$BLK BlackRock Q2 2026 Earnings Conference Call

Good morning. My name is Shelley and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated second quarter 2026 earnings teleconference. Our host for today's call will be chairman and chief executive officer Laurence Fink, Chief Financial Officer Martin S. Small, President Robert S. Capito 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. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. Thank you. And Mr. Meade, you may begin your conference.

Good morning everyone. I'm Chris Meade, the general counsel of BlackRock. Before we begin, I'd like to remind you that during the course of this call, we may make a number of forward-looking statements. We call your attention to the fact that BlackRock's actual results may of course differ from these statements. As you know, BlackRock has filed reports with the SEC which list some of the factors that may cause the results of BlackRock to differ materially from what we say today. BlackRock assumes no duty and does not undertake to update any forward-looking statements. So, with that, I'll turn it over to Martin.

Thanks, Chris. Good morning, everyone. It's my pleasure to present results for the second quarter of 2026. 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. A reconciliation between GAAP and our as-adjusted results has been included in the tables attached to today's press release. I'll be focusing primarily on our as-adjusted results. BlackRock's record net inflows and organic base fees in the first half of 2026 are vivid proof points of a firm at the center of mega trends shaping the investment landscape across public markets, private markets, and technology. Wealth managers and institutions all over the world are growing with BlackRock consistently through market cycles. From ETF model portfolios to personalized SMAs to systematic and income focused strategies and infrastructure and private credit with 868 billion of net inflows and 10% organic base fee growth over the last 12 months. Our results demonstrate that BlackRock's the total portfolio all-weather strategic partner that helps clients look past short-term uncertainties and towards long-term growth. We create, we connect clients to the vast opportunities in artificial intelligence and digital and physical infrastructure. We help them position for success in generational changes to benchmarks and equity market structure. We're driving expanded investor access to capital markets and digital assets. We're a market leader and high share gainer in manufacturing hyper-personalized tax-efficient portfolios that power wealth management platforms. We're reshaping the future of retirement portfolios with access to guaranteed income and private markets. Clients are rewarding our integrated platform of asset management and technology across public and private markets. It's what clients want because they're building one portfolio. A world that's more fragmented brings clients closer to BlackRock to make sense of the pieces to put them together in one coherent strategy for a whole portfolio and to drive outcomes at scale. BlackRock's a leader at the center of these accelerating forces and ecosystem disruption means more money in motion and more value to play for and win. We see strong momentum. Organic base fees are more than 50% higher compared to this time last year. Higher quality organic growth, discipline on our financial framework, and consistent capital return create a clear path to structurally higher margins and sustained double-digit earnings growth. We have high conviction in our free cash flow growth and are increasing our plan level of share repurchases. In the second quarter, we delivered double-digit increases in revenue, operating income, and earnings per share with all three measures reaching new quarterly records. Our operating margin of 45.9% expanded 260 basis points from a year ago and reached its highest level in nearly 5 years. We generated 192 billion of net inflows representing 8% organic base fee growth. Two full years of above target organic base fee growth underscores that this level of performance is sustainable. It reflects the durability of our client relationships and the diversification of our growth.

Turning to financial results, second quarter revenue of 7.1 billion was 31% higher year-over-year. The increase was driven by organic growth, the impact of higher markets on average AUM. The acquisition of HPS and higher technology services and subscription revenue. Operating income of 2.9 billion was up 39% and earnings per share of $13.91 was 15% higher versus a year ago. EPS also reflected lower non-operating income, a higher effective tax rate, and a higher share count in the current quarter linked to the closing of the HPS transaction on July 1st, 2025. Non-operating results for the quarter included 170 million of net investment gains, primarily driven by equity method earnings and non-cash valuation gains in our investment portfolio. Additionally, following Securitize's public listing earlier this July, we hold 7.3 million common shares, which will continue to be marked through investment income going forward. 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 2026. 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 5.7 billion was up 29% year-over-year driven by the positive impact of market beta on average AUM organic base fee growth and approximately 230 million in base fees from HPS. On an equivalent day-count basis, our annualized effective fee rate was broadly flat compared to the first quarter. Client demand for structural growers like private markets, active ETFs, and systematic continues to lift the fee rate on net flows. Performance fees of 305 million increased from a year ago, primarily reflecting higher revenue from alternatives, including 115 million of performance fees from HPS. Quarterly technology services and subscription revenue was up 13% compared to a year ago. Annual contract value or ACV increased 15% year-over-year. We remain committed to low to mid-teens ACV growth over the long term. Total expense increased 25% year-over-year with higher compensation sales asset and account and GNA expense. Employee compensation and benefit expense was up 28% reflecting higher incentive compensation linked to higher operating income and performance fees and higher headcount associated with the onboarding of HPS employees. Sales asset and account expense increased 26% compared to a year ago primarily driven by higher distribution and servicing costs and direct fund expense. GNA expense increased 17% primarily due to the impact of the HPS acquisition. After annualizing for the impact of HPS and Preqin, we continue to expect a mid-single-digit percentage increase in full-year GNA. We continue to deliver even greater margin expansion on recurring fee related earnings, excluding the impact of all performance fees and related compensation. Our adjusted operating margin for the second quarter would have been 46.5% up 260 basis points year-over-year. Our capital management strategy continues to be invest first and then return excess cash to shareholders through a combination of dividends and share repurchases. We repurchased 450 million worth of shares in the second quarter. At present, based on our capital spending plans for the year and subject to market and other conditions, we anticipate repurchasing at least 550 million of shares per quarter going forward, higher than our previous guidance communicated in January.

Turning to flows, in the second quarter, BlackRock generated total net inflows of 192 billion. Flows were diversified across client channels, product types, regions, and active and index strategies. We saw 178 billion of net inflows in the second quarter. Core equity and index bond ETFs led the way with net inflows of 85 billion and 61 billion respectively. Momentum and active ETFs continued with 20 billion of net inflows as clients seek performance through a liquid tax efficient wrapper. Precision added 15 billion as clients used iShares international and sector equity ETFs to express tactical views. iShares ETFs delivered a fifth consecutive quarter of double-digit organic base fee growth powered by higher value ETF categories such as active and precision. Retail net inflows of 19 billion were led by broad-based flows into our active fixed income offerings as well as continued inflows into Aperio and liquid alternative funds. Institutional active net inflows of 44 billion were driven by strength in private markets, fixed income, systematic strategies as well as OCIO and target date offerings. Institutional index net outflows of 41 billion were concentrated in low fee index equities. Overall, our institutional channel delivered 9% long-term organic base fee growth in the quarter, benefiting from client demand for active and alternatives. In private markets, the BlackRock flywheel is in motion. Raising capital, deploying with discipline, and returning it to clients. We saw an aggregate 15 billion of net inflows led by deployment and private credit, fundraising and infrastructure, and partial onboarding of an outsourcing mandate and private equity solutions. Finally, cash net outflows of 7 billion in the quarter were due to redemptions from US government funds partially offset by the creation of bespoke liquidity solutions. Our customization capabilities and scale are driving sustained growth in cash management with AUM up 10% from a year ago.

We see the road to 2030 and beyond as presenting one of the largest expansions in capital markets growth and participation in history. The forces of demographics, growing retirement needs, generational wealth transfer, structural deficits, rapid innovation cycles. These forces are increasing demand for investment solutions built by professional asset managers steeped in product breadth, scale, technology, and a global presence. These forces are expanding the investor base, increasing assets flowing through capital markets, and creating a powerful long-term growth opportunity for the breadth of global whole portfolio solutions that BlackRock's best positioned to provide. The strong financial results we're delivering today reflect disciplined execution against our breadth of opportunity. We generated record revenue, operating income, and EPS, a nearly 46% operating margin and 8% organic base fee growth. We're confident in the durability of our growth and in the opportunity ahead. With that, I'll turn it over to Larry.

Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, you can press star one to ask a question. We'll pause for a brief moment to allow everyone an opportunity to signal for questions.

We'll now take your first question coming from the line of Craig Siegenthaler with Bank of America.

Good morning, Larry. I'm well. Hope you guys are doing well, too.

So, our question is on Aperio. I wanted to see if you could provide us an update on both the direct indexing but also the long short tax-aware side which falls in your liquid alts bucket. It looks like the underlying demand there continues to strengthen in this category. But also would appreciate your perspective on if this scene had legs.

Hi Craig, thanks for the question. I want to start with one macro phrasing on that was what attracted BlackRock to Aperio was beyond technology. It was beyond scale. It was beyond investment excellence. It was beyond culture fit. It was a real mission at the Aperio firm and ethos to build optimized after-tax portfolios. Our clients don't pay for education, home security, and well-being with asset class level returns. They pay for it with after-tax dollars. I think our industry could generally do a better job at optimizing portfolios with what clients keep after taxes. That's a structural growth theme. Building after-tax portfolios that are optimized, it's good for clients. It's applicable not just to the direct indexing and long/short business. It's applicable to all the portfolio construction we do here at BlackRock across our whole managed accounts, SMAs, and models business that's closing in on 800 billion. I think Aperio is a great example of an acquisition where we anticipated and delivered on those needs. We scaled strong existing technologies and built new revenue streams for shareholders. SMAs are a real structural grower in the industry across wealth, private wealth, mass affluent, ultra high net worth. Aperio had seven billion of net inflows in the second quarter split about half and half between long only and long short strategies. Our 2026 flows in Aperio are about 20 billion. They've already surpassed 2025's record flows of 15 billion representing a fifth straight record year. And as Larry said in his comments, AUM is up four times since the acquisition near 200 billion. I do think that long short strategies whether they're 1330 or other variants of taking alpha streams and optimizing for tax I do think that's the next category of growth in tax-aware investing and I do think that BlackRock has a really really strong toolkit to solve some of the investors' biggest challenges. We can do that across ETFs, direct indexing, private markets, and long short strategies will be complementary to offset some of the gains happening in private markets. So this is a whole portfolio phenomenon and being able to integrate long short strategies in an after-tax optimized portfolio we see as one of the key structural growth engines in our 2030 plan.

Next question will come from the line of Michael Cypress with Morgan Stanley.

Good morning. Good morning. Want to ask a question on tokenization. You've articulated a vision to tokenize shares, ETFs among other assets and have already demonstrated progress with BL. So I was hoping you could talk about the steps you're planning to take over the next 12 months to drive further progress toward your vision and what are some of the key milestones that you're tracking.

Thanks Michael. It's Martin. I'll take that one. So we see the operating environment in digital assets becoming more and more constructive and our strategy remains client-led. We're focused on scaled regulated access. We already have about 110 billion in AUM connected to digital assets. And as part of our 2030 plan, we're aiming to make this a $500 million revenue business at BlackRock. Over the longer term, we want BlackRock's products to be accessible natively where many investors already hold digital assets. We're exploring ways to tokenize long-term investment products, as you mentioned, like iShares, so investors never need to leave digital wallets to allocate efficiently across crypto, stable coins, and exposure to long-term stocks and bonds. We're working with a really wide group of traditional and new players on building access to high-quality long-term investment products that can grow and thrive in digital wallets. We have three things we're doing and tracking milestones against each. The first is to bridge traditional finance world and the decentralized finance markets. We're doing that through our digital assets products. IBIT, EHA, BIDD. They all invest in digital native products and are the largest in their categories. They're driving meaningful growth in the traditional capital markets and bridging digital...

Next question will come from the line of Alex Blast with Goldman Sachs.

Hey, Larry. Good morning. Good morning, Martin. Larry, I was hoping to go back to your comments around GIP and HPS performing ahead of the plan helping you accelerate towards your 2030 objectives. But really through the lens of the insurance opportunities. I think a few quarters ago you outlined the asset base that exists within BlackRock today that could participate in some of the conversion from liquid to illiquid fixed income market. So could I get an update on that? How that progress is unfolding and where you see the sort of private markets insurance related AUM kind of end up over the next couple years.

Next question will come from the line of Mike Brown with UBS.

Hello.

Great. Good morning. Martin, I wanted to maybe ask about the margin here. So you reached 45.9% this quarter. So you're tracking to the 45% plus full-year guide. You're at the highest level in nearly five years. Maybe just unpack some of the drivers of expansion in the quarter, whether it was mix-driven, operating leverage, was it performance fees, any of the acquisition synergy starting to come through more meaningful and just talk about maybe how sustainable some of those benefits are? And then as we look ahead, how much additional margin expansion is achievable over that next kind of 12-18 month horizon? Then what would be the structural drivers in terms of revenue mix, scale, tech, and maybe how do you balance that with continued investments in areas like AI technology broadly and private markets.

Thanks Mike for the question. So BlackRock continues to deliver industry-leading margins over the cycle. We continue to target a 45% or greater adjusted operating margin with our margin on recurring fee related earnings running higher. We've talked about building BlackRock around the whole portfolio around the structural growth categories of investment solutions like private markets, ETFs, especially in higher value categories like digital assets, non-cap weighted indexing, outcomes, active ETFs, SMAs, models, target date technology. The flows and base fee growth in these categories, they're just more all-weather. They're less market sensitive. And that's an important part about driving more structural growth and driving more consistent revenue growth that can power higher earnings and higher margin. They play a key part in driving structurally higher adjusted operating margins. The markets of course continue to have an impact on our margins both up and down. But our 2030 goal of reaching over 30% of revenue from private markets and technology that we laid out at investor day last year, that goal of 30% of revenue from private markets and technology, it's aimed to dampen that effect and power more steady double-digit EPS growth and margin expansion. We did record our highest margin in almost five years this quarter with both operating and recurring FRE margins expanding by over 250 basis points year-over-year. Our operating margin for the quarter was 45.9% and the margin ex performance fees and related comp was 46.5%. So we're well on our way to those numbers that we laid out in the 2030 plan. I'd offer I don't see this quarter's margin as a ceiling. We've run BlackRock at margins close to 47% back in 2021 and that was at a time when we didn't have the large-scale private markets franchises. I don't think we had the performance across our systematic equities platform or the breadth across that platform. We didn't have the scale that we have today in SMAs and tax-managed strategies and multi-asset. So we have many more engines including GIP and HPS both of which were north of 50% FRE margins when they joined BlackRock. I think there's two main levers really to structurally engineering continued margin expansion. The first one is we will see margin on the FRE side driving higher towards the levels of the best-in-class private markets names. So north of 50%. We can do that through the acquired businesses and continuing to scale and grow them as well as with the existing highly scaled franchises we have in iShares, digital assets, and systematic equities. Then with constructive markets, second, higher fee rates on flows and strong organic growth, we think we can pull the fully burdened operating margin of the company up as well. And as I've said before, we've run the company at 47%. So I don't see 45 or 46% as a ceiling. We see the totality of our 2030 strategy as structurally engineering higher growth and margin through both faster revenue growth, higher fee rates on flows, efficient use of technology automation to create more scale and operating leverage. That's what we think takes us to those margin targets that we've laid out in the 2030 plan.

Next question will come from the line of Patrick David with Autonomous Research.

Hey, good morning everyone. So my question is on the distribution side. There's news this week that Merrill Lynch is making some fairly dramatic increases in revenue sharing fees. This comes after Schwab announced they were increasing platform fees on ETFs. So I'm sure you won't speak to what specific partners are doing, but could you speak to the risk that this is becoming a broader trend and that you could see some net revenue headwind from this? Or do you think BlackRock's scale and importance could allow you to avoid these incremental platform fees in some way? Thank you.

Thanks, Patrick. I'll take that one. It's Martin. Hope you're doing well. BlackRock has long-standing very differentiated relationships with our distribution partners that look much different to those of the smaller scale issuers or some of the niche players. Our index ETF distribution philosophy and practice does not include tolls. We've not been approached by any major US distributors and we're not in any active negotiations about tolls on index ETFs. More importantly, we have a really successful track record of creating really broad win-win distribution partnerships beyond just product that help both the distribution partners, their advisers, the clients, they help all of them grow faster and they help BlackRock grow faster and more consistently too. Our brand and our capabilities combined with our distribution partners create more value and more growth. We have always partnered with our distribution partners around alpha seeking 40 Act products across wrappers. That's all public in regulatory disclosures. As client and distributor demand for active ETFs grows, our commercial arrangements are designed to support distribution while maintaining attractive economics. To be honest, Patrick, the economics are not meaningfully different based on whether client demand is expressed through a mutual fund or an active ETF. If anything, it's better on active ETFs for both the distributors and the issuers. The continued migration that we're seeing of client assets from brokerage into fee-based advisory accounts supports long-term profitable growth for both the distribution partners and BlackRock. We are the largest global ETF provider with the broadest, highest quality lineup. But we bring so much more than product to these relationships and our distribution partners value that. We bring advice and technology-driven capabilities through models, Aladdin Wealth, portfolio construction tools like Advisor Center. We bring thought leadership through our BlackRock Investment Institute. We have a dedicated advisor insights team that works with advisers on practice consulting and we bring access to leading portfolio managers. We also happen to have the largest salesforce dedicated to providing millions of customers access to iShares solutions. What I'd stress is that iShares and BlackRock help make wealth management platforms more attractive for their financial advisor and individual investor customers. Our clients consistently tell us and the distribution partners that the platforms they want to use have to include iShares. They have to include iShares is the biggest and most diversified provider of ETFs. That's the win-win for everybody. We grow faster, more consistently, they grow faster, more consistently, and we all grow more profitably together.

Next question will come from the line of Ben Buddhists.

Hey, good morning, Larry, and thanks for taking the question. A couple times throughout the call today, you guys gave a little bit of color on the makeup of private markets flows in the quarter. I think Martin, you called out credit deployment, infrastructure fundraising. Larry, you talked about some investment grade mandates that you've won. I was wondering if you could unpack that a little bit more. I'm curious on the credit side, what sort of deployment activity are you seeing on the infrastructure side? I think you're sort of out of the major flagship cycle, so I assume it's a lot of SMAs. You talked about this private equity outsourcing deal. So just curious if you could give a little bit more color on specifically what you're seeing that led to such a solid quarter of flows and what that sort of implies for the next couple of quarters. Thank you.

So I'd start by saying there's three things going on around fundraising and deployment. Maybe I can just give you some high level progress targets in progress. Tell you a little bit about infrastructure and private credit deployment. So we're executing on a really strong pipeline for private markets deployment as well as fundraising. We're in the market for a number of first-time and successor strategies across infrastructure and credit. We're seeing really strong engagement as Larry set out for high-grade and infrastructure debt SMAs including several mandates that signed this quarter. I'd remind you that at our investor day in 2025, we talked about how our investment performance, differentiated deal flow, client relationships would support a target of 400 billion in gross fundraising from 2025 through 2030. And we're continuing to make good progress there. And part of making good progress in fundraising is raising the capital, deploying it with discipline, and then returning it to clients on an appropriate timeline. That's how you compound growth in private markets. And we're really compounding in all three. We had 15 billion dollars of inflows in private markets in Q2. Six billion of that was really from private credit. And we've seen incredible opportunities in the marketplace. Private credit spreads have widened. The team sees good opportunities and is deploying very well there. And on a relative value basis against public market comparables and single B, institutional investors are very enthusiastic about putting more private credit money to work in this environment. The first half of the year in our infrastructure platform has been one of the busiest on record. We announced the planned acquisitions, the take private of AES, the ground leasing company in Europe, TCR. Obviously the Allianz data centers deal and then just this week our mid-market strategy took an acquisition stake in Summit Ridge Partners. So it's been a really active environment for both infrastructure and private credit. The six billion in private credit is really deployment-based. On the infrastructure side, the five billion was a bit of mix of fundraising and deployment. So we had fundraising in our middle market strategy, our emerging market strategy as well as in infra SMAs. And then we had a $3 billion funding of a partial outsourcing mandate in private equity solutions with a client in Latin America. I think that continues to be a really attractive opportunity for BlackRock. When I look at the LP community, they often have dozens if not hundreds of private equity managers that ultimately need to be rationalized. They need to consolidate their buying power to become a top LP with PE. And our ability to provide GP-led solutions to manage those portfolios, optimize them, reinvest them well. That's a great opportunity. And I think that three billion of inflows of PE solutions is a good indicator of potential other things we can do in that space to continue growing.

Your next question will come from the line of Brian Bedell with Doshia Bank.

Great. Hey, good morning. If I can just ask on Europe, in terms of the iShares' traction there and good to see the 80 billion of net flows year to date. Can you talk a little bit about how you see the democratization of retail investing in Europe shifting toward more acquisition of US assets, US equities and how iShares can play a role in that and particularly on rising demand for tokenization of US equities which are available in Europe right now but not in the US. Can you just talk about how you see iShares playing a role in that dynamic? What are you doing to catalyze that?

Can I have one flow highlight that Larry? I think it's interesting to what you add is if I think about iShares globally as access vehicles to markets all around the world. We've run that playbook in the US, we've run it in Canada, we run it in Europe. I thought one thing that was really interesting in the quarter is that we saw obviously declines in crypto and Bitcoin and Ethereum by 30%. We actually had very strong inflows into the European Bitcoin ETF about 650 plus million in international exposures. And so I think it's just as clients build portfolios look for diversifiers, iShares are the access vehicle and being able to bring them to Europe, Canada, Latin America, Asia, US in a way that people make one to 2% allocations to their portfolios. We're seeing that strategy really starting to take root.

Next question will come from the line of Alex Bond with KBW.

Hey, good morning everyone. Thanks for taking the question. Wanted to ask around Aladdin and Preqin. Maybe if you could just add a little bit more color on the trends you're seeing in and around those businesses at the moment. How are synergies progressing here? And also maybe how is demand for these services progressing in light of calls for more transparency in private markets? And then lastly, can you also expand upon how you see AI impacting this area of the business both currently and also in the future. Thank you.

Yeah, so we had a strong,

strong quarter in Aladdin and continue to see really good growth across the technology and subscription revenue business. Obviously, 13% revenue growth, 15% ACV growth in the quarter. Technology is the main engine for investment performance. It's the main engine for operating leverage. It's the engine for great client experiences and clients are investing more in technology. They're accelerating their tech spend and they're consolidating to leverage fewer providers that have deep integrations across fintech and data ecosystems and they want to work with BlackRock as a firm that can bring it together across the whole portfolio services public and private markets. The combination of Preqin with our capabilities in Aladdin and eFront is complementary, it's delivering more value for clients and BlackRock. And we look forward to executing on the opportunities that bring the benefits of Aladdin to new clients and expanding relationships with existing clients. I'd say some of the gyrations in the private markets and moves on the regulatory landscape have been real accelerants for Preqin, eFront and Aladdin more broadly. So we have a really strong pipeline ahead of deals across Aladdin, eFront and Preqin. I'd offer for example the Department of Labor's proposed safe harbor rule is clear that fiduciary standards are going to demand rigorous data performance benchmarking for private assets and 401k. Some of the recent gyrations in non-traded BDCs and private credit have led investors across the whole portfolio to say where do I really have exposure to software? Where do I have exposure that is literally to software? Where do I have exposure to something that's classified as healthcare but is really healthcare IT? So that ability to bring more transparency is a real accelerant for Preqin. We reiterated our low to mid-teens ACV target and from what we see in the pipeline and some of these external catalysts like regulatory and the markets we think it's a great environment for Aladdin, eFront and Preqin.

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

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