Release Date: April 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record AUM of nearly $10.5 trillion, indicating sustained momentum across the platform.
- First quarter long-term net inflows of $76 billion, leading the industry and driving positive organic base fee growth.
- Revenue and earnings growth with first quarter revenue of $4.7 billion, up 11% year-over-year.
- Operating income of $1.8 billion, up 17%, and earnings per share of $9.81, 24% higher versus a year ago.
- Continued innovation with the launch of a Bitcoin fund and expansion into private markets, including the planned acquisition of GIP.
Negative Points
- Seasonal outflows from institutional money market funds partially offsetting long-term net inflows.
- Annualized organic base fee growth of 1% reflected seasonally softer flows earlier in the quarter.
- A lower annualized effective fee rate compared to the fourth quarter due to client preferences for lower-fee U.S. exposures.
- Institutional index net outflows of $13 billion concentrated in low-fee index equities as clients rebalanced portfolios.
- Cash management platform experienced $19 billion of net outflows in line with industry trends.
Q & A Highlights
Q: Can you update us on the defensibility of your positioning around the theme of active to passive equity flow mix in Europe and to what extent you're seeing more aggressive price competition?
A: (Martin S. Small - BlackRock, Inc. - Senior MD, CFO & Global Head of Corporate Strategy) European iShares continues to lead the market with about 30% market share of inflows, which is 2x the inflows of the #2 player. Our iShares franchise in Europe is $850 billion AUM, bigger than the next 5 players combined. We have a real outsized opportunity to grow ETFs in the U.K. and Europe. The competitive dynamics in Europe are very different than in the U.S., largely a private banking market that uses ETFs through discretionary private management programs, and iShares is a strong preferred provider. Regulation is trending favorably in Europe, and the buying dynamics are favorable for outsized growth.
Q: What is your confidence that BlackRock can get back to 5% base fee organic growth at your current $10 trillion AUM size?
A: (Laurence Douglas Fink - BlackRock, Inc. - Chairman & CEO) We have significant opportunities and large mandates that will fund over future quarters. The breadth of conversations with clients worldwide and the opportunities in infrastructure related to AI and data centers will lead to much bigger opportunities. More clients are seeking organizations that deliver proprietary differentiated products.
Q: How is BlackRock pursuing the opportunity in private markets and retail products, and does the GIP acquisition give you enough in terms of what you're trying to accomplish in the private markets broadly?
A: (Laurence Douglas Fink - BlackRock, Inc. - Chairman & CEO) Clients continue to increase their allocations to private markets, which drove our acquisition of eFront and the planned acquisition of GIP. We're building out our semi-liquid products for retail with credit strategies and interval funds. The planned acquisition with GIP will extend our capabilities and is expected to bring GIP's capabilities to private wealth globally. We're always looking for different opportunities and are open-minded to pursue more private market opportunities if it makes sense.
Q: Can you talk about the competitive landscape for fixed income retail and fixed income ETFs, both inside and outside the U.S.?
A: (Robert Steven Kapito - BlackRock, Inc. - President & Director) We're seeing renewed demand for active fixed income, leading to flows into high yield, unconstrained, and total return strategies. Our performance has about 93% of our taxable active fixed income AUM above the benchmark or peer median in the last 5 years. The yield curve remains inverted, and investors are currently getting paid to wait. A more balanced term structure of interest rates will be the indicator to watch for demand for intermediate and longer-term fixed income.
Q: How might you quantify the opportunity for margin expansion over time, and what are the levers to achieve that?
A: (Martin S. Small - BlackRock, Inc. - Senior MD, CFO & Global Head of Corporate Strategy) Our approach to shareholder value creation is to generate differentiated organic growth, drive operating leverage in a premium margin, and execute on a consistent capital management strategy. We're looking to size our operating investments in line with organic growth potential, put more flexibility in our cost base, and generate fixed cost scale through investments in technology. We're consistently delivering industry-leading margins and have expanded our margin in 6 out of the last 10 years. We're planning for full year low to mid-single digit core G&A growth, flat head count, both excluding the GIP transaction.
Q: Are we reaching a new level of normalized performance fees, and how might that translate into the comp ratio as we look ahead?
A: (Martin S. Small - BlackRock, Inc. - Senior MD, CFO & Global Head of Corporate Strategy) Performance fees of $204 million in the quarter are up about 4x year-on-year. About half of that performance fee is coming from private equity funds and programs with successful realizations. The other half is more in liquid hedge funds. We aim to deliver long-term performance with clients, and where we see performance fee revenues picking up, there's healthy alignment. More supportive markets and stronger performance would expect a lot of that leverage to drop to a lower comp-to-revenue ratio. Talent is one of our key investments and will continue to be so.
Q: Can you talk about the multi-asset category, specifically OCIO deals and LifePath Paycheck, and how you anticipate that contributing to organic growth?
A: (Laurence Douglas Fink - BlackRock, Inc. - Chairman & CEO) We have 14 corporations that are preparing to transform their defined contribution plan to LifePath Paycheck. The conversations we're having with clients are broad and beginning in Europe and other places too. We believe this is going to change retirement and is a major component of our future growth rates over the next 3 to 5 years. It's not the highest fee-based product but can generate more connectivity with more clients, deeper relationships, and is something that will transform BlackRock as a leader in retirement benefits.
Q: Can you put in context what improving trends throughout the quarter for flows mean for maybe exit fee rate?
A: (Martin S. Small - BlackRock, Inc. - Senior MD, CFO & Global Head of Corporate Strategy) We see good base fee momentum. At the end of Q4, we were running at hotter than target. At the end of this quarter, we're at target. We feel like we're half or halfway plus to our target growth. First quarter base fees, excluding securities lending, were $3.6 billion, up 9% year-on-year. The Q2 entry fee rate ex fee lending is pretty much flat compared to the Q1 fee rate on a day count equivalent basis. We focus on driving organic base fee growth in the most efficient way possible, focusing on the clients, and the fee rate is more of an output.
Q: Fixed income flows have picked up for 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. Can you talk about the competitive landscape for fixed income retail and fixed income ETFs, both inside and outside the U.S.?
A: (Robert Steven Kapito - BlackRock, Inc. - President & Director) We're seeing renewed demand for active fixed income, leading to flows into high yield, unconstrained, and total return strategies. Our performance has about 93% of our taxable active fixed income AUM above the benchmark or peer median in the last 5 years.
