BlackRock Inc Q2 2023 Earnings Call

Thank you, Martin, and good morning to everyone, and thanks for joining the call. Throughout our history, BlackRock has been serving clients. We listen to them, we deliver to them as a fiduciary, and we evolve our capabilities to help them achieve their long-term outcomes across market regimes. We bring together the entire firm as a platform to deliver client outcomes. That's a defining factor of BlackRock's differentiated and industry-leading leadership. As many of you have heard at our Investor Day last month, we are building the sole platform strategy in asset management that brings together products, services, and technology to solve our clients' investment and technology needs. We envisioned BlackRock to be the investment manager cloud for asset managers and for asset owners. BlackRock's industry-leading results reflect our clients' continued confidence in our long-term performance. We are delivering sustained organic growth and base fee growth even as the traditional asset management industry logs persistent outflows. BlackRock generated $190 billion of total net inflows in the first half of 2023, including $80 billion in the second quarter, reflecting positive flows from wealth and institutional clients across regions. We grew technology services revenues and ACV as clients leveraged Aladdin to support their investment processes. And we again delivered strong margins for our shareholders. Our scaled platform and technology allows us to invest for future growth while maintaining a differentiated margin, which we've expanded in seven of the last 10 years. Organic growth combined with positive markets and foreign exchange movements has led to over $830 billion increase in BlackRock's AUM in the first six months of 2023. And as I speak with clients, I hear that their expectations of asset managers are expanding. It's why clients are doing more business with fewer managers. Clients are seeking a broad range of integrated services alongside a strong performance track record to help them achieve their desired outcomes. By its value, BlackRock's unparalleled breadth of investment strategies, which span regions, indexed and active, and both public and private markets, and they're confident in our ability to deliver the investment performance they need through durable alpha in active, proprietary deal flow in private markets, or proper index tracking of ETFs. Through diversification and strong performance, we can help clients better match their long-dated liabilities, achieve their operational objectives, and streamline their processes. This better enables them to address the needs of their own stakeholders. Today, client conversations more often move beyond products. They're about portfolios. They're about business transformation and how they could benefit from BlackRock's platform scale. That evolution from product to portfolio to platform creates enormous growth potential for BlackRock, and we are intentionally organizing ourselves around our clients, which helps ensure the one BlackRock we deliver is greater than any one part of the organization. Investors are facing a complex landscape of competing fiscal and monetary policies, with a number of structural forces shaping returns now and over the long term. These forces include a fragmented geopolitical landscape causing a rewiring of supply chains, a transition to a lower carbon economy, and the aging population in the developed world, all of which are likely to be inflationary over time. If the US equity markets rally has been fueled by just a few technology firms, I hope that artificial intelligence will gain widespread adoption. I believe AI has the ability to enhance productivity and transform margins across sectors. It may be a technology that could bring down inflation. But in the meantime, central banks continue to face a sharp trade-off between living with some inflation and/or damaging economic activity. Against this backdrop, clients are turning to BlackRock to provide insights to help them manage risks, to capture new opportunities, and to implement enterprise technologies. Clients are choosing BlackRock for our platform combination of technology and advisory alongside ETFs, active investing, and private market capabilities. Our ETF platform and franchise cuts horizontally across clients, products, and the market ecosystems to provide access to the expanding world of investments. BlackRock captured the number one share of ETF industry flows in the second quarter of 2023, generating $48 billion of net inflows. These industry-leading net inflows were led by continued demand for iShares bond ETFs, and we aim for our bond ETF AUM to more than triple to $2.5 trillion by 2030. This is not just because of the generational opportunities in fixed income, but because bond ETFs are also delivering benefits such as access, transparency, and liquidity to both institutional and wealth clients at an accelerating pace. BlackRock will continue to drive bond ETF innovation and growth as the bond market modernizes and investors move to capture significant opportunities in fixed income, but more efficiently, with more transparency, and more conveniently than ever before. We recently completed the largest global ETF watch in history with two transition-focused ETFs. The launch is another example of our commitment to provide choice and access to our clients through the breadth of our leading transition and ETF capabilities. The ETF launched with nearly $3 billion in seed capital as we connected with BlackRock to execute on an innovative client solution. Our clients are also focused on outcomes, and this manifests in a portfolio blending active, index, private markets, and cash. We often talk about how index ETFs are being used actively by all types of investors, and active managers are increasingly leveraging the many benefits of the ETF wrapper. In May, we launched two active ETFs led by Rick Rieder and Tony DiSpirito. These ETFs will be great tools for clients and advisors to gain access to our active insights within our ETF structure. Clients choose BlackRock for performance. This is across multiple dimensions, including investment performance, client service, and operational excellence. Across our active franchise, BlackRock has delivered durable investment performance with 81% and 90% of our fundamental equities and taxable fixed income AUM above benchmark or peer median for the last five years. Our global connectivity, our scale, our technology, our market access positions us to deliver the alpha our clients need. Our expertise in portfolio construction and asset allocation combined with strong investment performance is differentiating BlackRock in the market. We saw $73 billion of active net inflows in the first half of 2023 compared to active industry outflows. We're also unlocking opportunities for clients in private markets, where we have $30 billion of committed capital, and we're growing in private markets organically through new launches, scaling of our successor funds, and at times we will execute inorganic transactions to further expand our capabilities and global reach. To this end, we recently announced our planned acquisition of Kreos Capital, a leading provider of venture debt financing in Europe. When we talk to clients about their private market allocation, the number one thing they're looking for in a selected manager is proprietary, differentiated deal flow. BlackRock's global network of relationships, our data analytics, and flexible, adaptable capital means we can source unique deals for our clients. In doing so, we deliver value for our clients and our fund portfolio companies. Our long-term private capital team's acquisition of Creed in May 2020 is an excellent example of the outcome that can be achieved through the strength of our proprietary sourcing, our proprietary underwriting, and value creation capabilities. LTPC acquired Creed during the depths of the COVID lockdown, and last month we announced that they had entered an agreement to sell the company to a strategic buyer, Caring Beauty. The PC team had the conviction that Creed was an extraordinary business with multiple levers for value creation that would help accelerate growth even during the pandemic, and last month's agreement, the fund is expected to realize significant profits for our clients. I find more often now that companies want BlackRock as a trusted investor and a trusted partner. BlackRock is a long-term, friendly capital with global client relationships. We invest early and we can stay invested throughout cycles, whether it's debt or equity or pre-IPO through post-IPO. Companies recognize the uniqueness of our global reach, our brand, and our expertise across markets and industries. We are a valued partner to these clients, and companies want to work with BlackRock, and this enables our proprietary origination. We are tapping into our deal flow across our private markets asset classes, and especially focusing on credit and infrastructure. Our connectivity across the real economy is bringing benefits to both clients and the communities in which our underlying investment projects operate. As I meet with clients around the world, I hear how our profile is strengthening in local markets as a result of our leadership in infrastructure investing. In the United States, we partnered with AT&T in the Gigapower JV and invested in Jupiter Power, which operates one of the largest battery storage fleets in Texas. And our relationships around the world continue to expand our reach in new ways. This is evident from our most recent investments, whether it's First Air in South Korea or Acacia Energy, which is building the world's largest grid-scale battery storage facility, the Waratah Battery, in Australia. These are just a few examples. Our growing profile from these investments is leading to more and larger deal opportunities, which will deliver growth for BlackRock's clients and to you, our shareholders. The portfolio of the future is outcome-oriented, customized, and seamlessly combines public and private markets. BlackRock is the only company that can offer both the portfolio investments and technology through eFront and Aladdin. Aladdin is bringing the portfolio of the future to life by providing technology in a digital-enabled and customized way, combining risk management, the investment book of record, performance, accounting, and data all in one place. Market volatility and growing cost pressures and complexities in optimizing whole portfolios underscore the need for enterprise operating and risk management technology. The value of Aladdin's integrated end-to-end technology platform is resonating. In the same way that clients are consolidating their portfolios with fewer asset managers, clients are looking to do much more with Aladdin. And over the last 12 months, 40% of our new annual contract value came from the expansion of existing relationships. And I'm pleased to say that our retention rates remain very high at 98%. We're not only expanding Aladdin's capabilities, we're also tackling bigger addressable markets by extending into adjacent offerings. We're enabling a whole portfolio ecosystem, empowering clients through data, and opening Aladdin to drive even more innovation. We are creating deep integration with ecosystem providers and third-party technology solutions. Our recently announced partnership with Avelock is the latest example. We are engineering Aladdin for the future, and as clients look to do more with fewer partners, our SaaS technology business will enable greater agility for clients in delivering higher recurring revenues for our shareholders. Aladdin and Aladdin Wealth are increasingly core components of outsourcing relationships. Our success across a number of significant outsourced solutions over the past several years are catalyzing a dialogue with more and more clients. I recognize the headline multi-billion dollar mandates get much of the attention, but we're bringing our expertise to clients in all segments, not just large pension funds or insurers, but also wealth managers, charities, endowments, and family offices. Second quarter results include continuing momentum in institutional and wealth outsourcing, particularly in family office models, NSMAs, and last week, when Tech Private Bank announced they selected BlackRock to provide an expanded set of investment solutions, advisory solutions, and risk management and technology. This is another example of how clients are turning to BlackRock as they scale and grow their own business, and we help them do that. Whether it's asset management or tech or the multitude of other industries, clients are consolidating their relationships and moving to platforms that provide strong performance and integrated services. BlackRock intentionally invested and built our business model to be in the forefront of this trend. And this is resonating in our results as clients increasingly turn to BlackRock for performance and for our platform services. These leading results and momentum are a direct result of our dedicated employees and leadership team. Our success over the last 35 years has been built on the steadfast commitment to operate as one BlackRock, fully connected to our clients on one platform, with one culture, using one technology. It is our leadership team that is delivering the power of this hyper-connected platform to our clients. These leaders make us a hyper-connected team. The collaboration, their horizontal leadership, are essential to our success and growth. As I said in our Investor Day, I'm not planning to leave BlackRock anytime soon, but my goal has always been to ensure that when Rob and I move on, the firm is in even better hands than it is today, and I'm confident we are going to achieve that. In building a company, we have always taken a long-term view, and our approach in developing our leadership talent is no different. BlackRock is highly focused on identifying and developing our next generation of leaders. We also seek to align their long-term interests with those of our shareholders, our clients, and one another through shared incentives that reward long-term value creation. A key part of this ongoing initiative is the recent issuance of a one-time long-term equity incentive grant for a small group of leaders featuring extended vesting periods. These awards represent a key long-term strategic investment in the success and stability of BlackRock's leadership plans, and as we execute on our platform as a service strategy, our goal is that these grants will help promote a continued collaborative, long-term performance culture between our leaders across our horizontal leadership capabilities for many years to come. To close, I want to underscore that we are in the very early days of a long-term shift in client consolidation of their investment managers and the technology requirements towards a more comprehensive platform. In the same way that organizations have transitioned from on-site data hardware to cloud providers, many clients are now transitioning from in-house investment and technology models to BlackRock. For years, we have focused every one of BlackRock on our clients with horizontal connectivity, integrated services, and strong performance. I truly believe this is the future of investing, and BlackRock is at the forefront. I believe we're at one of the most exciting times in BlackRock's history. I can say very clearly that both Rob and I are energized by the new examples that we see every day and how we are delivering value for all of our BlackRock stakeholders. Thank you, and let's open it up for questions.

Hi Greg, how are you?

Yep.

Craig, let me have Rob answer that one.

Hey, good morning.

Why don't I give that to Martin?

Martin.

Good morning.

So, you know, we're supportive of any efforts to improve the resiliency and transparency of US money market funds. But non-government institutional money market funds, which were really the main focus of the rules, are a very small part of our cash business. Ours is US government funds and separate accounts; that's really the bulk of our assets. And of course, we have a diverse set of cash offerings, including money market funds and separate accounts, CTFs, ETFs, and other short duration strategies. So we're going to work together with our clients as they consider the best tools for their liquidity management, and we will continue to review the regulatory rules to see what impact it could have on our business, which I think is quite limited. But remember, in asset allocation, when there's money in motion, it moves to cash, it moves to longer term assets. It's something to have as a liquidity tool to do all the things that clients need to do. And since we're going to be, I think, a beneficiary of the long-term assets, going after corporations and treasury management and other institutions for the cash puts us in the game in a much better way than if they're just coming into our products from the outside. So it's an important business for us. It also is a business which has to do with performance, and it also has to do with quality. And as you've seen issues in the banking industry and other issues in the markets, people look for high quality and they look for the brand, and we have that. So we're very optimistic, and we will continue to really build our sales force to continue to be a leader in the cash management business, knowing that it's also going to lead to other opportunities for us.

Hi, good morning.

Well, first of all, thanks for that. Transition investing is probably one of the greatest opportunities in the world today. The dialogues that we're having with governments worldwide are very unique. There's not a government that is not focused on this, especially for countries that are dependent on importation of power. They're all looking for definite ways across the board in terms of how do they successfully navigate their economy. And energy and power is becoming one of the dominant conversations. And then through the United States IRA, we are seeing just huge interest from US and non-US companies coming into the United States to take advantage of the opportunities that present themselves in terms of elevated returns because of the IRA. And so we look at this as a multi-year growth opportunity. We are working. We announced, as I said earlier in my talk, about Acacia Energy, the largest battery storage capability in the world. And that has set us, and the conversations we're having with other countries related to that type of activity, is becoming a much more conversational component of what we're doing. So we look at this as a significant, we're talking tens and tens of trillions of dollars of 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 opportunities for BlackRock. In our relationships worldwide, we have that unique opportunity to present with us, as I talked about, proprietary origination. We're having more and more conversations with more and more corporations about how they think about their platform related to decarbonization. And we have deep and broad conversations with traditional energy companies about how they are 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. 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 they move forward, really gives us a unique opportunity for the 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 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 there they need, they just don't have a generation of capital. They're doing that at the speed in which they are looking forward to enjoying that. And so between our relationships with companies and our broad relationships with governments, it gives us a real opportunity to be one of the leaders in the transition. And I believe this is going to be a multi-year global opportunity for BlackRock.

Thank you, operator. And I want to thank all of you for joining us this morning and your continued interest in BlackRock. And delivering value for our clients and 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 a very pleasant summer and a great quarter. Thank you.