Q3 2020 BlackRock Inc Earnings Call
Good morning, My name is Maria and I'll be your conference facilitator today.
At this time I would like to welcome everyone to the Blackrock incorporated third quarter 2020 earnings teleconference.
Our hosts for todays call will be chairman and Chief Executive Officer, Laurence D. Fink Chief.
Chief Financial Officer, Gary S. Shedlin President.
President Robert S. Cookie dough and.
And General Counsel Christopher J. made.
All lines have been placed on mute to prevent any background noise.
After the speakers 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 press the pound key.
Thank you Mr. Meade you may begin your conference.
Good morning, everyone I'm, Chris Meade, the general counsel bark work.
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 Blackrocks actual results may of course differ from these statements.
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 and good morning, everyone. It's my pleasure to present results for the third quarter of 2020, and I hope everyone and their families are remaining safe and healthy in the current environment.
Before I turn it over to Larry to offer his comments I'll review, our financial performance and business results well or.
Well our earnings release discloses, both GAAP and as adjusted financial results I will be focusing primarily on our as adjusted results.
Blackrock steadfast focus on serving clients employees shareholders and the communities in which we operate continued in the third quarter our.
Our strong performance during the quarter and throughout the year amidst unprecedented market uncertainty is a testament to the investments we have made over time to build a diverse and resilient business model the strength of our Blackrock brand and the commitment of our amazing employees to always deliver for clients.
Our broad based platform peering diverse investment capabilities with best in class technology and rigorous risk management has now generated almost $400 billion of total net inflows over the last 12 months, representing 7% organic base fee growth.
Our voices resonating with clients more than ever and our ability to address their current challenges to whole portfolio solutions no matter. The market environment is a direct result of the strategic vision, we embraced well over a decade ago and grounded in the strength of our one Blackrock culture.
Blackrock generated $129 billion of total net inflows in the third quarter, representing 7% annualized organic asset growth and 9% annualized organic base fee growth.
As market strengthened during the third quarter Blackrock leveraged the entirety of its global platform to help clients meet long term needs not only did we see positive flows across all asset classes investment styles and regions for the quarter. We've also generated positive flows over the last 12 months across each product type or.
Active platform evidencing the strength of our alpha generating capabilities.
Record third quarter revenue of $4.4 billion increased 18% year over year, while operating income of $1.8 billion rose, 17% and reflected $83 million of costs associated with a successful closed end fund launch in late September.
Record earnings per share up $9.22 was up 29% compared to a year ago also.
Also reflecting higher non operating income and a lower effective tax rate and diluted share count in the current quarter.
Non operating results for the quarter included $116 million of net investment income driven primarily by mark to market gains on our seed and co investment capital, but also reflected the incremental interest expense associated with our second quarter debt issuance to pre refinance our may 2021 debt maturity.
Our EPS adjusted tax rate for the third quarter was approximately 23%, which we estimate is a reasonable projected tax run rate for the fourth quarter of 2020.
Third quarter base fees of $3.2 billion were up 8% year over year, primarily driven by 6% organic asset growth and the positive impact of market beta and foreign exchange movements on average at U.M., partially offset by strategic pricing changes to certain products.
Sequentially base fees were up 9% from the second quarter, reflecting similar dynamics, but also the positive impact of one additional day in the quarter and the negative impact of lower securities lending revenue, which declined $57 million from record second quarter levels as cash spreads tightened in response to the feds intervention in money markets.
The impact of lower securities lending revenue during the quarter was the primary reason, we saw a sequential decline of 0.2 basis points in our annualized effective feed rate. Despite the positive impact of strong organic base fee growth.
Record quarterly performance fees of $532 million increased significantly on a year over year and sequential basis, reflecting strong overall performance from our single strategy hedge fund platform.
A significant portion of the year over year increase in performance fees was attributable to a single hedge fund that locks annually in the third quarter and once again delivered exceptional performance over the last 12 months.
Quarterly technology services revenue increased 9% year over year, while recent growth has been impacted by extended sales and contracting cycles in the current environment. We remain committed to low to mid teens growth in technology services revenue over the long term.
Demand for integrated and resilient investment management technology to support effective risk management and operational efficiency has meaningfully accelerated in the complex remote work and bar brought on by the COVID-19 pandemic.
Advisory and other revenue of $42 million was down $20 million year over year.
Primarily reflecting the absence of Pennymac equity method earnings following the charitable contribution of our remaining equity stake in the first quarter.
Total expense for the third quarter was up 19% year over year, primarily driven by higher compensation and GNS expense and.
Employee compensation and benefit expense increased 27% from a year ago, driven in part by higher incentive compensation associated with higher performance fees and operating income.
And Gionee expense was up $76 million year over year, reflecting $80 million of closed end fund launch costs associated with the successful close of the 2 billion dollar Blackrock capital allocation Trust.
Recall that we exclude the impact of these product launch costs when reporting our as adjusted operating margin.
The increase in year over year DNA expense also reflected higher technology expense, including certain costs related to cope in 19, and lower marketing and promotional expense, which is where we categorize our TNT expenditures.
Core DNA expense for the third quarter, which among other items excludes product launch costs and certain incremental costs associated with COVID-19 was essentially flat with the second quarter and we would continue to expect core GNS expense for the year to be generally in line with the estimates we provided in July.
Our third quarter EPS adjusted operating margin of 47% was up 100 basis points from a year ago benefiting from significant performance fees in the current quarter.
We remain marginal where in the current environment and committed to optimizing organic growth in the most efficient way possible. Our long term strategic growth plan continues to focus on accelerating growth and a lot I shares and private markets keeping alpha at the heart of Blackrock delivering whole portfolio solutions and becoming the global leader.
Okay and sustainable investing our.
Our capital management strategy remains first to invest in our business and then to return excess cash to shareholders through a combination of dividends and share repurchases has it.
As a reminder, in the second quarter, we completed our targeted level of share repurchases for 2020, including the repurchase of $1.1 billion of common shares from PNC at $415 per share while.
While we did not repurchase any shares of common stock in the third quarter, we intend to be opportunistic should attractive relative valuation opportunities arise during the remainder of the year.
As you will hear more from Larry Blackrock has never been better positioned to deliver for clients as we leverage our unique insights guidance and solutions to help clients meet long term investment needs.
Third quarter organic asset growth of $129 billion reflected the diversity of our platform with strong flows across the franchise, especially in ishares active strategies and cash.
Hi shares net inflows of $41 billion, representing 8% annualized organic asset growth and 7% organic base fee growth reflected continued momentum in fixed income and sustainable EPS, two strategic product categories, where we have leading market share and inflows into higher fee precision exposures as institutional buyers Youtube.
Lies these highly liquid trading instruments to express tactical market views.
Retail net inflows of $20 billion, representing 11% annualized organic asset growth and 12% annualized organic base fee growth were positive in both the us and internationally and across all major asset classes inflow.
Inflows reflected broad based strength in active fixed income equity liquid alternatives and multi asset funds as previously mentioned retail multi asset flows also included the successful close of the $2 billion Blackrock capital allocation Trust closed end fund made possible by the top decile performance of our global allocation and.
17.
Blackrocks institutional franchise generated approximately $37 billion of net inflows in the third quarter, reflecting demand for our top performing active strategies and industry, leading index in leading index capabilities and renewed client interest in fixed income.
Institutional active net inflows of $30 billion. We're also broad based across all product categories and were led by $12 billion of active fixed income flows reflecting strong activity among insurance clients multi asset net inflows of $11 billion were driven by continued growth in our lifepath target date franchise and OCI.
So clients wins or Blackrocks global insights and unique ability to provide whole portfolio solutions enable us to be the partner of choice to clients.
Across our retail and institutional client segments, we generated a record $10 billion of active equity net inflows, representing our sixth consecutive quarter of positive flows in this product category.
Flows were led by top performing franchises in technology Health Sciences, and us growth equities as well as quantitative strategies.
We remain well positioned for future growth in our active businesses with over 80% of fundamental active equity scientific active equity and taxable fixed income assets performing above their respective benchmarks are pure medians for the trailing five year period.
Overall demand for alternatives also continued with nearly $5 billion of net inflows into illiquid and liquid alternative strategies during the third quarter driven by infrastructure real estate and liquid alternatives momentum in fund raising remains strong as we have approximately $23 billion of committed capital to deploy for instance.
Additional clients in a variety of alternative strategies, representing a significant source of future base and performance fees.
Blackrocks cash management platform continued to grow even as the broader industry saw outflows generating another $28 billion of net inflows in the third quarter in September as gross yields fell below relevant thresholds. We did begin to waive fees on select government funds while.
While there was minimal impact of third quarter base fees, given our proactive management of portfolios. During the year, we would expect fee waivers to accelerate during the fourth quarter and into 2021.
Finally third quarter advisory net inflows of $3 billion were primarily linked to asset purchases managed by our financial markets Advisory group.
Recall that revenue linked to these assignments is primarily reflected in the advisory and other revenue line item of our income statement.
The continued strength of Blackrocks results once again validates the resilience of our globally integrated asset management and technology business model, which allows us to consistently and responsibly invest for the long term evolve the head of client needs and serve all of our stakeholders no matter the market environment with.
With that I'll turn it over to Larry.
Thanks, Gary Good morning, everyone and thank you for joining the call.
Help you and all your loved ones are staying healthy and safe.
Sure.
We are reporting earnings this quarter from Blackrocks, New York Office once again.
I've been back in the office about three days a week per week since last month and has been very productive and incredibly energizing as we are working diligently to help more and more clients and more and more people. Both in this environment and certainly over the long run.
As investors around the world continue to deal with the pandemic in the uncertainty about the future.
Blackrock is doing everything we can to help clients navigate the challenges that come with it.
Clients are looking for strategic insights on the economy and markets, including the impact of the inflationary pressures and sustainability risk and opportunity across their entire portfolios.
The one guidance on how to navigate markets rotation and volatility they need.
They need solutions that make their portfolios more resilient for their long term needs in their long term aspirations.
Blackrock has better positioned than ever before to deliver a comprehensive global investment platform across.
Across active and index.
Across asset classes and geographies and across all exposures.
All of this is unified by one culture.
And unified by one technology platform.
Paul to serve our clients better.
We have purposely built to our business model over the last 32 years, both organically and through historic transformational acquisitions to be centered around client needs.
This positioning.
Coupled with our strong fiduciary culture has differentiated blackrock in the.
In the asset management industry.
Clients are entrusting us with a greater share of their assets and developing deeper partnerships with blackrock across our whole portfolios.
And this is being reflected in our results.
We generated $129 billion of total net inflows in the third quarter, representing a 7% organic asset growth and 9% organic base fee growth.
Our strong organic growth underscores the benefit of the diversity of our platform.
We saw positive inflows across all client types, all asset classes, all investment styles and across all regions.
We delivered 18% revenue, 17% operating income and 29% earnings growth while at the same time, expanding our as adjusted operating margin year over year.
Consecutive quarters of strong growth through the pandemic are a testament to the flexibility.
And our resilience to our business model.
Our ability to aggressively embraced change to evolve to meet our clients' needs continues today and drives our strategy for long term growth.
And I am more convinced than ever before that our ability to meet the challenges of our clients will continue to drive future growth for Blackrock.
The global pandemic remains a key factor for investors over the near and long term, while many individuals and companies are going through a painful period of readjustment as we enter the nine month uncovered 19.
Economic activity is beginning to restart around the world as fee tallies at hospitalization rates for infection are dropping.
Despite renewed localized lockdowns to contain the virus clusters.
The unprecedented joint monetary fiscal policy response by many governments, including the US is providing a bridge for.
For disrupted income streams and it has so far surprised on the upside.
This improving macro backdrop as fueled an equity market rally over the past few months in large part due to the Mega cap technology companies.
Investors need to navigate growing risk in the coming months.
However, including the different speeds of economic restart across countries, a lagging stimulus, particularly in the us and the upcoming US election next month, which could have significant implications on policy and on markets.
This pandemic is also accelerating key structural trends, including the fragmentation of the global economy.
And what I'd been repeatedly talking about the silent crisis of retirement.
We continue to use a full breadth of our capabilities to meet the needs of our diverse client base, including pensions insurers and other institutions around the world as well as wealth managers, who serve millions of individuals the strength of Blackrocks, Brad enables us to participate.
Able to participate in many of the critical conversations impacting our industry and society.
We are listening to our clients and bringing their voices to these conversations.
Nowhere is this more evident than in our sustainability strategy and ambitions.
Investors are increasingly recognizing that sustainability considerations ours are central to investing and whole portfolio construction and I firmly believe this move towards the USG is a tonic shift that will be playing up for the years to come.
Blackrock is accelerating our efforts to ensure we remain uniquely positioned to serve clients with research.
Investment solutions and technology.
We have grown at a sustainable solutions to more than 125, I shares EPS and over 65 dedicated active strategies and we are.
And we're now working on building new technology capabilities to help Blackrock and our clients quantify and measure factors such as the impact of climate change on companies and on our entire portfolios.
Through our financial markets Advisory group, we are leveraging our capital markets expertise, our industry, leading analytics and technology and fiduciary business model to serve governments.
Around the world and the people they serve.
We take on these mandates to fulfill our purpose of helping more and more people experienced financial well being and we approached the great responsibility that comes with the utmost fiduciary focus.
And professionalism.
We're seeing clients increasingly look for alpha in their portfolios in Blackrocks Hot performing two trillion dollars in AUM and active management platform is well positioned to deliver when they need it most.
I'm incredibly proud of the Alpha our portfolio management teams across Blackrock are generating for our clients our.
Our ability to deliver differentiated return as a result of our long term investment to build an active platform global reach interconnectivity across teams and across regions.
An unparallel access for our teams to data and insights.
Integrated technology and risk management.
And a scalable processes that enable them to do their job.
And to deliver more consistent outcomes.
Over the long term.
Our active investment teams value the benefit of Blackrocks platform and this is translating into some of the strongest performance we've seen across the platform.
80% of our fundamental active equity is an 87% of our taxable fixed income assets above benchmark or peer medium for the three year period and this is driving flows across our active business.
Our teams expertise is now being recognized for example, our health Science strategy was recently ranked number one for risk adjusted returns on a more than 9000 us equity mutual funds that habit, a 15 year track record or more.
We generated $47 billion of active inflows in the third quarter.
Causative across equities positive across fixed income and multi asset strategies and positive across all our alternatives strategies.
This includes a record 10 billion of net inflows and active equity strategies and the successful launch of the Blackrock capital allocation Trust, which raised $2 billion. The second largest closed end fund launch in our history and the industry since 2013.
In the current low interest rate environment clients are looking for yield in their portfolios. The industry saw strong client demand for fixed income strategy in the third quarter and blackrocks diverse and comprehensive fixed income platform generated $70 billion of inflows across active and indexed.
Energies.
We also saw continued demand for our cash management strategies and generated $28 billion in net inflows, despite the low rate environment and even as the industry experienced redemptions in the quarter.
Hi shows net inflows of $41 billion were driven by client demand across multiple product areas.
Fixed income in sustainable EPS led the way with strong flows in core equities and precision exposures the strong.
The strong flows we are seeing across multiple product segments with Ishares globally are result of the strategic investments we made over time to support the adaptation of EPS and the evolution of their many uses and to build the largest the most diverse and the most liquid platform globally.
We saw record momentum around fixed income EPS, which continue to attract new users.
I sure as fixed income EPS generated $20 billion of net inflows in the third quarter and we have captured nearly 40% of industry flows year to date.
As we said before.
Fixed income EPS or one of the fast growing categories and asset management.
They cost one trillion dollars in assets last summer.
And now over 1.4 trillion dollars and we think we think can be a multi trillion dollar market in that.
In the years ahead.
Sure as market leadership, our liquidity and performance under the stress conditions earlier. This year has meant that clients of all types globally EPS.
Then turning to Ishares at greater scale.
Our leadership as a result of our long long standing focus on modernizing the bond market and our long term strategic commitment to the value to the transparency to the liquidity and performance that I hear is fixing bts can bring to clients.
Demand for sustainable products is accelerating as.
As more investors it.
Embed SG considerations in their portfolios.
Blackrock generated another $8 billion inflows and sustainable Ishares EPS in the third quarter and 25 billion year to date more than two times the entirety.
All of 2019.
We also believe its sustainable indexing is helping to expand the market for sustainability overall by expanding access to more clients, who want to invest in this way.
They focus on sustainability can help make portfolio is more resilient and bill.
And Blackrock remains committed to being the leader in this high growth strategic segment, and making sustainable investing accessible to more people worldwide.
In addition to I shares we are also innovating the tax efficient product designs across our platform the movement towards fee based advice and client needs for tax opposite optimization in their portfolios creates significant opportunity for Blackrock and we are investing heavily in both EPS.
And Seth separately managed accounts or Esa maze, we're the second largest provider retail as amaze and we recently launched our tax managed.
Equity index as of May strategy in the wire and IRA I, our HCV channels.
This is an important addition to our 126 billion as of May business that has been strong growth over the past several years, particularly in fixed income, where we are a market leader.
We are focused on expanding our capabilities in innovating both solutions and portfolio enablement technology to meet the needs of all our clients all our financial advisors and also their own clients.
Clients will increasingly need alternative returns sources, such as private market for portfolio diversification and.
And resilience, particularly in down markets alternative they're playing a critical role in holistic portfolio construction and we have purposely invested overtime to build a comprehensive a diversified platform across infrastructure private credit real estate private equity solutions hedge funds and alternative solutions to meet client demand for this asset class.
Yes.
The benefits of these investments are very clear.
We generated 5 billion, a net inflows across liquid and illiquid alternative strategies in the third quarter and we deployed another $2 billion of client capital as we seek out opportunities for our clients and as clients increase their alternative allocation within their portfolios. They are looking for a more sophisticated whole portfolio view of Europe.
Higher asset base.
One of the biggest structural trends within our industry is a growing need for robust enterprise operating and risk management technology.
The pandemic is accelerating the shift from fragmented technology system to a unified technology platforms like Aladdin that can support the increased need for risk transparency across asset classes.
And the construction of more resilient portfolios.
It is also highlighting the importance of a better understanding sustainability risks and opportunities in portfolios.
Blackrock has expanding Aladdin CSG data analytics, and we recently released over 1503rd party USG metrics to OLED and clients.
We're developing new OLED products as well to serve a growing demand and need for better tools to manage client risk and investments and we're very excited to having early conversations with our clients about Aladdin climate.
Blackrock has a global company with.
Employees in over 30 countries and.
And clients in more than 100 countries.
I've spoken before about the importance of being immersed in a local markets around the world. So we can respond to the unique needs and objective of these clients in their home market.
And effectively delivering all of Blackrocks capabilities we.
We are seeing the benefits of that approach.
With clients in Europe, and Asia, Entrusting us with more than $57 billion, a long term net inflows in the third quarter, representing nearly half of our total organic growth. During this period and we continue to use our expertise to improve issues such as an investor access and retirement for more people around the world.
In Brazil, we have worked with local regulators in exchanges across list EPS on a local exchange, which will reduce barriers for Brazilians to access global markets with rates at an all time historical low of 2%. The current backdrop has never been more favorable for Brazilians to diversify their holdings and blue.
Sacroc is well positioned to capture that opportunity.
Clients are increasingly interested in emerging markets as long term investments, including China, which is the world's second largest economy in a key area for investment return opportunities and portfolio diversification.
Many of our clients expect us to both understand and invest in this market on their behalf because it is an important component in achieving their long term financial goals.
Having a local presence in China will help us better serve clients globally. We also believe that we could apply our global expertise in China as the country seeks to reform and opened its financial markets and address its own retirement needs.
During the quarter, we received regulatory approval that allows us to take the next steps towards forming a wholly own fund management company and a wealth management company joint venture.
To anticipate what client needs and evolve our platform to meet these changing needs Blackrock has continuously we're.
Working to ensure our senior most leaders represent the breadth of our business the depth of our talent and diversity of our clients we serve.
We recently added three new members to our global Executive Committee I'm more excited about our our Blackrock organization, our people and the strength of our leadership bench than at any time in our 32 year history.
I continue to be incredibly proud of our 16000 employees.
Who partner with clients they uphold our culture.
They live our purpose each and every day.
Together, we have helped a lot of people navigate this crisis, we're helping people invest for their future.
And we're helping government gets their economies back on track.
Our employees are earning our clients' trust because of the high standards we hold.
Our selves too.
We are Trudeau, who we are we are living with purpose.
We have a voice, it's resonating with more clients than ever before.
I see a tremendous opportunity ahead, and Blackrock remains focused on the long term.
Aggressively embracing change.
And evolving so we get best serve our clients over time.
I look forward to extending on our ambitious plans in the year ahead with that let's open it up for questions.
Thank you at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
If you do ask a question. Please take your phone office speaker setting and use your handset to avoid any potential feedback.
Please limit yourselves to one question if you have a follow up please reenter the queue.
We'll pause for just a moment to compile the Q and a roster.
Right.
Your first question comes from Mike Carrier of Bank of America.
Hello, Mike.
Hi, Larry Good morning, everyone of you all and thanks for the question.
There is strength in active flows is better than expected and better than what you were seeing industry wide.
Curious what are you seeing as maybe the drivers specific blackrock, whether its client product specific and then based on conversation.
Do you see more follow through for this demand going forward. Thanks, Let me.
Let me, let me have Rob answer that question I may do a color backdrop after that so Mike I think that you would agree that in the environment that we are experiencing this year.
Every single bit of Alpha generation is critical to our clients.
I think Larry said it well, we're very proud of the strong active performance that we have across all asset classes and I.
And I think this is a result of our investments to build a platform and.
And this platform now has global reach.
The interconnectivity across the teams and regions.
Unparalleled access to data and insights through the creation of the Blackrock investment Institute, we have now fully integrated our technology and risk management and we have very scalable processes. So this platform is really enabling our teams.
I would say our strong teams to deliver much more consistent outcomes over the long term for our clients when they need it the most and if we generate alpha and we have that performance than the assets will come in.
Because the clients Needham.
Anything to add Larry let me just add another thing.
Obviously performance matters and I believe the most important characteristic of our active inflows both in fixed income and equities is a function of our whole portfolio approach has more.
As more and more retail moves to two.
To fee based.
It is much more of a solution orientation is much more about a whole portfolio approach.
Okay.
And under coal that now with the with the connection with the financial advisor.
And there are ways to their clients is now done remotely the need for investment technology like Aladdin for wealth is even more important and so having blackrock play a role in building deeper relationships between the advisor and their clients, providing better risk analytics. It allows us to have.
Now that our models our products in front of that too and so the combination performance, but also over a 15 year horizon of building. This enterprise to be that Connectiveness, and then using that enterprise and all that the culture of interconnect of this among portfolio teams I believe its driver.
Better alpha and driving a better connectivity with that is leading towards more can.
Consistent inflows across active and index type of strategies.
Operator, you can go to the next question.
Our next question comes from the line of Craig Siegenthaler of Credit Suisse.
Hey, Craig.
Hey, good morning, Larry.
I wanted to circle back on the strong flows across all client segments in fixed income.
We know part of this is driven by overall risk aversion and also having rebalancing, but just given where rates are today.
I think some of this strong fixed income migration is eventually diverted into other areas like alternatives and equities and then within fixed income maybe into more higher yielding segments like structure credit loans and high yield.
So Craig even in the face of sustained low rates clients are going to need fixed income in their portfolios to meet their long term goals to match their liabilities and I think in a period like this what you might find this FPO stretching for yield.
And we try to make sure that they're not overextending and taking too much risk for that yield but I.
But I think clearly what you will see is a migration from low yielding government securities to corporates and high yield which took place so private credit, which is taking place and for alternatives, which have become less oil.
Turn it is to have a stronger and larger percentage of a clients portfolio.
So that is why as Larry has mentioned that it's important to have the.
The breadth of products that we have across fixed income so that people can migrate to capture that higher yield and it extends from cash to short duration fixed income to illiquid alternative allocations and it really is the full spectrum.
It also will move into multi asset flows and that's why our business in creating multi asset products are helping those clients to capture that additional yield which is so critical right now without taking too much risk.
I would just add.
There is no question, Craig government bonds are going to play less and less of a role for.
Most retirement portfolios they still play a big role in bank portfolios and other regulated institutions, but.
Questionably.
You would own government bonds.
For liquidity purposes.
Purposes, you certainly would not use government bonds for income purposes, and so you are going to have a migration across different asset classes.
Different asset categories and so.
As Rob suggested I believe our comprehensive platform within fixed income of having a strong.
Purposeful ETF platform in fixed income, which we've been advocating since 2012.
Hey, historical strong fixed income.
Organization since the beginnings of our firm is this a lot.
Is this allowed us to have a differentiation in flows and as I said I certainly believe fixing can be EPS are going to play a bigger and larger component over the entire fixed income market and with our positioning and with our constant educating clients worldwide.
And how can they use fixed income bts for their portfolio composition needs in fixed income is going to continue to drive our I would say above industry trends in fixed income.
Thank you our next question.
Our next question comes from the line of Brian The Dallas Deutsche Bank.
Great. Thanks, Good morning, Brian.
Good morning.
Hey, Larry just to focus on on your comments on sustainable investing a little bit more deeply.
Obviously.
A lot of leadership here with a couple of hundred 25 billion in you and you cited the Ishares franchise it gets over $50 billion.
Even if I'm not mistaken Weve 8 billion inflows if could you possibly update us on what you.
Think fluids were.
Stena bulk product outside of the shares in the quarter and then as you I think the goal is to get to one trillion eventually by the end of the decade, maybe just.
Maybe just thoughts on how active management can play a role in your product.
Lineup. In addition to two pesticide, maybe just walk through on the weaving that youll see into the technology side. If you can comment on that on the OLED and Aladdin for wealth as well yes.
Yes, great question.
But.
As I said in my 2020, CEO letter, we believe climate risk is investment risks.
And I do believe you know what I wrote the letter obviously the pin debit was not top of mind at all.
It was some virus that was in China that we didnt really understand as much and obviously no change the course of the world.
The pandemic in many cases.
Created.
A.
An existential health risk.
And I do believe at the same time, we are seeing more and more climate change impact and that is an ex existential risk.
So I think what we are witnessing and what we're hearing from clients.
Cove. It has made climate change more top of mind.
And we are having more more dialogues worldwide than ever before and more dialogue here, even in the United States in the United States, we have to operate as a fiduciary in the in the law of this land.
Our labor Department has required in all investments as a fiduciary.
To ensure that everything you do is about maximization to return.
So as we need to continue to drive technology and information to show how climate change is investment risk and this is why we are so focused on a lot of nizing data.
For climate change.
And as I said earlier, we are creating Aladdin climate as one of the.
Components of Aladdin and we hope to be rolling that out we're working with many different sustainable data providers to put that on Aladdin and so as a result of that we what we need to as a fiduciary to show why climate risk for food for Orissa accounts why.
Orissa accounts why it is investment risk, but we are seeing across the board whether its individual investors whether it is family offices.
That they don't need as much data or documentation that they are they believe that climate change is invest.
Investment risk I would say in Europe more than ever before if you do not have a climate.
Overlay on everything you do you will not see any any real flows. It is now a requirement in Europe that have a sustainable lens, if you're investing across all all those countries of Europe and now thats beginning to even have conversations in Asia and most recently we.
Had conversations in China about the role of climate change on long term retirement assets and how should they play it so getting into some of the details. We currently have about a $127 billion.
Sustainable products, we are reaffirming the trillion dollars, we believe that is.
Yes that will be able to reach that.
As you framed the question, obviously, we talked much about the index related or the or the f. related sustainable products. I did note that we have about 67 different active strategies related to sustainability, but let's be clear to it is our ambition.
In our fundamental equities it is our ambition and our fundamental fixed income to have sustainability as an overlay in everything we do and we.
And we don't we're not there yet and we said in our client letter that we'll be getting there within a year and we believe we'll be we'll meet that objective. So we do believe that.
That we can provide that information to our clients who are seeking it out and we are working with all clients. Let me be clear some clients still do not believe in climate change and we're working with them. We're trying to show them. Why we believe it is bit of a client is still seeking to invest in index. It happens to have hydrocarbons, we as if we do.
This year, we're going to continue to invest for them on their behalf. It is their money and not our money.
Our next question comes from the line of Michael Cyprys of Morgan Stanley.
Hi, Michael.
Hey, Larry Good morning, Thanks for taking the question.
Just on consolidation it seems to be picking up across the industry and if that does continue and if we see larger mergers and mergers across the value chain I guess, how do you think this could impact the competitive dynamics and industry structure and in what scenario would blackrock participate and what could make sense for Blackrock here.
Well since my CFO as an investment banker, who is responsible for lot of historical M&A in the industry, let's have Gary respondent.
Thank you Larry transformed investment bank.
So Michael Thanks for thanks for the question, maybe just a few observations on what we're seeing today I think I would characterize.
Tries that there is very little surprise from our standpoint by the recent acceleration and consolidation in the industry. I mean, if you think a couple of the trends that are out there. We're seeing obviously revenue and expense pressure is increasing and that was even before the pandemic.
We've talked about the importance of multi asset investment capabilities and how critical they are to addressing whole portfolio solutions.
We've talked about technology expertise, whether to support operational infrastructure risk management portfolio construction or even digital distribution that is really becoming a need to have and not a nice to have and whether or not you are a global forum or not you need to have global insights to be able to give your clients.
You know the best advice.
If you think about those last three trends in particular, Blackrock really identified those last three trends well over a decade ago and.
And we began the evolution to really purposely built the firm to what it is today.
In many cases see today's consolidation activity as as a validation of the strength of the business model that we have.
We've created and.
And so while we see the industry continue to consolidate really in the hopes of creating what we already have think about global reach scale best in class technology and risk management diverse investment capabilities from passive to active the ability to to build whole whole portfolio solutions aren't.
Our intention is really to maintain our focus on our existing strategy and effectively to just be a beacon of stability and in a world that is going to be ever consolidating and this consolidation accelerates I think we feel more strongly than ever that we are going to benefit from the disruption that it's going to create and will likely to be.
Continued to gain share.
Scale integrations are not easy, especially when todays deals are really driven by a need to cut costs quickly, which means you have to combine disparate operating culture is you have to rationalize investment teams with different processes and you have to take advantage of distribution relationships that overlay.
And in many cases are not unique across across the industry. So from our standpoint.
Our M&A strategy has not changed we we will consider.
Inorganic opportunities only if they are accretive to our long term organic growth we are not look.
Looking to take advantage of cost efficiencies to drive EPS accretion we.
We are much more focused on thinking about tactical M&A that will broaden our technology capabilities expand our global distribution reach and potentially scale certain parts of our private markets franchise, but really are much less focused on the pursuit of traditional investment management consolidation and I think as as many.
Have you seen we're also looking to more aggressively use our balance sheet to take minority investments, where you know control deals may not make sense and I think we've had great success in things like Envestnet.
And I capital and scalable capital, which are much more focused on digital distribution and really trying to utilize technology for flow as opposed to necessarily technology to drive revenue growth of the technology line itself.
Very good I like that would be good.
Your next question comes from the line of Alex Blostein of Goldman Sachs.
Good morning, Alex.
Great. Good morning, everybody. Thanks for taking the question.
I wanted to ask you guys around some of the operational lessons learned.
From the cobot environment for the last call it six months or so so on the one hand, it sounds like opportunities for Aladdin could accelerate.
Given the challenges faced by the financial adviser community.
But also I was curious if you guys are rethinking some of your own Jna footprint and how that could sort of evolve wants the world normalizes. Thanks.
So thanks for the question Alex look I think the biggest lesson learned obviously was that.
We were able to very quickly migrate from 16000 people and you know 60 offices to 16000 people and 16000 offices and.
And I think obviously our commitment to.
To a single technology.
Operating system.
Was.
Absolutely crucial to our ability to migrate that way.
Obviously, we had some early bumps in terms of just trying to get people to technology, they necessarily due to tone, but I think we we transitioned seamlessly into that environment and I think frankly, the performance whether financially or operationally.
Over the last six plus months is certainly evidence for that I think that as it relates to the broader pandemic I mean, I think that we have seen frankly and acceleration in almost every single strategic trend that we.
That we were guiding the business towards pre pandemic.
Most pandemic.
And so I think the pandemic has really accelerated our growth opportunities and everything that we were focused on before if you think about it whether it was EPS and the performance of fixed income you test through the pandemic, we talked about technology.
Larry mentioned, how important it is going to be to get private assets into whole portfolio solutions, we're investing there.
Whole portfolio solutions more broadly sustainability, which we kicked off before the pandemic was a reality has obviously been accelerating incredibly strongly so I think in many cases, the pandemic has really driven for us.
Many more of the themes that we were pointing the business towards and we feel will will can will clearly accelerate growth as a result.
As it as it relates to getting back to the office I'll, let Larry jump back in there I mean, I think that we are doing the call from the New York Office. Today. There is no question that employee wellbeing remains our priority and we will be following all the official guidance and putting the health and safety of our employees first always as we look to return to the office.
And we are continuing to operate on the split operations basis, but look we're still operating with only about 6% to 7% of our employees back in the office and I think over well I think we can get through that today operationally I think over time I think the culture of Blackrock is still in an office type.
Type of culture, where innovation has always been driven by having people working together.
And I think longer term work in the hope that we get back there as quickly as we can.
I would just add more of a societal while there are many blessings that we're learning from.
The terrific Ness of the pandemic and the health concerns.
I don't think any of us thought we could operate as efficiently remotely.
As Gary said, no we're operating in 16000 offices.
I think we that was one of the great fears that could we actually accomplish that and can we have the operational efficiencies.
Working remotely and by and large many large companies, including Blackrock have learned that yes, we can work remotely without much in terms of degradation of operation efficiencies we.
We still have some of the cultural issues that I'm, particularly worried about but.
But let's be clear I don't.
I don't believe we will have 100% back in office.
Even when we have a 100 per cent solutions related to the to the to the virus.
I believe this will become a blessing I believe.
I believe this is going to be considered a benefit.
If we could have rotate 30%, 40% of our workforce said to get work remotely at periods of time during the year.
Can you imagine how how each city will have reduced congestion.
Think about what that would do the environment I think about if your average employee commutes on average an hour each way.
We free up of for a portion of the year two hours of the day.
I think it's been that two hours doing more work than its been two hours.
Proving their health by exercising the spend two hours more and building a deeper stronger more resilient family.
And so there are many blessings through this and I think we're all going to be adapting and are doing this and and I do believe society will be better off to these processes and so this is what we are talking about related to Blackrock, we have to stay in front of our clients needs. We have to adapt and I think one of the great adaptations.
We're going to learn from the horrific this a cobot is working remotely.
And having a but having still some core.
A core part of your enterprise working at office and I think this is all going to be a real positive lesson and it will create another dynamism for all our economies.
And so I look at this as a as a great learning experience.
We are benefiting from this and our clients can benefit from this also.
Your next question comes.
Hum.
Dan Fannon of Jefferies.
Thanks, Good morning.
Good morning.
A question on flows the 50% of flows coming from Europe and Asia.
I'm curious if that's a record and whether that was reflective of a surge in gross sales lower redemptions or any kind of outsized mandate wins and then just thinking about the momentum in that business. How we should think about the contribution from these regions going forward.
Dan Great question, you know, obviously, one quarter is always hard to to.
To basically.
Make any significant trends.
And so I think we always have to think about this more broadly I mean, obviously, we're seeing.
Institutional wealth clients facing a variety of complex challenges. We're seeing pensions are underfunded were are seeing insurance insurers dealing with obviously sharp increases in payouts and declining asset values were seeing financial advisors adapt to a new.
New ways of interacting with our clients and obviously individuals who are more retire more dependent on retirement savings, which obviously are more challenging.
Clients globally are out are reacting to all of those things and.
And they are allocating to a variety of different countries and sectors and growth areas, whether its us tech or underappreciated areas like emerging markets.
And everybody is is considering their own specific challenges at one point in time, but I think the more broad point for us is that.
While there is a unique issues related to each of those geographic areas clients in all the regions and all types are really turning to us and we've talked about the positive flows we've seen across the board delivering alpha and the fact that we had in this particular quarter a number of flows coming from clients in your.
Growth in Asia.
But I think we are obviously a global firm, we're investing globally, we're spending a lot of time and energy investing in our European franchise as well as our Asian franchise, Larry's talked before about our commitment to becoming local in each of the countries in which we operate which I think is reinforcing the commonality in the uniqueness of Blackrock brand, but.
Trying to be specifically local to each of those countries and basically pushing a lot of the decision, making closer to where the clients are more broadly as a firm and I think.
You know trends around sustainability as well are obviously critically important as we see countries outside of units adapting to that much more quickly than we are so I think it's just.
It's indicative of our of our global footprint and the fact that we're trying to basically.
Invest all around the world to make sure that we can deliver for our clients Dan I would just add to what Gary said.
I think it speaks very loudly of a comprehensive platform worldwide.
And and our commitment to be local in every community we operate.
I'd say the other thing to us.
Really helping clients understand the utilization of EPS.
The US is was years ahead of Europe, and Asia, and Europe is slowly catching up.
Adaptation.
In Europe.
And Asia is accelerating.
I would also say.
We are seeing.
More consistent retail flows.
In EMEA.
Across all products.
And so I think this is a.
This is some of it is a new trend, but I think the trend toward Cts.
It is just the beginning of a big macro trend.
I also believe is more.
Financial advisors worldwide or move into fee base and are moving to more of fiduciary relationship. It means more hopeful or whole portfolio solutions and no form is better positioned because or emphasis of being local our comprehensiveness and our.
And our ability to work with our clients worldwide on on the adaptation of more products and different products.
Thanks.
Ladies and gentlemen, we have reached the allotted time for questions Mr. Fink do you have any closing remark.
Thank you operator.
I want to thank all of you for joining us this morning and for your continued interest in Blackrock.
Hopefully good here from all of US we are very proud of the progress we made to help our clients navigate this turbulent investment landscape and building our clients and for our clients a more resilient portfolio.
I am more convinced than ever before that blackrocks ability to meet our clients' challenges well.
We will continue to drive our growth in the future.
I've always said that companies with long term visions and purpose at the center of their strategies are those that will succeed over the long run.
Blackrocks long term vision to build a platform that is centered around our clients is resonating.
Our focus on the long term is fueling our investments in Blackrocks people.
And all the communities, where we operate and in our platform as we continue to evolve ahead of our clients' needs.
I can assure you we will continue to invest and innovate in the years to come and to serve all our stakeholders.
Our clients our employees, our communities and obviously our shareholders.
To fulfill our purpose in helping more and more people experienced financial wellbeing.
And a better hope for a better future.
And I wish all of you a safe and healthy fourth quarter. Thank you.
Thank you. This concludes today's teleconference. You may now disconnect.
[noise] [noise].
[music].