 with $10 trillion of our client money, we entered the year with strong growth momentum, and we entered 2024 as an organization positioned in the future for growth and prosperity. At BlackRock, we are energized by a never done attitude. And today, I really feel that we're just getting started. I see greater opportunity for BlackRock I see greater opportunity for our clients, and I see great opportunities for our shareholders today, tomorrow and stronger than ever before. Let me open it up for questions. As I mentioned, Bayo will also participate in the Q&A. Thank you.

Laurence Fink:

Good morning, Craig. Happy New Year.

Laurence Fink:

Thank you.

Laurence Fink:

Great question. I think it will be answered by me and Bayo. So let me once again go over the strategic rationale. As I said in my prepared speeches, and I think Bayo would echo everything I'm going to be saying. We're just beginning, I would say, a very bright investment horizon for infrastructure. And as I said, deficits matter. More and more governments are going to have more difficulties to do deficit financing. And in turn, more and more governments are even focusing on doing more public, private. I think GIP's success in the U.K. and Australia are very good examples of working with governments in terms of helping them sell assets. But at the same time, using the private sector to improve the quality of services and GIP has been a leader in that. I believe that a lot of capital that it could be needed as we digitize everything, the need for upgrading our electrical power grids worldwide is a must. The capital associated with that is going to be enormous. In my travels around the world, more governmental leaders are talking about the need for energy independence. And they look -- if they have some form of energy, they're going to be trying to be doing more of that, but more importantly or just as importantly, the amount of capital they need to provide -- to develop more decarbonizing investments in wind and solar, to provide broader energy for their growth in their economies is very important. If we are going to decarbonize the world, the amount of capital and infrastructure is going to be very necessary. If we are going to be more and more reliant on interconnectivity worldwide, the need for the upgrading of ports is vital. As more and more human beings grow into a middle-class lifestyle, the demand for air travel grows dramatically, the need for high-quality airports grows dramatically. And so that's just one segment. And then when you think about corporations. Corporations historically disposed of divisions to private equity. We see more corporations instead of disposing divisions, selling portions of those divisions maybe keeping a major part of that, selling parts of their infrastructure or partnering with companies in their infrastructure, like the deal we did with Occidental Petroleum for Air Capture, the transaction BlackRock did with AT&T on 5G build-out across the United States. These are just a few examples, pipelines in the Gulf region. And so the industrial logic is pretty large in our opinion, that the next 10 years is going to be greatly about the expansion of the global capital markets and infrastructure. And so we believe the demand for capital in infrastructure will only to grow larger than larger. And as I said a few times in my prepared remarks. Having a long duration, high coupon inflation-protected asset is a very strong asset class for all of retirement funds. But importantly, as you mentioned wealth, we believe a great opportunity to providing to the wealth management products, these types of products so they can enjoy these type of long-duration assets. They're going to throw off these above what I would say, public market returns. And so I believe across the board, sovereign funds, both retirements, both in the defined contribution space and the defined benefit space, across the board, these are the preferred instruments. In my calls with clients today, I can tell you more and more sovereign wealth funds, see infrastructure as a major growth area in their asset allocation. I'm going to let Bayo talk about BlackRock and us. I would only just say at Black -- from the BlackRock side, we only had one target. We only had one organization where we believe in their business model. It was only one organization where we believe we had such complementary skill sets. And then most importantly, it's a team of leaders under Bayo that we believed in. And we believe that will create real opportunities for BlackRock, and I'm pleased that Bayo will be joining the BlackRock board post closing. And importantly, we look forward to having the intellectual capital that GIP is bringing alongside our superb team and infrastructure.

Operator:

Go next to Michael Cyprus with Morgan Stanley.

Martin Small:

Thanks, Mike. Happy New Year. We have a really strong track record of successful integrations at BlackRock. And we believe this transaction will prove to be another success. I think Larry and Bayo spoke very much about the common cultures, the shared vision, the opportunities, the growth with clients. We know that GIP shares the same laser focus on clients and values that we do rigorous investment process in us and the structuring of the transaction was also done to reduce strain on teams and help facilitate the transition into new leadership in a more diversified platform. Some of the organizational changes that we also announced today are going to help us be more nimble and aligned with our clients. We've reorganized businesses for the future with the aim of delivering better experience performance and outcomes for clients. The thing I'd add is Larry talked about in his prepared remarks, our integrated operating platform, track record and integrations. We have built our private markets business with substantial inorganic activity going back all the way to the early 2000s and we built a lot of the existing infrastructure business that we have today, also through inorganic transactions that have been successfully integrated. So we've been doing this for 10 years in the infrastructure space and look forward to accelerating it with Bayo and his partners and the entire GIP team who have substantial experience in business building and alternatives. And the last thing I'll say just about integration is I think in many ways, this is a less complex integration in that these are highly complementary platforms that Bayo just talked you through in terms of some of the differences in investing acumen and solutions on the equity side, on the debt side. And so in many ways, we have limited amounts of overlap, both in clients as well as in the characteristic of our investment solutions. In many ways, that makes the integration, I think, nimble and easier to position with clients and more agile for us to bring the platforms together.

Operator:

We'll go next to Michael Brown with KBW.

Martin Small:

Great, Mike, it's Martin. I'll start just on some of the organic growth outlook and then Rob will talk a little bit about your specific fixed income. In 2023, obviously, we delivered $289 billion of total net inflows and 1% organic base fee growth. We continue to have conviction here in our 5% base fee target over the long term. We've reached it on average over the last five years and met or exceeded it in six of the last 10. And importantly, I think the way our shareholders evaluate us, years marked by significant market volatility, 2016, 2018, '22, '23, we generated positive organic base fee growth. And these last two years, no doubt have been more challenged on base fee growth through tough markets, but we've continued to generate positive growth while the industry has seen decay. We don't aim, as you know, to be the fastest grower in any quarter or any year. We aim to deliver more consistent and durable organic growth through market and over the long term. I would note we saw excellent momentum to finish the fourth quarter. As I mentioned in my remarks, in November and December, we generated an annualized 6% organic base fee growth rate, and that, to me, suggests that we can trend towards our 5% through the cycle target as rates stabilize and the market is more constructive. This is some of the best organic base fee growth momentum we've seen since 2021. I do want to flag two things. The first of which is I'd particularly flagged that iShares in Europe is really well positioned, and I think it's going to be a bigger part of the organic base fee growth story over time. European ETF industry flows are up 70% year-on-year. European iShares had almost 50% flow market share. And a lot of the long-term trends that propelled the U.S. industry to high growth rates are taking hold in Europe. So I think it's just the beginning. We also see this combination with GIP and the potential for higher management fee growth in illiquid alternatives as bolstering, diversifying our overall organic base fee growth trajectory. So I'll give it to Rob on fixed income.

Operator:

Your next question comes from Brian Bedell of Deutsche Bank.

Martin Small:

Thanks. I'll start, and then I'm sure there'll be some additional color. First of all, clients continue very much to increase their allocations to illiquid alternatives in private markets. These are the client needs that drove our acquisition of eFront. They're the moves that bring us here today with GIP. And the moves that we've made organically and inorganically to build market-leading alternatives capabilities. At BlackRock, our alternatives client assets now total $330 billion, including liquid credit. Our private market to liquid alternatives have reached $166 billion in assets with about $140 billion in fee-paying AUM. And private credit, private equity solutions and infrastructure were the main drivers of Q4 and full year flows with $4 billion and about $14 billion, respectively. Since 2021, we've had excellent momentum in our private markets fundraising. We've raised approximately $96 billion of gross capital across our platform, and we continue to see good momentum with clients. We're building on vintages and strong track records, so we can scale successor funds. We expect our primary growth drivers, as I said, over the next three to five years to be infrastructure and credit private equity solutions, where we've built great franchises. We continue to see terrific opportunities. Larry and Bayo have really talked about what some of these are. But I do think BlackRock has a durable competitive advantage that's been built through our public markets, relationships with global corporates, our advisory work with sovereigns in the public sector around the world as well as our technology capabilities of the year and bringing together a lot of this public and private sector long-term objectives, officially moving capital to key drivers of industrial transformation. That's often when BlackRock at its best. So we're very optimistic and energized by our capital formation opportunities. particularly with our new partners at GIP. And I think as Larry and Bayo said, they're both going to be traveling a lot. So I'm looking forward to how those sessions, I think, will help us grow together. But importantly, I think really bring innovative solutions to corporates, through partnerships and unique public-private opportunities for us that will help grow our illiquid alternatives base and assets.

Robert Kapito:

The other thing is that we are very good at structuring product for the individual investor, the wealth investor, and I'm looking forward to working with Bayo's team to figure out how our teams can get together and democratize those investments because, as Larry mentioned before, this is such a perfect retirement product long duration, good yield, equity upside, it's going to open up new areas of growth that we have not tapped yet.

Brennan Hawken:

Good morning. Thanks for taking my question. Happy New Year. So curious, a question on the deal here. is this a deal that you would consider transformational? Or is this more indicative of a desire to continue to add more all its capabilities going forward? And then one, just sort of a little bit more granular, the roughly $400 million in FRE is based on 2024 forecast from what I can understand. Can you give maybe an indication about where GIP's FRE was for 2023?

Laurence Fink:

Let me just add on some of our small and large transformational deals. Transformational deals could be as large as a BGI transaction. But if you remember, everyone, when we did that transaction, most people hated it. They did not see the merits, did not see the marriage of active and passive, did not think cultures can merge, did not understand ETFs as a technology. And as Bayo was saying earlier, what we bought BGI was under $300 billion in iShares assets, and now it's over $3.5 trillion. In the past 10 years, we acquired First Reserve when it had about $3 billion, and it's more than tripled its assets in a number of years in terms of infrastructure. Just recently, we acquired Aperio and the assets are up 95% since we acquired Aperio. And then just as importantly, in technology buying EBITDA-Front, we made a statement that good portfolio analytics are going to become very important, not just public market analytics. And we are now the leading technology platform, both in privates and publics. And you dovetail all of this is it's all wrapped around our global view of where the global capital markets are doing. The technology needs for markets and the movement. And I do believe all of this is going to be playing out. As I said in my prepared remarks, I truly believe infrastructure and Bayo reconfirm that infrastructure is at the very beginnings as the great need of capital and because of the type of asset it is, the demand for this type of investment is really going to be strong. And we believe, and this is what our statement is, we believe the next 10 years is going to be a lot about infrastructure. And this will become more and more of a major component of the entire private markets ecosystem.

Patrick Davitt:

Hi, good morning, everyone. Happy New Year. How's it going? You guys have been pushing this idea that the $7 trillion in money funds will start to rotate into risk assets for a while now. But the historical data we can see from past Fed cycle does not really show that, at least from what we can see. And it looks like last year's flows maybe came more from the bank deposits than risk positions. So what are you seeing maybe that we can't see that suggest this cycle will be different? And if rates really are higher for longer, can't both money funds and bonds win with $17 trillion still sitting in bank deposits?

Operator:

Your next will be our last question comes from Bill Katz from TD Cowen.

Martin Small:

Thanks, Bill. I'm sorry, your phone wasn't working. So it's great to hear from you. Happy New Year. So as we said, we expect the transaction to be modestly accretive to EPS and operating margin in the first full year post close. We expect it to be accretive to long-term organic asset and base fee growth over time. We are adding -- we expect to be adding pro forma $400 million plus of post-tax margin accretive FRE as a result of the transaction. The transaction is structured so that we're crying 100% of the assets and business of GIP. So all of the future management base fees will be within the transaction perimeter. And that's where we derive our estimates for the 2024 and beyond FRE growth in the business. In terms of thinking about the fee rates, the fee rates are relatively comparable overall to the BlackRock illiquid alternatives, but think north of 100 basis points in terms of how you're modeling that out. As you noted in the deck that we posted to the Investor Relations website, the transaction is that GIP owners and employees are keeping 100% of the carried interest for existing GIP funds and future funds will be 60% to the GIP teams and 40% to BlackRock. I'm not going to talk about fundraising or future funds, but we would expect those performance fees to come on in later years, not in the near term, given the trajectory for how vintages come on. And we'd expect improvement in the fee-related earnings growth over the next two years.

Laurence Fink:

Thank you, operator. I want to thank everybody for joining our -- joining us this morning and for your interest in BlackRock. Our fourth quarter and full year performance is a direct result of our steadfast commitment to serving clients and evolving for our long-term needs of our clients. Our acquisition of GIP and the organizational changes will be transformational and accelerating our growth ambitions and delivering value for our clients and for our shareholders. Hopefully, everyone could hear that we are incredibly excited about the opportunities ahead of us. the opportunity of having partners like Bayo and his team, and we believe we have never been in a stronger position to grow with the global capital markets and to grow and being a very large client serving firm and helping our clients meet their future needs. Everyone, have a very good quarter and try to enjoy it as much as possible. Thank you.

Operator:

Good morning. My name is Cynthia and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated Third Quarter 2023 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Martin S. Small; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

Martin Small:

Thanks, Chris, and good morning, everyone. It's my pleasure to present results for the third quarter of 2023. Before I turn it over to Larry, I'll review our financial performance and business results. Our earnings release discloses both GAAP and as-adjusted financial results, I'll be focusing primarily on our as-adjusted results. Rate hikes over the last 18 months mean that for the first time in nearly 20 years, clients can earn a real return in cash. In the short-term, this has benefited many portfolios. Investors have been able to generate positive returns while waiting for inflation to cool and for more policy certainty from central bankers. This weighting has weighed on industry flows, including here at BlackRock, consistent with prior periods of policy uncertainty like 2013, 2016 and 2018. At September's Federal Reserve meeting, central bankers decided to pause, keeping the policy rate steady, but communicated forward guidance that interest rates will stay higher for longer. We think this is good news. It begins to offer investors more clarity about time frames and entry points into fixed income and equities and a path to re-risking global investment portfolios. At BlackRock, we never pause. We've used this period of investor portfolio redesign to stay close to our clients. We're providing insights, advice, and solutions to help clients prepare to deploy assets following greater certainty on markets, terminal rates, and the shape of the yield curve. Clients entrusted BlackRock with $193 billion of total net inflows in the first nine months of 2023, representing 3% annualized organic asset growth. While our clients' decisions to take advantage of safe haven cash as they redesign portfolios are reflected in our third quarter flows, clients are actively engaging to do more with BlackRock. We believe the long-term trend of clients consolidating business with fewer managers will be accelerated as a result of this period. Third quarter gross fund sales were 95% of average levels over the last 12 months, and flows would have been meaningfully positive excluding a $19 billion single client index redemption and $13 billion of market-related precision ETF net outflows, so client momentum remains strong. Today, we manage $9.1 trillion in assets for our clients. These units of trust are $1.1 trillion higher than a year ago. Revenue is 5% higher, operating income is up 7%, and earnings per share increased 14% over this time period. Powering these numbers are clients' increasing use of BlackRock as a platform and staying within our ecosystem of capabilities, combining investment, technology, and portfolio servicing to meet their specific business needs. This platform approach is driving our industry-leading organic growth over the long-term. Market fluctuations and client risk appetite may temporarily lift or lower our AUM and revenues. But our focus remains on delivering BlackRock's platform to clients, through access to unique opportunities, expertise, and world-class client service. Our strategy is working, and clients are choosing to build bigger relationships with BlackRock. We've grown our asset base over the long-term with over $1 trillion of net inflows since the start of 2021 and over $300 billion of that in just the last 12 months. We know our shareholders and clients have high expectations of BlackRock. We believe in our 5% organic base fee growth target over the long-term, and we challenge ourselves to envision what it takes to rise above that target. We've said before that we don't strive to be the fastest grower in any given quarter, but we continue to drive durable, consistent organic growth, well above our peer group over the long-term. Third quarter total net inflows were $3 billion and included $49 billion of lower fee institutional index equity redemptions driven by client-specific index allocation changes. Institutional index equity represents less than 3% of BlackRock's total base fees. These lower fee strategies are often only a portion of our clients' overall relationships with BlackRock. For example, results included in the $19 billion redemption from a single client, but the clients working with us to extend its mandates and active strategies. Total quarterly annualized organic base fee decay of 2% reflected net outflows from higher fee precision ETFs and redemptions in active equity and retail liquid alternatives offerings. Third quarter revenue of $4.5 billion was 5% higher year-over-year driven by organic growth, the impact of market and foreign exchange movements over the last 12 months on average AUM, and higher technology services revenue. Operating income of $1.7 billion was up 7% year-over-year. Earnings per share of $10.91, increased 14%, also reflecting a lower effective tax rate, partially offset by lower non-operating income compared to a year ago. Our as-adjusted tax rate for the third quarter was approximately 12%, reflecting $215 million of discrete tax benefits associated with the resolution of certain outstanding tax matters. We continue to estimate that 25% is a reasonable projected tax run rate for the remainder of 2023. The actual effective tax rate may differ because of nonrecurring or discrete items, or potential changes in tax legislation. Non-operating results for the quarter included $127 million of net investment gains, driven primarily by non-cash mark-to-market gains in the value of our private equity co-investment portfolio. Third quarter base fee and securities lending revenue of $3.7 billion increased 4% year-over-year, reflecting the positive impact of market beta and foreign exchange movements on average AUM, positive organic base fee growth, and higher securities lending revenue. Sequentially, base fee and securities lending revenue was up 2%. On an equivalent day count basis, our annualized effective fee rate was approximately two-tenths of one basis point lower compared to the second quarter. This was due to lower securities lending revenue, underperformance of non-US equity markets, and changing client risk preferences favoring risk off lower fee exposures. As a result of continued global equity and bond market depreciation toward the end of the third quarter, including the impact of FX-related dollar appreciation, we entered the fourth quarter with an estimated base fee run rate, approximately 3% lower than our total base fees for the third quarter. Performance fees of $70 million decreased from a year ago, primarily reflecting lower revenue from liquid alternatives. Quarterly technology services revenue was up 20% compared to a year ago, driven by sustained demand for our technology offerings. Current quarter technology services revenue also benefited from the impact of several large client renewals of their eFront on-premises licenses, for which accounting treatment recognizes a majority of the revenue at time of renewal. Approximately half of the year-over-year technology services revenue increase resulted from these eFront contract renewals. Annual contract value, or ACV, increased 10% year-over-year. We remain committed to low- to mid-teens ACV growth over the long-term, driven by demand for Aladdin's broadening technology capabilities and the growing value proposition it presents for clients. Total expense was 4% higher year-over-year. Higher compensation and direct fund expenses were partially offset by lower distribution and servicing costs and G&A. At present, we expect full year 2023 core G&A to fall on the low end of our previously communicated guidance of a mid- to high-single-digit percentage increase. In line with this outlook, we would also expect fourth quarter core G&A to reflect seasonal increases in marketing spend and execution of planned technology investment spend. Our third quarter as-adjusted operating margin of 42.3% was up 30 basis points from a year ago, benefiting in part from the favorable impact of market movements on quarterly revenue over the last year. Our platform strategy has delivered scale and operating leverage through time, and we aim to be disciplined in driving profitable growth. We're prioritizing investments to propel our differentiated organic growth and drive operating leverage. We'll look to find more opportunities to variabilize expenses, generate fixed cost scale through technology and automation, and align investment spend with organic revenue growth potential. Our capital management strategy remains consistent. We invest first, either to scale strategic growth initiatives or drive operational efficiency, and then return excess cash to our shareholders through a combination of dividends and share repurchases. During the third quarter, we closed our acquisition of Kreos Capital, adding venture debt capabilities to our credit and private markets franchises. And earlier this week, we announced a minority investment as part of a strategic partnership with Upvest. Our M&A focus is on extending our capabilities in technology and private markets, tapping into revenue pools of adjacent industries, and building scale. We repurchased $375 million worth of common shares in the third quarter. At present, based on our capital spending plans for the year and subject to market conditions, we still anticipate repurchasing at least $375 million of shares in the fourth quarter, consistent with our previous guidance in January. BlackRock had $3 billion of total net inflows in the third quarter, which were impacted by $49 billion of low fee institutional index equity redemptions. BlackRock was not immune to an overall slowing of investor activity, but we once again outperformed in what has been a challenging industry environment. Momentum in our ETF business continued with $29 billion of net inflows in the third quarter, led by core equity and fixed income ETF net inflows of $34 billion and $12 billion, respectively. Overall, ETF flows were impacted by redemptions concentrated in certain market-driven precision and fixed income products. The fourth quarter has historically been the strongest quarter of ETF flows for BlackRock when we've seen on average 35% of our annual ETF net inflows. BlackRock typically has been a large beneficiary of ETF industry seasonality related to year-end rebalancing and tax planning. In line with these historical results, we'd expect to see an acceleration in iShares ETF flows as we get closer to the end of 2023. With safe haven cash providing positive returns, retail net outflows of $4 billion primarily reflected industry pressure in active equities and liquid alternatives, partially offset by continued strength in SMAs through Aperio. Institutional index net outflows of $36 billion reflected the previously mentioned low fee index equity redemptions. Our institutional active franchise experienced $1 billion of net outflows, primarily from active fixed income, which was impacted by a handful of client-specific partial redemptions, including reinsurance activity. These outflows were partially offset by continued demand for our target date, illiquid alternatives, and outsourcing capabilities We've built our private markets capabilities across multiple years and we continue to see strong demand for our illiquid alternative strategies. We generated nearly $3 billion of net inflows in the third quarter, driven by infrastructure and private credit. We're only seeing bigger and better private markets opportunities for BlackRock and for our clients. BlackRock's relationships across the world drive our differentiated deal flow. Deal flow alongside great teams with great tech and great data mean we can deliver differentiated investment performance and grow vintage over vintage. We're investing as we scale our private markets platform by using our financial strength to bridge successor funds, facilitate growing co-investments activity and seeding new fund launches. These investments can unlock future revenue and earnings potential for our shareholders. Finally, cash management net inflows were $15 billion in the quarter. Money market funds have returned to earning yields not seen in nearly two decades. We're leveraging our scale and integrated cash offerings to engage with clients who are using cash not only to manage liquidity, but also to earn attractive returns. The current macro environment is causing some clients to pause, slowing overall activity in the asset management industry. Nevertheless, BlackRock has delivered positive organic asset and base fee growth over the last 12 months. We see significant opportunity to deepen relationships and consolidate our share with clients as they resume actively allocating assets. We're staying connected with our clients and positioning for what we believe can be massive growth unlocks. Looking ahead, we believe our platform strategy will continue to deliver for both our clients and shareholders, resulting in sustained market-leading organic growth, differentiated operating leverage and earnings and multiple expansion over time. With that, I'll turn it over to Larry.

Operator:

[Operator Instructions] Your first question comes from Craig Siegenthaler with Bank of America. Please go ahead.

Craig Siegenthaler:

Hey, good morning, Larry. Hope everyone is doing well.

Craig Siegenthaler:

So my question is on the organic growth outlook. There were several low fee redemptions in the quarter. And also given that we're in year three of a bond bear market, your flows are arguably depressed versus a longer-term run rate. So, how do you think about the four organic growth trajectory and the potential money in motion? And specifically, do you expect to see a pickup in fixed income flows once the Fed is done raising, which could be very soon here?

Robert Kapito:

So I think most of the questions are going to concern the why, the where, and the when. And so, the yield curve is the most inverted that it's been since the 1980s. So, maybe, Larry and I can add a little value since we were there at that time. And investors are really getting paid to wait. And money market funds have nearly $7 trillion in assets under management. So that's $7 trillion. And as we approach the peak in interest rates, we expect that there are going to be some very, very large allocations to fixed income. And I'm sure someone will call it the great reallocation. And the reason is, today, there are better opportunities to invest in bonds than have been in the years. Over 80% of the bond market is yielding over 40%, enabling investors to derive a large part of their liability needs from owning bonds and access returns with less risk. So, as Martin just said, we are so well-positioned to benefit from this reallocation with our comprehensive $2.6 trillion fixed income platform, which spans unconstrained total return, municipals, and actually the entire yield curve. So with more money in motion, and it will be in motion, BlackRock will benefit as clients build fixed income allocations with higher-performing active, alongside of ETFs and private market strategies. In particular, right now, clients are focusing their opportunity in the short end of the curve, and of course, in private credit. So when? Well, we have historically seen a rebound in fixed income following rate stability. And this year's yield spikes have been mostly from market re-pricing and policy rate expectations. There is a lot of concern over US debt levels and large treasury issuance, and investors are demanding a higher premium. So, if we go back to the periods immediately following the taper tantrum in 2013 that Larry mentioned, or the Fed pause in early 2019, the industry saw a very quick rebound in fixed income flows. Both ETFs and active fixed income funds were the beneficiaries. So when? Well, once there's more certainty on a terminal rate and the shape of the yield curve, then we expect more deployment into fixed income. And I'll recap it. A slowdown in short-term issuance and more balanced term structure of interest rates are the indicators we're looking for in anticipation of accelerating demand for immediate and longer duration fixed income.

Laurence Fink:

Good morning, Michael.

Laurence Fink:

So, obviously, the foundation of the firm and the -- was Milliman, the BGI transaction. But we've been quite active in deals and partnerships, whether it's Jio BlackRock partnership that we're working on, which I think will be transformational. That's not an M&A deal. But our Aperio deal, our eFront deal, are great examples of execution, precision, with 20% and 50%, respectively, increase in revenues in both those businesses. I would look back and say, we spent about $4 billion on M&A over the last five years. And I'm now challenging all of us, including myself, about what are the ecosystem changes that are around today. And I -- if you look back when we did the big transactions, there was a lot of market on settlement, and I think there is quite a bit going on now, big shifts. And so, we are looking at different opportunities related to technology, private markets. We're always engaged in conversations. But I'm challenging the team and myself to really -- to think more broadly and more openly about the opportunities we have. And we're engaged. We're engaged in a large way across the world, across the opportunities. That is not going to be displacing the opportunities of partnerships like the partnership with Monzo, the partnership with Reliance Industries and Jio Financial. We see those going to be additive. They inform us. They help us be more connected. We see different opportunities. And so, we're challenging ourselves. We are engaged in a lot of conversations right now, probably more than we have been in many, many years. And we'll see how this all plays out.

Laurence Fink:

Good morning, Alex.

Laurence Fink:

I'm going to hand it off to Martin.

Laurence Fink:

I would just add one more thing related to that. Martin, I just want to double-down. We have a lot of debt capacity. We have a lot of opportunities. And we're really refocusing on where can we be additive. The one thing that I could tell you, when we do integrations of firms, we are not going to be a boutique. We are going to be organizing it and building it out. We love the opportunity of having Aperio, but it's a part of a big organized firm. We love eFront. It's organized around the whole Aladdin ecosystem. But it is not -- we're not building a boutique of different fragments. We're building a unified organization. As Martin said, to be additive in revenues, additive in client connectivity, and additive in reach, reach in technology and reach in product.

Laurence Fink:

Hi, Dan.

Martin Small:

Thanks very much for the question. So, when I think about the active equities business at BlackRock, we had continued to see a very strong active equity business over the last three years. We've generated over $30 billion in active equity net inflows, while our average AUM has grown by 34%. And so, while, again, quarter-to-quarter and year-on-year, we'd fully expect to see, particularly in this environment, some rotations out of equities and into cash, which has been the main theme, I think, of this call and the many others, we still see really strong growth in the business. And we think it's fundamentally a big part of client portfolios. I do think over time, in our product strategy, you've seen we've been adding, for example, transparent active ETFs, through which we'll be growing our active equity business and our other active businesses. And so, we think about these over time as being delivered through multiple rampers and an integral part of our base fee growth strategy.

Laurence Fink:

One more last thing on this, Dan, I would just say, we have committed enlarging our iShares platform globally. I think that's going to be an integral part of what we're doing in India. But if you look at the trends of ETFs in the year-to-date, in Europe, ETF flows are up 70%. In the US, the ETF flows are actually a little lower than they were last year. But as we continue to build out our platform globally, we become a very large beneficiary. And what is happening in Europe, the rise of its capital markets and the utilization of ETFs as an instrument of active and an instrument of exposures and an instrument of passives, we're winning big market share in that business.

Laurence Fink:

Good morning, Brian.

Laurence Fink:

Great question. I mean we've consistently large-scale immunization in the UK pension fund world, a major component of the entire UK market, to find benefit plans have been immunized already. Over the last five years, about another $4 billion to $6 billion that have moved out and been -- and more and more immunized. I don't see that happening yet at a 5% or a 4.5% environment yet. But if we peak long rates at 5.5%, 6%, if the yield curve becomes more steep instead of flat or inverted, that's when you're going to see it. I think it's more of the shape of the yield curve where you're going to start seeing more and more people thinking about immunization. Unquestionably, on the margin, you're going to see some pension funds immunize. And it will -- depending on that type of flow, it is going to put some pressure on the equity market as money moves out of equities and permanently go into long-dated bonds. We're having conversations with a lot of organizations on that. And so I can tell you there are a lot of -- there are quite a few pension funds now because our liability rate has been reset at a higher rate. They are getting closer to their -- to matching. This is more corporate plans, not state plans. And that occurs you're going to see a significant de-risking. Instead of that, we are actually seeing more and more companies looking to earn higher returns in credit and infrastructure right now. They're trying to lock at higher returns that way. But we haven't seen a major shift of duration extension in the treasury market. And I think that's very evident right now. And that's why I think the yield curve is flattening out right now. But we are seeing significant interest level with a lot of pension funds to take -- bring down their -- I would say, their exposure in equities, to bring down their exposure in some components of alternatives and focus on income-oriented alternatives to really get an 8%, 9%, 10% type of coupon return. Rob, do you want to follow up on that?

Operator:

Your next question comes from Brennan Hawken with UBS. Please, go ahead.

Brennan Hawken:

Hey, good morning. Thanks for taking my question. Just kind of curious about -- thinking about expenses here. Martin, you spoke to coming into the low end of the range on the core G&A, which is certainly encouraging. But right now, it's probably a time when you all are beginning to sharpen your pencils on the budgets here into next year. The environment -- BlackRock is incredibly well-positioned, as you all have hit on several times here today, but the environment is challenging. And so how are you thinking about 2024? And how should we be thinking about that as we refine our models today? Thanks.

Operator:

Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?

Operator:

This concludes today's teleconference. You may now disconnect.

Operator:

Good morning. My name is Katie, and I will be your conference facilitator today. At this time. I'd like to welcome everyone to the BlackRock Incorporated Second Quarter 2023 Earnings Teleconference. Our host for today will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Martin S. Small; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

Martin Small:

Thanks, Chris, and good morning, everyone. It's my pleasure to present results for the second quarter of 2023. Before I turn it over to Larry, I will review our financial performance and business results. Our earnings release discloses both GAAP and as adjusted financial results. I'll be focusing primarily on our as adjusted results. As a reminder, beginning in the first quarter of 2023, we updated our definitions of as adjusted operating income, operating margin, nonoperating income, and net income. The adjustments exclude the compensation expense impact of mark-to-market volatility associated with certain deferred cash compensation plans and the non-operating impact of an economic hedge, which the company began in 2023. Clients entrusted BlackRock with an industry-leading $190 billion of net inflows in the first half of 2023. Our $9.4 trillion in assets, 9.4 trillion units of trust are up over $830 billion since year end. This increase reflects continued strong organic growth and ongoing client confidence in the work that BlackRock is doing on their behalf as markets evolve. Clients choose BlackRock for performance. We delivered durable long-term investment performance by executing on alpha opportunities, sourcing unique deals and managing risk. The foundation of a market-leading asset management platform is comprehensive, high-quality investment products, with strong long-term investment performance. Investors and asset owners choose portfolio goals and BlackRock enables them through our investment products and solutions. This is BlackRock's platform as a service and action. We bring together the entire firm to combine investment technology and portfolio servicing capabilities to meet client's specific business needs. Our diversified platform strategy backed by strong performance is powering our differentiated industry-leading organic growth. It's widening our gross premium as clients choose to do more with BlackRock, while much of the Asset Management sector faces continued outflows. Clients are coming to BlackRock for performance in scale, using our platform as a service to streamline and support the growth and commercial agility of their own businesses. This is leading to clients consolidating more of their portfolios with BlackRock and both first half and second quarter net inflows were positive across regions, client types, and active and index. In the second quarter, BlackRock generated total net inflows of $80 billion, representing 4% annualized organic asset growth and 2% annualized organic base fee growth. Second quarter revenue of $4.5 billion was 1% lower year-over-year, primarily driven by the impact of market movements over the last 12 months on average AUM mix. Operating income of $1.7 billion was down 3% year-over-year, while earnings per share of $9.28 was up 26%, reflecting meaningfully higher non-operating income compared to a year ago. Non-operating results for the quarter included $158 million of net investment gains, driven primarily by non-cash mark-to-market gains in the value of our private-equity co-investment portfolio. Our as adjusted tax rate for the second quarter was approximately 25%. We continue to estimate that 25% is a reasonable projected tax run rate for the remainder of 2023. The actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. Second quarter base fee and securities lending revenue of $3.6 billion was down 2% year-over-year and reflected the impact of underperformance on non-U.S. equity markets and fixed income market movements on our average AUM, partially offset by higher securities lending revenue. Sequentially, base fee and securities lending revenue was up 3%, reflecting higher average AUM and securities lending revenue and the impact of one additional day in the second quarter. On an equivalent day count basis, our annualized effective fee rate was 0.2 basis points lower compared to the first quarter, mainly due to divergent equity beta and changing client risk preferences. Performance fees of $118 million increased from a year ago, primarily reflecting higher revenue from illiquid alternatives. Business momentum remains strong across our technology platform with clients turning to Aladdin for business transformation and scale enablement. Clients are increasingly partnering with BlackRock for integrated technology solutions and approximately half of our year-to-date mandates have been across multiple technology offerings such as combining eFront with core Aladdin. Quarterly technology services revenue was up 8% compared to a year ago, reflecting this demand but also the impact of negative fixed income market movements over the last 12 months on client positions on Aladdin. Sequential Technology revenue reflected the successful completion of integrations for several large clients that went live on Aladdin in the second quarter. Annual Contract Value or ACV increased 8% year-over-year. We remain committed to low-to-mid-teens ACV growth over the long-term driven by demand for Aladdin's broadening technology capabilities and the growing value proposition it represents for clients. Total expense was modestly lower year-over-year. Lower incentive compensation and distribution and servicing costs were partially offset by higher direct fund expense. Employee compensation and benefit expense was flat year-over-year, primarily reflecting lower incentive compensation due to lower operating income, offset by higher base compensation. Direct fund expense increased 13% year-over-year and 9% sequentially as a result of higher rebates in the prior year quarter and higher average index AUM. G&A expense was flat year-over-year, partially due to timing of planned investment spend. Our second quarter as adjusted operating margin of 42.5% was down 120 basis points from a year ago, reflecting the negative impact of market movements on quarterly revenue. Our platform strategy has delivered scale and operating leverage through time with 240 basis points of margin expansion in the last 10 years. Markets have improved since the end of 2022 and we aim to be disciplined in driving profitable growth by prioritizing investments to propel our differentiated organic growth and operating leverage. In line with our guidance in January at present, we would expect our headcount to be broadly flat in 2023. We would also expect a mid-to-high single-digit percentage increase in 2023 core G&A expense. Our capital management strategy remains first to invest in our business and then to return excess cash to shareholders through a combination of dividends and share repurchases. We continue to invest through prudent use of our balance sheet to best position BlackRock for sustained success, primarily through seed and co-investments to support organic growth. At times, we may make inorganic investments where we see an opportunity to accelerate growth and support our strategic initiatives. Consistent with this inorganic strategy last month, we announced the private markets acquisition and a minority investment as part of a technology partnership. We expect our acquisition of Kreos Capital to close in the third quarter of this year, adding venture debt capabilities and further bolstering BlackRock's Global Credit franchise. Through our technology partnership with Avaloq, we aim to link Aladdin Wealth and Avaloq's core banking system, which will ultimately scale both businesses and better serve joint clients. We repurchased $375 million worth of common shares in the second quarter. At present, based on our capital spending plans for the year and subject to market conditions, we still anticipate repurchasing at least $375 million of shares per quarter for the balance of the year, consistent with our previous guidance in January. In May, we capitalized on the improved conditions for debt issuance, issuing $1.25 billion of 10-year debt at a coupon of 4.75%. We expect to invest the proceeds of the offering at substantially the same rate as the cost of borrowing, effectively eliminating incremental cost of carrying additional debt in 2023. Our ambition is to be the cloud of investment management and technology We organized around three key principles, access, expertise, and service, to deliver value to our clients. Our platform strategy backed by these three principles drove $80 billion of total net inflows in the second quarter. Broadening adoption of iShares ETFs by asset managers, insurance companies, and wealth managers fueled net inflows of $48 billion in the second quarter, led by fixed income ETF net inflows of $35 billion. Our iShares range to unlocking client demand by providing efficient and expanded access to broad swaths and finer slices of the bond market. Retail net inflows of $4 billion were led by strength in index SMAs through Aperio and broad-based net inflows into active fixed income. BlackRock's institutional franchise generated $5 billion of net inflows in the second quarter. We're partnering with clients across their whole portfolio and our clients are leveraging our scaled advisory asset allocation, OCIO, and technology services. Institutional active net inflows of $9 billion included demand for customized LifePath Target-date mandates and illiquid alternatives. Private markets continue to scale in the quarter. Net inflows of $3 billion represented 10% annualized organic asset growth and were led by private credit and infrastructure. We have approximately $30 billion of non-fee paying committed capital to deploy in a variety of alternative strategies, representing a significant source of future base and performance fees. Finally, cash management net inflows of $23 billion in the second quarter were led by U.S. government money market funds. We're actively working with clients on their liquidity management strategy, providing technology, market and operational insights, and of course, a full range of cash management capabilities. Looking ahead, we see significant opportunity to grow our market share and consolidate our position with clients as they choose to do more with BlackRock. We're the only asset manager delivering platform as a service. We believe our platform strategy will continue to deliver for both our clients and shareholders resulting in sustained market-leading organic growth and differentiated operating leverage over time. With that, I'll turn it over to Larry.

Operator:

Thank you. [Operator Instructions] We'll go first to Craig Siegenthaler with Bank of America.

Craig Siegenthaler:

Hi, good morning, Larry. I'm good, hope everyone is doing well.

Craig Siegenthaler:

So I have a two-parter on the potential for large bond reallocation. We actually haven't seen any big reallocations yet outside the money market fund business and bond ETFs, so do you expect these two products see the most dominant drivers of flows sales? And then also from your recent conversations with large institutions and retail platforms, do you believe most investors are waiting just given that the Fed will likely still raise rates a couple of times?

Robert Kapito:

So, Craig, the two answers are yes and yes. And that is because, currently yields are back, but I think in general, most people think that yields are going to continue to rise. So they are preparing for, what I would call, a generational change in the fixed income market. Because you can actually earn attractive yields without taking much duration or credit risk. And if you go back clients shifted towards illiquid investments over the last decade to get those returns, but while there is still demand for the private markets to diversify and pursue outperformance, investors as you know, can get most of that yield and their liabilities and meet them through bonds and we are so well-positioned for that both with our $3.4 trillion fixed income and cash platform. So to give you some numbers, 80% of all fixed income is now yielding over 4%. This is a pretty remarkable shift in our history. We're calling this a once-in-a-generation opportunity. There is finally income to be earned in the fixed-income market and we are expecting a resurgence in demand. Now, you touched on something very important, the cash market, this is not the last stop for that cash and there are trillions now. I think the number is around $7 trillion in money market accounts that is ready when people feel that rates have peaked to flood the fixed income market and we need to position ourselves to capture that. How do you do that? One is by product and the other is by performance. And we saw positive fixed-income mutual fund flows in the quarter, led by our high-yield total return and muni franchises, we have strong long-term investment performance with 90% of taxable fixed-income AUM above the benchmark or peer median for the five-year period. So with strong performance, a diversified product offering, we're just in the right spot to take active fixed-income share as investors look to capitalize on these opportunities for alpha in the bond market. I wanted to add one other point about fixed income. We anticipate that bond ETFs are going to be used alongside of our top-performing active offerings. And I know that, because in the first half of the year, we saw $12 billion in active fixed-income net inflows alongside of $68 billion from bond ETFs. So, on the active side, we believe there is finally an opportunity for alpha and that hasn't been there as much as it is in many years. So keep in mind, bond ETFs are also increasingly being used by active managers for liquidity management, hedging, and efficient tactical asset allocation. And in fact, nine of the top 10 global asset managers now use iShares. And then lastly, we have over 450 bond ETF choices, which is more than five times the next largest issuer diversified across exposures and the yield curve. We also have the most diversified client base, including Wealth Advisors, Active Managers, Insurance Companies, Pensions, and other institutions. And lastly, through the capital markets expertise here, we're advising clients on new use cases for bond ETFs, such as replacing more expensive futures or swaps as cash and liquidity instruments and as tools for large-scale portfolio transitions. So the answer is yes and yes. In the iShares fixed-income ETFs, we had leading industry flows now $35 billion in the second quarter. So this is one of the biggest opportunities that we have in front of us and we believe we're going to be able to capture those opportunities.

Laurence Fink:

Good morning, Michael.

Laurence Fink:

I want to give that to Martin.

Operator:

Thank you. We'll take our next question from Mike Brown with KBW.

Michael Brown:

Hi, good morning, everyone. I just wanted to talk about the expectation for expenses this year, so obviously, equity markets have been up year-to-date, S&P is up over 17%, and that's provided a nice boost for AUM. How do you guys think about the earnings power today in the context of BlackRock's expense base and your investment priorities? Have you already planned to allocate more dollars towards investment in the platform and other people tanker capabilities?

Martin Small:

Thanks, Mike, appreciate it. So let's start with our industry-leading organic growth, it's been the result of exactly what you flagged. I think really disciplined investments that we've consistently made through market cycles and we tried to obviously be financially flexible, so that even in sort of the most uncertain markets we continue playing offense and come out even stronger. We have a really strong track record I think of making good investments and deliberating -- delivering a differentiated operating margin. We obviously had a 42.5% operating margin over the longer-term. We've expanded our as adjusted margin in the last seven to 10 years. And even in 2022, as I talked about on Investor Day, Mike, we expanded our margin by 240 basis points over the last decade. Those results I think are really well above the large-cap peers. We've seen a good amount of margin contraction over the same period. But as you're flagging, in the first half of the year, here we've seen $830 billion increase in AUM. We're now at $9.4 trillion, and obviously, the move in markets has an impact or can have an impact on our operating margin in a meaningful way. And as markets recover, I think we expect to see our revenue growth outpace growth in discretionary expense items and be accretive to operating margin. I think some of the real actions are investing for growth in the most efficient way possible. Like we're going to continue to drive more fixed-cost scale through technology. Rob Goldstein talked about at Investor Day, our opportunities for Aladdin icing offs with eFront, which we think can drive more scale. Larry talked a bit about sourcing. I think we can drive more systematized and efficient differentiated sourcing through our BlackRock Capital Markets team. And then when you think about some of these technology integrations that we've done, whether it's Avaloq, Envestnet, those drive a lot of scale and their investments that really drive differentiated operating organic growth. So, we see great opportunities. We have no change in our expense guidance. We expect to finish the year, as I said, broadly flat in headcount and with G&A. up mid-to-high single-digits.

Laurence Fink:

Hi, Ken.

Laurence Fink:

Rob?

Operator:

Thank you. We'll take our next question from Brian Bedell with Deutsche Bank.

Laurence Fink:

Hi, Brain.

Robert Kapito:

Well, first of all, thanks for the question. I think the transition investing is probably one of the greatest opportunities in the world today. The dialogs that we're having with governments worldwide. Very unique. There's not a government that is not focus on this, especially for countries that are dependent on importation of power. They're all looking for different ways across-the-board in terms of how do they successfully navigate their economy. Energy and power is becoming one of the dominant conversations and then through the United States, IRA. We are seeing just huge interests with. U.S and non-U.S companies. Coming into the United States and take advantage of the opportunities that present to us in terms of elevated returns because the IRA. And so we look at this as a multi-year growth opportunity. We are working. We announced. As I said earlier, my talk about the Acacia energy the largest. Battery storage capability in the world. And that just has set us. And the conversations we're having with other countries related to that type of activity, it's becoming. Is becoming much conversational component of what we're doing. So we look at this, is it a significant, we're talking 10s and 10s of trillions of dollars. Market opportunity. Now if you overlay. More-and-more issues around debt to GDP in more-and-more countries, more-and-more countries are going to have to look to private capital. It cannot be funded by the public sector. And that is one of the great positioning opportunity for BlackRock relationships worldwide. We have that unique opportunity. Present with us. Two, as I talked about proprietary origination. We're having more-and-more conversations with more-and-more corporations and how do they think about their platform related to decarbonization and that we are we have deep and broad conversations with traditional energy companies and how are they going to be focused on sequestration of carbon, they own the geology. BlackRock already has one of the largest. Sequestration projects in the United States in Navigators CO2. And that is another good example and it is those type of reference investments that are giving us greater and greater opportunity and. I do believe our positioning of our global platform, working with more-and-more governments talking about public-private types of investments. At the same time, working with corporations and how do they move forward, really gives us our unique opportunity for many-many years ahead. To be partnering with them. In terms of corporations, many shareholders are questioning how corporations should move forward some shareholders don't think they should move forward in that area. And then in that case some of the companies are asking us, can we co-invest with them. Some companies are looking to expand in various different ways and they did they just don't happen generation of capital to doing that to the speed in which they are looking-forward to doing that and so between our relationships. Companies with our broad relationships with governments, gives us a real opportunity to be one of the leaders in the transition, and I believe this is this is going to be a multi-year global opportunity for BlackRock.

Laurence Fink:

Thank you, operator, and I want to thank all of you for joining us this morning. Continued interest in BlackRock. I am proud of what we've done as a firm and delivering value for our clients. Obviously, delivering value for our shareholders. The power of our connected platform and the collaboration and creativity of our leadership team. Will enable us to continue to deliver differentiating growth into the future for you, our shareholders. I want to thank you again for being part of the call and. I wish everyone have a very pleasant summer and a great quarter. Thank you.

Operator:

Good morning. My name is Jess, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated First Quarter 2023 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Martin S. Small; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. [Operator Instructions] Mr. Meade, you may begin your conference.

Martin Small:

Thanks, Chris, and good morning, everyone. It's my pleasure to present results for the first quarter of 2023. Before I turn it over to Larry, I'll review our financial performance and business results. Our earnings release discloses both GAAP and as adjusted financial results. I'll be focusing primarily on our as-adjusted results. Beginning in the first quarter of 2023, we updated our definitions of as adjusted operating income, operating margin, non-operating income and net income. They now exclude the compensation expense impact of mark-to-market volatility associated with certain deferred cash compensation plans and the non-operating impact of an economic hedge, which the company began in 2023. We believe this change provides investors and management with a more useful understanding of our core financial performance over time and increases comparability with other asset management companies. BlackRock regularly reviews our disclosures with the goal of providing helpful information to our investors and streamlining where appropriate. To this end, we also simplified our disclosure of distribution revenue and expense beginning in the first quarter. I'm excited to be presenting for the first time as CFO. As many of you know, most of my first 17 years at BlackRock were spent in client-facing roles. And I can tell you first hand, BlackRock was built for clients. Financial cracks and economic damage from this rapid rate hiking cycle burst into view over the last few weeks, 20 years of easy money is definitely behind us. The world is adjusting to higher rates and tightening credit conditions. BlackRock's platform has been built over time to help clients in all market environments. Market dislocations present significant opportunities for BlackRock and most importantly, for our clients. Asset management firms connect investors to capital markets, and we see these recent dislocations driving more economic activity and growth to markets. We've spent 35 years creating more access, creating more connections among long-term investors, capital markets and the real economy. We've unlocked new markets through iShares and personalized SMAs. We pioneered unconstrained bond strategies, and we put Aladdin on the desktops of thousands of investors and advisers, leading the industry, leading our clients on this journey with world-class investment capabilities, market insights, advice and technology, that's the center of BlackRock's growth strategy. We're a partner. We have long-term perspective. We have the ability to move quickly in times of stress. We're a whole portfolio adviser, providing end-to-end technology and investment portfolio servicing. Clients use BlackRock as a scale enabler. They use our platform as a service. They use it to streamline and support the growth and commercial nimbleness of their own business. Our unique platform combination of ETFs, advisory, outsourcing technology alongside with active and private markets capabilities, that's what's driving BlackRock's differentiated organic growth. Whether adding or reducing risk, our continued industry-leading organic growth demonstrates that clients are consolidating more of their portfolios with BlackRock. And in the first quarter, BlackRock generated total net inflows of $110 billion, representing 5% annualized organic asset growth and 1% organic base fee growth. First quarter revenue of $4.2 billion was 10% lower year-on-year, primarily driven by the impact of significantly lower markets and dollar appreciation over the last 12 months on average AUM as well as lower performance fees. Operating income of $1.5 billion was down 17%, while earnings per share of $7.93 was lower 17% versus a year ago, also reflecting a higher effective tax rate partially offset by higher non-operating income. Non-operating results for the quarter included $60 million of net investment gains driven primarily by mark-to-market gains and the value of our private equity co-investment portfolio and unhedged seed capital investments. Our as adjusted tax rate for the quarter was approximately 25%. This reflects lower discrete tax benefits related to stock-based compensation awards that vest in the first quarter of each year compared to the first quarter of 2022. We continue to estimate that 25% is a reasonable projected tax run rate for the remainder of 2023. The actual effective tax rate may differ because of nonrecurring or discrete items or potential changes in tax legislation. First quarter base fees and securities lending revenue of $3.5 billion was down 9% year-over-year. This reflected the negative revenue impact of approximately $800 billion of market beta and foreign exchange movements on our AUM over the last 12 months and was partially offset by the elimination of discretionary money market fund fee waivers and higher securities lending revenue. Sequentially, base fee and securities lending revenue increased 3%, reflecting higher average AUM and securities lending spreads, partially offset by the impact of a lower day count in the first quarter. On an equivalent day count basis, our annualized effective fee rate was modestly lower compared to the fourth quarter, mainly due to changing client risk preferences. Performance fees of $55 million decreased from a year ago, primarily reflecting lower revenue from alternatives. In 2022, our Aladdin platform delivered record net sales and we continue to see strong client interest for our technology solutions. Quarterly technology services revenue was approximately flat compared to a year ago, reflecting this continuing strong demand but also significant headwinds associated with the foreign exchange impact on Aladdin's non-dollar revenue and market declines on Aladdin's fixed income platform assets over the last 12 months. Sequential Technology Services revenue was impacted by onetime fees in the prior quarter and the timing of implementations. Annual contract value, or ACV, increased 6% year-over-year. We remain committed to low to mid-teens ACV growth over the long term, especially as periods of market volatility have historically underscored the importance of Aladdin and generated increased demand. Total expense decreased 5% year-over-year, reflecting lower compensation and direct fund expense partially offset by higher G&A expense. Employee compensation and benefit expense was down 6% and primarily reflecting lower incentive compensation due to lower operating income and performance fees. G&A expense increased 6% due to higher marketing and promotional expense, including the impact of higher T&E expense and higher occupancy expense as a result of our moving to our new headquarters right here in Hudson Yards, New York. Sequentially, G&A expense decreased 10%, primarily reflecting seasonally lower marketing and promotional expense. Direct fund expense was down 4% year-over-year, primarily reflecting lower average index AUM. Sequentially, quarterly direct fund expense increased due to higher average index AUM in the current quarter and higher rebates that seasonally occur in the fourth quarter. Our first quarter as adjusted operating margin of 40.4% was down 380 basis points from a year ago. This primarily reflects the negative impact of markets and foreign exchange movements on quarterly revenue. Although markets have improved since the end of 2022, we will continue to be disciplined in prioritizing our hiring and overall investments with the aim of delivering organic growth and a differentiated operating margin. The diversification and the resilience of our platform allow us to pursue critical investments while maintaining focus on expenses in our margin. BlackRock's industry-leading organic growth is a direct result of the disciplined investments we've consistently made through market cycles. Our business is well positioned to take advantage of the opportunities before us, and we remain committed to optimizing organic growth in the most efficient way possible. In line with our guidance in January, at present, we'd expect our headcount to be broadly flat in 2023, and we'd also expect a mid- to high single-digit percentage increase in 2023 core G&A expense. Our capital management strategy remains, first, to invest in our business and then to return excess cash to shareholders through a combination of dividends and share repurchases. We continue to invest through a prudent use of our balance sheet to best position BlackRock for continued success. This is primarily through seed and co-investments to support organic growth. We will make inorganic investments where we see an opportunity to accelerate growth and support our strategic initiatives. BlackRock's stable and differentiated business model enables us to invest and remain opportunistic. Our acquisition philosophy focuses on extending our product capabilities and our distribution reach. Prior examples of this strategy are the acquisitions of eFront to extend Aladdin's whole portfolio coverage, Aperio to scale direct indexing and First Reserve to enrich energy and infrastructure investing at BlackRock for our clients. As previously announced in January, we increased our quarterly dividend by 2.5% to $5 per share of common stock. We also repurchased $375 million worth of common shares in the first quarter. At present, based on our capital spending plans for the year and subject to market conditions, we still anticipate repurchasing at least 375 million of shares per quarter for the balance of the year, consistent with our previous guidance in January. BlackRock's $110 billion of total net inflows evidence our strong ongoing connectivity with clients, which only grew as market and liquidity stress events unfolded in the quarter. First quarter ETF net inflows of $22 billion were led by demand for our bond ETFs. This was partially offset by seasonal tax trading and sentiment-driven outflows from U.S. equity style box exposures in precision ETFs. As we've seen repeatedly in periods of market volatility, investors use iShares to implement tactical asset allocation preferences in their portfolios. Our bond ETFs again delivered for clients and generated $34 billion of net inflows. We've invested for years to support the growth of bond ETFs, both to create a diversified bond ETF platform and to deliver the liquidity and price transparency our clients expect, especially during periods of market volatility. Retail net inflows reflected strength in index SMAs through Aperio and broad-based net inflows into active fixed income. BlackRock's institutional franchise generated $81 billion of net inflows as we continue to partner as a scale enabler, a platform for institutional clients seeking turnkey access to investment expertise, greater customization, industry-leading risk management, technology and investment servicing. Institutional active net inflows of $72 billion were led by multi-asset and fixed income net inflows, which included fundings from several significant outsourcing mandates. Demand for private markets also continued with $4 billion of net inflows, representing 16% annualized organic base fee growth led by private credit and infrastructure. We continue to source unique deals for our clients through our global network of relationships. They're underpinned by data, analytics and technology. Examples include our agreement to form Gigapower, a joint venture with one of our diversified infrastructure funds and AT&T. We have approximately $33 billion of committed capital to deploy for clients in a variety of alternative strategies, and this represents a significant source of future base and performance fees. In aggregate, BlackRock generated approximately $68 billion of active net inflows during the quarter, and we've now generated positive active flows in all but two quarters since the beginning of 2019. Finally, BlackRock's cash management platform saw $8 billion of net inflows in the first quarter. Flows were driven by surging demand for our cash management solutions in March as clients look to diversify away from deposits and enhance cash yields. March net inflows offset net redemptions in the first two months of the quarter that were primarily due to client-specific activity such as SPAC unwinds. We're actively working with clients on their liquidity management strategies, providing technology, market and operational insights and, of course, delivering a full range of cash management capabilities. BlackRock's first quarter results highlight the benefits of the investments we've made to build a diversified and resilient investment technology platform. Throughout our history and in its most recent crisis, BlackRock's led by listening to clients. I'm excited about our future and the growing opportunities for BlackRock, for our clients, for our employees and our shareholders. And with that, I'll turn it over to Larry.

Operator:

[Operator Instructions]Your first question comes from Michael Cyprys with Morgan Stanley.

Martin Small :

Thanks, Mike. Appreciate it. I hope you had a good holiday. It is an incredibly dynamic time for the cash and liquidity markets. This has historically been a stable value, low or no expected return asset class where people do lots of operational things. But we've obviously entered into this period that started with kind of rates and inflation and has been supercharged essentially by banking sector tremors. And as you correctly flagged, we've seen an extraordinary amount of inflow into money market funds. And clients, I think, paying very close attention where they keep their operating cash and where they keep cash where they can earn a yield premium over deposits. And in every single cycle, deposits obviously tend to lag where money market rates are and deposit betas are just lower. So I think there is absolutely a structural shift in the marketplace that's driven by two things. One, just rates inflation, but also just clients paying a lot more attention about where they're going to keep their cash balances for purpose of what they do. We're really well positioned here. We had $40 billion-plus of flows in March. We had some outflows in January and February that were really resulting from SPAC unwinds. But we feel very good about our positioning. We have a $683 billion cash platform. We've grown at 50% over the last five years. And I think uniquely, as is with most things at BlackRock, we have a tech-first distribution strategy with assets like Cachematrix and Aladdin. And we also have a very global business that has real diversity of offering across money funds, ETFs, separate accounts. The last thing I'd just say about that is, I would think about the structural shift that you proposed is not just being about money funds or seg accounts, but being about all of the cash and cash surrogates. I mean there are so many things you can go throw a dart at that yield 5% now. And I would look at a lot of what's happening in the bond ETF world is also being about picking up a yield premium over cash. And so we expect to be really well positioned as clients do a lot of that work to use the ETF markets, to use money funds as well as a whole array of active fixed income solutions.

Craig Siegenthaler:

So we're still very focused on the potential for sizable fixed income reallocations. The rates are now looking to plateau. And it seems like the most -- the largest migrations may come from retirees in the U.S. in the pension plan channel. So I wanted your updated perspective on this topic, given your conversations with large institutions and wealth management platforms. And I'm also curious to see if you have any updated thoughts on the reallocation mix between passive and active because of the flow mix [Indiscernible] BlackRock could be a real big winner on this.

Operator:

Our next question comes from Glenn Schorr with Evercore.

Martin Small :

Hi, Glenn. It's Martin. Thanks for the question. In 2022, we delivered positive organic base fee growth despite the most challenging market environment our industry has ever seen. As Rob mentioned, the S&P was down 19% on the year, the [Ag] (ph) was down 13% on the year and we still drove industry-leading organic growth and positive base fee growth. And I'd say the first quarter here of 2023 was no different. You had a stressed market, you had a lot of volatility and BlackRock still delivered $110 billion of total net flows and 1% organic base fee growth. Our mission, our aim, our strategy is not to be the fastest grower in any quarter. Our aim is to deliver organic growth that's more differentiated, more consistent through market cycles over the long term. Glenn, we've done that. We've had 5% organic base fee growth on average over the last five years, '18 to '22. We had over 5% organic base fee growth in seven of the last 10 years. And I think what's really important to look at is in these years that have been marked by exceptional market volatility, like '16, '18 and 2022, we still were able to deliver positive base fee growth. And I think when you sort of look at the flows going forward, the first quarter always has the seasonal element to it that has ETF tax trading, where we have precision exposures that are really important growing asset bases over time. But we tend to see inflows into precision exposures in the fourth quarter related to ETF and mutual fund dynamics and then we tend to see some reversals of those flows in the first quarter from precision exposures. Those tend to come at higher fee rates and a lot of the flows that come from outsourcing on fixed income come at slightly lower fee rates. And I think that's some of the impact that you saw this quarter, which is really just about changing risk preferences. We don't manage to a fee rate and we don't manage to a particular set of products with the clients. It's about obviously winning mind share in portfolios. And so I think over time, you'll continue to see good solid growth there.

Alex Blostein :

I was hoping we get a little bit deeper into how the events in the banking space over the last several weeks changed the opportunity set for BlackRock. There's a number of benefits. As you mentioned, there are some obvious things like cash management, but what does that mean for Aladdin? What does it mean for advisory? What does it mean for all? Just I was hoping to get more perspective on what are the opportunities you look to lean into more on the back of this dislocation?

Operator:

We'll go next to Bill Katz with Credit Suisse.

Laurence Fink :

I'm going to let Rob talk about the organic and then I will talk about some of the inorganic.

Laurence Fink :

Inorganic, I look at the things that we've done in the past by expanding our products in a range, whether it was eFront and transformed Aladdin into a platform that is both unique and differentiated because it's both public and private markets. I look at what we did with Aperio in terms of wealth management and the opportunity we have in tax strategies and direct indexing. I look at Cachematrix and how that played a role with our money market funds in the last few months. And so it is through inorganic opportunities that we look at if we can expand our footprint. As I said in my prepared remarks, we are asking ourselves to reimagine BlackRock. What are the other big opportunities? Should there be a big opportunity as more and more organizations use technology, how can we double down on what we're doing with Aladdin technology? How can we build out our footprint globally at this time? And so we're looking across the board as there are issues. We -- I believe BlackRock can play a role in some of these opportunities. And I think there was a quote sometime in the last few weeks about something I said to our team, I don't know where it came from. But indeed, I did say it, I said to be in the game, we must play the game. And so we're in the game. We're across the board working with our clients across the board. We're working with policymakers across the board. We are working with regulators worldwide. And we're here to help. We're here to advice. We're here to navigate. And through all that, there is an opportunity for something inorganic and transformational. We're going to be prepared to do something like that, but I'll just leave it at that.

Laurence Fink:

Yes. Thank you, operator. I'm going to thank all of you for joining us this morning. I know today is a really busy day, especially with all the other banks and financial institutions reported today. So I'm very, very happy that you've taken this time and your interest in BlackRock. Hopefully, you heard from Martin and Rob and I, how proud we are, the way BlackRock came together and supporting our clients in the most recent quarter. But the consistency of BlackRock now over the last 35 years, clients have been central to everything we do. And I see I just a tremendous opportunity for us, probably I see more opportunities now for BlackRock than I have in the last few years. As Rob talked about, opportunities in fixed income. Our investments that we've made, the huge investments we made in technology, the huge investments we made in bond ETFs, the huge investments we are making in alternatives and private credit. All of this is allowing us to have a differentiating opportunity. And if you overlay that with what we have done with our technology in Aladdin overlaying what we have done with FMA and our unique position with ETFs, it just gives us a tremendous opportunity ahead of us. And I would double down on the idea that we're going to be focus on delivering the power of our platform to our clients. And that power of working with our clients will translate totally directly to you, our shareholders. And I want to thank everybody for all the support. Being at Hudson Yards is invigorating. I must tell you the 4,000 employees we have in New York are invigorated by our new space to light the energy, the opportunity. Hopefully, that's translating into how we do our business with our clients every day. Thank you, everyone. Have a good quarter.

Operator:

Good morning. My name is Karen, and I will be your conference facilitator today. Today's call is being recorded. At this time, I would like to welcome everyone to the BlackRock Incorporated Fourth Quarter 2022 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Gary S. Shedlin; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] Thank you, Mr. Meade, you may begin your conference.

Gary Shedlin:

Thanks, Chris. Good morning and Happy New Year to everyone. It's my pleasure to present results for the fourth quarter and full year 2022. Before I turn it over to Larry, I'll review our financial performance and business results. While our earnings release discloses both GAAP and as-adjusted financial results, I will be focusing primarily on our as adjusted results. As a reminder, beginning in the first quarter of 2022, we updated our definitions of as adjusted operating income, operating margin and net income. Year-over-year financial comparisons referenced on this call will relate current quarter results to these recast financials. Throughout BlackRock's history, we have consistently invested in our business with a long-term focus and commitment to serving clients across market environments. We have established leadership positions in high-growth areas such as ETFs, private markets, outsourced solutions and technology. And we have integrated industry-leading capabilities into our One BlackRock business model and culture to create a distinct and differentiated value proposition for clients. As a result of these investments, we grew organically at our fastest rate ever in 2021. And while 2022 was one of the most challenging market environments in over 50 years, clients around the world once again turned to BlackRock for advice and assistance to construct more resilient portfolios. In good times and bad times, whether adding or reducing risk, our continued industry-leading organic growth demonstrate that clients are increasingly consolidating more of their portfolios with BlackRock for long-term solutions that solve their most challenging investment needs and address their unique risk preferences and priorities. During 2022, BlackRock generated industry-leading total net inflows of over $300 billion and delivered positive organic base fee growth. Importantly, we ended the year with strong momentum, generating approximately $114 billion of total net inflows in the fourth quarter representing 3% annualized organic base fee growth and reflecting continued momentum in iShares and significant outsourcing mandates. Full year revenue of $17.9 billion was down 8%. Operating income of $6.7 billion and earnings per share of $35.36 both declined 13% compared to 2021. For the fourth quarter, revenue of $4.3 billion was 15% lower year-over-year primarily driven by the impact of lower markets and dollar appreciation on average AUM and lower performance fees. Quarterly operating income of $1.6 billion was down 25%, while earnings per share of $8.93 was 16% lower versus a year ago, also reflecting higher non-operating income and a lower effective tax rate in the current quarter. Non-operating results for the quarter included $159 million of net investment income driven primarily by mark-to-market gains in our private equity co-investment and seed investment portfolios and our strategic minority investment in Envestnet. Our as adjusted tax rate for the fourth quarter was approximately 23%, driven in part by discrete items. We currently estimate that 25% is a reasonable projected tax run rate for 2023 primarily due to an increase in UK tax rates, though the actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. Fourth quarter base fee and securities lending revenue of $3.4 billion was down 14% year-over-year, in line with the corresponding decline in average AUM, primarily reflecting the negative revenue impact of approximately $1.7 trillion of market beta and foreign exchange movements on AUM over the last 12 months. Sequentially, fourth quarter base fees and securities lending revenue was down 4% despite positive organic base fee growth in the quarter. Our fourth quarter annualized effective fee rate decreased by approximately 1.5 basis points from the third quarter, reflecting the previously discussed impact on our fourth quarter entry rate, continued mix change favoring lower fee mandates and lower securities lending revenue. Fourth quarter and full year performance fees of $228 million and $514 million, respectively, decreased from a year ago. The decline primarily reflected lower revenue from liquid alternative and long-only mandates, partially offset by higher fees from illiquid alternatives. Notably, as our private markets business continues to scale, full year performance fees from liquid alternatives increased 42% year-over-year and our unrecognized deferred carry balance, which represents a portion of our potential future carrier fee revenue exceeds $1.4 billion. Our Aladdin business delivered record net new sales in 2022, and demand for our technology solutions has never been stronger. Quarterly technology services revenue increased 4% year-over-year and full year revenue of $1.4 billion increased 7%. Both periods reflected significant revenue headwinds associated with the FX impact on Aladdin's non-dollar revenue, and market declines on Aladdin's fixed income platform assets. Annual contract value, or ACV, increased 8% year-over-year. On a constant currency basis, we estimate ACV would have increased 10% from a year ago. Total expense decreased 4% in 2022, reflecting lower compensation, direct fund expense and G&A expense. For the full year, employee compensation and benefit expense was down 5%, primarily reflecting lower incentive compensation due to lower operating income and performance fees and lower mark-to-market impact of certain deferred compensation programs, partially offset by higher base compensation. Recall that year-over-year comparisons of fourth quarter compensation expense are less relevant because we finalize full year compensation in the fourth quarter. 2022 direct fund expense decreased 7% year-over-year, primarily reflecting lower average index AUM. The sequential decline in quarterly direct fund expense also includes the impact of higher rebates that seasonally occur in the fourth quarter. Excluding product launch costs, fourth quarter G&A expense increased 2% year-over-year, reflecting ongoing strategic investments in technology and the impact of higher foreign exchange re-measurement expense, partially offset by lower occupancy and sub-advisory expense. For the full year, we estimate that core G&A expense was up 11% compared to 2021, primarily driven by higher technology spend associated with our Aladdin cloud migration and a return to more normalized levels of T&E expense. Our full year as-adjusted operating margin of 42.8% was down 400 basis points from a year ago, primarily reflecting the negative impact of markets and foreign exchange movements on revenue and the ongoing longer-term strategic investments we have been making in technology and our people. BlackRock's industry-leading organic growth is a direct result of the disciplined investments we have consistently made through market cycles. As we've shown throughout our history, it's often in times of greatest uncertainty where BlackRock's differentiated model enables us to continue playing offense and we emerged even stronger. Since July, we have been aggressively managing the pace of our discretionary spend, so we would be better prepared for 2023, a year in which we will need to increasingly focus our resources on areas of greatest opportunity. In order to continue investing in our people and critical strategic priorities during the year, we recently restructured the size and shape of our workforce to free up investment capacity for our most important growth initiatives. By taking a targeted and disciplined approach to how we shape our teams, we not only increase investment capacity for these initiatives but also create opportunities for our incredible talent. This resulted in a fourth quarter restructuring charge of $91 million primarily comprised of severance and accelerated amortization of previously granted deferred compensation awards for approximately 500 impacted employees or 2.5% of our global workforce. This charge appears as a single line expense item on our 2022 GAAP income statement and has been excluded from our as adjusted results to enhance comparison to prior periods. Our business is incredibly well positioned to take advantage of the opportunities before us, and we remain deeply committed to optimizing organic growth in the most efficiently possible. At present, we would expect our head count to be broadly flat in 2023. We optimizing the shape of our talent pyramid and growing our footprint in iHub innovation centers will continue to be central to our talent strategy, allowing us to continue to support growth at scale. In addition, we would also expect a mid- to high single-digit increase in 2023 core G&A expense driven by the upcoming move to our new Hudson Yards headquarters, continued investment in technology to scale our operations and support future growth, and the annualized impact of migrating Aladdin clients to the cloud, which is now substantially complete. We are also investing through prudent use of our balance sheet to best position BlackRock for continued success. During 2022, we allocated $1.2 billion of new seed and co-investment capital to support our growth, and our year-end portfolio now approximates $3.9 billion. Our strategic minority investments are reinforcing various elements of our strategy and simultaneously generating very attractive returns for our shareholders. During the year, we invested in Circle and became the primary manager of the U.S. DC cash reserves, and we recently made a minority investment in human interest, a tech-enabled, end-to-end retirement plan solutions provider, which is helping Americans employed by smaller businesses access easier ways to save for their retirement. We also remain committed to systematically returning excess cash to shareholders through a combination of dividends and share repurchases and returned a record $4.9 billion to shareholders in 2022, including $1.9 billion of share repurchases, an increase of over 30% from 2021. Since inception of our current capital management strategy in 2013, we have now repurchased over $13 billion of BlackRock's stock, reducing our total outstanding total shares by 13% and generating an unlevered compound annual return of approximately 15% for our shareholders. At present, based on capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price, we are targeting the repurchase of at least $1.5 billion of shares during 2023. As you will hear more from Larry, BlackRock's strategy has always been guided by our clients' needs. We are relentlessly focused on providing choice, delivering strong investment performance and executing our fiduciary duties with excellence. This enables us to build deeper and broader relationships with more clients and drive differentiated growth across our platform. Fourth quarter long-term net inflows of $146 billion, representing 8% annualized organic asset growth, were led by flows into strategic growth areas, including ETFs, outsourced solutions and illiquid alternatives. Full year long-term net inflows of $393 billion were positive across all regions, led by net inflows of $230 billion from clients in the United States. BlackRock generated industry-leading ETF net inflows of $220 billion in 2022 and representing 7% organic asset growth and 3% organic base fee growth, including a record $123 billion in demand ETFs. Fourth quarter ETF net inflows of $90 billion reflected some seasonality but also reflected the diversity of our product and client segments. Surging demand for our bond ETFs, which saw $47 billion of net inflows, represented the second best quarter in our history. We also saw continued strength in core equity ETFs as well as precision exposures as clients reassessed tactical asset allocation changes during the quarter. Full year retail net outflows of $20 billion reflected ongoing industry pressures in active fixed income and world allocation strategies partially offset by strength in index SMAs and our systematic equity income and multi-strategy alternative funds. Fourth quarter retail net outflows of $15 billion reflected similar trends. BlackRock's institutional business generated record net inflows of $192 billion in 2022 representing 4% organic asset and 3% organic base fee growth paced by approximately $170 billion of active net inflows, reflecting broad-based strength across all product types and the funding of several significant outsourcing mandates. Fourth quarter Institutional active net inflows of $76 billion were also positive across all product types and included the funding of the substantial remainder of the AIG Corebridge fixed income mandate. We remain well positioned to meet investor demand for risk-adjusted alpha and yield and our diversified active fixed income platform with strong three- and five-year performance records across total return, unconstrained, high yield and credit is especially well positioned for growth as interest rates stabilize in the latter part of the year. Demand for private markets also continued with $16 billion of net inflows into illiquid strategies during the year driven by private credit and infrastructure. In addition, as our private markets business continues to grow, we also raised significant new client commitments in 2022. We now have approximately $34 billion of committed capital to deploy for institutional clients in a variety of strategies, representing approximately $260 million of future annual base fees and significant potential performance fees. Finally, BlackRock's cash management platform experienced $32 billion of net outflows in the fourth quarter and $77 million of net outflows for the year. Despite a particularly challenging year for the broader institutional liquidity industry, BlackRock became the number one international money market provider. And as rates stabilize, we are well positioned to grow market share by leveraging our scale, product breadth, technology, and risk management capabilities. Before I hand it over to Larry, one last time, I'd like to take this moment to thank him for giving me the opportunity to be CFO of this amazing organization for the last 10 years. It's truly been a highlight of my career, and I'm deeply grateful for the feedback, advice and wisdom I have garnered from our shareholders, our sell-side analysts, our Board, my BlackRock colleagues and, most of all, the amazing finance team I've had the privilege to work alongside. BlackRock is incredibly well positioned to continue generating differentiated growth and delivering for clients, employees and shareholders. And I look forward to continuing the journey in my new role. I'm even more excited for lies ahead with Martin Small as our next CFO. I know we will be in great hands. With that, over to you, Larry.

Operator:

[Operator Instructions] We'll take our first question from Daniel Fannon with Jefferies. Please go ahead.

Laurence Fink:

Rob?

Operator:

Our next question comes from Alex Blostein with Goldman Sachs. Please go ahead.

Gary Shedlin:

Thanks, Alex. So maybe just some context, right, and I think we've spent the last couple of calls talking about our philosophy of really trying to drive organic growth because we know that, that is obviously a critical driver of our PE multiple. And I think we are also mindful that we come through these periods of volatility generally better positioned than our competitors because of our diversified model that gives us the ability to continue to invest going forward when others simply can't do it. And I think as we've talked about this, there's this conundrum, right, which is, on the one hand, we know that our PE multiple is driven by growth. And on the other hand, just understand that in the context of the overall market, our revenue run rate is down, and there is a little bit of a misalignment between our expense base and our revenue capture rate versus where it was a couple of years ago. But I think as we saw coming out of the pandemic, we continued to invest in our business, and that resulted ultimately in the two best years in BlackRock's history in 2021. And in 2022, we've once again delivered by generating over $300 billion of net inflows while most of the industry has been in outflow. So our challenge today really remains to ensure that we can continue to invest in our highest growth opportunities. And we're obviously committed to doing that by trying to relentlessly reallocate resources across the organization. We obviously don't go -- we don't go into a year predicated on any beta assumptions. We try to take beta out of it. I think Rob Kapito did an amazing job of explaining where we think most of the growth potential are on the revenue side. And so it's with that in mind that, in July, we really began to more aggressively manage the pace of our hiring and our discretionary spend and more recently determined to effect a broader restructuring of the size and the shape of the workforce to really free up that investment capacity to ensure that we can continue to basically drive our most important growth initiatives and obviously create opportunities for our talent to develop and prosper. So, I think you've seen that and we talked about that. For next year, we expect our head count will be broadly flat. We are going to continue to optimize our talent pyramid and grow our footprint in iHub innovation centers globally in the U.S., EMEA and APAC. And as I mentioned, we would expect a mid- to high single-digit increase in our core G&A expense. That's coming off a lower base because, as you know, we initially had given you guys, 13% to 15% increase. We actually came in closer to 11%. So we'll be growing off a lower base, and that will continue to be driven by the variety of things that I mentioned on the call, Hudson Yards, technology to scale ops and, obviously, the annualization of a number of expenses, including our Aladdin cloud migration costs. But I really want to remind everyone that our highest margin business is beta. And obviously, we've seen that both on the way up and we also see it on the way down. And as markets hopefully recover we are very confident to see -- to say that our revenue growth over the long term should meaningfully outpace our growth in any of these discretionary expense items and ultimately be accretive to our operating margin.

Michael Cyprys:

And Gary congratulations on an amazing 10-year run as CFO, I wish you all the best in your new role. Just a question on Aladdin. Hoping you could unpack a bit of that you're seeing in Aladdin with the record wins? And how you think about extending the platform to other use cases and verticals and how you're thinking about the drivers of growth over the next several years?

Operator:

We'll move to our next question with Craig Siegenthaler with Bank of America. Please go ahead.

Laurence Fink:

I could tell you he's going to be sulking.

Craig Siegenthaler:

So just a follow-up to Rob's comments on the first question for the potential for fixed income rebalancing, do you think passive will win the majority of inflows like we've seen in equities for the last decade? Or do you think active will grab a healthy split of share as we've seen in fixed income really up until just this last year?

Robert Kapito:

I would just add, Craig, one thing is I believe we are going into a period of time in fixed income where you can add alpha in your individual bond selection or where you are on the curve. And you can do it through both active and passive, as Larry is saying, but it will all come down to the ability to add alpha. I can give you an example now in the short end of the curve, which a year ago was very low-yielding. Today, we can find opportunities to earn a 5.5% to 6% in a very short duration. That is going to be active. So it is a combination of both, but it will depend on where our clients can find the most output to determine the split between both ETFs, index and active as you call active.

Laurence Fink:

I do, operator. I want to thank everybody for joining this morning and for your continued interest in BlackRock. Our fourth quarter and full year performance is a direct result of our commitment in serving our clients each and everyone individually, providing them choice and helping them through guidance with our fiduciary standards that help them evolve and build their needs for the long term. I'm incredibly excited about 2023 and the opportunities ahead of us. And I believe BlackRock is in a position unlike any other time in our history, I want to thank all of you and everyone, please have a great start to our new year.

Operator:

Good morning. My name is Jake and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated Third Quarter 2022 Earnings Teleconference. Our host for today’s call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Gary S. Shedlin; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

Gary Shedlin:

Thanks, Chris, and good morning, everyone. It’s my pleasure to present results for the third quarter of 2022. Before I turn it over to Larry to offer his comments, I will review our financial performance and business results. While our earnings release discloses both GAAP and as-adjusted financial results, I will be focusing primarily on our as-adjusted results. As a reminder, beginning in the first quarter of 2022, we updated our definitions of as-adjusted operating income, operating margin and net income. Year-over-year financial comparisons referenced on this call will relate current quarter results to these recast financials. Market conditions remained very challenged in the third quarter, with global equity and debt markets ending down 25% and 14%, respectively, for the first 9 months of 2022. In total, these market declines, along with significant dollar appreciation against major currencies, reduced the value of BlackRock’s assets under management by over $2 trillion since December 31. Inflation, rising rates, liquidity, market volatility and geopolitical uncertainty remains significant concerns for clients, but more of them are turning to BlackRock for comprehensive solutions to help build more resilient portfolios. They increasingly value our unparalleled breadth of investment products, styles and exposures which allows them to customize portfolios to address the investment policies, return targets and unique needs of their stakeholders. Our ability to deliver this customization at scale is a unique advantage and it is during times of market uncertainty that the power of our platform becomes most evident. Despite the most challenging market backdrop in decades, BlackRock generated industry-leading long-term net inflows of $248 billion during the first 9 months of 2022, demonstrating the strength and stability of our globally integrated multi-asset solutions-oriented platform. We have invested for years to develop leading franchises in high-growth areas such as ETFs, private markets, outsourced solutions and technology. And importantly, we have worked tirelessly to fully integrate these capabilities into our One BlackRock business model and culture. This connectivity and collaboration is more important than ever before as we bring together the entire firm to deliver better outcomes for our clients and differentiated growth for our shareholders. And while we can’t control near-term volatility or the specific client risk preferences that may result, BlackRock’s platform has been purposely built over time to help clients meet their objectives, regardless of the market environment. Over the last 12 months, BlackRock’s broad-based platform has generated approximately $400 billion of total net inflows, representing positive organic base fee growth of 2%. During a tumultuous market environment, BlackRock generated third quarter long-term net inflows of $65 billion, representing approximately 3% annualized organic asset growth. Quarterly long-term net inflows were partially offset by net outflows from cash and advisory AUM. However, total quarterly annualized organic base fee decay of 4% reflected outflows from higher fee precision ETFs, the continued impact of elevated redemptions in active equity and fixed income mutual funds and outflows in institutional money market funds. Third quarter revenue of $4.3 billion was 15% lower year-over-year primarily driven by the impact of significant lower markets and dollar appreciation on average AUM and lower performance fees. Operating income of $1.6 billion was down 22% and reflected the impact of approximately $96 million of closed-end fund launch costs in the third quarter of 2021. Earnings per share of $9.55 declined 16% versus a year ago, also reflecting a lower effective tax rate, partially offset by lower non-operating income compared to a year ago. Our as-adjusted tax rate for the third quarter was approximately 19%, reflecting $93 million of discrete tax benefits. We continue to estimate that 24% is a reasonable projected tax run rate for the remainder of 2022, but the actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. Non-operating results for the quarter included $219 million of net investment income and reflected a $267 million non-cash gain related to our strategic minority investment in iCapital. Third quarter base fee and securities lending revenue of $3.5 billion was down 10% year-over-year, broadly in line with the decline in our average AUM. The negative revenue impact of approximately $1.9 trillion of market beta and foreign exchange movements on AUM over the last 12 months was partially offset by positive organic base fee growth over the same period and the elimination of discretionary yield support money market fund fee waivers versus a year ago. On a constant currency basis, we estimate second quarter base fee and securities lending revenue would have been down 8% year-over-year. Sequentially, while base fee and securities lending revenue was down 4% on an equivalent day count basis, our effective fee rate was approximately flat. As a result of continued global equity and bond market declines toward the end of the quarter, including the impact of FX-related dollar appreciation, we entered the fourth quarter with an estimated base fee run rate approximately 7% lower than our total base fees for the third quarter. Performance fees of $82 million decreased from a year ago, primarily reflecting lower revenue from liquid alternative products, including lower fees from a single hedge fund, with an annual performance measurement period that ends in the third quarter. Our Aladdin business delivered record sales in the first 9 months of 2022 and demand for our technology solutions has never been stronger. Quarterly technology services revenue increased 6% from a year ago, reflecting this increased demand, but also reflecting significant headwinds associated with the FX impact on Aladdin’s non-dollar revenue and market declines on Aladdin’s fixed income platform assets. Annual contract value, or ACV, increased 7% year-over-year. On a constant currency basis, we estimate ACV would have increased 10% from a year ago. Total expense decreased 10% year-over-year, reflecting lower compensation, G&A and direct fund expense. Employee compensation and benefit expense was down 12%, primarily reflecting lower incentive compensation due to lower operating income and performance fees, partially offset by higher base fee compensation. Quarterly G&A expense declined 6% versus a year ago and reflected the impact of $96 million of closed-end fund launch costs in the third quarter of 2021, which are excluded when reporting our as-adjusted operating margin. Excluding these costs, G&A expense increased 13% due to higher marketing and promotional expense, including the impact of higher T&E expense and ongoing strategic investments in technology, including cloud computing costs. Sequentially, G&A expense was up 5%, primarily reflecting higher marketing and promotional expense. Direct fund expense was down 10% year-over-year driven by lower average index AUM. Our third quarter as-adjusted operating margin of 42% was down 560 basis points from a year ago, reflecting the immediate negative impact of markets and foreign exchange movements on quarterly revenue and the ongoing longer-term strategic investments we have been making in technology and our people. BlackRock’s industry-leading organic growth is a direct result of the purposeful investments we have consistently made through market cycles. The diversification and stability of our platform has allowed us to pursue critical investment when others have been forced to pull back. But we also recognize that this market environment may require a different playbook. While we continue to have deep conviction in our strategy and the long-term growth of the global capital markets, we have begun to more aggressively manage the pace of certain discretionary spend. We are continuing to pursue critical hires that support our near-term growth, but are pausing the balance of our hiring plans for the remainder of 2022. In addition, we now expect our full year increase in 2022 core G&A to be in the range of 13% to 15% lower than our previous guidance of 15% to 20% that we communicated in January. While these steps will not materially impact our 2022 results, they will better position us going into 2023, should market headwinds persist. Throughout our history, we have demonstrated that we are pragmatic and agile in managing our expenses. As always, we remain committed to optimizing organic growth in the most efficient way possible and will be prudent in continuing to assess our overall level of spend in the current environment. Our capital management strategy remains to first invest in our business and then to consistently return excess cash to shareholders through a combination of dividends and share repurchases. We repurchased nearly $1.4 billion worth of shares in the first 9 months of this year, including $375 million in the third quarter. At present, based on our capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price, we will – we still anticipate repurchasing at least $375 million of shares in the fourth quarter consistent with our previous guidance. BlackRock’s third quarter long-term net inflows of $65 billion once again demonstrate the stability of our diversified platform and the strategic alignment with clients. We are increasingly looking for partners who can provide them with global insights and whole portfolio solutions tailored to their future goals. Third quarter ETF net inflows of $22 billion were led by surging demand for our bond ETFs partially offset by sentiment-driven outflows from commodities, broad emerging markets, exposures and small-cap equity precision ETFs. As we have seen repeatedly in periods of market volatility, investors turn to iShares precision exposure ETFs to express risk and tactical asset allocation preferences. Bond ETFs generated $37 billion of net inflows, the second best quarter in our history. We are not only leading the bond ETF industry in terms of AUM and net new business market share, but we are working with all stakeholders to grow the bond ETF industry itself. It took 17 years for the industry to reach $1 trillion in 2019. It is now closing in on $2 trillion. And we believe that the industry will be at $5 trillion before the end of the decade, with BlackRock leading that significant growth. Retail net outflows of $5 billion reflected ongoing industry pressures in active fixed income and world allocation strategies, partially offset by strength in index SMAs and our systematic equity income and multi-strategy alternatives funds. Institutional active net inflows of $71 billion were led by fixed income and multi-asset net inflows and included the impact of several previously announced significant outsourced CIO mandates, including the funding of approximately 45% of the AIG Corebridge fixed income assignment. Institutional index net inflows of $23 billion – net outflows of $23 billion primarily reflected equity net outflows as clients sought to derisk or rebalance in the current environment. Demand for alternatives also continued, with $2 billion of net inflows and $4 billion of new commitments raised across our liquid and illiquid platform during the quarter. New illiquid commitments were driven by private credit and infrastructure. We now have approximately $37 billion of committed capital to deploy for institutional clients in a variety of alternative strategies, representing a significant source of future base and performance fees. Our cash management platform experienced net outflows of $40 billion, primarily driven by redemptions from U.S. government money market funds as reduced debt issuance in a higher rate environment, coupled with ongoing capital management and a general reduction in corporate cash levels, contributed to industry-wide institutional outflows. As rates stabilize, BlackRock is well positioned to grow market share by leveraging our scale, product breadth, technology, and risk management on behalf of liquidity clients. Finally, third quarter advisory net outflows of $9 billion were primarily linked to the successful transition of the last remaining assets managed in connection with our assignment with the New York Federal Reserve Bank. Throughout our history, BlackRock is led by listening to clients. This connectivity has been foundational to our growth over the last 34 years and our relationships with clients have never been deeper. We have always capitalized on market disruption to emerge stronger by continuing to innovate, to work collaboratively and to deliver the full power of our platform. While challenging, this market environment is no exception. With that, I will turn it over to Larry.

Operator:

[Operator Instructions] And we will take our first question from Craig Siegenthaler with Bank of America.

Laurence Fink:

Hi, Craig.

Gary Shedlin:

Thanks, Greg. Look forward to it.

Laurence Fink:

Craig, let me turn it over to Rob.

Operator:

Our next question will come from Alex Blostein with Goldman Sachs.

Alex Blostein:

Yes. Good morning, Larry. Thanks everybody for taking the question and congrats both to Gary and Martin as well. So, maybe just to build on Craig’s question, but zooming out a little bit and thinking about BlackRock’s organic base fee growth holistically, clearly, the firm is not immune to the macro challenges that we see in the space today. But given Rob’s comments around the attractiveness of fixed income markets and sort of other initiatives that you have at the firm, do you expect BlackRock to get back into sort of this mid-single digit organic base fee growth over the near to medium-term? And what are some of the other building blocks that will help you get there?

Gary Shedlin:

So, thanks, Alex, for the question. I think just looking back, we – when we set our 5% organic base fee growth target, it was never intended to be a quarter-to-quarter measure of our success, but really to think about what we can do to differentiate our growth and be more consistent over market cycles and the long-term. And I think we have proven that. Obviously, in the last 12 months, we have delivered 2% organic base fee growth. And I think that’s really a reflection of two things. One is our broad-based platform and its relevance to clients across a variety of market conditions. But more importantly, if you really see where our growth is coming from today, it’s coming from areas where we have invested to build newer franchises, in particular, places like alternatives or sustainability that are frankly new parts of our growth paradigm. If you look over a longer period of time, 5% organic growth over 7 years of the last 9 years. And I think, obviously, there is some pro cyclicality to that in terms of stronger markets. But I think we have shown our ability to generate positive organic base fee growth in years marked by market volatility. Obviously, we did it in ‘16. We did in ‘18. This is a little bit of a different environment. But we absolutely believe that, over time, we will be able to continue to maintain that growth. And why do we feel so confident about that, a, because I think we bring to the table a number of things

Ken Worthington:

Hi good morning.

Ken Worthington:

Good morning. Thanks for taking the question. The financial press has reported that BlackRock is caught in the middle of the ESG debate by those who think you are doing too much and those who think you are doing too little. So, maybe how would you characterize the cost here to BlackRock in terms of either reputation or lost business from the leadership position that you have taken on ESG issues? And have these costs been growing more recently as the financial press suggests? And then maybe looking forward, are you thinking about adjusting or repositioning the message on ESG, so you can better maximize the benefits and minimize the costs?

Operator:

We will now take our next question, which will come from Michael Cyprys with Morgan Stanley.

Laurence Fink:

Hi Mike.

Laurence Fink:

Good question, Mike. Gary, do you want to…

Operator:

And our last question will come from Dan Fannon with Jefferies.

Dan Fannon:

Thanks. Good morning. Wanted to follow-up on the headlines around LDI and what’s been going on in that market. And if you could please size your AUM and even potential revenue associated with that strategy. And how you might think there could be or what you think about repercussions from either clients or regulators given what’s going on?

Operator:

Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?

Laurence Fink:

I do. Thank you everyone for joining us this morning and for your continued interest in BlackRock. Our third quarter results are a direct result of our commitment towards serving our clients and providing choice to our clients and in the backdrop of a very severe market downturns in both bonds and equities. But I believe the organic flows, the position we have had, the ability to provide choice to our clients resonated with the outcomes of the third quarter. And I believe they will be resonating in the quarters to come. So, I am excited about the opportunities ahead of us, and I see real opportunities that BlackRock’s position has never been stronger than ever. I want to thank everybody and have a good quarter.

Operator:

Good morning. My name is Jake and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock, Inc. Second Quarter 2022 Earnings Teleconference. Our host for today’s call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Gary S. Shedlin; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

Gary Shedlin:

Thanks, Chris and good morning everyone. It’s my pleasure to present results for the second quarter of 2022. Before I turn it over to Larry to offer his comments, I will review our financial performance and business results. While our earnings release discloses both GAAP and as-adjusted financial results, I will be focusing today primarily on our as-adjusted numbers. As a reminder, beginning in the first quarter of 2022, we updated our definitions of as-adjusted operating income, operating margin and net income, year-over-year financial comparisons referenced on this call will relate current quarter results to these recast financials. Global equity and debt markets delivered their first – worst first half returns in decades as investors reacted to uncertainty associated with rising recession fears, surging inflation, interest rate hikes and geopolitical tensions. In total, these market declines, along with significant dollar appreciation against major currencies, reduced the value of BlackRock’s assets under management by $1.7 trillion since December 31. Despite this challenging backdrop, BlackRock’s comprehensive platforms still generated industry leading organic growth of over $175 billion of net inflows in the first half of 2022. BlackRock’s second quarter results once again demonstrate the resilience of our platform and validate the investments we have consistently made to build the most comprehensive range of investment management and technology solutions in the industry. I cannot think of a time when the value of our diversified platform and our commitment to continuously investing for the long-term ahead of client needs has been more evident. Over the last 12 months, BlackRock’s broad-based platform has generated over $460 billion of total net inflows, representing 5% organic base fee growth, providing a strong foundation to help immunize our base fees from the impact of double-digit market declines on our assets under management. During a tumultuous second quarter, BlackRock delivered total net inflows of $90 billion representing 4% annualized organic asset growth. Flows were positive across all product types and regions, demonstrating the diversification of our differentiated platform, even in the face of macro and industry headwinds and an ability to quickly adapt to changing client needs. Importantly, second quarter flows did not reflect the funding of any significant AIG-related assets, which will now occur in the second half of this year. Second quarter annualized organic base fee decay of 1% reflected client portfolio repositioning, favoring lower fee index and cash products and higher redemptions in active fixed income and equity mutual funds. Second quarter revenue of $4.5 billion was 6% lower year-over-year, primarily driven by the impact of significantly lower markets and dollar appreciation on average AUM and lower performance fees. Operating income of $1.7 billion was down 14% year-over-year, while earnings per share of $7.36 was down 30%, also reflecting meaningfully lower non-operating income compared to a year ago. Non-operating results for the quarter included $200 million of net investment losses, driven primarily by unrealized mark-to-market declines in the value of our unhedged seed capital investments and minority stake and investment. Our as-adjusted tax rate for the second quarter was approximately 25%. We continue to estimate that 24% is a reasonable projected tax run-rate for the remainder of 2022 though the actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. Despite double-digit declines in equity and fixed income indexes year-over-year, second quarter base fee and securities lending revenue of $3.7 billion was down just 2% year-over-year. The negative impact of approximately $1.5 trillion of market beta and foreign exchange movements on AUM over the last 12 months was partially offset by 5% organic-based fee growth over the last year and the elimination of discretionary yield support money market fund waivers and higher securities lending revenue versus a year ago. On a constant currency basis, we estimate second quarter base fees and securities lending revenue would have been flat year-over-year. Sequentially, base fee and securities lending revenue was down 4%, reflecting the impact of continued market declines on average AUM. On an equivalent day count basis, our effective fee rate was up approximately 0.3 basis points benefiting from the elimination of discretionary money market fund fee waivers and higher securities lending revenue. As a result of significant global equity and bond market declines during the quarter, including the impact of excess related dollar appreciation, we entered the third quarter with an estimated base fee run-rate approximately 5% lower than our total base fees for the second quarter. Performance fees of $106 million decreased from a year ago, primarily reflecting lower revenues from alternative and long-only products. Our Aladdin business delivered record sales in the first 6 months of 2022 and demand for our technology solutions has never been stronger. Quarterly technology services revenue increased 5% from a year ago, reflecting this increased demand, but also reflected the currency impact of significant dollar appreciation on Aladdin’s non-dollar revenue. Annual contract value or ACV increased 10% year-over-year. On a constant currency basis, we estimate ACV would have increased 13% from a year ago. We remain committed to low to mid-teens growth in ACV over the long-term, especially as periods of market volatility have historically underscored the importance of Aladdin and generated increased demand from clients. Total expense was flat year-over-year, reflecting lower compensation and direct fund expense partially offset by higher G&A expense. Employee compensation and benefit expense was down 6% year-over-year, primarily reflecting lower incentive compensation due to lower operating income and performance fees and lower deferred compensation expense, driven in part by the mark-to-market impact of certain deferred cash compensation programs partially offset by higher base compensation. Direct fund expense decreased 5% year-over-year, primarily reflecting lower average index AUM. G&A expense was up 12% year-over-year primarily driven by higher T&E expense and other costs associated with return to office and ongoing strategic investments in technology, including the migration of Aladdin to the cloud. Sequentially, G&A expense was up 7%, primarily reflecting higher T&E expense. Our second quarter as-adjusted operating margin of 43.7% was down 320 basis points from a year ago, reflecting the immediate negative impact of markets and foreign exchange movements on quarterly revenue and the ongoing longer term strategic investments we have been making in technology and our people. While we can’t control near-term market volatility, we are always prepared for it. We have strong conviction in our strategy, our clients’ increasing needs for whole portfolio and technology solutions, the growth of global capital markets and the strength of our proven operating model. The diversification and breadth of our business positions us to serve clients in a variety of environments and we continue to believe that our growth engines, including ETFs, alternatives, technology, and whole portfolio solutions are well-positioned to increase market share. Whether it was during the financial crisis of 2008 or in the early days of the pandemic in 2020, BlackRock has always capitalized on market disruption and emerged stronger, because the stability of our business model enables us to responsibly invest for the long-term and continue playing offense when many others are forced to pull back. We have navigated these choppy waters before and are well prepared for what may lie ahead. As always, we remain committed to optimizing organic growth in the most efficient way possible. We are continually focused on managing our entire discretionary expense base and we will be prudent in reevaluating our overall level of spend in the current environment. Our capital management strategy remains first to invest in our business and then to return excess cash to shareholders through a combination of dividends and share repurchases. We repurchased approximately $1 billion worth of shares in the first half of this year, including $500 million in the second quarter. Our repurchases exceeded our planned run-rate as we took advantage of what we viewed as attractive relative valuation opportunities in our stock. At present, based on our capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price, we still anticipate repurchasing at least $375 million of shares per quarter for the balance of the year, consistent with previous guidance. BlackRock’s second quarter net inflows of $90 billion, once again demonstrate the stability of our diversified platform to adapt to changing markets and client needs. ETF market share has increased as investors use them as vehicles of choice for strategic and tactical portfolio reallocation. Illiquid alternatives continue to provide clients with higher income and uncorrelated returns, as the traditional hedge between stocks and bonds has weakened and demand for cash management offerings is increasing amid rising rates. BlackRock was the beneficiary of each of these industry trends during the second quarter, enabling us to capture money in motion as investors recalibrated their portfolios. BlackRock’s second quarter ETF net inflows of $52 billion were positive across each of our product categories, core, strategic and precision representing 7% annualized organic asset growth. Our strategic category drove nearly 70% of net inflows in the quarter led by continued demand for our diversified fixed income offering as clients utilize bond ETFs to reposition portfolios given the major shifts in the fixed income market. Core equity and higher fee precision ETFs also saw net inflows of $15 billion and $1 billion, respectively. We have invested for years to support the growth of fixed income ETFs both to create a diversified bond ETF platform and to deliver the liquidity and price transparency our clients expect, especially during times of market stress. And another challenging quarter for fixed income markets, our bond ETFs once again delivered for clients and generated $31 billion of net inflows. Retail net outflows of $10 billion reflected industry pressures in active fixed income and world allocation strategies, partially offset by strength in index SMAs, municipal bonds and our systematic multi-strategy alternatives fund. Gross sales in U.S. active mutual funds have remained strong, but were offset by elevated redemptions from long-duration fixed income, high-yield and growth equities. BlackRock’s institutional franchise generated $26 billion of net inflows as we continued to partner with institutional clients to deliver investment expertise, greater customization, industry leading risk management and the benefits of our global scale. BlackRock’s Institutional active net inflows of $5 billion were led by growth in systematic active equity, illiquid alternatives, LifePath target date funds and outsourced CIO solutions. We see continued demand for our outsourcing capabilities and are increasingly engaging with the world’s most sophisticated institutions to partner with them on whole portfolio solutions. In March, we announced an assignment with AIG, where BlackRock will manage up to $150 billion of AIG’s investment portfolio and execute an Aladdin mandate, roughly $400 million from this assignment funded during the second quarter. At present, we expect the Aladdin contract to be executed and the majority of the remaining AIG assets to be funded during the second half of 2022. BlackRock’s institutional index business generated net inflows of $21 billion led by continued strength in LDI solutions. Across institutional and retail clients, demand for alternatives continued with nearly $5 billion of net inflows across liquid and illiquid alternative strategies during the quarter driven by private credit, infrastructure and private equity. Fundraising momentum remains strong and we have approximately $36 billion of committed capital to deploy for institutional clients in a variety of alternative strategies, representing a significant source of future base and performance fees. Finally, with cash becoming a more attractive asset class as rates rise, BlackRock’s cash management platform generated $21 billion of net inflows in the second quarter, benefiting from the investments we have made to build this business in recent years. Net inflows were driven by U.S. government mandates and included inflows from Circle as we became the primary manager of their U.S. DC cash reserves. In a rising rate environment, BlackRock is well-positioned to grow market share by leveraging our scale, product breadth, technology, and risk management on behalf of liquidity clients. As BlackRock has demonstrated throughout our history, challenging environments create unique opportunities for future growth and we have always emerged stronger and more deeply connected with our clients. While we are not immune to market headwinds, the last few months have only given us more conviction and our strategy and ability to deliver differentiated growth over the long-term. The diversification and breadth of our platform enables us to serve clients across market environments and we believe BlackRock is as well positioned as ever to meet the needs of all stakeholders. With that, I will turn it over to Larry.

Operator:

[Operator Instructions] Your first question comes from Michael Cyprys with Morgan Stanley.

Laurence Fink:

Well, I would say that dialogue is becoming more robust than any time in our history. And much of it has to do with the uncertainty in the world, the complexities of markets. And no organization can bring the resources, the scale, the Aladdin technology, the completeness of investment platform than we can. I think the conversations we are having are because of that. And we are showing more and more clients the benefits that what we can provide to them. And I think this is we are going to see an acceleration of OCIO mandates because we can provide our services cheaper than in-house. We can provide as a fiduciary to their needs, a more systematic approach using the investment technology, the breadth of our investment scale across all products from obviously, from cash to alternatives gives us a very unique advantage. And we see this as a real huge opportunity for us. Obviously, it’s been noted about AIG. We had another big U.S. pension fund where we were – it was announced this week that we are now going to manage their entire defined contribution platform. We are working with other companies right now with more opportunities. I am incredibly excited because this is probably the greatest example of One BlackRock. The uniqueness of our platform by having a one culture that interconnects areas of active investing, index investing, investment technology, having the ability to provide alternatives, whether that may be some decarbonization investments across the board to other sites to private credit. But having the ability to work with these clients in a One BlackRock comprehensive way has really shown to our clients that no firm can provide this, and this is the virtue of having one – a one connected organization. We are not a multi-boutique organization. We are – our enterprise is interconnected across the board and we are able to provide that dialogue across the whole organization. And it shows up in these client conversations, whether that is the General Dynamics conversation or whether that is the British Air, these previously announced mandates. And as I said, the dialogues in OCIO has never been greater. And I am very excited about these opportunities. But let’s be clear, you cannot underscore the need for One BlackRock and culture to make this work. Then you overlay our technology, you overlay the completeness of our investment platform. It’s a pretty compelling story.

Laurence Fink:

Hi Craig. Good morning.

Laurence Fink:

We are doing fantastic.

Robert Kapito:

So, Craig, it’s Rob here. As you know, so far, the volatility has disrupted all of the traditional portfolio allocations. It’s a rare moment when both equities and bonds have declined in value. So, the traditional 60-40 allocations are very out of balance and the hedge between stocks and bonds has certainly weakened. So, portfolio liquidity profiles have been impacted. And what I mean by that is many institutions have gone to their maximum in alternative or private equity allocations, hoping to fund that from the liquid portion, meaning the equity side and the bond side. And now with that liquid portion declining, they are short in the demands to draw down for private equity allocations, which are also probably declined this quarter. So, they are going to have to rebalance and they are going to have to get closer to their target allocations. And this means that there is a lot of money that’s going to be reallocated and clients are going to need a partner with the comprehensive capabilities that Larry was just discussing to rethink their target allocations and to rethink the models that they are using. And BlackRock today, I believe, is the only global asset manager that can meet those client demands in every reallocation scenario whether moving to fixed income, equity cash or private markets or indexed or active on a diversified platform that could reposition this portfolio. And what they are looking for is inflation protection. They are looking for solutions for a rising rate environment. They are looking for cash solutions. They are looking for more private equity and in some point, liquidity in private equity and they are looking for outsourcing partners because not only is this complex, but the operational cost and efficiencies play a very, very big role in that. Now during the last several years, keep in mind the market structure has changed. And it’s changed that reallocations are not being done in individual stocks and bonds, but they are being done in indexed and ETFs because they are cheaper, better, faster, and more liquids. And that plays exactly into the strategy that we have outlined. And that is one of the reasons why during this volatile period, we have seen inflows into the ETF and index markets. So, I hope that answers the question, and we are predicting that this volatility and this reallocation is only going to increase as rates continue to rise, we see volatility in equity markets and these portfolio reallocations have to occur.

Laurence Fink:

Good morning.

Gary Shedlin:

Good morning Brandon. Thanks for the question. So, just looking at expenses in terms of where they came in for the quarter, as we mentioned, the operating expense year-over-year comparison was essentially flat. I think as expected, we saw Flex in our what I would call our more variable related expense or asset-related expense and incentive compensation. And when you look at what optically happened to the margin year-over-year, effectively all of that decline was associated with what I would call our historical discretionary investments, which are both in people, technology growth initiatives and a return to office. So, we talked about salary increases. We have been growing some headcount and trying to get our people back to the office. We are actually getting out to see clients more, so T&E is up. We are trying to ensure that we had an incredibly safe work environment for our employees. So, health and safety protocol costs are up and obviously higher tech costs, which are primarily tied to that – to the cloud migration for Aladdin that we have talked about. We have long had a philosophy of what I would call a growth and higher model. We are coming off effectively 2 years, but obviously, last year, in particular, our fastest growth rates ever and we are continuing to invest to support that embedded growth as well as the significant near-term opportunities that you have heard both from Larry and Rob on the call, especially in places like OCIO. But we are mindful of the current environment, and we are proactively managing the pace of what I would call certain of our discretionary investments. So, we just give you an idea of some of the things we are doing. We are delaying certain senior hires into next year. We are also trying to juniorize a number of other roles where appropriate. And while I would say these actions will not materially impact our 2022 results, I think they clearly position us well for next year should some of these market headwinds persist. Now, that’s not to say we are cutting back. Let me be very clear, I wouldn’t say that our estimated headcount growth for the year will be generally consistent with the earlier guidance we gave, but roughly 100% of that growth will be at the more junior levels of the organization and something like 40% or so of that growth will be in our iHub locations. We are also, as you mentioned, we are continuing to evaluate the pace of our core G&A spend. And while there is no material change to the plans we communicated in January, we would clearly expect the year-over-year increase to come in closer to the bottom end of that previously communicated 15% to 20% range in terms of core G&A. And I would just say, at the outset, we said this in a couple of our comments. We have invested for years to develop industry-leading franchises in a number of these growth areas. And I think this quarter is yet another example of how those investments are allowing us to deliver differentiated growth going forward. And I think that we have shown throughout our history that we are pretty pragmatic and agile and being able to both manage our expense, but also to continue executing on critical investments.

Laurence Fink:

Hey Dan.

Laurence Fink:

Well, I would say the shape of the yield curve is going to play a big role in that. It is my view that we are going to continue to see Fed tightening. So, if the market expectations for another 75. First of all, that’s over a period – a short period of time, you would see money market rates funds providing about a 2% return. You are going to see money run into that. It’s going to be – you are paid to keep your money in the short end. I expect to see a further steepening of an inverted yield curve and where we are going to see short rates higher than the 10-year treasury. And I do believe funds like SIO readers industry-leading fund will continue to have industry-leading inflows. So, across the board, I think we are going to see, on the active side, quite a bit of opportunities. And then as I said in my prepared remarks related to fixed income ETFs, we will continue to drive more and more fixed income flows, whether that may be in a pathway way. But what I really do believe and what we have been saying now for the last 5 years, 6 years, 7 years was the utilization of fixed income for active investments and exposures. What we have already witnessed with the rise even in the 10-year area, we are seeing more and more insurance companies looking to put money to work especially in the credit side. So, we are going to continue to see more and more interest in private credit. Obviously, spreads have widened. There is some view that we are going to continue to see even further rising credit spreads. This presents huge opportunities for a lot of long liability insurance companies. And so in the institutional space, we are going to see money moving across the yield curve. Well, we are going to see movements both in and around from private to public. Rob, did you want to add anything from that point?

Operator:

Your last question will come from the line of Brian Bedell with Deutsche Bank.

Brian Bedell:

Great. Thanks. Hi. Good morning. I apologize I entered the call a little bit late, but just curious, just a couple of follow-ups. Rob, your commentary on the reallocation plan that was really in depth, thanks for that. Do you see the net result of that being higher fixed income allocations from pension plans over the long-term versus sort of intentional 60-40. I know that’s antiquated 60-40. And then longer term, I mean you talked about pension plans revisiting the private allocations as well. Naturally, they have hit their targets now. Do you see them raising their thresholds to alternatives?

Operator:

Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?

Operator:

This concludes today’s teleconference. You may now disconnect.

Operator:

Good morning. My name is Myra, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated First Quarter 2022 Earnings Teleconference. Our hosts for today’s call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Gary S. Shedlin; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

Gary Shedlin:

Thanks, Chris, and good morning, everyone. It’s my pleasure to present results for the first quarter of 2022. Before I turn it over to Larry, I’ll review our financial performance and business results. While our earnings release discloses both GAAP and as adjusted financial results, I’ll be focusing primarily on our as adjusted results. As many of you know, beginning in the first quarter of 2022, we updated our definitions of as adjusted operating income, operating margin, and net income to exclude the impact of intangible asset amortization, other acquisition-related costs, and contingent consideration fair value adjustments. We believe that excluding the impact of these expenses provides investors and management with a more useful understanding of our financial performance over time, while also increasing comparability with other asset management companies. BlackRock regularly reviews our disclosures with the goal of providing helpful information to our investors, and we may consider additional non-GAAP adjustments in the future. To provide consistent comparisons to historical results, we recast quarterly as-adjusted metrics to account for these changes for 2020 and 2021. This recast was posted on BlackRock’s Investor Relations website in late March and also has been included on Pages 12 and 13 of our earnings release, while year-over-year and sequential financial comparisons referenced on this call will relate current quarter results to these recast financials. BlackRock’s performance in the first quarter once again underscores the strength of our platform and our ability to serve clients in a variety of market conditions. We’ve invested for years to diversify our platform and to develop industry-leading franchises in ETFs, private markets, technology, active management, and sustainable investing. These successful multiyear investments have enabled us to deepen our solutions-oriented relationships with clients and have strengthened and diversified our organic revenue growth profile. BlackRock generated total net flows of $86 billion in the first quarter, representing 3% annualized organic asset growth with $114 billion of long-term net inflows, partially offset by $27 billion of generally seasonal cash management outflows. Quarterly long-term net inflows were positive across all asset classes, investment styles, and regions. Annualized organic base fee growth of 2% reflected the impact of two sizable institutional index mandates and strong flows into core equity ETFs during the quarter. First quarter revenue of $4.7 billion increased 7% year-over-year, while operating income of $1.8 billion rose 14%, reflecting the impact of approximately $185 million of closed-end fund launch costs in the first quarter of 2021. Earnings per share of $9.52 was up 18% compared to a year ago, also reflecting a lower effective tax rate and a lower diluted share count, partially offset by lower non-operating income in the current quarter. Non-operating results for the quarter included $29 million of net investment losses, driven primarily by mark-to-market declines in the value of unhedged seed capital investments. Our as-adjusted tax rate for the quarter was approximately 17% and included $133 million of discrete tax benefits, including benefits related to stock-based compensation awards that vested in the first quarter of each year. We continue to estimate 24% as a reasonable projected tax run rate for the remainder of 2022, though the actual effective tax rate may differ because of nonrecurring or discrete items or potential changes in tax legislation. First quarter base fee and securities lending revenue of $3.8 billion was up 7% year-over-year, primarily driven by 8% organic base fee growth over the last 12 months. Sequentially, base fee and securities lending revenue was down 3%, reflecting in part the impact of a lower day count in the first quarter. On an equivalent day count basis, our effective fee rate was essentially flat compared to the fourth quarter as the negative impact of divergent equity beta was offset by lower discretionary money market fee waivers. We incurred approximately $75 million of gross discretionary yield support waivers in the first quarter. However, waivers for our flagship funds were essentially removed following rate hikes by the Bank of England and Federal Reserve in March. Recall that approximately 50% of gross fee waivers are generally shared with distributors, so the benefit to base fees is partially offset by higher distribution expense. Performance fees of $98 million decreased from a year ago, primarily reflected lower revenue from liquid alternative and long-only products, partially offset by higher fees from illiquid alternatives. Recent market volatility could result in reduced ability to earn performance fees from certain liquid alternative and long-only products during the remainder of 2022. Quarterly technology services revenue increased 11% from a year ago. Annual Contract Value, or ACV, increased 13% year-over-year and we remain confident in our ability to continue delivering low-to-mid-teens ACV growth as we see strong demand for Aladdin’s end-to-end cloud-based SaaS capabilities. Total expense increased 3% year-over-year, driven primarily by higher compensation expense. Recall that expense in the first quarter of 2021 included $185 million of closed-end fund launch costs, which are excluded when reporting our as-adjusted operating margin. Employee compensation and benefit expense was up 7% year-over-year, reflecting higher base compensation, partially offset by lower incentive compensation, driven in part by the lower mark-to-market impact of certain deferred cash compensation programs. G&A expense was down 17% year-over-year, reflecting the previously mentioned closed-end fund launch costs in the first quarter of 2021. Excluding these costs, G&A expense increased 19% from a year ago due to ongoing strategic investments in technology, including the migration of Aladdin to the cloud along with increases in marketing and promotional expense, including higher T&E expense associated with our return-to-office strategy. Sequentially, G&A expense decreased 12%, primarily reflecting seasonally lower marketing and promotional expense and lower professional services and occupancy expense, partially offset by higher technology expense. Disclosure enhancements introduced this quarter include the addition of a separate G&A expense line item for sub-advisory expense, which historically was included within portfolio services expense. We hope this will provide more transparency into costs associated with the successful growth of our OCIO business, which are more than offset by associated base fees. As Larry will discuss in more detail, momentum in our OCIO business is accelerating as the trend towards outsourcing increases, and BlackRock is well positioned to capture this opportunity. Direct fund expense increased 3% year-over-year, primarily reflecting higher average index AUM. Sequentially, quarterly direct fund expense increased despite lower average index AUM due to higher rebates that seasonally occur in the fourth quarter. Our first quarter as-adjusted operating margin of 44.2% was down 160 basis points from a year ago, primarily reflecting the ongoing strategic investments we are making in technology and our people. As we stated in January, our business has never been better positioned to take advantage of the opportunities before us. We are increasingly seeing clients looking for ways to optimize portfolio returns at a lower cost by forging deeper relationships with fewer managers, including fully outsourced relationships. These trends favor global, comprehensive and scaled platforms like BlackRock’s as evidenced by several such wins over the recent quarters, and we see more opportunities ahead. As always, we remain committed to optimizing organic growth in the most efficient way possible. We have deep conviction in the stability of our diverse business model, which has demonstrated strong resilience in a variety of markets and our ability to proactively manage our cost structure. In the near term, we remain focused on the opportunity set ahead of us and are continuing to invest responsibly to support our growth and to drive our strategic initiatives. We continually focus on managing our entire discretionary expense base, and we will continue to be prudent in reevaluating our overall level of spend, if market conditions necessitate us doing so. Our capital management strategy remains, first, to invest in our business and then to return excess cash to shareholders through a combination of dividends and share repurchases. We continue to invest through prudent use of our balance sheet to best position BlackRock for continued success through seed and co-investments to support organic growth and through strategic investments to further accelerate our efforts. As Larry will discuss in more detail, earlier this week, we announced the minority investment in Circle, the operator of the market infrastructure for USDC, a dollar-based fully reserved stable coin and one of the fastest-growing digital assets with more than $52 billion in circulation. Circle’s technology currently enables the frictionless and real-time transfer of payments and is being explored for other applications across the financial ecosystem. We previously announced an 18% increase in our quarterly dividend to $4.88 per share of common stock and repurchased $500 million worth of common shares in the first quarter. At present, based on our capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price, we still anticipate repurchasing at least $375 million of shares per quarter for the balance of the year consistence with our previous guidance in January. As you’ll also hear from Larry, BlackRock relationships with our clients have never been stronger, and they continue to turn to BlackRock to help them meet their long-term investment needs. BlackRock’s first quarter and total net inflows of $86 billion were positive across client, channels and regions highlighting the breadth of our platform. ETFs generated net inflows of $56 billion, representing 7% annualized organic asset and 4% annualized organic base fee growth. Results once again highlight the unique diversity of our ETF product segments, supported by particularly strong equity, sustainable and commodity ETFs. The diversity of our ETF franchise enables us to generate durable, industry-leading organic revenue growth in varying macroeconomic environments. For example, as inflation expectations persisted, investors turn to our commodity ETFs, where we are now the clear category leader, and as Larry will highlight, our bond ETFs gathered net inflows in one of the most challenging quarters for fixed income in recent history. Retail net inflows of $10 billion were positive in both the U.S. and internationally and reflected strength in equities, liquid alternatives and active multi-asset funds. BlackRock’s institutional franchise generated $47 billion of net inflows as our global scale, investment expertise and world-class technology and risk management enable us to increasingly serve as the partner of choice for institutional clients. BlackRock’s institutional active franchise generated $16 billion of net inflows, led by continued growth into our LifePath target date, alternatives and systematic active equity offerings. Institutional index net inflows of $31 billion included approximately $70 billion from two large institutional clients with whom we have deep relationships, spanning multiple investment strategies. Demand for alternatives also continued, with $6 billion of net inflows into illiquid and liquid alternative strategies during the quarter driven by private credit, infrastructure and liquid alternative offerings. Fundraising momentum remains strong, and we have approximately $36 billion of committed capital to deploy for clients in a variety of alternative strategies, representing a significant source of future base and performance fees. Our $330 billion alternatives and liquid credit platform has gained significant momentum over recent years. And to provide increased visibility, starting this quarter, we’re including additional detail in our earnings supplement on AUM and committed capital managed by our alternatives team. Overall, BlackRock generated approximately $20 billion of active net inflows during the quarter and has now generated positive active flows in all but one quarter since the beginning of 2019. Finally, BlackRock’s cash management platform saw net outflows of $27 billion, driven by redemptions from offshore prime and U.S. government money market funds, in line with the broader money market fund industry. BlackRock has steadily grown our share of the cash management industry by leveraging our scale and delivering innovative distribution and risk management solutions for clients. We are an existing manager of the cash reserves that underpin USDC, and we look forward to partnering with Circle to expand that relationship and become their primary manager in the future. In summary, our first quarter results once again highlight the benefits of the investments we’ve made in high-growth areas to diversify and strengthen our platform. Many of the areas in which we are generating strong growth today, such as alternatives and ESG, were not significant contributors just a few years ago. As a result, we are better able to deliver resilient organic growth and develop deeper client relationships today, than at any point in BlackRock’s history. Our commitment remains to optimize organic growth in the most efficient way possible, and we will do so responsibly to meet the needs of all stakeholders. With that, I’ll turn it over to Larry.

Operator:

Thank you. [Operator Instructions] Your first question comes from Craig Siegenthaler from Bank of America. Please go ahead.

Craig Siegenthaler:

Hey. Good morning, Larry. Hope, you and the team are doing well.

Craig Siegenthaler:

That’s great. Larry, my first question is on fixed income demand and the inflationary backdrop. And we know there is some reaction to lower bond prices in the quarter, but iShares bond ETF flows are still positive. But given your wide product breadth in fixed income, and I’m thinking about unconstrained SIO, I wanted your perspective on future client demand trends in fixed income just given the likely fast ramp in Fed funds over the next 12 months, although we’re probably likely going to see a flatter year growth, too.

Robert Kapito:

Yeah. So just to follow-up on Larry’s comments, we typically are helping clients assess their duration and maturity risk, especially in their core bond portfolios. And we help them rotate within fixed income depending upon what they’re seeking protection from, which could be rising rates in different parts of the curve. And that is why we saw $1.5 billion of net inflows into SIO and FIGO, as Larry described, that are less constrained. But more importantly, we see this in the ETF market, because it’s the ability for people to gain market exposure and tactical positioning very quickly within fixed income. A lot of times, you have to accumulate the positions over a period of time. It’s much faster, quicker diversified if you do that through ETF fixed income. So we’re seeing flows across the board. The performance has been good, but certainly clients are concerned how do we position in a rising rate environment.

Dan Fannon:

Thanks. Good morning.

Dan Fannon:

I was hoping you could talk about the outsourced CIO opportunity. You guys have had several large wins. Maybe discuss the dialog that you’re having with prospective clients and how you see, I don’t know the size or opportunity of that over time?

Robert Kapito:

Yes. I think the business of managing money has gotten very complicated, very expensive. Firms have not invested in the technology that they need, and the scale and size of what we can do can help them get better investment performance at a better price and certainly sourcing with the scale and size the BlackRock has can help them. So we actually can go in, have a dialogue, work together with the company and the people that they have there. And do it faster, better, cheaper and handle the operations and technology as well.

Bill Katz:

Okay. Thank you very much. I appreciate the disclosure this quarter as well. Maybe a question for Gary. On one hand, I sort of heard you talk a little bit about we were willing to reevaluate the expense growth guide given the market backdrop, but I also heard sort of a high level of commitment to spending. So in that light, can you triangulate between prior guidance in terms of year-on-year expense growth, particularly for G&A and the run rate pacing for first quarter? And then was there anything unusual in the comp this quarter that would suggest some upward bias into the second quarter? Thank you.

Operator:

Your next question comes from the line of Michael Cyprys from Morgan Stanley. Your line is open.

Laurence Fink:

Hey, Mike

Robert Kapito:

Huge demand, Mike, from -- for private credit and loans. Those are the two areas. And as you know, a couple of years ago, we did an acquisition in the loan area because the performance of that product has been great during various cycles. And these are good mom-and-pop type companies that don’t have access necessarily to the public markets, and it’s very expensive. And due diligence is required, so you have to have the team to do that. But certainly, in the private markets, both in credit and in loans, we’re seeing increased demands. And I think that’s also a function of rates because they give you much more of a cushion for rising rates than the more obvious liquid credit products. There’s also a huge demand for real assets, and that has been an area of growth for us, as you know. And a lot of people are using that for an inflation hedge. So the textbook says when you see inflation, you sell growth, you buy value, you buy tips and you buy real estate. And all of those, including infrastructure, make for good investments. So we’re pretty well positioned. You know that we take a multi-asset approach to build portfolios that are going to be resilient. That’s what people are expecting for us. And that is why you see the unconstrained bond funds get money. And as I mentioned before, $1.5 billion into SIO and FIGO, equities, inflows into equities. And our dividend growth offerings can also be tools to help thread the needle between generating income and growth that could potentially outrun inflation. And traditionally, real assets like commodities, infrastructure, real estate will insulate a portfolio against higher inflation. So we’ve seen some clients tactically allocate to commodities. And in that area, we had about $7 billion of net inflows.

Operator:

Your next question comes from Brian Bedell from Deutsche Bank. Please go ahead.

Laurence Fink:

Hi, Brian.

Laurence Fink:

As I said, we’re in large dialogues with the traditional hydrocarbon companies, energy companies. We’ve had numerous conversations with the leaders of every energy company in the world about how they’re moving forward. I think the geopolitical issues, as you framed the question, is going to spur a huge amount of investing, huge amount of investing in the exploration and development more oil, but at the same time, elevated energy prices is going to accelerate decarbonization technology. And I think what you’re seeing, whether it’s the $1 trillion investment in infrastructure that the United States voted for last year and now the real commitment out of Europe to build LNG plants to have less dependency on one supply chain Russian gas, I believe in our conversations, even at country levels are very large and how can they create multiple supply chains for energy. And that is a combination of decarbonization technology and a combination of insurances, of having energy to meet the needs of society. So all of this is going to be -- it’s just a long-term project. It’s not going to be a straight line as my lenders wrote about. Any energy transition has to be fair and just or it doesn’t work. We are witnessing that now, the supply shocks and now excess demand and so all of this is playing out that it’s going to create an investment boom, the combination of fiscal spending on the US part, the European part. We had -- as in every country, we have conversations about decarbonization or the utilization of hydrogen. I was in Japan last week, a lot of conversations on hydrogen and what role can that play in Japan. Two trips to the Middle East, more conversations about -- as they move with a lot of sun and solar moving more towards more renewables, the movement away from oil as they utilize a lot of oil for power production in Saudi Arabia to move to gas, so moving from dark brown light brown. All of this is just going to stimulate a lot of excess demand for product and supply of product. And I would have said, for the last few years, a bigger issue is supply of product, not demand. Then I do believe the supply quotient over the next few years is going to be larger which just means more and more opportunities. And we are -- in our forecast for new growth in these areas, we’re forecasting the build-out of three large infrastructure funds to meet these needs.

Brennan Hawken:

Good morning. Thanks for taking my question. I just had a question on ESG and maybe what you’re hearing. There’s been an emerging debate amongst investors around some of the lagging performance in ESG. We’ve seen commodities strengthen. A lot of your comments around commodity strength certainly would point to some support behind some of those commodities producers. Are you hearing any shift in dialogue early on around that component and that may be a consideration of making some shifts in defining energy as rigidly as they have in the past? And are you seeing any early signs of demand shifting in that product, albeit clearly a secular shift? But maybe we see some cyclical weakness in the near term here. Any color would be appreciated. Thank you.

Operator:

Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?

Operator:

This concludes today’s teleconference. You may now disconnect.

Operator:

Good morning. My name is Jerome and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Inc. Fourth Quarter 2021 Earnings Teleconference. Our host for today’s call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Gary S. Shedlin; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

Gary Shedlin:

Thanks, Chris. Good morning and Happy New Year to everyone. I hope everyone and their families are remaining safe and healthy. It’s my pleasure to present results for the fourth quarter and full year 2021. Before I turn it over to Larry, I will review our financial performance and business results, while our earnings release discloses both GAAP and as adjusted financial results. As always, I will be focusing primarily on our as-adjusted results. Throughout BlackRock’s history, we have consistently and systematically invested in our business with a long-term focus and commitment to serving clients, employees, shareholders, and the communities in which we operate. As a result of these long-term investments in 2021, we grew organically at our fastest rate ever and continued to expand our organic growth premium versus the industry even as our assets under management reached new highs. We have continually invested to develop industry leading franchises in ETFs, private markets, technology, our active investment platform, and more recently in ESG and in China. These investments all reflect a singular focus on helping clients construct resilient whole portfolios and they are driving the record levels of growth we are seeing today. BlackRock generated net inflows of $540 billion in 2021, representing 6% organic asset growth and 11% organic base fee growth. Each of our strategic priority areas drove significant growth during the year. Importantly, despite fourth quarter volatility, we finished the year with strong momentum, generating $212 billion of total net inflows, reflecting annualized organic base fee growth of 9%. Continued strong flows from our entire active franchise along with record iShares flows, which benefited from typical year end rebalancing and tax management contributed to the fourth quarter’s robust organic growth. We continued to build out our platform in 2021 as the strength and stability of our operating model allowed us to aggressively reinvest in our business, deliver record financial results, and returned approximately $3.7 billion of capital to shareholders. Full year revenue of $19.4 billion was up 20%. Operating income of $7.5 billion rose 19%, and earnings per share of $39.18 was up 16% versus 2020. For the fourth quarter, BlackRock generated revenue of $5.1 billion and operating income of $2.1 billion, up 14% and 11% respectively from a year ago. Quarterly earnings per share of $10.42, was up 2% versus a year ago, reflecting a higher effective tax rate and lower non-operating income in the current quarter. Non-operating results for the quarter included $86 million of net investment income, driven primarily by mark-to-market gains in our private equity total investment portfolio. Our as-adjusted tax rate for the fourth quarter was approximately 25%, driven in part by discrete items. We currently estimate that 24% is a reasonable projected tax rate for 2022, though the actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. Fourth quarter base fee and securities lending revenue of $4 billion was up 17% year-over-year, primarily driven by 11% organic base fee growth and the positive impact of market data on average AUM, partially offset by higher discretionary money market fee waivers versus a year ago and strategic pricing investments over the last year. Sequentially, fourth quarter base fee and securities lending revenue was up approximately 1%. Our fourth quarter annualized effective fee rate decreased by 0.2 basis points from the third quarter as the continued positive impact of strong organic base fee growth was more than offset by the negative impact of divergent equity beta, which accelerated into quarter end and lower securities lending revenue in the current quarter. We incurred approximately $135 million of gross discretionary yield support waivers in the fourth quarter, essentially the same as the third quarter bringing total waivers to approximately $500 million for the full year. Given the current prospects for higher rates in the near term, we now anticipate most of these waivers would cease shortly after the first 25 basis point increase in the Fed Funds rate, resulting in a one-half basis point increase to our annualized effective fee rate. Recall that approximately 50% of these gross fee waivers are generally shared with distributors, reducing the impact on operating income. For the year, we generated record performance fees of $1.1 billion, which were increasingly diversified compared to a year ago and reflected strong alpha generation across our platform. Notably, since a year ago, performance fees from liquid alternatives have increased more than 150% and our unrecognized deferred carry balance has more than doubled to over $1.4 billion as our private markets platform continues to scale. Quarterly technology services revenue was up 11% year-over-year, and full year revenue of $1.3 billion increased 12%. Annual contract value, or ACV, increased 13% year-over-year, and we remain confident in our ability to continue delivering low to mid-teens ACV growth as demand for Aladdin’s end-to-end, cloud-based SaaS solution is stronger than ever. We are heavily investing to scale Aladdin for its next leg of growth in order to extend our capabilities in high demand areas such as the whole portfolio, private markets, wealth, and sustainability. Total expense increased 20% in 2021, driven primarily by higher compensation, G&A, and direct fund expense. For the full year, compensation expense increased 20%, reflecting higher base salaries and higher incentive compensation driven by growth in operating income and higher deferred compensation expense. Recall that year-over-year comparisons of fourth quarter compensation expense are less relevant because we determine final full year compensation in the fourth quarter. Fourth quarter G&A expense increased 15% year-over-year, reflecting higher marketing and promotional expense, which included higher T&D expense, higher occupancy expense partially driven by higher COVID testing costs and higher portfolio services and technology expense. For the full year, excluding approximately $350 million of non-core G&A expense, which included $274 million of aggregate fund launch costs, core G&A expense was up 15% compared to 2020. Recall that we exclude the impact of fund launch costs when reporting our as-adjusted operating margin. The year-over-year increase in core G&A was largely attributable to technology, data, and portfolio services expense, all of which drive revenue growth. Increased technology and data spend was driven by our Aladdin cloud migration, market data investments to support our index and ESG franchises, and broader tech spend to support productivity improvements. Approximately two-thirds of the increase in our 2021 portfolio services expense related to sub-advisory cost associated with significant OCIO wins and are offset by associated base fees. 2021 direct fund expense increased 24% year-over-year, primarily reflecting higher average index AUM. Sequentially, quarterly direct fund expense declined despite higher average index AUM due to higher rebates that seasonally occur in the fourth quarter. Finally, full year intangible amortization expense increased $41 million year-over-year due to our Aperio acquisition, which closed in February 2021. Our full year as-adjusted operating margin of 45.2% was up 30 basis points versus 2020. Our business has never been positioned to take advantage of the opportunities before us and we remain deeply committed to investing responsibly and aggressively through market cycles, so we can continue to generate differentiated organic growth over the long-term. Consistent with this growth ambition, we are once again targeting record investment in our people, strategic priorities and platform infrastructure during 2022. At present, we would expect headcount to increase by as much as 10% with a continued focus on optimizing our talent pyramid for more junior roles and growing our footprint and iHub innovation centers. We would also expect core G&A to increase by 15% to 20% as we continue to invest in technology to scale our operations and support future growth, including completing Aladdin’s cloud migration, delivering new Aladdin capabilities and continuing to open the platform to promote client innovation. We are also investing through prudent use of our balance sheet to best position BlackRock for continued success. During 2021, we allocated $1.5 billion of new seed and co-investment capital to support our growth and our year end portfolio now approximates $3.7 billion. Our strategic minority investments are reinforcing various elements of our strategy and simultaneously generating very attractive returns for our shareholders. And we continue to invest inorganically when we see opportunities to accelerate our organic growth in key strategic growth areas, as we did through our acquisitions of the physical climate and transition risk models of Rhodium and Baringa, which will be critical to building best-in-class ESG capabilities within Aladdin. We also remain committed to systematically returning excess cash to shareholders through a combination of dividends and share repurchases and returned an aggregate $3.7 billion to shareholders in 2021. Since inception of our current capital management strategy in 2013, we have now repurchased over $11 billion of BlackRock’s stock, reducing our outstanding total shares by 11% and generating an unlevered compound annual return of 20% for our shareholders. At present, based on capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price, we are targeting the repurchase of $1.5 billion of shares during 2022. In addition, our Board of Directors has declared a quarterly cash dividend of $4.88 per share, representing an increase of 18% over the current level. Finally, in early December, we completed the debt issuance to take advantage of current low interest rates and pre-refinance our $750 million 3 and 3/8 notes to June 2022. We successfully raised $1 billion of new 10-year notes with a 2.1% coupon, the second lowest U.S. dollar coupon in BlackRock’s debt stack. As you will hear more from Larry, BlackRock’s strategy has always been guided by our clients’ needs. We relentlessly focused on helping them meet their financial objectives and our deeper and broader relationships with more clients are driving growth across our entire platform. Fourth quarter total net inflows of $212 billion, representing 9% annualized organic AUM and base fee growth, were led by flows into ETFs and our top performing active franchise. Record full year net inflows of $540 billion were positive across all client types, investment styles and regions and reflected records for both ETFs and active strategies. ETFs generated $306 billion of net inflows in 2021, representing 11% organic asset growth and 9% organic base fee growth. Record fourth quarter ETF flows of $104 billion reflected some seasonality, but also reflected the diversity of our product and client segments and accelerating secular shifts occurring in the market. We saw continued strength in core, but our strategic product segments, particularly sustainable and fixed income were the largest contributors to our fourth quarter flows. Sustainable ETF AUM of $150 billion nearly doubled during the year and our $750 billion fixed income ETF platform grew organically by double-digits, even in one of the most challenging macro environments for fixed income in several years. Clients also continued to use our broad-based precision exposures to express risk on sentiment during the year. BlackRock generated full year retail net inflows of $102 billion, representing 12% organic asset growth and 14% organic base fee growth, significantly outperforming the broader mutual fund industry. Retail flows were positive in both the U.S. and internationally, reflecting broad-based strength across our active platform. Fourth quarter retail net inflows of $22 billion reflected similar trends, but also included the seasonal impact of capital gains and dividend reinvestment. We remain well positioned to meet investor needs for risk-adjusted alpha and yield and our diversified fixed income platform with top performing strategies across total return, unconstrained, high yield and credit offers choice to investors in any rate environment. Institutional index net outflows of $118 billion in 2021 reflected equity net outflows, including the previously disclosed $58 billion low fee institutional redemption in the second quarter, partially offset by fixed income net inflows as many large clients rebalanced portfolios after significant equity market gains or tactically shifted assets to fixed income and cash. BlackRock’s institutional active franchise generated a record $169 billion of net inflows in 2021, reflecting broad-based strength across all product categories and the funding of several significant OCIO mandates. We are seeing strong momentum in our OCIO business, evidenced by another significant core fixed income funding in the fourth quarter. We also saw continued growth in our LifePath target date franchise and remain committed to helping investors around the world plan and invest for retirement. In the aggregate, strong growth across active strategies led to 7% organic base fee growth for our institutional channel in 2021. Across retail and institutional client types, BlackRock generated a record $49 billion of active equity net inflows for the full year, led by top performing franchises in technology, health sciences and U.S. growth equities as well as quantitative strategies. We remain well positioned for future growth in our active platform, with over 75% of our fundamental active equity, systematic active equity and taxable fixed income assets performing above their respective benchmarks or pure medians for the trailing 5-year period. Overall, demand for alternatives also continued, with $27 billion of net inflows into illiquid and liquid alternative strategies during the year driven by credit, infrastructure and our multi-strat and global event-driven hedge funds. Total alternatives fundraising notched a record in 2021 and we have approximately $36 billion of committed capital to deploy for institutional clients in a variety of strategies, representing over $230 million of future annual base fees and significant potential performance fees. Finally, BlackRock’s cash management platform generated $44 billion of net inflows in the fourth quarter and $94 billion of net inflows in 2021 as we continue to grow market share in a persistent low rate environment by leveraging our scale, product breadth, technology, and risk management on behalf of clients. It has been another strong year for BlackRock. Our global scale and diverse platform allow us to continue investing for the future, whether in good markets or more challenging ones and our differentiated business model remains incredibly well-positioned to sustain industry-leading organic growth and deliver long-term shareholder value. Our commitment remains to optimize organic growth in the most efficient way possible and we will do so responsibly to meet the needs of all stakeholders. With that, I will turn it over to Larry.

Operator:

[Operator Instructions] Your first question comes from the line of Alex Blostein with Goldman Sachs. Your line is open.

Alex Blostein:

Hi, good morning, everybody. Happy New Year to you as well. So maybe we could start with a question around just the active dynamics for BlackRock in 2021. Clearly, a great year, record year in active flows across the board, equity, fixed income etcetera. How sustainable do you think this trend will be, I guess, into ‘22. And then I also was hoping you could expand on how faster increases in interest rates could also impact asset allocation decisions over the next 12 to 18 months?

Gary Shedlin:

Yes, Larry, maybe I can just jump in on the rates, just one thing for Alex. I think obviously, the dynamic between rates going up and our level of AUM, I think is well known. But I would just highlight a couple of things. One is – our $2.8 trillion is primarily institutional for sure. And obviously, those are very sticky assets that are both strategic and matched for liability. So, we think we have very sticky assets. Two is we are obviously very well positioned in terms of our broad-based fixed income platform. So, whether it’s unconstrained, high yield, total return or short duration, I think we have got that. So, we are ready for a rotation. And more importantly, I think really is if rates go up, a bunch of cash is likely to come off the sidelines, and so that will enable us to basically move that cash into other asset classes. And as I mentioned in my remarks, very importantly, we waived $500 million of fees last year in our cash business, that first 25 basis point move by the Fed, and as many people think that could come as early as the first quarter. We think that will free up almost all of those waivers. That will have about a 0.5 basis point increase on our annualized effective fee rate. And obviously, we have talked about while we share roughly half of that with our distributors that will drop a significant amount of incremental profitability to the bottom line.

Laurence Fink:

Hi Craig. Happy New Year.

Laurence Fink:

Well, it is just a number. Thank you.

Laurence Fink:

Let me give that to Rob.

Operator:

Your next question comes from the line of Michael Cyprys from Morgan Stanley. Your line is open.

Laurence Fink:

Let me tackle the scale of Aladdin Climate, and I will have Gary comment on the progress with Azure and Snowflake. As I said in my prepared remarks, client demand for Aladdin has accelerated, especially with more and more remote working, having a comprehensive platform, a whole portfolio solution platform is really highlights the opportunities and the strength of Aladdin and more and more investment firms, asset owners and insurance companies are looking for Aladdin as an opportunity to expand their ability to navigate markets. As we built out on Aladdin, as you suggested Michael, the whole space of where Aladdin is growing out, whether it is Aladdin provider, connecting every Aladdin user to its custodial relationship, intersecting that. Aladdin Wealth, connecting Aladdin to wealth managers and having them more connected. And we are in the beta sites right now of rolling out with some of our airline users already on Climate. And that will continue to be, in my mind, one of the principal drivers for Aladdin utilization going forward. And then the greater utilization of alternatives, the combination of Aladdin and eFront really extended Aladdin across the entire investment ecosystem end-to-end. And so with Aladdin provider with Aladdin Wealth and now Aladdin Climate across all the portfolios, I do believe it is going to drive accelerated growth for Aladdin going forward. I am incredibly optimistic about the opportunities we have. And I truly believe as more and more regulators are asking questions related to Climate and how do you quantify Climate as a risk, the need for Aladdin is essential in terms of understanding that risk as one measurement. I mean there are many other tools that people could use, but it will be one of the measurements that people can utilize. And I would also add one of the great strengths for Aladdin over the last 2 years and why greater utilization is open to Aladdin. We are now allowing every user of Aladdin to put their own models in that are proprietary to them. So, Aladdin as a risk management system is not a monolithic system, what Aladdin has become is more an operating ecosystem and helping the owners of money, the asset managers of money to really navigate across asset categories, communication to client, communication to the custodial bank and having your own proprietary risk system. And that has been one of the great transitions of Aladdin and then dovetailing that, the infrastructure of Aladdin related to Azure and Snowflake. And I will allow Gary to talk about what we are doing in the infrastructure to create a more resilient Aladdin.

Operator:

Your next question comes from the line of Brian Bedell with Deutsche Bank. Your line is open.

Laurence Fink:

Great question. Thanks, Brian. Well, in 2020, we made a large statement related to the tectonic shift that we have seen is going to occur in the investment world. And we continue to see rising interest in sustainability worldwide. And I think just by evidence of 2021, we saw $31 billion of flows in the U.S. and sustainability. $65 billion of flows from EMEA, which you suggested more in Europe, $8 billion from APAC. And we went from about $100 billion in 2019 to $500 billion today. I think that we are in different spots as evidenced by those flows, as you suggested. In Europe, if you do not have a sustainability lens, you will not be awarded any mandates today. It is a component of all. I want to – we are all investing in Europe today. In the United States, it’s still quite mixed depending on the institution, but it’s growing. It’s growing because, a, we are able to create a customized portfolios, and this is the power of Aladdin for us. Customized portfolio for those clients are looking to – start looking at sustainability as an investment opportunity and an investment risk. And I believe this will continue to be driving flows in the coming years. The big opportunity and the greatest opportunity in this area is investing in new is a new technology. As I said in my prepared remarks, if we move to a green economy tomorrow without new technology, it’s going to lead to an unfair and unjust transition. And as we witnessed in so many places already with rising energy prices, we have seen governments capping energy costs to the consumer. Even the European countries that are so focused on sustainability like France and Spain have caps and heating and other things like that. So, this is going to be a very long as I discussed over the years, a very long transition and very – and it’s not going to be a straight line. The opportunity then is to be working with traditional hydrocarbon companies who are going to be part of the solution. It’s going to be working with agricultural companies who are part of the solution. It is investing in new start-ups whether it is to create blue or green hydrogen or blue or green ammonia to find new solutions for green cement and steel for investing in new opportunities and sequestering of hydrocarbons. So, we believe climate transition opportunities for renewable power for this new technology is going to be – are going to be great. And I do believe there is going to be huge investment opportunities going forward. So, it’s a combination of navigating your current portfolio as it lends, but also the opportunities in investing in side-by-side with hydrocarbon companies or investing in new technologies and new start-ups. Gary, why don’t you carry on and talk about sustainability, too, please?

Laurence Fink:

Thank you.

Operator:

Alright. Ladies and gentlemen, we have reached a lot of time for questions. Mr. Fink, do you have any closing remarks?

Operator:

This concludes today’s teleconference. You may now disconnect.

Operator:

Good morning. My name is Javale (ph), and I will be your conference facilitator today. At this time. I would like to welcome everyone to the BlackRock Incorporated Third Quarter 2021 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink, Chief Financial Officer, Gary S. Shedlin, President Robert S. Kapito, and General Counsel, Christopher J. Meade. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator instructions] [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

Gary Shedlin:

Thanks, Chris, and good morning, everyone. It's my pleasure to present the results for the third quarter of 2021. Before I turn it over to Larry to offer his comments, I'll review our financial performance and business results. While our earnings release discloses both GAAP and adjusted financial results, I will be focusing primarily on our adjusted results. BlackRock's proven track record of delivering to stakeholders reflects our ongoing commitment to anticipate change before it happens and continually invest for the long term. Our globally integrated investment in technology platforms enables us to construct resilient whole portfolios for clients. We rely on thought leadership, global investment insights, and state-of-the-art risk management tools to help clients navigate ever-changing and increasingly volatile market environments. Our approach is resonating more than ever. And is reflected in the continued strong momentum we're seeing across our entire platform. BlackRock generated total net inflows of $75 billion in the third quarter, $98 billion of long-term net inflows representing approximately 4% annualized organic asset growth were partially offset by net outflows from lower feed cash and advisory AUM. In addition, strong net inflows from ETFs and our active franchise once again contributed to this quarter's 9% annualized organic base fee growth. Over the last 12 months, our differentiated investment management platform, which pairs active and index capabilities across the entire range of traditional and alternative products has now generated over $450 billion of total net inflows, representing 13% organic base fee growth, well in excess of our 5% long-term target. Third-quarter revenue of $5.1 billion increased 16% year-over-year while operating income of $1.9 billion rose 11% and reflected the impact of approximately $96 million of fund launch costs primarily associated with the successful launch of a $2 billion closed-end fund in late September. Earnings per share of $10.95 were up 19% compared to a year ago. Also reflecting significantly higher non-operating income in the current quarter. Non-operating results for the quarter included $298 million of net investment income, primarily driven by non-cash gains related to our strategic minority investments in iCapital and Scalable Capital, as well as mark-to-mark gains in our private equity co-investment portfolio. Our as-adjusted tax rate for the third quarter was approximately 24%. We continue to estimate that 24% is a reasonable projected tax run rate for the fourth quarter of 2021, though the actual effective tax rate may differ as a consequence of non-recurring or discrete items or potential changes in tax legislation. Third-quarter base fee and securities lending revenue of $3.9 billion increased 22% year-over-year, reflecting the positive impact of market beta on average AUM and 13% organic base fee growth despite higher discretionary money market fee waivers and strategic pricing investments over the last year. Sequentially, base fee and securities lending revenue was up 5%. Our third-quarter annualized effective fee rate on a day count equivalent basis increased by 2/10 of the basis point from the second quarter as the positive impact of strong organic base fee growth driven by our higher fee active businesses and lower discretionary money market fee waivers more than offset the negative impact of diversion equity beta primarily associated with the accelerating decline in emerging markets during the current quarter. During the third quarter, we incurred approximately $130 million of gross discretionary yield support waivers. Lower discretionary yields support waivers in the current quarter were linked to the Fed's technically -- technical adjustment to the IOER and RRP in June, as well as outflows from U.S. government money market funds during the current quarter. Performance fees of $345 million reflected generally strong performance from our single strategy hedge fund platform over the last year. The decline in year-over-year fees reflected lower revenue from a single hedge fund with an annual performance measurement period that ends in the third quarter, which delivered truly exceptional performance a year ago, partially offset by higher revenues from illiquid products. Quarterly Technology Services revenue increased 13% from a year ago. Annual contract value or ACV, increased 16% year-over-year and continued to reflect strong growth from the third quarter of 2020, which was impacted by slower sales and extended contracting in the early months of the pandemic. We remain committed to low to mid-teams growth in ACV over the long term. Total expense increased 19% versus the year-ago quarter driven primarily by higher G&A, compensation, and direct fund expense. G&A expense was up $139 million or 30% year-over-year, primarily driven by higher technology and portfolio services expense in the current quarter, Third quarter G&A expense also included $96 million of fund launch costs primarily associated with our first ESG oriented closed-end fund, the $2 billion BlackRock ESG Capital Allocation Trust, and $29 million of contingent consideration fair value adjustments related to the estimated final payment on our successful Citibanamex acquisition in 2018. Recall that we exclude the impact of product launch cost from reporting our as-adjusted operating margin. Core G&A expense for the third quarter, which excludes the impact of product launch and transaction-related costs, was up 3% from the second quarter. We have made no changes to the discretionary investment spending plans we have previously outlined and would expect a sequential increase in our fourth quarter core G&A spends to be generally consistent with previous years, reflecting seasonal increases in marketing spend, additional costs related to return to office planning, and ongoing technology costs associated with the latent cloud migrations. Employee compensation and benefits expense was up $116 million or 8% from a year ago, primarily reflecting higher base compensation and higher deferred compensation related to the impact of grants associated with 2020 compensation. Direct fund expense increased 38% year-over-year, primarily reflecting higher average index AUM, and intangible amortization expense increased $11 million year-over-year due to our Aperio acquisition. Our third-quarter as an adjusted operating margin of 45.8% was down 120 basis points from a year ago. As operating leverage was more than offset by the impact of lower performance fees, higher contingent consideration, fair value adjustments, and higher intangible amortization expense compared to a year ago. We're seeing more opportunities to invest for growth than ever before. We reopened the closed-end fund market in 2019 by making it more efficient for investors to access products at NAV. By synthetically seeding these new funds. We've now raised $14 billion in ACV AUM, representing over $170 million in new revenue. Our strategic minority investments in iCapital and Scalable Capital are reinforcing our tech for flows strategy and simultaneously generating very attractive returns for shareholders. And we continue to build our best-in-class ESG capabilities, most recently by acquiring Rhodium models related to the financial risks associated with climate change. Effective use of our balance sheet to seed new products, co-invest alongside clients or makes strategic minority investments, both support our growth and drive value for our shareholders. And while our capital management strategy remains first to invest in our business, we also remain committed to returning excess cash to shareholders and repurchase an additional $300 million worth of shares in the third quarter. As we discussed at investor day, we continue to invest in our highest growth franchises such as ETFs, private markets, and technology. And we are accelerating investment s to drive growth in our sustainable, traditional, active, and solutions capabilities. Each of these areas once again delivered strong results in the third quarter. Quarterly long-term net inflows of $98 billion were driven by continued momentum and our ETF and active platforms. Our ETFs generated net inflows of $58 billion in the third quarter, positive across each of our product categories, representing 7% annualized organic base fee growth. ETFs attributable to our strategic category drove over 50% of net inflows in the quarter, reflecting continued strength in fixed income and sustainably ETFs. Core equity and higher fee persistent exposure ETFs saw net inflows of $16 billion and $9 billion respectively led by U.S. equity exposures. Retail net inflows of $23 billion representing 11% annualized organic base fee growth were positive in both the U.S. and internationally and across all major asset classes. Retail multi-asset results included the impact of the previously mentioned $2 billion closed-end funds raised in late September. Inflows continue to reflect broad-based strength across our active platform and we remain well-positioned to meet investor needs for risk-adjusted alpha and yield in the current market environment. BlackRock's institutional active net inflows of $26 billion, representing 6% annualized organic base fee growth, were led by $25 billion of multi-asset net inflows. The growth included the impact of a significant outsourced CIO mandate from the Asia-Pacific client, continuing our momentum in an important growth area where we are providing cost-effective whole portfolio solutions to the world's most sophisticated institutional clients. We also saw continued demand for our LifePath target-date offerings, and Larry will update you about a recent milestone for our new LifePath Paycheck retirement solution. Institutional index net outflows of $8 billion broadly reflected equity net outflows, which were partially offset by fixed income net inflows, as clients continue to re-balance portfolios after significant equity market gains, or sort to immunized portfolios through LDI strategies. Overall, BlackRock generated approximately $45 billion in quarterly active net inflows across the platform, including our tenth consecutive quarter of positive active equity flows. Demand for alternatives also continued with nearly $7 billion of net inflows into liquid and illiquid alternative strategies during the quarter, driven by single strategy hedge funds, private credit, real assets, and private equity solutions. Fund-raising momentum remains strong and we have approximately $29 billion of committed capital to deploy for institutional clients in a variety of alternative strategies, representing a significant source of future base and performance fees. BlackRock's cash management platform experienced net outflows of $12 billion driven primarily by redemption from the U.S. government and offshore Sterling prime money market funds in line with the broader U.S. money market fund industry. BlackRock's diverse cash management offerings position as well to serve clients' needs and you'll hear more from Larry about how we're expanding our ESG cash offerings to enhance our competitive positioning even further. Finally, third-quarter advisory net outflows of $10 billion were primarily linked to the successfully planned wind-downs of portfolios managed by our financial markets advisory group on behalf of the Federal Reserve Bank of New York. Recall that revenue linked to these assignments is primarily reflected in the advisory and other revenue line item on our income statement. BlackRock continued strong performance reflects our commitment to strategically invest in our business in anticipation of change and to lead the evolution of the asset management industry. Today, we see even greater opportunities to invest in our employees and our clients and in the communities in which we operate to ensure that we will continue to optimize organic growth, in the most efficient way possible. With that, I will turn it over to Larry.

Operator:

At this time I would like to remind everyone. [Operator Instructions] To limit yourself, please limit yourself to one question. If you have a follow-up, please re-enter the keys. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Michael Cyprys with Morgan Stanley. Your line is open.

Laurence Fink:

First of all, hi, Michael. I'm going to let Rob Kapito to answer that question.

Operator:

And your next question comes from Alex Blostein, with Goldman Sachs. Your line is open.

Alex Blostein:

Great. Good morning. Hi, Larry. Thank you for taking the question. SO inflation concerns are clearly everywhere and Larry, as you highlighted in your prepared remarks, that's something you guys are clearly focused on as well so maybe two-part question here. One, when it comes to BlackRock's own cost structure, where are you seeing expense growth and margins heading into 22. We, obviously, make changes on the salary from last quarter, but curious if this is becoming a bigger issue for total comp and G&A, as you think forward. And then secondly, from a product perspective, what are the strategies you're advising clients to lean into more aggressively into 2022 to protect their portfolios against the upside inflation risk? Thank you.

Laurence Fink:

And on the products in a more inflationary environment, I would just clearly tell you that our platform is large, it's diverse. We're having conversations with clients globally where they should be allocating. I do believe you're seeing higher allocation towards equities over the last year across our client's portfolios. As equities rally, they did less in terms of rebalancing. The bigger question is, how do you allocate across equities? What is a roll-up of emerging markets? But I don't think inflation is playing a dominant role in the conversations. Even in fixed thinking, we're obviously -- it's very obvious long-duration assets are going to be the impact ed the most. And so those clients in fixed income who are worried about their duration risk that could go down into a low-duration product, they could go into various different products with less convexity and less issues. They could go in some type of inflationary protected type of notes too. That's not going to be that large. But the resiliency of our platform really allows us to have that conversation, whether it's in a deflationary world or in an inflationary world. And I do believe the -- if you look at the geographic dispersion of our growth, The conversations worldwide represent these types of conversation, which, when we think about inflation, what role should we play? What is the role of alternatives in an inflationary environment? What is the role of equities across fixed income? So I actually believe it's the volatility of a global economy is allowing us to have these robust, deep conversations. And I don't think there's one global trend to going in and out of one product because inflationary fears and some clients don't believe in that, some people actually believe it's transitory. That's the -- I would look at this -- when there is uncertainty and when we're in a transition period, more clients come to BlackRock than ever before because they are asking those questions. And I think because of the robustness of our platform, whether it's an index-oriented strategies or active strategies across the spectrum. We have the ability to work with them across all economic environments.

Bryan Gadow:

Great. Thank you. Hey. Good morning everyone. Just switch gears to the sustainable investing growth. I think Larry, you made some comments at a conference on the path to net 0 that at the current rate we're not there yet. Maybe if you can talk about how you think the demand and the capacity for BlackRock to offer impact fund products, more [Indiscernible] from the readiness and the time to fix GV going forward. And is that going to be -- should we be thinking of that as a pretty strong --

Bryan Gadow:

-- organic growth path going forward?

Operator:

Your next question comes from the line of Bill Katz with Citigroup. Your line's open.

Laurence Fink:

Hey Bill.

Gary Shedlin:

So Bill, the story is, we're able to look at a client's portfolio holistic over the long term and the focus is to have our clients be able to retire in dignity. It's not a one-off situation. It's a constant look at a portfolio over a period of interest rates and solve the problem with the appropriate wrappers and products. We have the scale of products, we have the performance, we have the wrappers. So honestly, it is the focus. A significant portion of all of BlackRock's assets are dedicated to retirement. This is what we do and when we dovetail that into the analytics that we could provide,

Laurence Fink:

[Indiscernible] I would add one more thing that Rob is talking about. I think our consistency of messaging to our clients across many, many years, we've developed -- built a deep relationship with our -- with the clients and I don't believe our 9% growth rate is a one-time thing. I think we continue to be growing our presence in this market. We continue to try to be an innovator, whether it's the LifePath Paycheck or anything which, now LifePath Paycheck is about $340 billion. I'm sorry, that's our target date, and LifePath Paycheck, our most recent growth. I look -- I think conversations have never been broader, more robust, and we continue to drive these conversations. I believe more and more of the large plans are looking to BlackRock for that type of advice, that type of hand-holding. And I believe more than ever before, especially in this world of need for more employees, the need to build deeper relationship with your employees. I believe the conversations that every corporation now in how to create better connectivity with their employees is becoming a broader conversation than we've ever seen in the last 20 years. I think the companies that have deeper connections, a better retirement plan, better healthcare plans, are the companies that are driving more consistency with their employees, led to higher retention rates. So I truly believe this is going -- this is one of those transitory things that are happening. And I think it's catching a lot of organizations by surprise now, the fluidity of employees moving from one economy to another economy, moving to one business to another business. And I truly believe this refocus on the needs of the employees and retirement is a major component of that refocus is going to be a larger and more dominant theme. And I think this is the -- when I talk about this -- we're in this transition now, I think many corporations are surprised at this. I think COVID, and how we work remotely, people feel -- many people want to work remotely. They feel differently about their work-life balance. This is all transforming our society in many ways is a great way. But we're in this transition. And some industries are going to be huge winners in this and some industries are going to be losers of this. But most importantly, I think the common thing those companies that are working with their employees with purpose, building a deeper, broader connectivity with their employees, they retain their employees with greater regularity, and importantly, they are able to attract the best and the brightest and we're seeing that more and more. And our conversations about business purpose and stakeholder capitalism, I think it resonates with our corporate clients who have these defined contribution plans and they are asking us how to create that greater depth of robustness. And then you have overlay, what we're trying to do related to innovation. I think it really is a compelling story. Why BlackRock?

Operator:

Thank you. And last question comes from Robert Lee with KBW. Your line's open.

Robert Lee:

Good morning, everyone. Hope everyone's doing well. Maybe we'll produce those back to maybe alternatives business. And I was interested on the 50 billion [Indiscernible] is obviously about the strategy, but a big win. But can you maybe talk about what you're seeing and how you feel in their position in the insurance market in terms of [Indiscernible] a big clients, where you see more CIOs [Indiscernible]. And do feel you have the right products set as the insurance industry, as they look to expand their [Indiscernible] credit and whatnot. Just trying to get a better feel for how you're tapping into that upfront.

Gary Shedlin:

I couldn't agree more. So our big business today obviously is in excess of $450 plus billion. You mentioned AEL, which is -- which will fund in the fourth quarter, very significant mandate. And I think Rob is right, portfolio resilience, diversification, portfolio construction, which takes advantage of our great performance in core fixed income are increasing momentum and capabilities across the breadth of private markets and leveraging technology. I think there's no question. I would say it's resonating well beyond just insurance companies because we're seeing yet -- obviously, we've seen the British Air Pension, we've seen a number of outsourced wealth solutions in Europe where I think all of these things has strong applicability and we're seeing them obviously increased momentum in our broad-based multi-asset capabilities figures did come through in our quarterly results. Thanks for the question, Rob.

Laurence Fink:

Thank you, Operator. I want to thank all of you for joining us this morning and for your interest at BlackRock. Our third-quarter results, again, is a direct result of our steadfast commitment in serving our clients, listening to our clients, responding to our clients, and hopefully staying in front of our client's needs so we could be with them as they evolve and change. I see a large opportunity ahead of BlackRock than ever. And BlackRock 's focus remains on investing in our people, on our communities, where we operate across the world, and in our platform. Most importantly, as we continue to stay ahead of our client future needs, we will continue to be driving excellence on behalf of our -- all of our shareholders. With that, thank you. Hopefully, everyone have a safe and healthy fourth quarter.

Operator:

Good morning. My name is Jerome, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated Second Quarter 2021 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Gary S. Shedlin; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

Gary Shedlin:

Thank you Chris and good morning everyone. It’s my pleasure to present results for the second quarter of 2021. Before I turn it over to Larry to offer his comments, I'll review our financial performance and business results. While our earnings release discloses both GAAP and as adjusted financial results, I'll be focusing primarily on our as adjusted results. Last month at our 2021 Investor Day we highlighted how the investments we have consistently made to support growth have enabled us to execute on our framework for shareholder value. We have invested and evolved over time to create a globally integrated investment and technology platform that enables clients to construct resilient whole portfolios that meet their objectives regardless of market enjoinment or risk appetite. And we continue to invest in our industry-leading high growth franchises such as ETFs, private markets and technology and they are accelerating investments to drive growth in our ESG traditional active and solutions capabilities. The combination of our comprehensive and integrated investment platform with global and local distribution capabilities once again delivered strong results for the quarter, and we remain very well-positioned to continue delivering differentiated organic gross in the future. BlackRock generated total net inflows of $81 billion in the second quarter, representing 4% annualized organic asset growth. As previously disclosed, second quarter net inflows included the full impact of a $58 billion low fee institutional index redemption from a large U.S. public pension client. Strong net inflows from ETFs and our entire active franchise once again contributed to this quarter's robust 10% annualized organic base fee growth. Over the last 12 months, our broad based platform pairing diverse investment capabilities with best-in-class technology and rigorous risk management has generated over $500 billion of total net inflows, representing 13% organic base fee growth well in excess of our 5% long-term target. Second quarter revenue of $4.8 billion increased 32% year-over-year and operating income of $1.9 billion rose 37%. Earnings per share of $10.03 was up 28%, also reflecting lower non-operating income and a higher effective tax rate compared to a year ago. Strong year-over-year comparisons benefited in part from significant improvements in equity market conditions versus a year ago. Non-operating results for the quarter included $145 million of net investment income, primarily driven by mark-to-market gains in our private equity coinvestment and unhedged seed capital portfolios. Our as adjusted tax rate for the second quarter was approximately 24%. We now estimate that 24% is a reasonable projected tax run rate for the remainder of 2021, primarily reflected an increase in certain tax -- state tax rates though the actual effective tax rate may differ as a consequence of non-recurring or discrete items or potential changes in tax legislation during the year. Second quarter base fee and securities lending revenue of $3.8 billion was up 27% year-over-year, primarily driven by the positive impact of market beta on average AUM and strong organic base fee growth, partially offset by higher discretionary money market fee waivers, lower securities lending revenue and strategic pricing investments over the last year. Sequentially base fee and securities lending revenue was up 5%. However, our effective fee rate was down 0.3 basis points, as strong organic base fee growth driven by our higher fee active businesses and the impact of one additional day in the current quarter were more than offset by higher discretionary money market fee waivers and the impact of divergent equity beta in the quarter. During the second quarter, we incurred approximately $165 million of gross discretionary yield support waivers driven in part by continued strong flows into our U.S. government money market funds. While the Fed's recent technical adjustments to the IOER and RRP have modestly helped, we still expect discretionary fee waivers to persist at or around current levels for the new term. However, future levels of discretionary fee waivers may also be impacted by several additional factors, including the level of AUM and funds with existing waivers, gross yields and competitive positioning. Performance fees of $340 million were up significantly from a year ago, reflecting strong performance across our entire investment platform, including liquid and illiquid alternatives and long-only strategies. Quarterly technology services revenue increased 14% from a year ago, while annual contract value or ACV increased 16% year-over-year, and continued to reflect strong growth from the second quarter of 2020, which was impacted by slower sales and extended contracting in the early days of the pandemic. We remain committed to low to mid teens growth in ACV over the long-term. Total expense increased 29% versus the year ago quarter, driven primarily by higher compensation, direct fund and G&A expense. Employee compensation and benefit expense was up 34%, primarily reflecting higher incentive compensation driven by higher operating income and performance fees and higher deferred compensation, reflecting the impact of additional grants associated with prior year compensation and certain compensation arrangements related to a previous acquisition. Direct fund expense increased 30% year-over-year, primarily reflecting higher average index AUM. G&A expense was up $73 million or 19% year-over-year, primarily driven by higher technology portfolio services and marketing spend. Sequentially, G&A expense was down $124 million, reflecting the impact of approximately $180 million of product launch costs incurred in the first quarter, partially offset by higher technology and marketing spend. Intangible amortization expense increased $10 million year-over-year as a result of our Aperio acquisition. Our second quarter as adjusted operating margin of 44.9% was up 120 basis points from a year ago, benefiting in part from significant equity market improvements over the last year. BlackRock has never been positioned -- has never been better positioned to take advantage of the opportunities before us. And we remain committed to optimizing organic growth in the most efficient way possible. Our capital management strategy remains first to invest in our business, including through prudent use of our balance sheet, and then to return excess cash to shareholders. We see incredible opportunity to make Aladdin the language of all portfolios and are investing to evolve Aladdin for its next leg of growth. As Larry will discuss in more detail, during the second quarter, we announced a partnership with Baringa, including the acquisition of their industry-leading climate change scenario model, which will enhance Aladdin Climate's capabilities and set a new standard for climate analytics. In addition, yesterday we announced a minority investment in SpiderRock Advisors, a tech enabled asset manager, focused on providing professionally managed option overlay strategies. This investment adds incremental product capabilities to our recent acquisition of Aperio and extends our market leading personalized SMA franchise. We also repurchased an additional $300 million worth of shares in the second quarter and stand by previous guidance as it relates to share repurchases for the remainder of the year. As we discussed at Investor Day, our strong and resilient platform has never been better positioned to deliver for clients as we leverage our scale, unique insights and solutions orientation to meet their long-term investment needs. Quarterly net inflows of $81 billion reflected continued momentum across our entire investment business, especially in our ETF and active platforms. Our ETFs generated net inflows of $75 billion in the second quarter, representing 11% annualized organic asset and base fee growth. We also crossed $3 trillion in assets globally for the first time. Core equity and higher fee precision ETFs continued to generate strong inflows, particularly in international equities. However, most of our growth this quarter came from the strategic category led by continued strength in our sustainable ETFs and renewed strength in fixed income, as well as steady positive flows into factor and thematic ETFs. Retail net inflows of $21 billion representing 9% annualized organic asset growth and 10% annualized organic base fee growth were positive in both the U.S. and internationally and across all major asset classes. Inflows continued to reflect broad based strength across the entirety of our active platform, and we remain well-positioned to capture demand for both active equities and an investor appetite for yield where our diversified fixed income range, including unconstrained high yield international and broad market strategies is equipped to meet client demand in any rate environment. BlackRock's institutional active net inflows of $43 billion were led by $35 billion of multi-asset net inflows, largely driven by a significant outsource CIO mandate from a U.K. pension client. As Larry will also discuss, BlackRock is uniquely positioned to deliver customized hold portfolio solutions by capitalizing on our global scale, expertise and investment technology in risk management and focus on sustainability. During the second quarter, we also saw continued demand for active fixed income and the liquid alternatives and LifePath target data offerings. Institutional index net outflows of $80 billion were impacted by the previously mentioned single client redemption during the quarter. Outflows from index equities were partially offset by inflows into fixed income, as clients rebalanced portfolios after significant equity market gains were sought to immunize portfolios through LDI strategies. Despite overall asset net outflows across BlackRock's institutional franchise for the quarter, annualized organic base fee growth was 6% as net inflows into higher fee active and alternative strategies more than offset the de minimis base fee impact of low fee index equity outflows. Overall, BlackRock generated approximately $63 billion in quarterly active net flows across the platform, notching our ninth consecutive quarter of positive active equity flows. Demand for alternatives also continued, with nearly $7 billion of net inflows into liquid and illiquid alternative strategies during the quarter, driven by single strategy hedge funds, fund of hedge funds solutions, real assets, private credit, and private equity solutions. Fundraising momentum remain strong, and we have approximately $31 billion of committed capital to deploy for institutional clients and a variety of alternative strategies, representing a significant source of future base and performance fees. Finally, BlackRock's cash management platform continued to grow, generating $23 billion of net inflows in the second quarter, driven by both prime and U.S. government money market funds. Despite facing net zero returns in both the U.S. and Europe, client demand for cash strategies remained strong, given the significant liquidity in the financial system and by helping clients manage their cash, we are building broader and deeper strategic relationships. Our continued strong performance is a direct result of a thoughtful growth strategy that has been well executed by a talented group of purpose-driven employees who live the one BlackRock culture each day. We are thankful for their tremendous effort and contributions to our success over these last 18 months. We will continue to embrace change and invest responsibly for the future, so that we can meet the needs of all of our stakeholders. With that, I'll turn it over to Larry.

Operator:

[Operator Instructions] And your first question comes from Ken Worthington with JP Morgan. Your line is open.

Kenneth Worthington:

Hi. Good morning. Thank you for taking my question. I'd love to dig in further into direct indexing and customized SMAs. So, maybe first, can you give us some additional color and how SpiderRock compliments customize SMAs in your direct indexing capabilities at Aperio? And then you highlighted in your prepared remarks number of times the importance of retirement solutions. So, should we see Aperio and SpiderRock capabilities permeating the retirement management part of your business? And if so, what does this mean for LifePath and its evolution over time?

Rob Kapito:

So, as you know more clients are looking for personalization and that's what we're seeing in direct indexing. And we are -- our combination with Aperio, which Larry had mentioned, actually enhances our ability to deliver personalized tax manage SMAs and gives us a two-plus-year acceleration in that space, while we continue to organically build additional capabilities for different client segments. So, BlackRock's core SMA capabilities historically were in actively managed equities, fixed income, and multi-asset. Aperio brings experience in building index-based highly custom investment solutions. So, these are our complimentary businesses and they enhance our value proposition for a whole portfolio SMAs across equity and fixed income in alpha factors and index solutions. So, with over $200 billion in SMAs, including Aperio BlackRock is a market leading whole portfolio sponsor. And with the prospect of higher income and capital gains taxes, we've now built a pipeline of over $6 billion in potential new Aperio mandates just since the transaction closed. So, this is an example of how we are getting more into the personalization and direct indexing. And of course, ETF and direct index compliment the tech that we are investing in and building it.

Operator:

Your next question comes from Craig Siegenthaler with Credit Suisse. Your line is open.

Craig Siegenthaler:

Hey, good morning, Larry. I had a question on ETF adoption. I know you covered a lot of this in the Investor Day, but I had a follow-up here. Which client verticals do you think provide iShares the most one to three or upside? And have you seen any significant rise or decline in demand among any declined segments over the last six months? And I'm thinking some of the bigger ones like U.S. RAA, insurance and retail.

Operator:

And our next question comes from the line of Alex Blostein with Goldman Sachs. Your line is open.

Alexander Blostein:

Hey, good morning, Larry. Good morning, everybody. I was hoping you guys could flush out the expense dynamics a little bit in the quarter, as well as look out further in a year. Obviously, very strong revenue environment, revenues up 25% in the first half. But the comp rate is actually up, on a year-over-year basis for the first half as well. Now, I know performance fees tend to skew that upward sometimes. So maybe help us think through the rest of the year. And then just big picture, your framework around expense management and margins. Thanks.

Operator:

And your next question comes from the line of Patrick Davitt with Autonomous Research. Your line is open.

Patrick Davitt:

Good morning. Hey, hi everyone. It's obviously hard to handicap the chances of a change in the capital gains tax rate at this point, but are you guys seeing any change in either retail or institutional behavior change in conversations around that concern via specific gain harvesting, or just wanting to talk about options? Should it come through?

Rob Kapito:

No. I'd say it's another reason why people are moving towards ETFs, which are much more a tax efficient tool than the typical mutual fund is that they are in. So, actually it's another growth area for ETFs.

Laurence Fink:

Hey, Dan.

Laurence Fink:

Yeah. Well, you're right. We don't do that and we're not going to do that at this call. But I think when you think about -- and I -- when I referenced the British Airways CI [ph] mandate, we believe this is going to be -- this is just the beginning of more focus on the virtues and the value proposition of -- for these pension funds to rethink how it's organized. Should it be done under a platform like BlackRock and then do we create the efficiencies? And most importantly, are we -- can we have a better fiduciary outcome on behalf of their participants? All of this is about their participants and can we provide a better outcome for the participants? And I really do believe -- we are thinking of that. But we have had some very large wins with a few other clients in the last few quarters. We are in large dialogue with many more, but I want to underscore what the transformation of LifePath Paycheck could be too. These are going to be -- these could be some very large opportunities to, and having the defined contribution business being reimagined and rethought. And that is how we framed it. How can we reimagine and provide better certainty to the participants, how can we provide better outcomes, and how can that lead to a better closeness between the employer and the employees, and how can they build deeper bonds when the employees are retired during deaccumulation period of time. These are broad based solutions that we've been focusing on. No different than the broad based solutions we focus on the needs of focusing on climate in portfolios across the board. And so, I believe what we are -- what you're seeing in the past related to above trend line growth above 5% organic growth is because of these deepening relationships across the board. And as I concluded in my speech, I do believe we are going to continue to see this type of elevated opportunity. And it's because we are so relentlessly focused on how to think about our clients, and help them become better at what they're doing. And I truly believe whatever the outcome of British Air and the other measure that we talked about. And I would say with the strong performance that we've had in our active platform flows generally follow. And when you can have -- no firm can have this, when you could have a dialogue where you are agnostic about the role of index assets, like ETFs and active assets, and then focusing on whether it's tax efficient portfolio strategies, or focusing on a sustainability overlay, or now focusing on outcomes related to more certainty during deaccumulation periods of time. This is what's driving the flows. And this is what I think is differentiating BlackRock, that we are spending more time. We're investing -- as Gary talked about our investments in the future. These are the type of investments we're making and making sure that we are staying in front of the needs of client and providing something unique and differentiated. And I do believe that is resonating more and more. And let me just leave it at that.

Laurence Fink:

Good morning, Bill.

Laurence Fink:

Yeah. Perfectly.

Laurence Fink:

I'm going to let Gary answer that because Gary, as a CFO is the one who really -- is the tethering of our platform. And he is also our -- he provides the balance between me and him. And so, I love him, Gary?

Laurence Fink:

LifePath Paycheck, as I try to frame, it is U.S. based so specifically -- but we're redefining defined contribution business in the United States. I think that's what it is. But globally it was -- retirement is a $70 trillion -- has a big gap. We need to rethink retirement as we moved away from DB, but we need to find better ways of creating more certainty in a defined contribution world. I think this is one of the big problems we have in our society today, the uncertainty of retirement. And this is one of the problems that we've been focusing on for years and years and years to try to find a way to have something closer to a defined benefit, but having it still being in a defined contribution way. And I think there's just great opportunities. And we're having robust conversations on this, Bill. And I think it's going to reshape or reimagine or redefine the defined contribution business.

Laurence Fink:

Hi, Michael.

Gary Shedlin:

Thanks Mike. So, again, we're not going to get very specific on pipelines, but we will give you some tonality on Aladdin growth rate. So, I think as we've talked about, there's clearly increased client demand accelerated by COVID for comprehensive whole portfolio solutions that involve greater systemization, fewer vendor relationships as a number of financial service companies and other insurers, asset managers, and funds try to minimize their costs. And more importantly, trying to basically take down the number of data sources that they're relying on. We feel that growth going forward is going to be a function of a number of things, but it's going to be primarily gaining new clients, expanding relationships with existing clients, expanding the platform through enhanced functionality and products, and obviously under -- expanding into under penetrated geographies, most notably, Europe and Asia. With that, what we've said at Investor Day, and we'll continue to reinforce is given all of that, that our pipeline is as strong as it's ever been. And we continue to reaffirm our low to mid teens growth rate for technology services revenue. As it relates to ACV, ACV was up 16%. And as you correctly note, we do have -- we're migrating a bunch of the eFront business over to Aladdin in terms of its hosted model, as opposed to its traditional model, that does, as you say, have different accounting ramifications. And so, we decided to put ACV out as a key performance metric, because we think it better reflects the overall momentum of the business, and takes away some of the timing and accounting changes from migrating models over. So, ACV was up 16%. And I think as you also correctly note, that's probably a little faster than we would expect the longer term to be given our target. And I think that's a function of some of the business coming through today at a more rapid rate, that was delayed from a year ago in the early days of the pandemic, as we highlighted a longer sales cycles and contracting periods. So, we're definitely seeing a little bit of an acceleration there, but again, reaffirming our low to mid teens growth outlook.

Operator:

Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?

Operator:

This concludes today's teleconference. You may now disconnect.

Operator:

Good morning. My name is Jerome, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock, Incorporated First Quarter 2021 Earnings Teleconference. Our hosts for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Gary S. Shedlin; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

Gary Shedlin:

Thanks, Chris and good morning everyone. I hope everyone and their families are remaining safe and healthy. It's my pleasure to present results for the first quarter of 2021. Before I turn it over to Larry to offer this comments, I'll review our financial performance and business results. While our earnings release discloses both GAAP and as adjusted financial results, I will be focusing primarily on our as adjusted results. BlackRock's platform has been built over time to help clients meet their objectives regardless of market environment or risk appetite. We've invested for years to develop industry-leading franchises in high growth areas, such as ETFs, private markets, technology, and more recently sustainable investing, so we can help clients construct resilient, whole portfolios that leverage both active and index capabilities. While few of us could have predicted that we would still be confronting the human and economic challenges of the COVID-19 pandemic a year later, the events of the past year have only strengthened our resolve to continue to invest for future growth in order to evolve our business, live our purpose and meet the needs of all of our stakeholders, including clients, employees, shareholders, and the communities in which we operate. The investments BlackRock has consistently made to build a best-in-class investment in technology platform centered around a fiduciary mindset where clients always come first in a collaborative and unifying one BlackRock culture that encourages emotional ownership are driving incredible momentum across our entire business. BlackRock generated record net inflows of $172 billion in the first quarter, our fourth consecutive quarter with over $100 billion in quarterly inflows, representing 8% annualized organic asset growth and 14% annualized organic base fee growth. Strong performance from our entire active franchise, once again, contributed to this quarter's robust organic fee growth. Over the last 12 months, our broad-based platform pairing diverse investment capabilities with best-in-class technology and rigorous risk management has now generated over $525 billion of total net inflows, representing 14% organic base fee growth, well in excess of our 5% long-term target. First quarter revenue of $4.4 billion increased 19% year-over-year, while operating income of $1.5 billion rose 21% and reflected the impact of approximately $180 million of costs associated with the launch of the nearly $5 billion BlackRock Innovation and Growth Trust, our largest closed-end fund ever in late March. Earnings per share of $7.77 was up 18% compared to a year ago, also reflecting lower non-operating income and a higher effective tax rate, partially offset by a lower diluted share count in the current quarter. Non-operating results for the quarter included $8 million of net investment income as gains in our co-investment portfolio were largely offset by the mark-to-market impact of our minority stake in Envestnet. Our as adjusted tax rate for the first quarter was approximately 21% and included $39 million of discrete tax benefits related to stock-based compensation awards that vest in the first quarter of each year. We continue to estimate the 23% is a reasonable projected tax run rate for the remainder of 2021, so the actual effective tax rate may differ as a consequence of non-recurring or discrete items or potential changes in tax legislation during the year. First quarter base fee and securities lending revenue of $3.6 billion was up 18% year-over-year, primarily driven by strong organic base fee growth and the positive impact of market beta and foreign exchange movements on average AUM, partially offset by higher discretionary money market fee waivers, lower securities lending revenue, and the effect of one less day in the current quarter and strategic pricing investments over the last year. Sequentially, base fee and securities lending revenue was up 6%. On an equivalent day count basis, our effective fee rate was essentially flat compared to the fourth quarter, a strong organic base fee growth driven by our higher fee active businesses more than offset higher discretionary money market fee waivers and lower securities lending revenue in the current quarter. Performance fees of $129 million were up significantly from a year ago, reflecting strong performance in our liquid alternative and long-only investment platforms and the impact of COVID related market volatility a year ago. Quarterly technology services revenue increased 12% from a year ago. Annual contract value, or ACV, increased 16% year-over-year, reflecting particularly strong growth from the first quarter of 2020, which was impacted by slower sales and contracting disruption in the early days of the pandemic. We remain committed to low to mid teens growth in ACV over the long-term Aladdin's resilience has been a key differentiator throughout the COVID crisis, and client demand remains strong. As Larry will discuss in more detail, we see tremendous opportunity to continue building out Aladdin's climate and sustainability risk analytics and data capabilities, making it central to constructing sustainable portfolios of the future. Advisory and other revenue was down $33 million year-over-year, primarily reflecting the absence of PennyMac equity method earnings following the charitable contribution of our remaining equity stake in the first quarter of 2020, as well as lower transition management revenue in the current quarter. Total expense increased 17% versus the year ago quarter, driven primarily by higher compensation, direct fund and non-core G&A expense. Employee compensation and benefit expense was up 24%, primarily reflecting higher incentive compensation driven by higher operating income and performance fees and higher deferred compensation, reflecting additional grants and the mark-to-market impact of certain deferred compensation programs relative to depressed levels a year ago. Approximately 80% of the increase in our compensation to revenue ratio year-over-year was attributable to this mark-to-market impact on certain deferred compensation programs. Direct fund expense increased 16% year-over-year, primarily reflecting higher average index AUM. G&A expense was up $32 million year-over-year, and the $111 million sequentially reflecting approximately $180 million of previously disclosed closed-end fund launch costs. Recall that we exclude the impact of these product launch costs when reporting our as adjusted operating margin. Year-over-year G&A comparisons were also impacted by approximately $155 million of non-core G&A expense in the first quarter of 2020, which included closed-end fund launch costs, contingent consideration fair value adjustments and costs related to certain legal matters. On a core basis, quarterly G&A expense was essentially flat year-over-year, as higher portfolio services and technology expense was offset by lower T&E, marketing spend and professional fees. Quarterly G&A expense also benefited from a delay in planned spending in a number of areas, which we expect to incur over the remainder of the year. And tangible amortization expense increased $9 million year-over-year as a result of the acquisition of Aperio, which closed on February 1st. Our first quarter as adjusted operating margin of 44.4% was up 270 basis points from a year ago, benefiting in part from significantly lower level of non-core G&A expense versus a year ago and the delayed timing of certain investments spend in the current quarter. As we stated in January, our business has never been better positioned to take advantage of the opportunities before us, and we remain committed to optimizing organic growth in the most efficient way possible. We continue to see numerous opportunities to invest for growth, including sustainable investing, private markets, technology, and China, and intend to pursue these opportunities responsibly. Our capital management strategy remains first to invest in our business and then to return excess cash to shareholders through a combination of dividends and share repurchases. We continue to invest through prudent use of our balance sheet to best position BlackRock for continued success, through seed and co-investments to support organic growth and through tactical M&A and strategic minority investments to accelerate our growth ambitions. During the first quarter, we closed our acquisition of Aperio, and as Larry will discuss in more detail, announced a partnership with Temasek to co-invest in innovative decarbonization technology. We previously announced a 14% increase in our quarterly dividend to $4.13 per share of common stock and also repurchased $300 million worth of common shares in the first quarter. While we will remain opportunistic with respect to additional share repurchases during the year, there is no change to the minimum repurchase guidance we provided to you earlier this year. As you'll also hear from Larry, BlackRock has never been better positioned to deliver for clients as we leverage our unique insights, guidance, and solutions to help them meet their long-term investment needs. Record net inflows of $172 billion in the first quarter, including $133 billion of long-term flows reflect the strength of our broad-based franchise with positive flows across every asset class, investment style, client channel and region. Our iShares and BlackRock ETFs generated net inflows of $68 billion, representing 10% annualized organic asset and base fee growth. Results highlight the diversity of the product segments within our ETF franchise with growth led by continued strength in core equity and sustainable ETFs. We also saw strong flows into our higher feed liquid markets driven precision exposures, as clients continued to rerisk, particularly in international equities and tactically position their portfolios for the reopening of economies worldwide. First quarter fixed income ETF flows of $1.6 billion reflected demand for shorter term and floating rate bond exposures, which was largely offset by outflows from longer duration ETFs, especially LTV as investors reacted to the most significant steepening in the yield curve since 2013. These inflows, even with the drag from longer duration products, speak to the diversity of our fixed income ETF franchise, which will continue to benefit from strong long-term secular growth. Record retail net inflows of $37 billion, representing 17% annualized organic asset growth and 25% annualized organic base fee growth were positive in both the U.S. and internationally and across all major asset classes, including fixed. Inflows reflected broad-based strength across the entirety of our top performing active platform, which is well-positioned to capture resurging demand for active equities and investor appetite for yield, where our diversified fixed income range, including unconstrained high yield, international and broad market strategies are positioned to meet client demand in any rate environment. BlackRock's institutional active franchise generated $17 billion of net inflows led by continued growth into our LifePath target date and alternatives platforms. Institutional index net inflows of $11 billion once again reflected equity net outflows, which were more than offset by fixed income net inflows, as clients rebalanced portfolios after significant equity market gains or sought to immunize portfolios through LDI strategies. As previously discussed in January, we expect a large U.S. public pension client to transition approximately $55 billion of low fee index assets to another investment manager. This transition is likely to occur during the second quarter of 2021 and will have a de minimis impact on our organic base fee growth for the year. Across our retail and institutional client businesses, we generated a record $21 billion of active equity net inflows, representing our eighth consecutive quarter of positive flows in this category. Flows were led by top performing franchises in technology and Midcap growth, which benefited from the previously mentioned launch of the BlackRock Innovation and Growth closed-end fund. We remained well-positioned for future growth in our active businesses with over 80% of fundamental active equity, scientific active equity and taxable fixed income assets performing above their respective benchmarks or peer median for the trailing five-year period. Demand for alternatives were also continued, with nearly $9 billion of net inflows into liquid and illiquid alternative strategies during the quarter, driven by infrastructure, private equity solutions and liquid alternatives funds. Fundraising momentum remain strong, and we have approximately $27 billion of committed capital to deploy for institutional clients in a variety of alternative strategies, representing a significant source of future base and performance fees. Finally, BlackRock's cash management platform continued to grow and outperform peers, generating almost $40 billion of net inflows in the first quarter and topping $700 billion in assets under management for the first time. During the first quarter, we incurred approximately $78 million of gross discretionary yield support waivers, and expect such discretionary fee waivers to persist for the near term, especially in light of the recent growth in our U.S. government fund franchise and the supply demand dynamics in the short dated U.S. treasury and repo markets. Future levels of discretionary fee waivers will be impacted by several factors, including the level of AUM and funds with existing waivers, gross yields and competitive positioning. Our strong performance over the last 12 months is a testament to our purpose, the strong execution of our strategy, the competence our clients place in us, and the hard work commitment and resilience of our employees. Our relationships with clients have never been deeper, and we will continue to invest responsibly from a position of strength to meet the needs of all of our stakeholders over the coming years. With that, I'll turn it over to Larry.

Operator:

[Operator Instructions] Your first question comes from Brian Bedell with Deutsche Bank. Your line is open.

Laurence Fink:

Hey, Brian.

Laurence Fink:

Well, first I apologize that we created any confusion. So, let's start. We do have $200 billion, sustainable long-term assets.

Laurence Fink:

The difference is we have a broad base cash management space that is becoming more and more sustainable. So, if you add the cash side or the short term cash, it comes up to that $300 billion number. I hope I answered that question properly now.

Laurence Fink:

Two, I think, the opportunity in transition is amazing. It is estimated we need to spend $50 trillion to have a decarbonized world and to do that is investing in new technologies. And we are very pleased at having a partner in Temasek, and we have had many conversations with them related to how can we bring the world closer to a decarbonized world without a premium or without a green premium. And this is specifically so relevant, not just in the United States, but it's so relevant in the emerging world. The emerging world is still growing and still has a greater need for electricity, greater need for building. The emerging world is just at the beginning of their economic growth. And so, if we are going to get to a net zero world, the need for innovation and investing for green hydrogen to bring that premium down to zero for biofuels, for sequestering carbon at a very inexpensive price, all of these are going to require new technologies for agriculture. Agriculture produces over -- close to 15% of the carbon footprint when you -- related to that. And so, we have many areas where it is going to require new technologies, and I truly believe we are going to have many young people instead of going into data and technology related to the social side of technology. I believe many, many innovations that are going to come from young startup innovative companies. But I would also say I am very bullish on our traditional hydrocarbon and chemical companies as they pivot. And I've had conversations recently with a CEO of a very large oil and gas company. Just yesterday I had a conversation with a CEO of a very large chemical company, and we're actually talking to them about how can BlackRock invest with them side by side on technologies for decarbonization. I mean, the science and technology that are existing companies in terms of the understanding of carbon and understand the science of transforming it to a more decarbonized world is great. And so, we are very encouraged about investing in startups, and that's what Temasek BlackRock decarbonization funded. But we actually are having many conversations about investing with our infrastructure teams, with our private teams, with our debt teams to finance this. We've had numerous conversations with companies related to biofuels. And so when we -- our employees are flying around the world that we could have a footprint that is net zero. And so, all of these are great opportunities for us and the investors worldwide.

Operator:

Your next question comes from Dan Fannon with Jefferies. Your line is now open.

Laurence Fink:

Hi, Dan. Thank you. There's not one consistent conversation going on institutionally. Obviously, the question of inflation, the question of do deficits matter, are prominent conversations with our fixed income investors now. Some fixed income investors are looking to derisk, but derisking by going into low duration or unconstrained strategies. Some of them are looking to say I need more credit, or I need more coupon to take on that duration risk. And so, there's -- we still see demand in high yield evidenced by our flows. So, I don't think there's one specific trend. But I would say the narrative around the question of inflation deficits are becoming a very prominent part of our conversations. Obviously, many questions related to equity valuations. The rotation from growth to value is that overdone at this moment, especially if the vaccinations take longer and other questions on that. And so, those were probably the dominant conversations. But if anything, Dan is, we said some of the prepared remarks, there is incredible pools of cash on the sidelines. I would say overall our clients are still sitting with big pools of money. Overall, they're still under invested. Now, I would say as a 10-year treasury rises in rates, that our liabilities become less burdensome. And so -- and if there is any continuing rising of the 10-year rate, the need for extending duration is no longer as necessary. And so -- but the dialogues are very robust now. Many clients are putting and allocating more and more to privates and alternatives. Many clients now are using ETS for active exposures. That's accelerating, not decelerating. And so, I would say there's nothing that's prominent in any one conversation, except one thing, the conversation around sustainability. There is not a conversation today with an institutional client on how should they think about climate risks? How should they think about transition risk? And as I just said in my prior question, what we are trying to have our clients focus on, not the fear of transition, not the enormous need for transition, but the opportunities that transition will entail to get it right. The investment technologies to make sure that we don't have this green premium or the net zero world will not happen, especially in the emerging world. And so, this is the beauty of, I would say of, capitalism. This is the beauty of capital markets that more and more clients are looking to be more prepared for this long-term trend. And many, many clients are asking the question, what role should their portfolio play in this long-term trend.

Michael Cyprys:

Hey, good morning. Thanks for taking -- hey, good morning. Thanks for taking the question. I just wanted to circle back to some of the investment spend commentary. You guys were articulating here. I'm just hoping maybe you could elaborate a little bit on how you're thinking about investing here, where specifically. And maybe if you could -- just maybe focus a little bit more on -- how would you characterize the pace of investment spent here in 2021 versus maybe the last couple of years. And does that accelerate, just given the market uplift? How are you thinking about pacing that?

Operator:

Your next question comes from Craig Siegenthaler from Credit Suisse. Your line is now open.

Craig Siegenthaler:

Hey, good morning, Larry. My question is on Aladdin. So, if we look at the 16% year-on-year growth in annual contract revenues, can you talk about the components of the growth between the core operating system platform provider Aladdin and Aladdin for wealth? And I also wanted to hear how the portfolio analytics and risk management tools are now encompassing ESG and helping investors to build better portfolios across factors like sustainability.

Laurence Fink:

I would just add that, if you think about the growth of Aladdin from a platform that was just analyzing bonds to where we are today, the demand from our clients in terms of having an operating system that is end-to-end an operating system that is connected to their custodial bank like Aladdin provider and operating risk management system that not only connects public markets, but private markets. And we built those platforms around that. And then with the need of more information at the financial advisors fingertips, so they could provide deeper, broader risk analytics to their clients and that's Aladdin Wealth. We have built Aladdin around the needs of our clients to offer a better experience, better outcomes. And then I can't think of a better -- and more important time when Aladdin was necessary when we were all working remotely and still I'm working remotely and having an operating system that is connected worldwide. And the -- our clients worldwide have actually become more enthusiastic about how Aladdin shapes and helps their business. We believe Aladdin actually improve their performance and there was research by third parties that suggest those who have Aladdin have better financial performance. Then when you think about climate risk and transition risk, that is going to encompass from cash to the most long dated privates across the entire portfolio, across all products, across our regions, the need for Aladdin Climate and having data and analytics to justify the investments. We have to live under the department of labor rule of remaining to be a fiduciary. And so, we have to justify as a fiduciary that climate risk is investment risk. And so, more than ever before, I believe Aladdin is as well positioned because of how we navigated it to make it end-to-end through the custodian, to the wealth manager, now publics and privates. And then importantly, now with sustainability really speaks about the resiliency of the operating system and why we continue to have deeper, broader conversations with more clients.

Laurence Fink:

Good morning, Alex.

Gary Shedlin:

So, we've had a focus on our alternatives business for the last several years. And while we haven't raised $20 billion in one fund, we've raised $2 billion in 10 funds, and then those continue to grow. So, we have -- our current focus will be on credit, which is where our clients are looking to invest. As Larry mentioned in sustainable, we're looking at renewable energy, which we just raised one a very large fund. We will be following very closely the infrastructure bill and figure out how we can raise assets that we can deliver to our clients for infrastructure, which for many of our clients who would like long duration type assets, infrastructure fits very well. So, we'll probably go in that direction a bit more. And then, simply and seeing how the private equity market evolves and where our clients can earn alpha, drove our secondary and liquidations fund as some of the older vintages come due from some of the stable private equity companies that are looking to start new funds, but liquidate what is left in the older funds. So, what we're trying to do is really have a very careful eye on where we think the next value chain is and cannot be described both in a liquid form and an alternatives of funds. But what I would tell you is that our general theme is alternatives are going to become less alternative. And so, we are following that very carefully. And currently we are very focused on that -- how that compares with what our team thinks about sustainability and ESG going forward and how we combine the two.

Robert Lee:

Great. Thanks. Thanks. Hey, how's everyone doing? Hope everyone's doing well. I'm curious to know -- so are -- how are you thinking about or clients starting to think about -- I guess it's a popular thing now, but digital assets and I don't mean crypto per se, but now how are you starting to think about digital assets as a potential new asset class or investment class? And then I guess as part of that, maybe being a little facetious, but are we going to see Aladdin digital in two years on one of these calls?

Operator:

Ladies and gentlemen, we have reached allotted time for questions. Mr. Fink, do you have any closing remarks?

Operator:

This concludes today's teleconference. You may now disconnect.

Operator:

Good morning. My name is Gerald [ph] and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated Fourth Quarter and Full Year 2020 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Gary S. Shedlin; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions]. Thank you. Mr. Meade, you may begin your conference.

Gary Shedlin:

Thanks, Chris. Good morning and Happy New Year. I hope everyone and their families remain safe and healthy through the holidays, and it’s my pleasure to present results for the fourth quarter and full year 2020. Before I turn it over to Larry, I’ll review our financial performance and business results. While our earnings release discloses both GAAP and as adjusted-financial results, I will be focusing primarily on our as-adjusted results. Throughout BlackRock’s history, we have consistently and systematically invested in our business with a commitment to serving clients, employees, shareholders, and the communities in which we live and operate. As a result, while the world faced unprecedented challenges in 2020, we were well prepared to provide clients with thought leadership, investment insights, and risk management tools to ensure the physical and emotional well being of our employees and to give back to our communities. BlackRock’s strong performance during this challenging year is a testament to our diverse and resilient business model. Our steadfast focus on helping clients achieve their long-term goal and the dedication of our incredible people. We generated net inflows of $391 billion in 2020, representing 5% organic asset growth and 7% organic base fee growth meeting our organic growth target for the sixth time in the last 8 years. Importantly, we finished the year with increased momentum, generating $127 billion of total net inflows in the fourth quarter, reflecting record quarterly organic base fee growth of 13%. Strong performance from our entire active franchise along with near record iShares flows, which benefited from client de-risking and year-end tax planning contributed to this quarters robust organic base fee growth. We continued to play offense in 2020 as the strength and stability of our operating model allowed us to invest through volatile markets, both organically and inorganically, expand our full year operating margin and return approximately $3.8 billion of capital to our shareholders. Each of our critical growth priorities, including iShares, Aladdin, private markets, alpha generation, whole portfolio solutions, and sustainable investing drove significant growth during the year. Full year revenue of $16.2 billion was up 11%. Operating income of $6.3 billion rose 13%, and earnings per share of $33.82 was up 19% versus 2019. For the fourth quarter, BlackRock generated revenue of $4.5 billion and operating income of $1.8 billion, up 13% and 20% respectively from a year ago. Quarterly earnings per share of $10.18 was up 22% versus 2019 driven by higher non-operating income and a reduced diluted share count versus a year ago, partially offset by a higher effective tax rate in the current quarter. Non-operating results for the quarter included $153 million of net investment income, primarily driven by mark-to-market gains on our unhedged seed and co-investment capital. Our as-adjusted tax rate for the fourth quarter was approximately 20%, reflecting $61 million of net discrete tax benefits. We currently estimate 23% as a reasonable projected tax run rate for 2021 though the actual effective tax rate may differ as a consequence of non-recurring or discrete items or potential changes in tax legislation during the year. Fourth quarter base fees of $3.4 billion were up 10% year-over-year, primarily driven by 7% organic growth and the positive impact of market data and foreign exchange movements on average AUM, but partially offset by lower securities lending revenue and higher discretionary money market fees in the current quarter and strategic pricing investments over the last year. In addition, while fourth-quarter base fees were up 5% sequentially, the impact of lower securities lending revenue during the quarter driven by a continued tightening of cash spreads was the primary reason we saw a sequential decline of 0.2 basis points in our annualized effective fee rate despite the positive impact of strong organic base fee growth. As we look into 2021, based on current market conditions and the interest rates, we are planning for the possibility of lower securities lending revenue and higher discretionary money market fee waivers as compared to 2020. In isolation, this could have an additional 0.3 basis point negative impact on our fee rate this year as compared to our fourth quarter annualized base fee rate. Bear in mind that our higher interest rate environment and continued strong organic base fee growth could mitigate these headwinds, especially with continued momentum in our higher fee, active equity, and alternative businesses, and then nearly roughly -- and nearly 40% of gross money market fee waivers are generally shared with distributors reducing the impact on operating income. Fourth quarter performance fees of $419 million were up 75% year-over-year capping a record year for performance fees that totaled $1.1 billion more than double to 2019 levels. While this year's performance fees reflected strong alpha generation across the entirety of our alternative and long-only investment platforms, approximately 60% of the full year increase was attributable to a single hedge fund strategy that delivered exceptional performance during the year. Quarterly Technology Services revenue was up 11% year-over-year, and full year revenue of $1.1 billion increased 17% in part reflecting the impact of the eFront acquisition. While demand for integrated and resilient investment management technology to support effective risk management and operational efficiency remained strong, growth in 2020 technology services revenue was impacted by strength of [ph] sales and contracting cycles associated with the pandemic. In addition, year-over-year revenue growth also reflected certain eFront clients shifting from an on-premises license model, in which revenue is generally recognized upfront to a hosted model, which is more consistent with how we service our broader Aladdin community and where revenue is recognized over the life of a contract. As we anticipate more clients embracing eFront’s hosted model, which will impact year-over-year revenue comparisons and in an effort to provide greater transparency into Aladdin’s business momentum, we intend to begin disclosing growth in ACV, or annual contract value. ACV growth represents a point in time year-over-year comparison of our technology services revenue run rate and is more representative of how leading technology companies measure their top line growth. Technology Services ACV at year end, 2020 increased 12% versus a year ago, and we remain committed to low-to-mid-teens growth and ACV over the long term. Fourth quarter and full year advisory and other revenue decreased year over year, primarily reflecting the absence of PennyMac equity method earnings following the charitable contribution of our remaining equity stake in the first quarter of 2020 and lower advisory and transition management revenue during the year. Total expense increased 10% in 2020, driven primarily by higher compensation and non-core G&A expense. For the full year, compensation expense increased $571 million or 13%, primarily reflecting higher base and incentive compensation driven by higher performance fees and operating income. Recall that year-over-year comparisons of fourth quarter compensation expense are less relevant because we determine compensation on a full year basis. Overall G&A expense increased 7% year-over-year, reflecting higher levels of non-core items primarily related to the net impact of higher product launch costs, legal fees COVID-19 related costs and fixed asset impairments, offset by lower contingent fair value adjustments FX re-measurement expense and deal related costs during the year. Excluding approximately $280 million of non-core G&A expense incurred in 2020, which included $166 million of aggregate fund launch costs, core G&A expense for the year remained essentially flat compared to 2019 as higher technology and portfolio services fees were offset by lower T&E expense. Recall that we exclude the impact of fund launch costs from reporting our as adjusted operating margin. Our full year as adjusted operating margin of 44.9% was up 120 basis points versus 2019 and benefited from record performance fees and securities lending revenue during the year and a lower level of core G&A expense than anticipated. As we have previously stated, our business has never been better positioned to take advantage of the opportunities before us, especially amid industry consolidation disruption to deliver differentiated organic growth. And we remain deeply committed to investing responsibly and aggressively through market cycles and for the long term in order to optimize organic growth in the most efficient way possible. Consequently, our 2021 investment plan currently includes the repurposing of lower T&E expense back into our business to fund incremental investments in technology and market data in support of our sustainability and other growth initiatives. At present, excluding the impact of market data, taking into account our anticipated level of expense growth and more normalized level of performance fees and the current rate environment, which may impact year-over-year comparisons of sec lending revenue and money market fee waivers, we would anticipate a 2021 as adjusted operating margin generally in line with our 2020 results. We're also investing through prudent use of our balance sheet to best position BlackRock for continued success. During 2020, we allocated over $1 billion of new seed and co investment capital to support our growth and our year end portfolio now approximately is $3.5 billion. We also continue to make strategic minority investments. And as you will hear from Larry shortly, we will announce later today an investment in Clarity AI, a sustainability analytics and data science platform. And in the fourth quarter, we announced the acquisition of Aperio, a pioneer in customizing tax optimized index equity SMAs to enhance our wealth platform and provide whole portfolio solutions to ultrahigh net worth and advisors. Following the close of the period transaction in early February, we will incur additional intangible amortization expense relative to 2020. We also remain committed to systematically returning excess cash to shareholders through a combination of dividends and share repurchases and return an aggregate of $3.8 billion to shareholders in 2020. We repurchased approximately $1.5 billion worth of shares in 2020 and an average share price of $439 per share taking advantage of PNC decision to exit their ownership position in May. Since inception of our current capital management strategy in 2013, we have now repurchased over $10 billion of BlackRock stock, reducing our outstanding total shares by 11% and generating an unlevered compound annual return of 19% for our shareholders. At present, based on capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price, we are targeting the repurchase of $1.2 billion of shares during 2021 consistent with our guidance a year ago. In addition and also subject to market conditions, we expect to see board approval later this month for an increase to our first quarter 2021 dividend. As you will hear more from Larry, BlackRock has never been better positioned to deliver for clients as we leverage our unique insights, guidance and solutions to help them meet their long term investment needs. Fourth quarter total net inflows of $127 billion, representing 7% annualized organic AUM growth and 13% annualized organic base fee growth were led by flows into iShares and our top performing active franchise. Full year net inflows of $391 billion were positive across active and index, all asset classes, client types and regions, and reflected broad based strength across iShares and active and cash strategies. Global iShares ETFs generated $185 billion of net inflows in 2020, representing 8% organic asset growth and 7% organic base fee growth. We saw strong growth in core in each of our strategic product areas and our precision exposures which benefited from risk on sentiment during the fourth quarter. Within our strategic products segment flows were led by fixed income and sustainable and we also saw in in-flows into factors despite the industry categories seeing outflows. The fourth quarter is typically our strongest quarter for iShares due to year-end rebalancing and tax planning. But this quarter was especially strong with net inflows of $79 billion representing 14% annualized organic asset growth and a record 17% annualized organic based fee growth reflecting the breadth of our product and client segments. BlackRock generated full year retail net inflows of $70 billion representing 10% annualized organic asset growth and 8% annualized organic based fee growth, significantly outperforming the broader mutual fund industry. Retail flows were positive in both the U.S. and internationally and reflected broad, based strength in active fixed income, equity and liquid alternatives. Fourth quarter retail net inflows of $35 billion reflected similar trends, but also included the seasonal impact of capital gains and dividend reinvestment. Institutional index net outflows of $29 billion in 2020 reflected equity net outflows partially offset by fixed income net inflows, as several large clients rebalance portfolios after significant equity market gains or tactically shifted assets to fixed income and cash. In addition, a large U.S. public pension client recently announced a diversification of their plan to meet revised guidelines. BlackRock will maintain management of the significant majority of the plans assets, but we do expect to transition approximately $55 billion of low fee index assets to another investment manager during the first half of 2021. While this transition will result in a significant net asset outflow, it will have a deminimis impact on our organic base fee growth for the year. BlackRock’s institutional active franchise generated $32 billion of net inflows in 2020, reflecting broad based strength across all product categories, active net inflows were led by $14 billion of multi asset net inflows reflecting continued growth in our life path, target date, franchise, and significant momentum and our OCIO business. We also generated $7 billion of net inflows in active fixed income, primarily from activity among our insurance clients. Across retail and institutional client types, we generated a record $30 billion of active net equity net inflows for the year and have now delivered seven consecutive quarters of positive flows in this category. Flows were led by top performing franchises in Technology, Health Sciences and U.S. growth equities, as well as quantitative strategies. We remain well positioned for future growth in our active businesses with over 85% of fundamental active equity, systematic active equity and taxable fixed income assets performing above their respective benchmarks or peer medians for the trailing five year period. Overall, demand for alternatives also continued with $17 billion of net inflows into our illiquid and liquid alternative strategies during the year, driven by infrastructure, private equity solutions, credit and our multi strat and global event driven hedge funds. Momentum and fundraising remains strong, and we have approximately $24 billion of committed capital to deploy for institutional clients in a variety of strategies representing a significant source of future base and performance fees. BlackRock’s cash management platform generated another $9 billion of net inflows in the fourth quarter, even as the broader industry saw outflows and a record $113 billion of net inflows in 2020. During the fourth quarter, we incurred approximately $30 million of discretionary yield support waivers, and, as previously discussed, expect such fee waivers to increase in 2021. Finally, full year advisory net inflows of $20 billion were primarily linked to asset purchases managed by our financial markets advisory group. We called it revenue linked to these assignments is primarily reflected in the advisory and other revenue line of our income statement. This time last year, none of us could have predicted the unprecedented challenges that we and our clients around the world would face during 2020. By remaining true to our purpose, investing ahead of our client’s needs and respecting our one BlackRock culture, we look back on 2020 as a year that included some of the strongest and proudest moments of our 32-year history. Our relationships with clients have never been deeper. And we believe in our platform, we believe our platform is as well positioned as it's ever been to meet the needs of all stakeholders over the coming years. With that, I'll turn it over to Larry.

Operator:

[Operator Instructions] Your first question comes from Alex Blostein with Goldman Sachs. You may now ask your question.

Alex Blostein:

Great. Good morning, Larry, good morning everyone, Happy New Year to you all. First question, I wanted to ask you guys around scale at BlackRock in relation to the margin guidance that you guys provided for 2021. I guess given the strong exit on the revenue front, this implies a pretty healthy pickup in spending. I know you talked about some specific areas like technology and market data, but can we maybe get a little more specificity on kind of what are the key areas where you expect to add into 2021? And again beyond that, how should we think about the ability of BlackRock to deliver positive operating leverage beyond 2021?

Operator:

Your next question comes from Glenn Schorr with Evercore. You may now ask your question.

Glenn Schorr:

Hello there. How are you? Okay. So, if I look back on 2020, it's interesting, right? Because rates go to zero, and there's a lot of things at play, but you had really good fixed income flows, both active and passive, and that's continuing. I'm sure it is a big picture that goes into Larry's opening remarks. As people start thinking about higher rates and potential inflation on the outlook, how do you think asset allocations are going to change, particularly on the fixed income front?

Rob Kapito:

Yes. I think that demand is still going to outstrip supply. But I think, Glenn, the way we look at it is as people allocate to fixed income, they're going to allocate differently. And the fixed income iShares flows are going to benefit from the low-rate environment, as we've already started to see. And as people start to do this reallocation, this is why we've seen as Larry mentioned in his opening remarks, over 100 new asset managers and asset owner clients come into fixed income but come in through iShares. And a good statistic is 80% of the top asset managers are now using fixed income ETFs. So we think there's still demand, but the demand is going to be shown differently as they come in, and we're very well positioned in our iShare business to take that money in fixed income.

Laurence Fink:

Hey, Craig, Happy New Year. Year.

Laurence Fink:

So why don't you start on that one part and I'll finished last part?

Craig Siegenthaler :

First question is on, talk about BlackRock's unique distribution scale advantage? And then, as you look at the industry do you think other firms that are fairly large, but not the same size as BlackRock. Do they really need to buy other firms to improve their scale? And is that a real advantage for them?

Laurence Fink:

Let me try to respond to the first part of the question. I believe our distribution platform has been buttress quite a bit over the last five years has been a long term commitment. We are providing a uniqueness as Gary suggested across the world in terms of providing that conversation that intersects both active and passive and risk analytics. No firm can do this at this moment. I believe the elevation of content by the wealth manager has been one of the giant changes too. As the wealth management industry has moved away from fee base to an advisory base, they've really elevated their ability to have deeper, broader conversations. And they're looking for a few partners who could work with them and build that out. And we are certainly kind of one of the go-to firms. We're helping that. And we're able to help them deliver that global insight and advice, and more importantly, the solutions that helping them. So it is the combinations of having iShares interactive strategy. But now with the overlay of technology to customize portfolios. And today, the customization of portfolios and personalizing a portfolio is becoming more and more in need in the wealth management space. It is not about selling a bond fund or a stock fund anymore. It is not about buying a stock or a bond. It is about a holistic whole solution portfolio. And so, our uniqueness is about that and how we deliver it. Just as a response to the industry, the industry has been always designed around a specific product, a specific fund. And for the firms who only have a product or in one asset category, they have a difficult time to really respond to whole portfolio solutions. And I believe this customization, the personalization of whole portfolio solutions is becoming the driver, the driver in terms of most of the wealth management conversations. Do we need to do more acquisitions for distribution? Not in the United States, not in the Europe. Could we do somewhere in another part of the world where we don't have a strong footprint? Sure. That is consistent what I've said over the last three to five years. And importantly, what we are going to do like we announced today they Clarity AI minority interest. What we are trying to do is provide in this portfolio customization, also uniqueness and data and analytics to drive better decision making, which will ultimately drive better performance. And I think that is also the uniqueness of BlackRock. And why we are so constructive on the opportunities we have working with wealth managers worldwide.

Laurence Fink:

Hey, Rob, Happy New Year.

Laurence Fink:

Great question. We've built BlackRock around the whole foundations of strong global capital markets. I think we have been a big beneficiary over the years by we believed in global capital markets, and the expansion of global capital markets over the last 20 years. And I think the size of our footprint and the size of the AUM that we managed is because of our commitment to building broad scale capital markets. One of the interesting points I said this at the end of the -- my speech today. Our size, relative to the global capital markets, is almost virtually unchanged to what it was in 2009. So in 2009, we were under 2% of the global capital markets. And today, we're a little bit over 2% of the global capital markets. So as much as we've grown the world, capital markets have grown. The use of government debt as a mechanism finance deficit has grown. The use of the equity markets for IPOs and new companies and the expansion of other countries expanding their capital markets, whether the capital markets expansion in the Middle East or parts of Asia have been really quite extraordinary. So we are benefiting that. What we need in that. And we've always welcomed that. We need to make sure that regulators focus on a well functioning capital markets to build a more resilient economy. So we have encouraged regulation worldwide to ensure well functioning capital markets. And that is the key criteria, how we look at it. I would say the one myth about asset managers. The asset manager industry is highly regulated already. At BlackRock, we are regulated by the SEC. Because we have a Trust Bank. We're regulated by the OCC. We're regulated by the CFTC by FINRA, overseas, we're regulated across the board. We are not a bank. And that's why we are not regulated by one regulator, the Federal Reserve. But we're regulated by almost any other organization and regulator. The asset management industry is still highly fragmented. And so, I believe, we welcome a conversation. And we are encouraged about how regulators are focusing on the need of a well functioning capital market. But the concept of that asset management industry is not regulated, that must be coming from bankers. We're not a bank. We don't -- all $8.7 trillion of our assets are other people's hard earned savings and money. We have a contract with every one of our clients. In most of our short term funds, mutual funds, ETFs, they could sell those assets in a day. And our institutional liquid portfolios, they could do it over 30 days. And depending on some of the long term, private assets, that depends on the contract that we have with each individual client. But the notion that asset managers are not regulator, it's just a myth. It is not true. But as the largest asset manager in the world, as a fiduciary, to all our clients savings, we want a highly functioning markets. And at the time when markets need more supervision, in almost all cases, we have been systematically in favor of ensuring market safety and soundness. And we will encourage that going forward.

Ken Worthington:

Hi, good morning. I'm curious your views on the outlook for tax managed investing in the aftermath of COVID. And the outlook for higher personal income and investment taxes in the U.S. and abroad. To what extent might demand here provide another catalyst for ETFs and direct indexing growth inside and outside the U.S. into the outlook for tax managed investing contributes your interest in Aperio?

Operator:

Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?

Operator:

Good morning. My name is Maria and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated Third Quarter 2020 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Gary S. Shedlin; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. [Operator Instructions]. Thank you. Mr. Meade, you may begin your conference.

Gary Shedlin:

Thanks, Chris. And good morning, everyone. It's my pleasure to present results for the third quarter of 2020. And I hope everyone and their families are remaining safe and healthy in the current environment. Before I turn it over to Larry to offer his comments, I'll review our financial performance and business results. While our earnings release discloses both GAAP and as adjusted financial results, I will be focusing primarily on our as adjusted results. BlackRock's steadfast focus on serving clients, employees, shareholders and the communities in which we operate continued in the third quarter. Our strong performance during the quarter and throughout the year amid unprecedented market uncertainty is a testament to the investments we've made over time to build a diverse and resilient business model, the strength of our BlackRock brand, and the commitment of our amazing employees to always deliver for clients. Our broad-based platform, pairing diverse investment capabilities with best-in-class technology and rigorous risk management, has now generated almost $400 billion of total net inflows over the last 12 months, representing 7% organic base fee growth. Our voice is resonating with clients more than ever, and our ability to address their current challenges to whole portfolio solutions, no matter the market environment, is a direct result of the strategic vision we embraced well over a decade ago and grounded in the strength of our one BlackRock culture. BlackRock generated $129 billion of total net inflows in the third quarter, representing 7% annualized organic asset growth and 9% annualized organic base fee growth. As markets strengthened during the third quarter, BlackRock leverage the entirety of its global platform to help clients meet long-term needs. Not only did we see positive flows across all asset classes, investment styles and regions for the quarter, we have also generated positive flows over the last 12 months across each product type on our active platform, evidencing the strength of our alpha generating capabilities. Record third quarter revenue of $4.4 billion increased 18% year-over-year, while operating income of $1.8 billion rose 17% and reflected $83 million of costs associated with a successful closed end fund launch in late September. Record earnings per share of $9.22 was up 29% compared to a year ago, also reflecting higher non-operating income and a lower effective tax rate and diluted share count in the current quarter. Non-operating results for the quarter included $116 million of net investment income, driven primarily by mark-to-market gains on our seed and co-investment capital, but also reflected incremental interest expense associated with our second quarter debt issuance to pre-refinance our May 2021 debt maturity. Our as adjusted tax rate for the third quarter was approximately 23%, which we estimate is a reasonable projected tax run rate for the fourth quarter of 2020. Third quarter base fees of $3.2 billion were up 8% year-over-year, primarily driven by 6% organic asset growth and the positive impact of market beta and foreign exchange movements on average AUM, partially offset by strategic pricing changes to certain products. Sequentially, base fees were up 9% from the second quarter, reflecting similar dynamics, but also the positive impact of one additional day in the quarter and the negative impact of lower securities lending revenue, which declined $57 million from record second quarter levels as cash spreads tightened in response to the Fed's intervention in money markets. The impact of lower securities lending revenue during the quarter was the primary reason we saw a sequential decline of 0.2 basis points in our annualized effective feed rate, despite the positive impact of strong organic base fee growth. Record quarterly performance fees of $532 million increased significantly on a year-over-year and sequential basis, reflecting strong overall performance from our single strategy hedge fund platform. A significant portion of the year-over-year increase in performance fees was attributable to a single hedge fund that [lapsed annulling] [ph] the third quarter and once again delivered exceptional performance over the last 12 months. Quarterly technology services revenue increased 9% year-over-year. While recent growth has been impacted by extended sales and contracting cycles in the current environment, we remain committed to low to mid-teens growth in technology services revenue over the long term. Demand for integrated and resilient investment management technology to support effective risk management and operational efficiency has meaningfully accelerated in the complex remote work environment brought on by the COVID-19 pandemic. Advisory and other revenue of $42 million was down $20 million year-over-year, primarily reflecting the absence of PennyMac equity method earnings following the charitable contribution of our remaining equity stake in the first quarter. Total expense for the third quarter was up 19% year-over-year, primarily driven by higher compensation and G&A expense. Employee compensation and benefit expense increased 27% from a year ago, driven in part by higher incentive compensation associated with higher performance fees and operating income. And G&A expense was up $76 million year-over-year, reflecting $80 million of closed-end fund launch costs associated with the successful close of the $2 billion BlackRock Capital Allocation Trust. Recall that we exclude the impact of these product launch costs when reporting our as adjusted operating margin. The increase in year-over-year G&A expense also reflected higher technology expense, including certain costs related to COVID-19 and lower marketing and promotional expense, which is where we categorize our T&E expenditures. Core G&A expense for the third quarter, which among other items, excludes product launch costs and certain incremental costs associated with COVID-19 was essentially flat with the second quarter. And we would continue to expect core G&A expense for the year to be generally in line with the estimates we provided in July. Our third quarter as adjusted operating margin of 47% was up 100 basis points from a year ago, benefiting from significant performance fees in the current quarter. We remain margin aware in the current environment and committed to optimizing organic growth in the most efficient way possible. Our long-term strategic growth plan continues to focus on accelerating growth in Aladdin, iShares and private markets, keeping alpha at the heart of BlackRock delivering whole portfolio solutions and becoming the global leader in sustainable investing. Our capital management strategy remains first to invest in our business and then to return excess cash to shareholders through a combination of dividends and share repurchases. As a reminder, in the second quarter, we completed our targeted level of share repurchases for 2020, including the repurchase of $1.1 billion of common shares from PNC at $415 per share. While we did not repurchase any shares of common stock in the third quarter, we intend to be opportunistic, should attractive relative valuation opportunities arise during the remainder of the year. As you'll hear more from Larry, BlackRock has never been better positioned to deliver for clients as we leverage our unique insights, guidance and solutions to help clients meet long-term investment needs. Third quarter organic asset growth of $129 billion reflected the diversity of our platform, with strong flows across the franchise, especially in iShares, active strategies and cash. iShares net inflows of $41 billion represent an 8% annualized organic asset growth and 7% organic base fee growth, reflecting continued momentum in fixed income and sustainable ETFs – two strategic product categories where we have leading market share – and inflows into higher fee precision exposures as institutional buyers utilize these highly liquid trading instruments to express tactical market views. Retail net inflows of $20 billion, representing 11% annualized organic asset growth and 12% annualized organic base fee growth, were positive in both the US and internationally and across all major asset classes. Inflows reflected broad-based strength in active fixed income, equity, liquid alternatives and multi-asset funds. As previously mentioned, retail multi-asset flows also included the successful close of the $2 billion BlackRock Capital Allocation Trust closed-end fund made possible by the top decile performance of our global allocation investment team. BlackRock's institutional franchise generated approximately $37 billion of net inflows in the third quarter, reflecting demand for our top performing active strategies and industry leading index capabilities and renewed client interest in fixed income. Institutional active net inflows of $30 billion are also broad based across all product categories and were led by $12 billion of active fixed income flows, reflecting strong activity among insurance clients. Multi-asset net inflows of $11 billion were driven by continued growth in our LifePath target date franchise and OCIO client wins where BlackRock's global insights and unique ability to provide whole portfolio solutions enable us to be the partner of choice for clients. Across our retail and institutional client segments, we generated a record $10 billion of active equity net inflows, representing our sixth consecutive quarter of positive flows in this product category. Flows were led by top performing franchises in technology, health sciences and US growth equities, as well as quantitative strategies. We remain well positioned for future growth in our active businesses, with over 80% of fundamental active equity, scientific active equity and taxable fixed income assets performing above their respective benchmarks or peer medians for the trailing five-year period. Overall demand for alternatives also continued, with nearly $5 billion in net inflows into illiquid and liquid alternative strategies during the third quarter, driven by infrastructure, real estate and liquid alternatives. Momentum and fundraising remained strong as we have approximately $23 billion of committed capital to deploy for institutional clients in a variety of alternative strategies, representing a significant source of future base and performance fees. BlackRock's cash management platform continued to grow, even as the broader industry saw outflows, generating another $28 billion of net inflows in the third quarter. In September, as gross yields fell below relevant thresholds, we did begin to waive fees on select government funds. While there was minimal impact of third quarter base fees given our proactive management of portfolios during the year, we would expect fee waivers to accelerate during the fourth quarter and into 2021. Finally, third quarter advisory net inflows of $3 billion were primarily linked to asset purchases managed by our financial markets advisory group. Recall that revenue linked to these assignments is primarily reflected in the advisory and other revenue line item of our income statement. The continued strength of BlackRock's results once again validates the resilience of our globally integrated asset management and technology business model, which allows us to consistently and responsibly invest for the long term, evolve ahead of client needs, and serve all of our stakeholders, no matter the market environment. With that, I'll turn it over to Larry.

Operator:

[Operator Instructions]. Your first question comes from Michael Carrier of Bank of America.

Laurence Fink:

Let me have Rob answer that question. And I may do a color backdrop after that.

Laurence Fink:

Let me just add another thing. Obviously, performance matters. And I believe the most important characteristic of our active inflows, both in fixed income and equities, is a function of our whole portfolio approach. As more and more retail moves to fee based, it is much more of a solution orientation, it's much more about a whole portfolio approach. And under COVID now, with the connection with the financial advisor and the RIAs to their clients is now done remotely, the need for investment technology, like Aladdin for Wealth, is even more important. And so, having BlackRock play a role and building deeper relationships between the advisor and their clients, providing better risk analytics, it allows us to have, in our models, our products in front of that too. And it's a combination of performance, but also over a 15-year horizon of building this enterprise to do that connectedness and then using that enterprise and all the culture of interconnectedness among portfolio teams, I believe it's driving better alpha and driving a better connectivity with those leading towards more consistent inflows across active and index type of strategies.

Craig Siegenthaler:

I want to circle back on the strong flows across all client segments in fixed income. And I think we know part of this is driven by overall risk aversion and also heavy rebalancing. But just given where rates are today, do you think some of this strong fixed income migration is eventually diverted into other areas like alternatives and equities? And then, within fixed income, maybe into more higher yielding segments like structured credit, loans and high yield?

Laurence Fink:

I would just add. There's no question, Craig, government bonds are going to play less and less of a role for most retirement portfolios. They still play a big role in bank portfolios and other regulated institutions. But unquestionably, you would own government bonds for liquidity purposes, you certainly would not use government bonds for income purposes. And so, you are going to have a migration across to different asset classes and different asset categories. And so, as Rob suggested, I believe our comprehensive platform within fixed income, having a strong, purposeful ETF platform in fixed income, which we've been advocating since 2012, a historical strong fixed income organization since the beginning of our firm has allowed us to have a differentiation in flows. And as I said, I certainly believe fixed income ETFs are going to play a bigger and larger component over the entire fixed income market. And with our positioning and with our constant educating clients worldwide on how can they use fixed income ETFs for their portfolio composition needs in fixed income is going to continue to drive our, I would say, above-industry trends in fixed income.

Brian Bedell:

Larry, just to focus on your comments on sustainable investing a little bit more deeply. Obviously, you showed a lot of leadership here with, I believe, $125 billion in AUM. And you cited the iShares franchise, it's over $50 billion in AUM, if I'm not mistaken, with $8 billion in flows. Could you possibly update us on what you think flows were in sustainable product outside of the iShares in the quarter? I think the goal was to get to $1 trillion eventually by the end of the decade. Maybe just thoughts on how active management can play a role in your product lineup in addition to the passive side in ETFs? And maybe just also on the – weaving that ESG into the technology side, if you can comment on that on Aladdin and Aladdin for Wealth as well.

Operator:

Our next question comes from the line of Michael Cyprys of Morgan Stanley.

Laurence Fink:

Well, since my CFO is an investment banker who is responsible for a lot of historical M&A in the industry, let's have Gary respond.

Michael Cyprys:

Very good. I like that word beacon.

Alexander Blostein:

I wanted to ask you guys around some of the operational lessons learned from the COVID environment for the last, call it, six months or so. On the one hand, it sounds like opportunities for Aladdin could accelerate, given the challenges faced by the financial advisor community. But also, I was curious if you guys are rethinking some of your own G&A footprint and how that could sort of evolve once the world normalizes. Thanks.

Laurence Fink:

I would just add. There are many lesson that we're learning from the horrificness of the pandemic and the health concerns. I don't think any of us thought we could operate as efficiently remotely. As Gary said, now we're operating in 16,000 offices. I believe that was one of the great fears, could we actually accomplish that, can we have the operational efficiencies working remotely. And by and large, many large companies, including BlackRock, have learned that, yes, we can work remotely without much in terms of degradation of operational efficiencies. We still have some of the cultural issues that I'm particularly worried about. But let's be clear, I don't believe we will have 100% back in office even when we have 100% solutions related to the virus. I believe this will become a blessing. I believe this is going to be considered a benefit if we could have –30%, 40% of our workforce that they can work remotely at periods of time during the year. Can you imagine how each city will have reduced congestion? Think about what that would do to the environment. Think about it, your average employee commutes on average an hour each way that we free up for a portion of the year, two hours of their day. They can spend that two hours doing more work, they could spend two hours improving their health by exercising, they could spend two hours more in building a deeper, stronger, more resilient family. And so, there are many blessings through this. And I think we're all going to be adapting doing this. And I do believe society will be better off through these processes. And so, this is what we're talking about related to BlackRock. We have to stay in front of our clients' needs. We have to adapt. And I think one of the great adaptations that we're going to learn from the horrificness of COVID is working remotely and having a – but having still some core part of your enterprise working in office. And I think this is all going to be a real positive lesson. And it will create another dynamism for all our economies. And so, I look at this as a great learning experience. We're benefiting from this and our clients could benefit from this also.

Dan Fannon:

The question on flows, the 50% of flows coming from Europe and Asia. Curious if that's a record and whether that was reflective of a surge in gross sales, lower redemptions, or any kind of outsize mandate wins. And then just thinking about the momentum in that business, how we should think about the contribution from these regions going forward?

Laurence Fink:

Dan, I would just add to what Gary said. I think it speaks very loudly of our comprehensive platform worldwide and our commitment to be local in every community we operate. I would say the other thing is us really helping clients understand the utilization of ETFs. The US was years ahead of Europe and Asia. And Europe is slowly catching up. ETF adaptation in Europe and Asia is accelerating. And I would also say we are seeing more consistent retail flows in EMEA across all products. And so, I think this is – some of it is a new trend, but I think the trend towards ETFs is just the beginning of a big macro trend. I also believe as more financial advisors worldwide are moving to fee base and are moving to more of a fiduciary relationship, it means more whole portfolio solutions. And no firm is better positioned because of our emphasis of being local, our comprehensiveness and our ability to work with our clients worldwide on the adaptation of more products and different products.

Laurence Fink:

Thank you, operator. I want to thank all of you for joining us this morning and for your continued interest in BlackRock. Hopefully you could hear from all of us, we're very proud of the progress we made to help our clients navigate this turbulent investment landscape and building for our clients a more resilient portfolio. I am more convinced than ever before of BlackRock's ability to meet our clients' challenges will continue to drive our growth in the future. I've always said that companies with long-term visions and purpose at the center of their strategies are those that will succeed over the long run. BlackRock's long-term vision to build a platform that is centered around our clients is resonating. Our focus on the long term is fueling our investments in BlackRock's people, in all the communities where we operate and in our platform as we continue to evolve ahead of our clients' needs. I can assure you, we will continue to invest and innovate in the years to come and to serve all our stakeholders, our clients, our employees, our communities, and obviously, our shareholders. This is still our purpose in helping more and more people experience financial wellbeing and a better hope for a better future. And I wish all of you a safe and healthy fourth quarter. Thank you.

Operator:

Good morning. My name is Maria, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated Second Quarter 2020 Earnings Teleconference. Our host for today’s call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Gary S. Shedlin; President, Robert S. Kapito; and General Counsel, Christopher J. Mead. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

Gary Shedlin:

Thank you, Chris and good morning everyone. It's my pleasure to present results for the second quarter of 2020. I hope everyone and their families are remaining safe and healthy in the current environment. Before I turn it over to Larry to offer his comments, I'll review our financial performance and business results. While our earnings release discloses both GAAP and as-adjusted financial results, I will be focusing primarily on as-adjusted results. BlackRock's ability to deliver for clients, employees, the communities in which we operate, and our shareholders, no matter the market environment, is a testament to the resilience of our differentiated business model, which has been purposely built with a mindset of consistently investing for the long-term. Our performance throughout the COVID-19 crisis, including the strength of these second quarter results, is a direct result of the scaled business model, supported by diverse global investment capabilities, best-in-class technology, and rigorous risk management. Our whole portfolio approach is fostering deeper partnerships, and now more than ever clients want to hear from BlackRock. BlackRock generated $100 billion of total net flows in the second quarter, reflecting 6% annualized organic asset growth and 10% organic base fee growth, as clients re-risk and once again turned to BlackRock for solutions-oriented advice to meet their long-term investment needs. Organic growth reflected record flows into iShares fixed income ETFs and Active Equity, fifth consecutive quarter of positive flows in this product category and continued leadership in cash management solutions. Momentum also continued in sustainable strategies and illiquid alternatives. Second quarter revenue of $3.6 billion increased 4% year-over-year and operating income of $1.4 billion rose by 10%. Earnings per share of $7.85 was up 22% compared to a year ago, also reflecting higher non-operating income, a lower effective tax rate, and a lower diluted share count in the current quarter. Non-operating results for the quarter included $210 million of net investment income, driven primarily by mark-to-market gains on unhedged seed capital investments and our minority stake in Envestnet and also reflected incremental interest expense associated with the successful pre-refinancing of our May 2021 debt maturity. Our as-adjusted tax rate for the second quarter was approximately 23%. We continue to estimate that 23% is a reasonable projected tax rate for the remainder of 2020, though the actual effective tax rate may differ as a consequence of non-recurring or discrete items and issuance of additional guidance on previously enacted tax legislation. Second quarter base fees of $3 billion were up 2% year-over-year, primarily driven by organic growth and higher securities lending revenue, partially offset by the negative impact of equity beta and foreign exchange movements on average AUM and strategic pricing changes to certain products. Securities lending revenue increased 40% year-over-year and 33% sequentially, primarily driven by higher average on loan balances as hedge fund leverage recovered from March lows and higher cash spreads. Sequentially, base fees were down 3% despite higher securities lending revenue and positive organic growth in the quarter due to the significant impact of first quarter global market declines and foreign exchange movements on our second quarter entry rate and average AUM. The impact of negative divergent beta was also the primary reason we saw a decline of 0.2 basis points sequentially in our second quarter effective fee rate. Performance fees of $112 million increased 75% from a year ago, reflecting higher revenue from alternative and long-only equity products. Since the end of the first quarter, we have seen strong performance from certain single strategy hedge funds, which better positions us to generate performance fees in the second half of the year. Technology services revenue increased 17% year-over-year reflecting continued momentum in Aladdin and the impact of the eFront acquisition, which closed in May of last year. Since acquiring eFront, we have executed on our integration plan and feedback from current and prospective clients as well as our own alternatives team has been overwhelmingly positive. We remain committed to low-to-mid teens growth in technology services revenue over the long term, driven by new clients, deeper relationships with existing clients, and expansion of Aladdin's functionality. The operational and financial impacts of this crisis underscore more than ever the need for robust enterprise operating and risk management technology solutions. However, as mentioned last quarter and despite successfully implementing over 18 Aladdin go-lives since the pandemic began, near-term revenue growth may be impacted by extended sales and contracting cycles in the current environment. Advisory and other revenue of $39 million was down $25 million sequentially, primarily reflecting the absence of PennyMac equity method earnings following the charitable contribution of our remaining equity stake in the first quarter as well as lower transition management assignments. Total expense was essentially flat year-over-year, driven in part by higher compensation and lower G&A expense. Employee compensation and benefit expense was up 6% year-over-year, reflecting higher base fee and incentive compensation driven in part by higher performance fees. G&A expense was down $82 million year-over-year and $165 million sequentially, primarily due to significant amounts of non-core G&A expense, including contingent consideration fair value adjustments, foreign exchange re-measurement, and product launch deal and legal costs in prior periods. Second quarter G&A expenses of $388 million, which included $12 million related to a fixed asset impairment and several million dollars of incremental costs associated with COVID-19, also reflected meaningfully lower G&A expense versus pre-pandemic levels. In January, we communicated an expectation for an approximate 5% increase in 2020 core G&A expense versus comparable 2019 levels, driven by continued investment in technology and market data, including sustainability initiatives and the full year impact of the eFront acquisition. At present, given reduced levels of T&E in the current environment, we would expect core G&A expense for the year to be closer to 2% higher than comparable 2019 levels. Our second quarter as-adjusted operating margin of 43.7% was up 60 basis points from a year ago, primarily reflecting lower G&A expense in the current quarter. We remain margin aware and committed to optimizing organic growth in the most efficient way possible. Our long-term strategic growth plan continues to be focused on iShares, illiquid alternatives, and technology as well as driving sustainable investing and creating whole portfolio solutions. As you will hear more from Larry, we have never been better positioned to deliver for clients and to continue generating differentiated organic growth. With that in mind, we expect to restart selective hiring in the second half of this year. Our capital management strategy remains first, to invest in our business and then return excess cash to shareholders through a combination of dividends and share repurchases. During our first quarter earnings call, we reaffirmed commitments to both our dividend and share repurchase plans for the year. In late April, we completed the debt issuance to increase liquidity in the current environment, take advantage of historically low interest rates, and pre-refinance our $750 million 4.25% notes due May 2021. We successfully issued $1.25 billion of new 10-year notes with a 1.9% coupon, which was the lowest U.S. dollar coupon in BlackRock's debt stack and the second lowest 10-year coupon ever from a financial issuer. And in May, PNC successfully monetized its entire 22% position in BlackRock through a secondary stock offering, culminating a 25-year partnership with our firm. This transaction effectively completes BlackRock's evolution to a 100% publicly held company, and we are humbled by the commitment of many of our largest and longest tenured shareholders who participated in the offering and welcome a number of significant new investors to our company. In connection with the secondary sale, BlackRock repurchased $1.1 billion of its shares directly from PNC at a price of $415 per share. In total, we've now repurchased $1.5 billion worth of common shares during 2020, completing our targeted level of share repurchases for the year, but we'll remain opportunistic should attractive relative valuation opportunities arise. Over the past 15 weeks, BlackRock has been more connected to clients than ever before, offering differentiated advice and solutions that are unique to our globally integrated and scaled investment and technology platform. Organic growth of a $100 billion in the second quarter, suggest that these clients want to hear from us from us now more than ever. iShares net inflows of $51 billion, representing 11% annualized organic asset growth and 13% annualized organic base fee growth reflected continued growth in fixed income and sustainable ETF, partially offset by outflows from precision international equity exposures, as institutions continue to use these instruments for tactical allocation decision. Year-to-date, iShares net inflows are now in line with a year ago, despite a more challenging first quarter, led by strong growth in the second quarter. Many of the trends that favor the growth of ETFs have been further catalyzed as a result of recent market disruption and coupled with the performance and resilience of iShares during this period has strengthened our conviction in the overall growth outlook for ETFs. iShares fixed income ETFs generated record quarterly net inflows of $57 billion in the second quarter, driven by renewed investor appetite for fixed income and acceleration in long-term secular growth trends and even stronger investor confidence in fixed income ETFs following their strong performance in that market stress earlier this year. Momentum in sustainable iShares also continues with $8 billion of net inflows in the second quarter. iShares remain committed to its goal of increasing investor access, sustainable investing through ETFs and we now lead the market globally in this high-growth strategic product category. Retail net inflows of $16 billion representing 11% annualized organic asset growth, were positive in both the U.S. and international. Inflows were led by high-yield bond, active equity, and event-driven liquid alternatives funds. Institutional net outflows of $5 billion reflected approximately $3 billion of active inflows, primarily driven by fixed income, LifePath Target Date Funds, OCIO, systematic active equity, and illiquid alternative strategies, offset by nearly $8 billion of net index outflows primarily in fixed income. Institutional and retail demand for alternatives continued in the second quarter with approximately $3 billion of net inflows across liquid and illiquid strategies, driven by infrastructure, private equity solutions, and our event-driven hedge fund. We currently have approximately $24 billion of committed capital to deploy for institutional clients in a variety of alternative strategies, representing a significant source of future base and performance fees. BlackRock's cash management platform crossed $600 of AUM during the quarter, driven by $24 billion of net inflows. A significant portion of that growth was driven by corporate clients who acted to reinforce balance sheets and strengthen liquidity in the current environment and we also witnessed strong flows back into institutional prime funds. As gross yields have remained above relevant thresholds, we have not waived fees on flagship government funds to-date. However, we expect potential fee waivers may be implemented during the second half of the year. Finally, second quarter advisory net inflows of $14 billion were primarily linked to asset purchases managed by our financial markets advisory group. Revenue linked to these assignments is primarily reflected in the advisory and other revenue line item of our income statement. BlackRock's second quarter results once again demonstrate the resilience of our platform, underscore the importance of our deep long-standing partnerships with clients, and highlight the value of investments we have made over time. The diversification and breadth of our business positions us to serve stakeholders in a variety of environments and to continue playing offense, so we are able to deliver for clients, employees, and shareholders, both during and after this crisis. With that, I'll turn it over to Larry.

Operator:

Thank you. [Operator Instructions] Our first question comes from the line of Dan Fannon of Jefferies.

Larry Fink:

Good morning Dan.

Gary Shedlin:

So, thank you, Dan. You know that we believe that all asset management decisions are active, and as clients focus more on outcomes, both alpha seeking and index are going to play a pretty big role in their portfolios to drive returns. And in a lower return environment, alpha generation is even more critical as active managers have the potential to deliver a much greater portion of total investment return. So, active strategies have a critical role in building efficient portfolios for clients, with strong performance after fees. Now, the type of volatile market that we've seen in 2020 created a lot of opportunities for alpha generation. And as Larry mentioned, our integrated platform is positioned to deliver investment solutions and portfolio construction, leveraging the industry's most comprehensive array of active and index strategies across equity, fixed income, multi-asset, alternatives, and cash. And the investments that we've made in our platform and our optimization of the unique assets that we have, our scale, access to relationships, and information globally, our data and technology, including Aladdin, and portfolio construction expertise have positioned us to capture client demand and drive investment performance. In equities, we have arrived. It's about performance. BlackRock has now seen five consecutive quarters of active equity inflows, including $8 billion in the second quarter and $18 billion over the last 12 months. The active equity net inflows in the first quarter were driven flows into several top performing franchises, where organic growth has been supported by a track record of consistent active equity outperformance, a differentiated offering at the right value and distribution partnerships included our health sciences with $3 billion of net inflows performing in the top quartile for three years and five years; technology with $3 billion of net inflows performing in the top decile for the three and five-year periods; capital appreciation and large cap growth with $1 billion of net inflows performing in the top quartile for the three-year and five-year periods. In addition, we saw $1 billion in scientific active equity flows from institutional clients. So, it's been a long journey. The investments we've made over the past few years, including high-quality, in-house research capabilities and the BlackRock Investment Institute, have positioned us better than ever before to capture client demand, and we'll continue to invest in data and technology to drive sustainable alpha generation, and we are incredibly proud of our equity team. On the multi-asset area, the net outflows of $5 billion were primarily due to outflows from global allocation as the world allocation industry category saw pressure. BlackRock's global allocation franchise significantly outperformed peers and stayed true to its three-decade promise of providing upside return and limited downside capture. Global allocation is now at the top of its peer group, performing in the seventh, 12th, and 21st percentiles over the one, three, and five-year periods. Global allocation has seen its share of the world allocation category net outflows fall from minus 32% at year end to minus 10% through May 2020, while maintaining its minus 8% market share of the category of assets under management. So, look, we continue, you know, that we've made changes in our global allocation, rebuilt the team. We are seeing very good momentum in that, and we expect to see growth return back in that, but we also continue to see multi-asset inflows into our LifePath Target Date franchise and continued momentum in our OCIO business. So, it’s an important area for us, but we are going to see both inflows and outflows as the world turns to different allocations depending upon the volatility in the market.

Larry Fink:

Hi, Craig.

Gary Shedlin:

So, Craig, we obviously have big ambitions for fixed income ETFs. And this last quarter has validated that this is an important asset class, core fixed income going forward. In some of the previous comments, we mentioned that the industry has crossed $1 trillion mark in assets under management, and we predicted this would double by 2024. But today, the category is already over $1.3 trillion with over growth split evenly between the second half of last year and the first half of this year, and our conviction in iShares leadership has been strengthened as a result of the strong performance and market disruption that you saw in the first quarter, and record iShares fixed income flows of $57 billion in the second quarter. So, more directly, investors of all kinds have more confidence in fixed income ETFs than ever before following the extreme test in the first quarter. iShares Fixed income ETFs performed under extreme stress with better liquidity, price discovery, usage, tracking, and bid/ask spreads than the underlying markets and competitors. So, as a result, we've seen increased demand from both institutional and retail investors, including a notable acceleration in adoption coming from wealth managers, asset managers, pension funds, and insurance companies all around the world. We just published earlier this week a paper called Turning Point, which provides further facts around our performance and why investors are using fixed income ETFs. We have seen iShares attract over 60 new highly sophisticated pension plans, asset managers, and insurance clients to become first time fixed income ETF buyers and now hold $10 billion year-to-date. Even prior to the Federal Reserve purchase of fixed income ETFs, insurance companies were net buyers of fixed income ETFs throughout the volatile first quarter and more than $2 billion worth of LQD was purchased in the first three months by these institutional investors, with 83% occurring before the Federal Reserve announced plans to buy ETFs. So, today, we manage over $634 billion in fixed income ETF assets and that's up from 514 this time last year and 402 two years ago. So, iShares gathered 47% of the $118 billion of industry flows year-to-date into fixed income ETFs and this inflow into ETF contrast with the continuing outflows that the rest of the fixed income industry has faced over the first half of 2020. So, investors of all types are recognizing that fixed income ETFs are more efficient, more transparent, offer better performance and more convenient ways to access the bond market. So, we continue to believe that global fixed income ETFs can double to $2 trillion in the next three to four years, driven by the modernization of the $100 trillion bond market and from conversions of bond securities by institutions, central banks, and alpha managers into ETFs and we're going to continue to evangelize, and we will continue to work with clients on how these tools can provide them with good value in the fixed income market.

Larry Fink:

Hi Ken.

Gary Shedlin:

So, with low interest rates, there is still a room for a significant allocation to fixed income. We see it in the asset allocation models and we see it in specifically in the models that we are building both for the RIA channels and also for other institutions. BlackRock generated $60 billion of fixed income inflows across both the active and index platforms and this was meeting new demand and new client appetite for fixed income. So, investor confidence in both the active fixed income funds and the fixed income ETFs actually grew. And following the strong performance and the liquidity management needed amid this market stress in the first quarter and second quarter, we were pretty well-positioned. So, even though interest rates were lower, we saw that people needed an alternative to cash. And what we saw is incredible demand into both the high-yield and the investment-grade credit area. So, we saw a $13 billion of active fixed income net inflows, and that reflected $8 billion and $5 billion of net inflows from both retail and institutional clients, respectively. Institutional flows were pretty broad based, so even through rates were low; the retail flows were led by the high-yield franchise with about $8 billion of net inflows and where our flagship high-yield bond is performing in the 17th percentile. Now, the other point about low interest rates is note that when it comes to ETFs, we're the number one global franchise player. So, rates seem low in the U.S. today, but they have been lower outside of the U.S. So, we are seeing a huge demand for U.S. fixed income from Asia and from Europe. So, even with low rates, it's all relative. I still think that the fixed income market is going to continue to grow. You also saw the volatility in the markets, which is going to lead to people needing to execute in a more efficient way. So, I understand where you're going in that. But people will be still looking for fixed income. It just may move from treasuries to credit, to alternative structures.

Larry Fink:

Hi, Glenn.

Larry Fink:

Very well.

Larry Fink:

Great question. So, we continue to emphasize and grow our illiquid alternatives. We're seeing growth across the world in every area of the world and across all their different distribution channels. I believe we continue to have very large and real opportunities. As I said earlier, we are going to continue to be driving great growth in our -- in the infrastructure area, and we’re going to continue to see real opportunities in some of our credit opportunities and even in some of the private equity areas. We're going to continue to build this out organically by building out our teams. Our hedge funds actually across the board have done exceedingly well in these very volatile times. Our European hedge fund is, once again, a double-digit performance. Our health science products continue to be doing exceedingly well. And so, I think, what is really happening overall is I think five years ago, we were not as recognized as being a participant in the illiquid alternative space, and today, we are. We are in the top five in terms of asset growth and we continue to be driving even more accelerated growth in these areas. And related to the DOL rule, related to Target Date Funds, this is a positive development. It will increase access for individuals, the benefit in the private markets and we're very well-positioned with the relationships in that area. And obviously, because our LifePath Target Date franchise of being more than $260 billion, we have great opportunities to present different asset categories into these strategies. And so, we are very well-positioned. It's very early days. We have to see how this implementation will work, what type of disclosure is going to be necessary. But we're excited about these opportunities, for us to have an accelerated position in the illiquid area, because of our strength and positioning in our Target Date business. And so, I'm quite excited about this opportunity. But how this is going to be implemented, the type of disclosures we need to do, we need to make sure that the investors know what they're investing, and they know the associated risk in it. We're talking about retirement assets and as a fiduciary, we have to ensure that our clients' retirement assets are protected and they understand fully the risks associated with the investments. And so, as investors move their retirement assets across different investment spectrum, a great need for risk analytics. And this is only going to mean more opportunity for eFront and Aladdin, as more and more clients are starting to look at illiquids and there's going to be a great need for technology and technology utilization to help them understand the risk. And I believe the need for technology and risk management in these areas is going to be required as -- for all of us as a fiduciary to all our clients' retirement assets.

Larry Fink:

Good morning Alex.

Operator:

Our last question comes from the line of Bill Katz of Citigroup.

Bill Katz:

Good morning everybody. Thank you so much for taking the call this morning. So, maybe a big picture question for you just given all the moving parts, I appreciate that the market beta is probably the biggest variable test. But assuming sort of a neutral view of that, how do you sort of see the fee rate evolving from here? And then, Gary, you had mentioned the potential for some money market fee waivers in the second half. Just wondering if you could help potentially quantify that? Thank you.

Operator:

And ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?

Operator:

This concludes today's teleconference. You may now disconnect.

Operator:

Good morning. My name is Amy, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated First Quarter 2020 Earnings Teleconference. Participants in today's call will include Chairman and Chief Executive Officer, Laurence D. Fink; President, Robert S. Kapito; Chief Financial Officer, Gary S. Shedlin; Chief Operating Officer and Head of BlackRock Solutions, Robert L. Goldstein; Global Head of iShares and Index Investments, Salim Ramji; and General Counsel, Christopher J. Meade. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions]. Thank you, Mr. Meade, you may begin your conference.

Larry Fink:

Thank you, Chris. Good morning, everyone, and thank you for joining the call. I know this is a difficult time for many people. So first and foremost, I hope you, your families, your friends, your neighbors are all staying healthy and safe. Before I begin, I want to take a moment to express the gratitude of everyone at BlackRock, for the men and women, women on the front line of this crisis, for the doctors and nurses and everyone working so hard today, putting their own health at risk to support the safety and health of our communities and to our country’s. And to all of you thank you. As I wrote in my Chairman's Letter to Shareholders, we’re living and working in an unprecedented environment. In just a few short months, the COVID-19 outbreak has transformed the world for all of us. As individuals, businesses, small and large, for entire industries, for every government around the world, it has presented tremendous medical, economic and human challenges that will be long lasting and will reverberate for years to come. Our global markets were impacted by extreme volatility, liquidity receded, and then oil price were a exacerbated stress. Swift actions by policymakers, and several central banks represented the type of decisive responses that are needed to overcome this extreme market adversity. There has been tremendous monetary policy to stabilize financial markets and we're beginning to see the type of fiscal policy that could stabilize our economies. No one knows precisely how long these conditions will persist. However, I expect the continued actions taken by government, taken by the central banks, with careful design and coordination will help the economy recover. And I believe that coming out of the crisis we have an opportunity to accelerate towards a more sustainable world. Through these challenging times, the strength and resilience of BlackRock's business model has become even more apparent than ever before. The investments that we've spoken to in many, many quarterly updates over the long-term to diversify our investment capabilities and to operate on a unifying technology platform, Aladdin, are differentiating us in this moment for clients, for our shareholders and for our employees. We did not design our operating model for this pandemic or any -- or/and almost any virtual work environment in mind. But because of BlackRock’s strong culture and our long history of connecting a global organization on one technology platform has enabled more than 95% of our 16,000 employees to work remotely from home, while continuously delivering seamlessly for our clients. The areas in which we strategically invested over the last few years, iShare ETFs, illiquid alternatives to sample investment strategies and Aladdin are all helping solve clients’ unique needs in this environment, and continually deliver strong performance and growth to BlackRock. Momentum in 2019 continued into the first quarter, and we saw $75 billion in net inflows in the first seven weeks of the year. Despite market related outflows including over $40 billion of derisking by institutional clients in index strategies in the last five weeks of the quarter, we ended the quarter with $35 billion in net inflows driven by cash and liquid alternatives, iShares sustainable and factor ETFs, and our active equity platform. Over the last month, BlackRock's biggest priority has been focusing on the health and safety of our employees and all their families. By focusing first on our employees, ensuring their well-being and positioning them with our technology, our tools, and the support they need, BlackRock has been able to accomplish a tremendous amount. In these times having a unified technology platform that connects us all digitally is more important than ever. Our performance during the quarter would not have been possible without a unifying technology, without a unifying risk management system, and careful business continuity planning. I'm incredibly proud on how Aladdin has enabled us to rebuild BlackRock beyond its walls to deliver the operational resilience, advice and solutions our clients need at this time. Aladdin processed record trade volume in recent weeks, even with a remote global workforce, and has provided a transparent view, which is a risk and scenario analysis for the benefit of our asset management clients. But not only has Aladdin proven to be a significant differentiator for BlackRock itself, but it has enabled nearly 250 third-party Aladdin clients, other asset managers, asset owners, banks and insurance clients to also operate seamlessly during this time. We've been hearing incredible positive feedback from the Aladdin community about its resilience, its benefits, and so our clients were able to proceed just as strongly as BlackRock. Rob Goldstein, BlackRock's Chief Operating Officer and Head of BlackRock Solutions, who joins us today will discuss in a few moments BlackRock's organizational and technology strengths during this time, and also how Aladdin is delivering for third-party clients. In addition to our technology, certain products especially iShares have once again proven to be a critically important tools for providing liquidity and transparency to investors and markets. As we have seen repeatedly in periods of market volatility, investors including many first time asset managers, and institutional users turn to iShares for incremental liquidity, market access, as well as long-term investments. iShares generated $14 billion of net inflows in the most volatile quarter we've experienced in recent history, benefiting from a $44 billion of inflows in the first seven weeks of the year. Our diverse product lineup across sustainable investments, factor strategies and core equity continue to drive growth, with sustainable ETFs bringing in $10 billion of net inflows alone, the best quarter in its history. Despite outflows from market driven fixed income and precision segments, these ETFs performed exactly as expected as clients use them to actively reposition portfolios, reduce risk during market stress. As we invested in the growth of fixed income ETFs, many speculated on how these products would behave during a market shock, and whether or not they could withstand waves of selling. Having now been through a once in a generation market shock and market participants have noted that fixed income ETFs were tested beyond a doubt and worked incredibly well. We believe this will serve as a further accelerant for fixed income ETFs’ growth going forward. Salim Ramji, Global Head of ETFs and Index Investments is with us today and will speak about how iShares experienced increased investor adoption, delivered tighter bid ask spreads than any other ETF and underlying securities, provided incremental liquidity and price transparency, especially in fixed income for all markets and for all of the investors. With interest rates globally back to historic lows, the investments at BlackRock continues to make -- to build a diversified illiquid investment strategy and differentiated global sourcing capability across our alternative platform, are benefiting our clients as they took to meet their long duration liabilities. BlackRock raised a total of $7 billion of net inflows and commitments in illiquid alternatives this quarter, our third best quarter in history. We also deployed $2 billion on behalf of our clients and closed several large client commitments in the midst of market volatility including our third vintage global energy and power funds. It's our third fund, which raised a total of $5 billion, surpassing the total assets in the first two capital raises. The investments we made in our active equity platform are also showing results. We generated a fourth consecutive quarter of active equity inflows with $4 billion, even as the broad active equity mutual fund industry saw more than a $100 billion of outflows during the first quarter. We have invested for years in our active equity platform and in better data analytics and technology, a more important risk-taking culture and having global scale and reach. We are seeing strong performance today with 76% of our fundamental active equity assets above benchmark or peer median for one year and I'm confident the business is well positioned to capture more client demand as clients reposition their portfolios in the coming months. Throughout the recent market volatility, one enduring trend has been the move to sustainable investing. In addition to the $10 billion of sustainable ETF inflows I've already mentioned, we continue to see broad and strong interest in active sustainable strategies even as equity sold off more broadly. In January, BlackRock committed to be placing sustainability at the core of our approach as an investment manager in how we manage risk, how we construct portfolios, design products and engage with companies and to be making sustainable investing accessible to more people. These commitments remain a priority and we continue to make progress in executing on them. The pandemic we’re experiencing now is further highlighting the value of sustainable portfolios. We've seen sustainable portfolios deliver stronger performance than traditional portfolios during this period, and we expect clients rebalancing in the current environment will include a substitution of some traditional assets to sustainable ones as they see the potential for the long-term benefits. BlackRock's goal is to be a leader in -- a global leader in sustainable investing, and we believe the assets we manage for clients in this category will reach over $1 trillion by the end of the decade. We also saw strong quarter for our multi-asset platform, which also generated $4 billion in net inflows. Our Global Allocation franchise, a long-term flagship product now under Rick Rieder’s leadership significantly outperformed peers and stays true to its three decade promise of providing upside return with limited downside capture. Global Allocation is now positioned in the top quintile of its peer group for the one, three, and five year period respectively. BlackRock's cash management platform generated a record $52 billion in net inflows in the first quarter benefiting from a surge in industry flows into U.S. government funds over the past three weeks. Our commitment to build scale in our cash management business and extend a rigorous risk management platform to every part of BlackRock is providing a key differentiator for our clients. The strength of our results in the first quarter is directly linked to our efforts to stay connected with clients throughout the crisis. Investors globally are looking to BlackRock for even more insights, more thought leadership on the economy, on markets, on geopolitics, on asset allocation. Our goal is to help clients navigate market volatility while also staying focused on the long-term goals. Through virtual connectivity we're having a richer conversation with clients than ever before about their whole portfolio, and in many cases, deepening our partnership with them. Over the last three weeks BlackRock has connected with nearly 50,000 clients, significantly eclipsing all historical records for client contacts. BII has hosted dozens of calls reaching thousands of institutional investors and financial advisors and providing daily updated emails to 1,000 more who are subscribed. In the last week of March alone BlackRock's senior business leaders met virtually with approximately a 100 CEOs, CIOs, executives, public officials, further amplifying hundreds of outreach calls from our client facing teams. This connectivity enables us to better understand the challenges that our clients are facing. And a comprehensive platform of solutions has enabled us to help clients reallocate risk, to help clients rebalance, helping clients provide more liquidity and capturing opportunities in response to market moves. BlackRock Invested Institute, BII, our Financial Markets Advisory Group FMA team, and our Global Public Policy Group has closely engaged with regulators, central bankers and other public officials to provide guidance on practical targeted monetary and fiscal solutions in support of the global economy during this time. BlackRock's FMA Group, which advises financial and official institutions, as well as other public and private capital market participants have been awarded mandates to advise both the New York Federal Reserve Bank and the Bank of Canada on programs designed to facilitate access to capital for businesses to support the economy. We are honored to have been awarded these mandates and approach these assignments with a great sense of responsibility. Advisory work is built into the fabric of BlackRock. Beginning as early as 1994, when we worked with General Electric to unwind Kidder Peabody's mortgage assets, our FMA practice has adopted and evolved over time, working across an array of mandates from crisis-oriented assignments to regulatory and sustainability frameworks. Given the sensitive nature of these assignments, FMA is a segregated walled off business within BlackRock and operates behind a stringent information barrier, while still providing the benefits of Aladdin, BII and BlackRock's global scale and reach to our clients of FMA. Our most recent partnerships are a testament to the trust we have earned over time. And we will continue to work with others around the world to navigate during the difficult period. During this extraordinary time BlackRock remains focused on continuing to drive forward on our commitments to our clients, shareholders and employees. This is required greater and more frequent connectivity than ever before with Board of Directors, our global Executive Committee, and our broader employee base. Since the start of the crisis, I am sending weekly strategic financial and operational updates to our Board. Our global leadership team is meeting every single day, rather weekly, as we do during normal times. And we're hosting global firm wide town halls each week to ensure our people, our partners are feeling updated and feeling connected. Just as we are focused on strong corporate governance and communication across BlackRock, our investment story should continue to engage and communicate with companies through this time on behalf of our clients. In addition to proxy season fast approaching, the team is actively engaging with companies on topics like operational resiliency and how companies are taking the care of their employees, contributing to their community and living their purpose. These issues are more important than ever before. BlackRock is helping our communities during this time of great need. Early in the first quarter before the full impact of the pandemic upending global markets, we contributed our remaining 20% stake in PennyMac to our existing donor-advisory fund and we created a newly established BlackRock Foundation with a goal of supporting a more inclusive and sustainable economy. Since then, through these charitable funds, we committed $50 million to immediate COVID-19 relief efforts. Our focus has been two-folds, supporting frontline medical workers who are the true heroes in the crisis, as supporting food banks, which are on the frontline at helping address the financial hardship and social disallocation that the pandemic is pouring into so many. Challenging environments have always been -- have always offered BlackRock an opportunity to further differentiate ourselves with all our stakeholders and in the industry itself. And I’m proud to say that it’s happening once again and I believe BlackRock’s position has never been stronger. We remain committed in growing and investing at BlackRock. Our performance today reflects the investments we made in the resilience of our platform by supporting our people, by building our culture and forging deep partnerships with our clients. We have consistently and strategically invested for the long-term to create the most diverse global asset management and technology service firm in the world. And we believe we are better positioned than any firm to weather shocks like these and help our clients through the same. Throughout the firm there have been countless examples of everyone living our purpose to help more people achieve financial well-being and I could not be prouder or more grateful of the commitment of BlackRock to people. The world is facing a challenge that is truly unprecedented in our lifetimes. BlackRock will continue to do everything we can to support our clients, the societies where we operate more broadly as we seek to overcome this. To everyone on the call, to all our shareholders, to BlackRock’s employees and our colleagues around the world, please stay safe and healthy. With that, I’d like to turn it over to Gary to talk about our financial results.

Rob Goldstein :

Thanks, Gary. And just echoing Larry and Gary, we are undoubtedly living through one of the most challenging and unusual times of modern history, and I hope that everyone is staying safe and healthy. So I wanted to spend the next 10 minutes discussing how the collective we of BlackRock have been preparing for and adapting to this rapidly evolving and fluid situation, and how Aladdin has played a key role in the business continuity and crisis management of both BlackRock as well as our Aladdin clients. As many of you know, since its founding 32 years ago, BlackRock has been built on a foundation of technology, a thesis that asset management is an information processing business that requires a highly efficient, highly automated process to function. This mindset, which is really exemplified by Aladdin and coupled with our One BlackRock culture has allowed us to spend the past few weeks effectively transitioning BlackRock from a company operating in 91 offices and 40 countries around the world to an almost entirely remote workforce, effectively operating in 16,000-plus home offices, all while continuing to deliver for our clients and importantly for each other against the backdrop of incredible market volatility and obviously social stress. We have teams that have been planning for business interruption and disaster scenarios for years, but plans are just plans until a real world crisis comes along and a scenario of 95% of the company working from home and equity trading volumes being 65% higher than we’ve ever experienced before, which was what we experienced the week of March 16th was by no means the scenario that we had expected. While there was certainly some potholes in the first few days, we’re incredibly proud of the way in which our teams have implemented our plan to protect our employees, to deliver for our clients and to ensure operational integrity. We effectively built BlackRock outside the walls of BlackRock, and we used Aladdin to provide the connective tissue. To us, business continuity is about ensuring that our employees have access to the resources they need to keep themselves and their loved ones safe in the crisis, that we have the means to continue serving our clients and to continue to act as a fiduciary to them, no matter where we or they are physically located, that our people have the tools to interact with each other in an entirely virtual world, and importantly that Aladdin is equipped to operationally process record volumes and to provide transparency into portfolio risks in a rapidly changing highly volatile market for both BlackRock as well as our Aladdin clients, the Aladdin community. In summary, it’s about staying connected, staying engaged with each other, staying engaged with our clients and leveraging our platform and technology and supporting each other in this unprecedented time. So let’s take a look at what BlackRock outside the walls of BlackRock actually looks like and talk a bit more about how we got here. As of March 31st, we had over 95% of our global workforce of more than 16,000 employees working from home. In order to support this predominantly remote workforce, we relied on both technology and our overarching culture as a firm, our One BlackRock culture. It doesn’t change in this model, in fact, if anything, it needs to be reinforced and maybe even stronger. Unlike many financial institutions, BlackRock operates as a technology company. Since inception 32 years ago, we’ve lived by this mindset with Aladdin at our core. Even before the coronavirus, roughly 90% of our employees logged into our network remotely at some point over a typical 90-day period and we offer a number of ways to securely connect to our network from either a personal device or a BlackRock laptop. This connectivity was optimized, this connectivity was enhanced as part of our business continuity planning. We also worked to ensure that everyone across the firm had the appropriate technology to be able to do their job from home. From ordering thousands of laptops months ago to building full workstations at home for groups of portfolio managers and traders, this effort enabled us to remain fully operational and effective throughout this whole period and has been steadily improving as we settle into this new normal. Interestingly, we have a culture that already leverages video calls, Symphony chats really as the norm. In fact for the past many years, at least five years, every employee in the firm has had a camera on their work zone enabling all internal calls to include video. This has allowed daily stand ups, hurdles, team meetings, town halls to all migrate seamlessly to this virtual setting that we’re living in. With clients, we have focused on maintaining connectivity, no matter where they or we are located. Clients look to BlackRock even more in times of market volatility and uncertainty. So our ability to communicate with them, to serve them has remained at the forefront of every decision we have made. Thousands of our institutional retail public sector clients have attended virtual BlackRock events in the past few weeks. And as Larry mentioned, we’ve been talking to our clients more than ever before. We’ve also continued to prioritize providing physical and mental health resources to our now largely remote workforce, rolling out new or enhanced programs to our employees including telemedicine capabilities, access to clinicians to answer urgent coronavirus questions, group counseling sessions, backup childcare. In my 26 years at the firm, I don’t believe there has ever been a time we’ve communicated more to our clients and to our employees. I also don’t believe there’s ever been a time where it’s been more appreciated. Our focus on service, our focus on communication obviously extends to Aladdin as well. The Aladdin client community has expressed great appreciation for the responsiveness and the proactive nature of our service teams and has said that the stability and resiliency of our platform has been absolutely essential to their own business continuity planning. Without Aladdin’s automation of processes, consistency of data and technical resiliency, the transition to a work from home model would have been much more difficult. To quote the CEO of one of our clients in a recent article on their coronavirus response “Previously manual processes have been swept away by Aladdin.” So this is always important, but obviously it becomes even more important in this environment. Personally, I can’t imagine how challenging it must be to run a firm with a cobbled together infrastructure through this situation. Aladdin clients are also looking to us as a partner and a thought leader during these uncertain times. One example of this was using Aladdin to publish what we call a new market-driven scenario, a stress test, based on the coronavirus to all of our Aladdin clients in early February. This provided clients with a framework for considering the market implications of a global pandemic. It allowed them to layer on their own views and ultimately stress test their portfolios on Aladdin. Our modeling and analytics teams are constantly working to understand the model, the impact of new governmental policies and programs. For example, how forbearance programs may impact prepayment speed and the risk of mortgage-backed securities and then sharing those findings with our clients. Capabilities and thought leadership like this are our focus of building lasting partnerships with clients have led to incredibly strong relationships. These relationships, coupled with the power of Aladdin have led to very high contract renewal rates and continued interest in doing more together for the Aladdin community. I believe our client relationships will only get stronger as we navigate this new environment together. During this time, we even hit a new Aladdin community milestone, one I would have never anticipated. With our first Aladdin client go-live while both organizations were in full business continuity mode, while everyone was working from home. We had seven total go-lives in the past four weeks including in countries like Italy and Spain, and we’ve also kicked off a number of new client implementations fully remotely. It’s been truly remarkable. Aladdin is built for these times, and we are both proud and also quite humbled by the feedback we’ve received from clients. Market shocks and market volatility just underscore the need for robust enterprise operating and risk management technology and Aladdin is uniquely positioned to provide both to our clients. Growth will be driven by the need for more efficient streamlined operations, the rise of outcome portfolio construction and the ever growing need for whole portfolio technology solutions. Building BlackRock outside the walls of BlackRock and the resiliency of our platform and technology in response to the Coronavirus has been one of the most remarkable projects and efforts I’ve ever witnessed. We have proven we can build BlackRock, One BlackRock outside our walls. This is a combined manifestation of our culture, our global platform, Aladdin, lots and lots of planning, lots and lots of hard work really over many years. So I’ll now pass it over to Salim to discuss how clients have been using ETFs and iShares to invest in this unprecedented market.

Larry Fink :

Thank you, Salim. I want to thank all of you for joining us this morning. Hopefully, you heard from hearing from -- hearing from Salim and Rob, I hope you get a sense of the depth of the leadership team at BlackRock beyond Rob Kapito, and myself. I hope you also found today’s insights helpful in better understanding how BlackRock is helping our clients and our employees navigate this unprecedented environment and how our diverse business model provides us a greater resiliency in times like this. The strategic investments we’ve made over recent years in key areas for growth continues to deliver. And we believe BlackRock is more differentiated in this environment than ever before. I cannot be prouder of how BlackRock’s 16,000 employees have come together during this time to help one another and to ensure we’re doing everything we can on behalf of all our clients worldwide. With that, let’s open it up for questions.

Michael Cyprys:

Maybe just Larry, in your Shareholders Letter, you mentioned one of the biggest changes for asset managers is around the use of technology. And you had mentioned that asset managers will have to be as good at it as any tech firms. So I guess curious how you see the industry bridging the gap from where you are today to that aspirational state of as good as is any tech firm and what areas on the technology front are you at BlackRock focused on improving today?

Rob Goldstein:

Thanks, Larry, and thanks, Michel. The -- it's an interesting question. As I mentioned during my comments earlier that since the beginning we've always thought of the asset management business as an information processing business where you have enormous amounts of data that you need to effectively manage, process and compile in a way that it becomes actionable, it becomes trustworthy and then people can make decisions about it. And what's amazing is that even in this year 2020 with all of the technology innovation that has happened in the broad world and in our industry, the truth is, asset management and the broader industry with which it lives in does not have a common language that is used across market participants. And that's what we've been trying to accomplish and that's been our aspiration with regard to Aladdin. We actually have a strategy that we call Tech 2025 that has a few basic pillars to it, which is about this concept of building and enabling this whole portfolio ecosystem and having Aladdin be the language of portfolios in terms of doing that. That ecosystem and where we’re focused is on bringing together both public and private markets into one combined language and one combined platform. We're extending Aladdin to be a platform -- to not just be a system, but to be a platform and to be a language that effectively connects in with other important technologies within the broader ecosystem that we live within. And then lastly, I would just say, within BlackRock, we're very focused on data, how we use data, but also how we leverage new techniques, particularly techniques like artificial intelligence, advanced data science, to do more information processing, to find more alpha signals within data. In fact, what's interesting is some of the capabilities that we've developed within our AI lab, which is something still a year and a half old, some of those capabilities actually were quite important in terms of the scale that we achieved through this recent market volatility.

Craig Siegenthaler:

I wanted to come back to the financial markets advisory business. Could you walk us through each of the government programs they've already been assigned to? And then also how should we think about the potential AUM and fee opportunity for the firm?

Gary Shedlin:

Sure, Larry. So Craig, good morning. As Larry said, we're obviously very proud to be advising both the New York Fed and the Bank of Canada on programs to support the economy. I don't think it'll come as a major surprise to you that it's our policy not to comment on the terms of our relationships with individual clients. It's obviously up to our clients to determine whether they want to publicly disclose that information on our work with them. But I can offer you the following. From a pure income statement perspective, any revenue related to these assignments is actually going to flow through our advisory and other revenue line item from a geography standpoint. In terms of advisory flows in the first quarter, you will note on our AUM schedules that we did note 1.2 billion of advisory flows during the quarter on Page 4 of our earnings release. And those in fact were driven by management of assets linked to the New York Fed assignment. All public information regarding our mandate with the New York Fed will be available, some is and some will become available on their websites. As it relates to the first -- the CMBS facility itself, that actually does have an investment management agreement and a specific fee schedule on the website. And you know that'll give a fee rate of 2 basis points on the first $20 billion, 1.25 basis points on the next $30 billion and no incremental revenue after $50 billion. As it relates to the other two facilities, the primary and the secondary market, corporate credit facilities, the actual investment management agreements and fees on those have not been published yet by the fed. But there are term sheets that broadly talk about the outlines of each of those on their website. And at such time as agreements are signed, they will ultimately in the spirit of transparency by the Fed be posted on their website. In terms of I would just say the Bank of Canada relationship as Larry mentioned, FMA has been selected as an advisor on the design of a commercial paper purchase program to help support the flow of credit to the economy by alleviating strains in their CP markets. Bank of Canada has also retained two other -- well one is an additional asset manager and one as a custodian. And again, all that information I would point you towards their website for more detail.

Bill Katz:

Larry, I’m just sort of curious, you had mentioned you've been in contact -- one of the themes on this call is you’ve been in sort of contact with a lot of your clients throughout the quarter, particularly toward the end of the quarter, a lot of moving parts. But I'm sort of wondering if you're getting any sense of how allocation changes may shift here, whether it be on the institutional side or the retail side? And I was wondering if you could maybe answer a question through the prism of maybe asset allocation versus product allocation? Thank you.

Rob Kapito:

Yes. So we're in a unique position because of the diversity of the platform. So we get to look at clients’ preferences as they evolve. And what we did see was some outflows in active fixed income. But then where did people go? We saw $52 billion of inflows into cash. We saw $4 billion into active equity and $4 billion into multi-asset and $4 billion into liquid and illiquid alternatives. So a lot of clients looked at where levels were in interest rates and looked to actually re-risk and it was broken down more by institutional and retail. Certainly a lot of institutions, some chose to de-risk and that shows the buildup in liquidity moving into cash, when others realize valuation opportunities and equities were at levels which they had wished they were able to invest in amongst these declines, so they entered. On the retail side, people were a bit concerned about credit and they were concerned about being in the right credits that represent -- companies that represent the new normal or that have better business models. But one thing in the asset allocation, which I didn't expect and give Larry credit for calling this one was, in this reallocation people use this to go into ESG oriented products or they structure their portfolio in a more ESG oriented way. And we saw that in the flows and reflected in our ESG oriented products which had extraordinary inflows. So, that was one of the interesting aspects of this change in asset allocation.