Q4 2019 Earnings Call
Our hosts for today's call will be chairman and Chief Executive Officer Laurence D C.
Chief Financial Officer, Gary S. Shedlin.
President Robert Escobedo, and General Counsel, Christopher J. me either.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer a period. If you would like to ask a question. During this time it simply press Star then the number one on your telephone keypad. If he would like to withdraw your question. Please press the pound to key. Thank you Mr. made you may begin your conference.
Good morning, everyone I'm, Chris mean, the general Counsel 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 black box actual results may of course differ from these Steven.
As you know Blackrock has filed reports with the FCC, which lists some of the factors that may cause the results of Blackrock to differ materially from what we see today.
Blackrock assumes no duty and does not undertake to update any forward looking statements.
So with that I'll turn it over to Gary.
Thanks, Chris Good morning, and happy new year to everyone.
My pleasure to present results for the fourth quarter and full year 2019.
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 gap and as adjusted financial results I will be focusing primarily on our as adjusted results.
For many years Blackrocks differentiated globally integrated asset management, and technology business, including our risk management and portfolio construction tools has proven its ability to deliver for clients and shareholders in different market environment.
That continues in 2019.
A difficult fourth quarter of 2018 created a challenging start to the year, but as we noted a year ago volatile market environments create opportunities for growth at Blackrock as long as we remain disciplined to continue playing office.
Blackrock achieve both revenue and earnings growth during 2019.
Investment performance across our active products was excellent with 86%, 76% and 84% of taxable fixed income fundamental and systematic active equity assets, respectively above benchmark prudent pure median for the trailing three year period.
We generated record net inflows of $429 billion, representing 7% organic asset growth and 5% organic base fee growth, enabling us to once again beat our aspirationally organic growth target for the fifth time in the last seven years and we finished the year with strong momentum recording over one.
$129 billion can total flows in the fourth quarter.
The financial strength and stability of our operating model allows us to continuously invest through market cycles and capture growth in areas of high supply and demand like technology, illiquid alternatives and not shares, especially higher growth strategic GTF segments, such as factors fixed income sustainable and Mega trends.
These investments position Blackrock to offer clients not simply products, but comprehensive whole portfolio solutions and to generate consistent long term growth for shareholders.
Full year revenue of 14, and a half billion dollars was up 2% below operating income of $5.6 billion increased marginally.
Earnings per share of $28.48 was up 6% versus 220018.
For the fourth quarter Blackrock generated revenue of $4 billion, an operating income of $1.5 billion up 16% and 17% respectively from a year ago when results were impacted by significant market volatility.
Quarterly earnings per share of $8.34 was up 37% versus 2018.
Also reflecting higher non operating income a lower effective tax rate and reduced diluted share count in the current quarter.
Non operating results for the quarter reflected $85 million of net investment income.
I don't really driven by the mark to market valuation of our minority stake in Envestnet and higher marks on unhedged seed capital investments.
Our as adjusted tax rate for the fourth quarter was approximately 18% driven in part by discrete benefits linked to additional guidance on U.S. tax reform.
We currently estimate the 23% is a reasonable projected tax run rate for 2020.
The actual effective tax rate may differ as a consequence of nonrecurring weren't discreet items and issuance of additional guidance on recently enacted tax legislation.
Fourth quarter base fees of $3.1 billion were up $310 million year over year.
Primarily driven by the positive impact of market beta.
Organic growth and higher securities lending revenue, partially offset by certain strategic pricing in that.
Year over year quarterly based fee growth of 11% lags growth an average AUM of 16%. However, due to the ongoing impact of divergent equity beta and client preference for lower FIS lower risk fixed income and cash assets in 2019.
In addition, while fourth quarter based fees were up 4% sequentially. Our overall fee rate declines 0.1 basis points versus the third quarter.
Full year base fees ended up 2% notwithstanding the impact of a significant global equity markets declined in last year's fourth quarter. As a reminder, we enter 2019 with an annualized base fee run rate approximately 6% lower than 2018.
Fourth quarter performance fees of $239 million more than doubled versus a year ago, reflecting strong alpha generation from liquid and illiquid alternative products.
Full year performance fees of $450 million were up 9% compared to 2018, despite a significant number of liquid alternative products entering the year below their high watermarks.
Importantly, recognize performance fees from illiquid alternatives were up significantly in 2019 and represented approximately 30% of total performance fees for the year.
Quarterly technology services revenue increased 35% year over year and full year revenue of $974 million increased 24%, reflecting the impact of the front acquisition and continued growth in Alaska.
Excluding the front technology services revenue grew 12% for the full year and we continue to target low to mid teens growth going forward.
Demand remains strong for our full range of technology solutions, and digital distribution tools, including institutional Latin he front and a lot and well.
Fourth quarter advisory and other revenue increased 30% year over year, reflecting higher transition management and advisory assignments.
Total expense increased 4% in 2019, driven primarily by higher compensation energy and expense and the acquisition to be front.
For the full year compensation expense increased 164 million were 4%, primarily reflecting higher headcount higher performance fees and higher deferred compensation expense.
Our full year comp to revenue ratio of 34.8% was moderately higher than 2018 as a result of the mark to market impact of certain deferred compensation programs in 2019, and the full year impact of retention awards related to recent acquisition activity.
Recall that year over year comparisons a fourth quarter compensation expense far less relevant because we determine compensation on a full year basis.
Fourth quarter, GNS expense was up $130 million sequentially due to seasonally higher levels of marketing and promotional spend higher technology expense and the aggregate impact of $48 million of quarterly expense related to contingent consideration fair value adjustments and foreign exchange Remeasurement.
Overall, DNA expense increased 7% in 2019, reflecting higher levels of technology spend the impact of the front acquisition and $59 million a fund launch costs related to the successful second quarter close of the $1.4 billion, Blackrock Science and Technology Trust II.
Excluding the impact to be front and various noncore items, such as consent contingent consideration fair value adjustments product launch costs and FX Remeasurement expense, we estimate that our full year core DNA spend increased 2% versus 2018.
While we continually focused on managing our entire discretionary expense base. We currently expect 2020 core gionee expense to increase approximately 5% relative to comparable 2019 levels driven by continued investment in technology and market data, including sustainability initiatives.
And the full year impact of the front acquisition.
Our full year as adjusted operating margin of 43.7% was down 60 basis points versus 2018, reflecting our strategic decision to continue investing responsibly in 2019, despite the more challenging overall revenue capture environment created by last year's fourth quarter market volatility.
We continue to see strong performance in our future drivers a differentiated growth including EPS.
Monitors technology and portfolio construction and remain deeply committed to investing responsibly for the long term and optimizing growth in the most efficient way possible.
And we're prudently using our balance sheet to best position Blackrock to achieve the success. During 2019, we allocated over $750 million of new seed and co investment capital to support our growth with our investment portfolio now exceeding $3 billion for the first time.
We also closed the strategic acquisition to be front, which in combination with Latin will provide clients with an ability to seamlessly managed portfolios and risk across public and private asset classes on a single platform.
And we remain committed to systematically returning excess cash to shareholders through a combination of dividends and share repurchases returning an aggregate of $3.8 billion to shareholders in 2019.
We repurchased approximately 1.7 billion dollars' worth of shares at an average share price of $414 per share taking advantage of attractive relative valuation opportunities that are rose during the year.
Since inception of our current capital management strategy in 2013, we have now repurchased approximately $8.7 billion of Blackrock stock, reducing our outstanding total shares by 9% and generating an unlevered compound annual return of 14% for our shareholders.
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 would anticipate repurchasing at least $1.2 billion of shares during 2020, consistent with our guidance a year ago.
In addition, and also subject to market conditions, we expect to seek board approval. Later this month for an increase to our first quarter 2020 dividend.
Blackrocks globally diversified investment platform combined with industry, leading risk management and portfolio construction technology enables us to bring together the entire firm to partner with clients in order to meet their evolving needs.
Fourth quarter total net inflows of $129 billion, representing 7% annualized organic AUM growth and 10% annualized organic is fee growth led by flows into strategic focus areas, including Ishares and illiquid alternatives.
Full year flows of $429 billion were positive across active an index.
Asset classes client types and regions and reflected significant strength in fixed income and cash which accounted for approximately 85% of organic growth.
Globalize shares generated $183 billion of net inflows for the year, representing 11% organic growth.
Importantly, we saw momentum into year end, driven by a resurgence in equity EPS.
Fourth quarter washers net inflows of $75 billion represented an annualized organic asset growth rate of 15%.
Notably in 2019, 80% of Ishares flows were driven by strategic product segments, which saw 28% organic growth.
We also saw continued strength in the core segment with 15% organic growth, partially offset by volatility driven outflows from precision exposures GTS, primarily in May and August .
Within the higher fee strategic segment. It was a record year for fixed income Bts rideshare is the market leader.
We generated $112 billion of net inflows into Ishares fixed income bts, representing 26% organic growth.
Demand remains exceptionally strong as investors seek more efficient market access portfolio construction evolves in wealth management and technology accelerates the modernization and electronification of the bond market.
We achieved the number one share of industry factors ETF flows with $34 billion across a diverse range of factor our shares.
During 2019 US mid vol. For you SMB was our largest and the industries fourth highest asset gathering GTS capturing over $12 billion in net inflows. This is the first time a factor exposure outpaced every market cap weighted shares F. In terms of aggregate flows.
I sure sustainably TF lineup represents the fastest growing of our strategic segments generating $12 billion net inflows and ending the year with $22 billion available where than any other active or index from.
During 2019, the I shares SG leaders fund raised over $1 billion, representing the largest equity to launch in the past 15 years.
Blackrock generated full year retail net inflows of $16 billion outperforming the broader active mutual fund industry.
Inflows were led by our suite of active fixed income products and liquid alternatives, partially offset by outflows from multi asset world allocation products.
Fourth quarter retail net inflows of $8 billion reflected similar trends, but also included the seasonal impact of capital gains reinvestment.
Blackrock institutional franchise generated record long term net inflows of $136 billion in 2019.
Representing 4% organic base fee growth.
Institutional flows reflecting strength in fixed income illiquid alternatives and multi asset solutions.
Active net inflows of $2 billion were primarily into quantitative strategies were long term performance remains.
Momentum in our illiquid alternatives franchise accelerated and we saw $14 billion of net inflows into 2019.
We also have $24 billion of committed capital to deploy for institutional clients in a variety of alternative strategies, representing a significant source for future growth and performance fees.
Finally, blackrocks cash management platforms continue to increase share by leveraging scale for clients and delivering innovative digital distribution and risk management solutions. In 2019, we saw $93 billion of cash management net inflows across the platform, including crime sustainable government and unique.
Our innovative liquid environmentally aware from where leaf continues to see strong momentum with $1 billion of net inflows since launch earlier this year.
In summary, our 2019 results demonstrates the resilience of our platform, which allows us to invest through market cycles and drive consistent and differentiated growth in a variety of markets.
Our strategy is working.
We will continue to invest responsibly during 2020, including in key growth areas like high shares alternatives and technology to deliver the solutions our clients need to best position, our employees for professional growth and to generate long term returns for our shareholders with that I'll turn it over to Larry.
Thank you Gary Good morning, everyone happy new year, and welcome to a new decade.
Blackrock has consistently and systematically invested.
For the future in preparation.
To be clients changing needs.
By building a whole portfolio investment in technology platform, providing thought leadership on the macro and geopolitical environment and innovating in areas like factors and sustainable investing we are adapting to the driving change in our industry.
And building deeper.
More strategic partnerships with more clients.
Than ever before.
The benefits or our investments are evident in our results. This morning.
We generated a record $429 billion of total net inflows for the year.
Representing 7% organic asset growth and 5% organic base fee growth.
Blackrocks result reflects the strength of our platform, which has diversified across now two trillion dollars active strategies.
Five trillion dollars I shares an index strategies.
And now over $500 billion in cash strategies.
We generated 226 billion of net inflows in ice shares an index, we generated $110 billion. It slows it active investing.
And we generated 20 at $93 billion and cash strategies.
Flows were positive across our client channels across all asset classes and across.
All regions.
Including more than $1 billion, a net inflows.
In each of 16 countries.
And in more than 71 different products.
The total net new assets, our clients entrusted to us in the past year equates to the level of assets under management of a top 50 global asset manager.
After dramatic fourth quarter, 2018 market declines, which lowered blackrocks.
Last year by $500 billion, we began 2019 and a challenging starting point.
We ended the year, where the base fee rate run rate that was about 6% lower than 2018 based fees.
However, the successful execution.
Of our 2000.
19 strategy.
Delivered revenue growth operating income growth.
Earnings growth.
And along side, we are continuing to invest in future opportunities.
2000, 2019 was marked by heightened geopolitical and trade tensions which created volatility in financial markets uncertainty around the us in China trade negotiations Brexit and other concerns about a slowdown global growth all impacted.
Investor sentiment driving industry flows into say for fixed income and cash strategies cash assets throughout the year.
In the late cycle Dovish turn by central banks globally.
Monetary policy proved again, a powerful tool in offsetting so much of the geopolitical risk.
We saw equity markets close to 2019 at record highs followed by decisive UK elections to move forward with Brexit and now we have a preliminary agreement on trade that will be signed today by the us in China.
The S&P 500 finished the year up 29%.
And yet.
Emerging markets only rose 15%.
2019 also marked a year of milestones and transformation for the asset and wealth management industries.
Okay.
The tough industry cross six trillion in assets and I shares crossed two trillion.
We still believe I share is in the industry are the early stages of growth.
However, as clients are using ishares in many ways, including as liquidity management for hedging instruments.
But also market access vehicles for central banks into tactically access markets for Alpha managers.
Increasingly we are hoping clients use I shares as an instrument.
Active returns in public markets.
That's creating.
Largest significant new market opportunities.
Sustainability reached an inflection point with more and more clients focused on the impact on environmental social and governance factors other portfolios some to better align their investments with their values and more because of the implications of financial risk.
And returns related to sustainability and climate change.
As I discussed in my letter to Ceos, which came out yesterday, we're entering a new era finance the investment risk presented by climate change are set to drive a significant reallocation of capital.
And companies investors and governments.
All need to be more prepared.
Throughout the year Blackrock continue to invest in further differentiated that further differentiated our business model, we adapted to and drive change in or industry ultimately enabled a deeper.
A more comprehensive partnership with more clients than ever before.
The benefits of investments and strategic growth areas are clear, we saw strong flows and I shares.
Record flows and commitments in illiquid alternatives.
Record revenues and technology services in 2019.
And active strategies, where the industry faced muted flows Blackrock generated $110 billion, a net inflows and our active AIU Lam is at an all time highs.
Our liquid environmentally aware fund franchise is nearing $8 billion in size less than a year after a launch.
And we made significant progress the lead the industry and growth areas like owes CIO.
Factor based and sustainable investing.
And our regions around the world, including most recently China.
I shares is ETF market leader and generated $183 billion, a net inflows for the year.
57, I share Ats, each generated more than $1 billion of net inflows.
And we saw record flows in fixed income.
And we saw record flows in Europe .
We once again captured the number one market share of 2019 industry flows globally.
Also in the United States.
In Europe .
And in high growth segments, such as fixed income Bts factor Ats and sustainability Pts.
We are optimistic about continued double digit growth and I shares because we see vast new markets opening up in the how clients want to use these exposures.
Ishares is expanding its range it as a modernizing force in financial markets.
No or is this more true then in fixed income Etfs.
Fixed income Bgs will be one of the largest drivers a blackrocks.
Growth over the next decade.
The combination of Blackrocks history of the bond manager.
Our expertise any Ts and our industry, leading technology and data capabilities has created significant differentiation for ice shares.
After having pioneered the first six to meet you have in 2002, Ishares fixed income AUM surpassed 565 billion and generated a record $112 billion a net inflows in 2019.
Compared to the previous record of 2017 of 67 billion.
Well some of this has been as a result of a strong year in fixed income markets overall.
We see this is a secular shift.
We see this as a technology shift.
We expect to reach a trillion dollars in fixed income I shares within the next five years and the growth path is going to be differentiated in equities.
Growth in fixed income Etfs is coming from the modernization.
100 trillion dollar bond market itself and from conversations and conversations of bond securities from institutions.
Central banks and even other alpha managers.
Into EPS.
We are investors than ever before or use I shares factor EPS to take active risk tapping into factors as an additional source a potential return beyond strategic asset allocation.
We generated $34 billion in factor flows in 2019 significantly outpacing all other index and all other active factor providers.
At the same time, we are seeing secular shifts in the regulatory and distribution landscape that is propelling more and more investors to I shares.
For instance in Europe , we believe the each you have industry could double the two trillion dollars over the next five years.
As visit to is driving change across a variety of business models and price transparency is focusing clients on value for money, which will drive more demand for EPS. In this region, we're generating record I shares inflows of $60 billion and the industry crossed one trillion of.
As a.
Adoption accelerated.
And in the United States, we see independent financial advisory and direct platform shift their strategies to eliminating transaction costs democratization access to investing through Ats and enabling more people to invest to reach long term financial object.
Yes.
We think this will be beneficial.
For brands like I shares that can deliver client high quality exposures with transparency with ease of access and for good value.
Well I've seen or multi flows accelerated across these platform since the move to commission free trading in October our expectation is for the benefit of these moves to play out in the coming months in years, especially for firms like us that can invest at scale and can invest for the long term.
We also had a record year.
Liquid alternative business and momentum is accelerating.
Evidenced by increased fund raising and fund vintages as more clients reassess their liabilities and their liquidity needs associated with them. They are taking a longer term view on the assets in their portfolio and increasing allocation to illiquid alternatives.
Blackrock generated $14 billion illiquid alternative net inflows in 2019.
Up from $8 billion in 2018, and just 1 billion of net flows in 2017.
Growth was driven by our infrastructure business by real estate.
LTE PC and private credit.
Fourth quarter Illiquid alternatives results included the $1 billion close of a third global renewable power fund as well as our second and third close of LDPC in which we secured an additional $1.1 billion a commitments.
Growth in our illiquid alternative business will further enhance.
Ken and supported by our acquisition and integration of the front as we leveraged technology to enhance.
Better solution.
We provide to our clients.
Technology remains a key differentiator for Blackrock.
And a strategic growth area.
Acknowledges how we've been able to scale our business into a global multi asset organization we are today.
And it enables us to have a deeper more resilient conversation with more and more of our clients.
Our long term strategy is to provide technology for as much as much of the asset management value chain as possible and make Aladdin the language of portfolios.
Demand remains strong for Aladdin and our technology capabilities, and we expect growth will be driven by expanding aladdin capabilities to existing clients to attracting new clients.
Inorganic growth, including IEC front, and the growth over clients businesses as a scale themselves.
Technology service revenues of $974 billion increased 24% year over year and more than doubled since 2014.
Mckenzie research shows that only 3% of technology startups reach a billion dollars in revenues and I'm proud that Blackrock will soon cross that milestone.
Our Aladdin any front technology is used by more than 900 clients and 68 countries.
Including 16 wealth managers that have 35000 financial advisors, serving millions of and investors.
The vast majority of our technology service revenues today come from our institutional adding capabilities, which set the standard investment management technology and now with the integration of easy for US. This will reinforce our value proposition is the most comprehensive investment operating system for investor.
In the world.
One of the biggest future growth opportunities as Aladdin wealth.
Macro forces are impacting the wealth industry, including a more challenging market environment heighten customer expectations more regulation technology advancements and this is driving demand for a deeper portfolio analytical and risk transparency portfolio.
Construction.
Product and scale.
These are all about our core.
To the Aladdin will value proposition.
Additionally, we are seeing more and more clients using a lot as well as a business enabler.
Particularly in markets, such as Europe , and Asia, where wealth managers are using allotted wealth.
To move their business away from transaction commissions and retrocession based revenue model to more of an advice driven model.
Blackrocks technologies facilitates our ability to fulfill our purpose and helping more and more people experience financial well being by building best in class tools for ourselves and for our clients. We are able to construct better portfolios and then deliver better outcomes.
Tools alone however are not sufficient as their wrote about in my letter to Ceos Blackrock like all other other investors need Claire uniform and useful data on not only financial disclosure.
But increasingly more uniform and wide spread standard for sustainability disclosure, which will be vital to financial analysis and investment decision, making going forward as sustainability becomes increasingly material.
Two investment outcomes.
Blackrock is putting SG data and analytics at the heart of Aladdin and our risk and quantitative analysis team.
We are increasingly evaluating DSG risk with the same rigor as traditional measures such as credit where liquidity risk.
Client demand for sustainable products and solutions continue to accelerate.
As a global leader investment management. Our goal is to also be the global leader and sustainable investing by incorporating sustainability at the core and how we manage risk how we construct portfolios how we designed products and most importantly, how we engage with companies.
As we wrote a letter to clients yesterday, we will be making sustainability, the standard for investing including making sustainable investing more accessible to more of our investors.
We intend to double our SSG offerings to 150 funds over the next two years, including sustainable versions of our flagship Ishares product. So that clients have more choice for how they invest their money.
Client demand is also increasing for outsourcing Iot solutions as many are being asked to do so more with less.
The do more with less.
Blackrock generated $16 billion of owes CIO net inflows in 2019, representing a 10% organic growth, including winning the largest CIO mandate awarded the UK in recent years.
Outsourcing currently represents only two trillion of the 85 trillion dollars advantage assets globally and believe the market will increase by 50% over the next five years.
I've talked many times on these phone calls in the past about Blackrock being one of the largest long term growth opportunities for Blackrock.
Inline with our commitment to invest in operate their Blackrock entered into a memorial a memorandum of understanding last month.
Flora, establishing an asset management joint venture in China, which will enable us to provide more people with access to Blackrock investment capabilities.
As I said of the past purpose.
Is he is a long term profitability.
A company's prospect for growth is inextricably from how it manages sustainability.
And serves its full set of stakeholders.
And that is so true for Blackrock.
One of our grid as opportunities it to fulfill our purpose lies in a responsibility is the largest manager retired assets in the world.
We estimate that two thirds of the assets, we manage are related to People's retirement.
Including our one trillion dollar defied contribution business.
We are leveraging the full breadth of our capabilities and scale to benefit all our stakeholders, including clients.
Employees and stakeholders and shareholders.
Everything we do is rooted in the culture of focusing on the long term.
We are aggressively embracing change and investing to stay in front of the industry changes, but most importantly, we're investing to stay in front of our clients need so we could have them better prepared for their future.
The benefits of Blackrocks investments are evident.
Our consistent growth.
Over the last three years, we've generated nearly one trillion dollars of net organic inflows.
30 billion, 30% of revenue growth, 19% operating income growth.
And a 43% total return for our shareholders.
We entered 2020 better positioned than ever to serve our clients to deliver growth for our shareholders.
In the years to come.
I want to thank blackrocks employees for their commitment.
Two upholding our culture.
And living our purpose, which was critical to our success in 2019.
We remain focused on making sure that all our people stay true to our culture and our purpose and that is what differentiates Blackrock and the asset management industry.
With that let's open it up our questions.
Thank you at this time I would like to remind everyone in order to ask your question. Please press Star then the number one on your telephone keypad. If you do ask a question. Please take your follow all Pacific Speaker, setting and use your handset to avoid any potential feedback.
Please limit yourself to one question. If you have a follow up please reenter the queue, we'll pause for just a moment to compile the Q1 day roster.
Your first question comes from the line of Dan Fannon of Jefferies.
Thank you good morning.
Hey, Dan or is it.
As you think about 2020 can you talk about the outlook for fixed income.
2019, I think the start to your you talked about a rerisking within your client base you saw big inflows and now on the active side. The second half of the year. We've see modest outflows can you. So can you just kind of level set kind of what clients are doing your outlook for growth and how your positions.
Well I think probably the biggest macro change for fixed and beyond if interest rates go up or down is going to be the utilization of.
Fixed ats for active strategies.
As I said in my prepared remarks into Gary mentioned and I'll, let Rob talked about a little more.
We believe this is going to be a fundamental shift in how people use fixed income as an exposure and there to be using ats as that vehicle for active returns.
I believe this is going to be an overwhelming trend in the fixed income landscape as it's easier to navigate it's cheaper to navigate and importantly, you provide much greater flexibility with substantially less operational risks when you use cts versus the myriad of 1000.
As of bonds.
The specifics of the outflows in fixed income were very idiosyncratic with one or two clients we.
We are see some clients as I said replace the what we define as of Activestrategy into more F strategies and so.
It's hard to differentiate those two things as we build deeper broader dialogues about how to use EPS in a portfolio setting Rob you want to add more to that I.
I would just add in general.
I think theres, a common belief now that rates are going to be longer a lower for longer.
And with the amount of money that has been sitting on the sidelines cash clients cannot afford that anymore and gettings less than 1% turns so they have more than willing now to extend out of cash into fixed income and those are the flows that we are seeing.
And rather than come into individual bonds. The trend has been to use a more diversified portfolio.
That they can go into.
And.
I have been the beneficiary and because of Blackrocks position in fixed income we have been the beneficiary of those particular outflows, which we expect will continue into 2020, let me just add putting a whole year perspective, I can't respond to one quarter versus another.
But for the full year, we had $75 billion of active inflows in fixed income for the full year with $112 billion.
EPS and so when you put it on perspective, and then we had obviously are even more in index and other types and.
LDR and other types of strategy. So we had a very strong year in fixed income and and but we're going to we one of the.
One of the business propositions, we provide to our clients is having a holistic conversation about how when can use cts in their fixed income strategy and so the active ETF mix is kind of harder for you to decipher, but we are having broader deeper relationships with more.
Clients and fixed income than ever before.
Your next question comes from the line of Robert Lee of KBW.
Great Good morning, happy new year, everyone.
I just wanted to maybe going back to the front I know, it's only been like seven or eight months, but can you maybe just kind of give us a sense of how you're incorporating maybe monnet start to monetize that and then.
Maybe more broadly within a lot in the mean peaks that you want it to be kind of a language of portfolios. Steve. Thank you now have kind of full.
A full set of capabilities that you need and it's really just kind of execution or are there other aspects to the platform that you feel like you need to build out and add onto.
So Rob I think that.
Early stages are suggesting that everything we.
Anticipated about the front strategic.
Fit.
With the Latin.
As.
Was well thought through and ultimately is going to come true again remember Latin effectively began as as more of the premier risk analytics and portfolio analytics.
System designed primarily to liquid as you know we spent a bunch of time thinking about attempting to build what we've done on the liquid side for illiquid as we thought about doing the front and the reality is doing you front will accelerate that by a number of years for us.
And clients have been.
Barry.
Engaged with us in terms of thinking about getting and bringing their entire portfolio together on a single technology platform that allows them to basically bring the same expertise we've been doing for them for years on the liquid side to their liquid to get a complete view of the entire.
Whole portfolio that they have from a risk analytics perspective.
We've had a strong and growing pipeline with a number of live opportunities globally. We actually won our first joint client, which we announced earlier.
Earlier in the year and our expectation is that this will.
That as we bring this together over the next.
Six to 12 months it will continue to basically reinforce our long term growth of low to mid teens for the combined technology business I would just add.
With language of portfolios is becoming more and more real and we're committed to that.
This is why we believe we have to add sustainability sleeves to Aladdin and making sure that.
Our clients and our investors at Blackrock can look at as sustainability as one of the key investment risk going forward.
We did in factors and adding factor sleeves onto our Aladdin system I think the key that we've been doing is we're providing more content.
For the same value proposition.
And so what we continue to drive elevated content.
For the C same fee structure and as well that happens is as the clients grow we grow with them and that has been one of the key characteristics of how we designed aladdin growing with our clients needs, but as a clients now believe in more of the components of a lot and they are putting on more of their assets onto Aladdin.
And so then we grow with a lot and so the key characteristic it is for US the continue to innovate to stay in front to be more additive and I looking back now with our different acquisition I don't even know how we were able to operate without having those sleeves, though and making we've been spending years talking about the need.
With our investors to have more in liquids and now we have the technology to be helping them to this is why we believe it's additive not only for the Aladdin business is very additive for our all for our entire Alps business.
Your next question comes from the lineup Ken Worthington JP Morgan.
Good morning, Ken.
Hi, Good morning, Thank you for taking my question.
To follow up on that so your annual letter the focus on climate change. So as you did with Aladdin risk management are you planning or are there opportunities to leverage the expertise you're developing in sustainability to profit either by selling sustainable technology or SG.
Strategy solutions in other words can sustainability be a new Aladdin for Blackrock, rather than just another element of a lot.
So following up on Larry's last answer.
We certainly see huge opportunities.
And using the sustainability platform that we have four other profit centers for Blackrock and to add into our Aladdin value proposition. So what I could see coming forward would be creating new screens.
That others would be interested into screen for SG.
Creating specific model portfolios and models that many of our distribution networks would want to use potentially creating new indices in the market as people are looking for someone to.
To take the lead in creating an appropriate in the C.
To pinpoint specific areas of sustainability in the future and offer new products like specific.
Yes, G EPS and it's already working and that the sustainable EPS for ice shares with the fastest growing category in 2019, and the generated $4 billion of net inflows in the fourth quarter for total of 12 billion to the.
Year, So I could see also adding on new products, which many of our clients would look for so as Larry mentioned the value proposition of Aladdin would grow as we incorporate our platform into the Aladdin platform for other clients I will add to be able to use and.
That's just the beginning of some of the ideas we've come up with that.
That we can put forward in 2020, let me just add to that.
As I said yesterday Mycio letter in the firm's client letters.
We believe sustainability.
And the issues is going to have a very large investment impact.
For those investors and investing in.
Investing in a long illiquid product.
They have to sick now in 10 years. If there is evidence of climate change how that will be impacting that investment that has a 10 year horizon.
So more than ever before we have to drive analytics to help more and more clients more and more investors understand the interconnect is.
How climate change the potential impact of climate change how does that impact every single investment we have.
And because of the resources at Blackrock the scale of Blackrock I believe more than ever before.
If we execute on what we intend to do and.
We could you know that's our intention if we execute we have probably one of the broadest opportunities.
That we've ever had.
I believe.
We will be able to differentiators of more than any other from by providing these analytics, but using them on aladdin as using them as an investment tool.
This can differentiate us more than every any other organization and this is a call two arms at Blackrock. This is probably the biggest project that we've worked on in years.
That we have embraced the entire organization and I want to underline the entire organization to be more prepared to start focusing on the analytics.
So we have better understanding overlaying, let's say imaging technology on the physical impact than the world and different elements of rising.
Rising temperatures are rising water levels.
By having a better understanding how insurance companies are focusing on their insurance risk in looking at areas that have potential climate risk applications, whether that is from fire flooding.
Or other actions.
I do believe as they said in my letter the possible changes from climate risk have serious implications.
In other countries that have key issues and beyond any flooding issue. It could just be heat that's changing the output of their crops. What does that mean for that country's GDP should be should we owner of that country's debt. These are all really important things.
And that I don't believe the invested universe is prepared and it's the management.
Expectations at Blackrock that we become the leader.
And in designing better tools and helping people navigate this uncertain.
Sustainability future.
You are very passionate about it so.
Your next question comes from the line of Patrick Dammit of Autonomous research.
Good morning, Patrick Good morning, guys.
5% Gionee growth guide it sounds like this kind of a lot of adjustments, we should be making to 2019 to get to the base for that 5% growth could you kind of walk through.
Everything we should be backing out specifically.
Sure Patrick I mean, I think we've been we've tried to be pretty transparent on our definition of of noncore. So.
Just to for little perspective, I mean, if you look at the fourth quarter. The fourth quarter was up about $130 million, we talked about some of the seasonality in there, but there was about $50 million again, what I'd call noncore in that case, it was contingent purchase price value adjustments as well as foreign exchange re measurement that.
$50 million is probably about a 150 basis points of margin in the fourth quarter alone.
If you look at the full year.
We had about $164 million of what I recall noncore that included.
The plus million dollar for fund launch costs, that's already adjusted out of margin.
But it also included a little over 50 million of these purchase price fair value adjustments, which is actually as those go up it means that the businesses that we've acquired where we have contingent payments are doing better. So thats a good thing we had about 31 million of FX, Remeasurement, and there's probably a $15 million to $20 million not in.
Therefore, just deal fees related to things that we were doing during the year.
So thats kind of the number that we would basically think as kind of non core and so while we think about.
That 5%, we're trying to look at apples to apples.
And remember we also have a little bit of lift up from the year just generally because we'll have 12 months of the front relative to the eight months that we had in 2019.
Your next question comes from the line of Alex Blostein of Goldman Sachs.
Hi, good morning, everybody.
I wanted to turn discussion a little bit to pricing together I think at the end of last year, we talked a little bit about potential kind of strategic reinvestments and some of the effort as busy as you've done in the past could you comment on that a little bit I guess, which product categories. Do you guys. Thank you could target here and how is your kind of tech enabled.
Distribution, good how black our capture hurt you.
In product categories that I guess more sensitive to price moves.
So Alex it's really no different than the the the messaging we offered.
Youre excellent conference at the end of year.
I think that frankly.
Obviously, we'll react.
Two pricing in a very unserious segments of our business.
But the reality is most of our strategic pricing investments are really driven towards our.
Ishares business.
And I think as we said for the most park, we have a number of criteria we need to meet.
In terms of when we'll make those decisions, we need to see hi future growth.
But we need to basically see growth in particular, where clients are our price sensitive and if we see basically the combination of those two things, we will consider basically making pricing investments.
Since about 2016, we've we've we've invested approximately 1.5% to 2.5%.
I shows revenue annually.
And over that period of time issuers revenue has grown very substantially roughly by 25%.
And we think that in that respect as a look back that pricing investments have been good not only for clients.
But honestly also for our shareholders by virtue of the positive NPV that Weve delivered.
2019, our pricing investments were at the lower end of that range, but I would expect that we would move to a more normalized pricing.
Well of pricing investments.
During 2020.
And obviously thats, an important element of maintaining leadership within our within our ratios franchise. We know that those tend to be long term sticky assets and revenue streams, and we think about pricing investments no different than any other strategic investment.
In our company and we tend to budget them and take them into consideration as we think about.
Making sure that we're growing.
Or optimizing organic growth.
In the most efficient way possible.
There's no question that we think at the moment most of the pricing will be focused on the core.
And likely in certain elements of.
More of a core related fixed income categories, but importantly, I think most of the growth that we're seeing and the strategic segments that Rob Bina mentioned earlier.
As well as where the clients simply don't focus on price as a key decision of their of their buying decision in the precision instruments and importantly into liquidity areas. Those will those are higher fee today and there will not those will not be target of any of our pricing investments going forward.
Your final question comes from the line of Brian The Dol of Deutsche Bank.
Great. Thanks, very much for to hi, good morning, Thanks, very much me just to tune in one more time on the fixed income I shares.
In terms of the so far we're seeing quarter to date for January to date about 7 billion of fixed income last year fluid, but to Lewis and 2 billion a core and about 5 billion institutional so just to talk about that institutional trend, which seems to be continuing.
Is it more are you seeing it more from targeting specific allocations.
Or.
Our institutional managers substituting the EPS for bonds because of the titers.
Bid ask spreads that they're seeing in the.
Yes, and do you see that that latter element being a more powerful growth driver going forward.
Yes. So it's both so I think theres a lot of reallocation done and our forte because far scale and size is to capture those institutional flows.
Into our fixed income shares. So one is its allocations that are being done as people have their view to the value of equities in the value of bonds in their portfolio and then as you know the supply.
And the time it takes to find fixed income and build a diversified fixed income portfolio is quite difficult and can be quite expensive.
This is a very quick convenient less friction way more liquidity diversified way to get in so people have now substituted building those portfolios by simply going out and getting that portfolio on the exchange.
And it is winds up being cheaper and more effective. They are also using we're seeing a lot of model changes.
In the models that we have seen that are being used by institutions. There also targeting.
Yes, and then if they want to have any sort of precision any sort of view on factors or any sort of.
View, one particular areas of the market, they're able to achieve it much quicker and faster and fixed income. So we we saw that at the end of the year.
The market when down and now this is the time and most institutions sit down and talk about this strategy. We've seen that continue those close.
Into the beginning of the year. So I think we're very position well to attract these institutional large flows.
Ladies and gentlemen, we have reached the allotted time for questions Mr.. Thank you have any closing remarks.
Yes. Thank you operator, thank you everyone for joining our morning.
Your continued interest at Blackrock.
I'm proud of the progress we've made to lead the industry throughout 2019.
Hi, good promise, we will continue to invest we will continue to innovate in the years to come.
So we could be better what we do and better to meet our clients' needs and through that we will generate more growth.
And if we continue to fulfill our purpose of helping more and more people experienced financial well being we will be better positioned as an organization into your shareholders.
Have a great started the new year and enjoy the next decade. Thank you.
This concludes today's teleconference. You may now disconnect.