Q1 2021 BlackRock Inc Earnings Call
Good morning, My name is Jerome and I will be a conference for somebody theater today. This time I would like to welcome everyone to the block walk incorporated first quarter 2021 earnings teleconference. Our hosts for todays call will be chairman and chief.
Executive Officer, Laurence D Fink Chief.
<unk> Financial Officer, Gary S Shuttling, President Robert S Capito, and General Counsel, Christopher J Meade all lines have been placed on mute to prevent any background noise I started the speaker's remarks, there will be a question on the downturn period, if he would like to ask a question drink.
This time simply press Star then the number one on your telephone keypad, if he would like to withdraw your question press. The pound key. Thank you. Mr. Meade you may begin your conference.
Thank you.
Morning, everyone I'm, Chris Meade, the general counsel of Blackrock.
Before we begin I'd like to remind you that during the course of this call. We may make a number of forward looking statements.
We call your attention to the fact that Blackrock actual results may of course differ from these statements.
As you know Blackrock has filed reports with the SEC, 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 I hope everyone on their families are remaining safe and healthy and it's my pleasure to present results for the first quarter of 2021 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, both GAAP and as adjusted financial results.
I'll be focusing primarily on our as adjusted results.
Blackrock platform has been built over time to help clients meet their objectives, regardless of market environment for risk appetite, we've invested for years to develop industry, leading franchises in high growth areas, such as Etfs private markets technology and more recently sustainable investing so we can help clients construct resilient whole port.
Folios that leverage both active and index capabilities well.
A few of us could have predicted that we would still be confronting the human and economic challenges of the COVID-19 pandemic a year later the events for the past year have only strengthened our resolve to continue to invest for future growth in order to evolve our business live our purpose and meet the needs of all of our stakeholders, including clients employees shareholders.
On the communities in which we operate.
The investments Blackrock has consistently made to build a best in class investment and technology platform <unk>.
Entered around a fiduciary mindset, where clients always come first in a collaborative and unifying one blackrock culture that encourages emotional ownership are driving incredible momentum across our entire business.
Rock generated record net inflows of $172 billion in the first quarter, our fourth consecutive quarter with over $100 billion on quarterly inflows, representing 8% annualized organic asset growth and 14% annualized organic base fee growth strong performance from our entire active franchise.
Once again contributed to this quarter's robust organic fee growth.
Over the last 12 months, our broad based platform pairing diverse investment capabilities with best in class technology and rigorous risk management has now generated over $525 billion of total net inflows, representing 14% organic base fee growth well in excess of our 5% long term target.
First quarter revenue of $4 $4 billion increased 19% year over year, while operating income of $1 $5 billion rose, 21% and reflected the impact of approximately $180 million of costs associated with the launch of the nearly $5 billion Blackrock innovation and growth Trust, our largest closed end fund ever.
In late March.
Earnings per share of $7.77 was up 18% compared to a year ago also reflecting lower non operating income and a higher effective tax rate, partially offset by a lower diluted share count in the current quarter.
Non operating results for the quarter included $8 million of net investment income as gains in our co investment portfolio were largely offset by the mark to market impact of our minority stake and invest net.
Our as adjusted tax rate for the first quarter was approximately 21% and included $39 million of discreet tax benefits related to stock based compensation awards that vest in the first quarter of each year.
We continue to estimate that 23% is a reasonable projected tax run rate for the remainder of 2021, though the actual effective tax rate may differ as a consequence of nonrecurring or discrete items or potential changes in tax legislation during the year.
First quarter base fee in securities lending revenue of $3 $6 billion was up 18% year over year, primarily driven by strong organic base fee growth on the positive impact of market beta and foreign exchange movements on average AUM.
We offset by higher discretionary money market fee waivers lower securities lending revenue and the effect of one less day on the current quarter and strategic pricing investments over the last year.
Sequentially base fees Securities lending revenue was up 6% on.
On an equivalent day count basis, our effective fee rate was essentially flat compared to the fourth quarter, our strong organic base fee growth driven by our higher fee active businesses more than offset higher discretionary money market fee waivers and lower securities lending revenue in the current quarter.
Performance fees of $129 million were up significantly from a year ago, reflecting strong performance in our liquid alternative and long on the investment platforms and the impact of Covid related market volatility a year ago.
Quarterly technology services revenue increased 12% from a year ago.
Annual contract value or a C V increased 16% year over year, reflecting particularly strong growth from the first quarter of 2020, which was impacted by slower sales and contracting disruption in the early days of the pandemic, we remain committed to low to mid teens growth in ACB over the long term.
Atlantans resilience has been a key differentiator throughout the Covid crisis and client demand remains strong as Larry will discuss in more detail, we see tremendous opportunity to continue building out a laden's climate and sustainability risk analytics and data capabilities, making it central to constructing sustainable portfolios of the future.
Advisory and other revenue was down $33 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 of 2020 as well as lower transition management revenue in the current quarter.
Total expense increased 17% versus the year ago quarter, driven primarily by higher compensation direct fund and non core G&A expense employee compensation and benefit expense was up 24%, primarily reflecting higher incentive compensation driven by higher operating income and performance fees and higher deferred compensation reflects.
Additional grants and the mark to market impact of certain deferred compensation programs relative to depressed levels a year ago, approximately 80% of the increase in our compensation to revenue ratio year over year was attributable to this mark to market impact on certain deferred compensation programs.
Direct fund expense increased 16% year over year, primarily reflecting higher average index.
G&A expense was up $32 million year over year, and $111 million sequentially, reflecting approximately $180 million of previously disclosed closed end fund launch costs recall that we exclude the impact of these product launch costs when reporting our as adjusted operating margin.
Year over year G&A comparisons were also impacted by approximately $155 million of non core G&A expense in the first quarter of 2020, which included closed end fund launch costs contingent consideration fair value adjustments and costs related to certain legal matters on a core basis quarterly G&A expense was essentially flat year over year.
As higher portfolio services and technology expense was offset by lower T. N E marketing spend and professional fees quarterly G&A G&A expense also benefited from a delay in planned spending in a number of areas, which we expect to incur over the remainder of the year.
Intangible amortization expense increased $9 million year over year as a result of the acquisition of a period, which closed on February one.
Our first quarter as adjusted operating margin of 44, 4% was up 270 basis points from a year ago benefiting in part from significantly lower level of non core G&A expense versus a year ago and the delayed timing of certain investment spend in the current quarter as.
As we stated in January our business has never been better positioned to take advantage of the opportunities before us and we remain committed to optimizing organic growth in the most efficient way possible.
We continue to see numerous opportunities to invest for growth, including sustainable investing private markets technology in China and intend to pursue these opportunities responsibly.
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. We continue to invest through prudent use of our balance sheet to best position Blackrock for continued success through seed and co investments to support organic growth and through tactical M&A and strategic minority investment.
To accelerate our growth ambitions during the first quarter, we closed our acquisition of the Purion <unk>.
And as Larry will discuss in more detail announced a partnership with Tomasic to co invest in innovative de carbonization technology.
We previously announced a 14% increase on our quarterly dividend to $4 13 per share of common stock and also repurchased $300 million worth of common shares in the first quarter, while we will remain opportunistic with respect to additional share repurchases. During the year. There is no change to the minimum repurchase guidance. We provided to you earlier this year.
As you'll also hear from Larry Blackrock has never been better positioned to deliver for clients as we leverage our unique insights guidance and solutions to help them meet their long term investment needs record net inflows of $172 billion in the first quarter, including $133 billion of long term flows reflect the strength of our broad.
<unk> franchise with positive flows across every asset class investment style client channel and region.
Ishares and Blackrock Etfs generated net inflows of $68 billion.
Representing 10% annualized organic asset and base fee growth.
Results highlight the diversity of the product segments within our ETF franchise with growth led by continued strength in core equity and sustainable Etfs. We also saw strong flows into our higher fees liquid markets driven precision exposures as clients continued to re risk, particularly in international equities and tactically position their portfolios for the reopening of.
Economies worldwide.
First quarter fixed income ETF flows of $1 $6 billion reflected demand for shorter term and floating rate bond exposures, which was largely offset by outflows from longer duration, Etfs, especially L. T D. As investors reacted to the most significant steepening in the yield curve since 2013, these inflows even with the drag from longer duration.
Speak to the diversity of our fixed income ETF franchise, which will continue to benefit from strong long term secular growth.
Record retail net inflows of $37 billion, representing 17% annualized organic asset growth and 25% annualized organic base fee growth were positive in both the U S and internationally and across all major asset classes, including fixed income.
Inflows reflected broad based strength across the entirety of our top performing active platform, which is well positioned to capture resurging demand for active equities and investor appetite for yield for our diversified fixed income range, including unconstrained high yield international and broad market strategies are positioned to meet client demand in <unk>.
Any rate environment.
Blackrock institutional active franchise generated $17 billion on net inflows led by continued growth into our life path target date and alternatives platforms.
Institutional index net inflows of $11 billion once again reflected equity net outflows, which were more than offset by fixed income net inflows as clients rebalanced portfolios after significant equity market gains or sought to immunize portfolios through LTI strategies as previously discussed in January we expect a large U S. P.
Pension clients to transition approximately $55 billion of low fee index assets to another investment manager. This transition is likely to occur during the second quarter of 2021 and will have a de minimis impact on organic base fee growth for the year.
Across our retail and institutional client businesses, we generated a record $21 billion of active equity net inflows, representing our eighth consecutive quarter of positive flows in this category.
Flows were led by top performing franchises in technology and mid cap growth, which benefited from the previously mentioned launch of the Blackrock innovation and growth for closed end fund.
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 or peer medians for the trailing five year period.
Man for alternatives also continued with nearly $9 billion of net inflows into liquid and illiquid alternative strategies during the quarter driven by infrastructure private equity solutions and liquid alternatives funds.
Raising momentum remains strong and we have approximately $27 billion of committed capital to deploy for institutional clients in a variety of alternative strategies, representing a significant source of future base and performance fees.
Finally, Blackrock cash management platform continued to grow and outperform peers generating almost $40 billion of net inflows in the first quarter and topping $700 billion in assets under management for the first time during.
During the first quarter, we incurred approximately $78 million of gross discretionary yield support waivers and expect such discretionary fee waivers to persist for the near term, especially in light of the recent growth in our U S Government fund franchise and the supply demand dynamics in the short dated U S Treasury and repo markets future levels of discretionary fee.
[noise] waivers will be impacted by several factors, including the level of AUM in funds with existing waivers gross yields and competitive positioning.
Our strong performance over the last 12 months is a testament to our purpose the strong execution of our strategy the confidence our clients place on us and the hard work commitment and resilience of our employees our relationships with clients have never been deeper and we will continue to invest responsibly from a position of strength to meet the needs of all of our.
<unk> over the coming years with that I'll turn it over to Larry.
Yeah.
Thanks, Gary.
Good morning to everyone and I want to thank all of you for joining the call.
I Hope you excuse me I hope you and your loved ones.
Our continuing to stay healthy and safe.
We are reporting earnings today from our headquarters in New York City.
Incredibly energized by being all together as a group as a team as partners.
I'm cautiously optimistic for a return to normalcy in the coming months as vaccinations rollout and I'm looking forward to seeing all of our stakeholders in person again.
The strong results Blackrock saw this quarter are.
The outcome of a multiyear investments we've made in our asset management and technology platform.
To better serve our clients worldwide.
More than ever before we are seeing the benefits of these long term investments resonating.
We have stronger results and deeper relationships with our clients across their entire portfolios.
We generated $527 billion of net inflows.
And a record 14% organic base fee growth over the last 12 months.
Including a very strong 2021.
Over a decade ago, we acquired Ishares based on our conviction in the value proposition of Etfs.
On a continuous investments in our platform.
Then to help more clients use etfs to build better portfolios have fueled ishares growth from $385 billion during the acquisition.
For more than 2.8 trillion dollars today.
We began expanding our alternative platform more than five years ago and today.
We managed nearly $200 billion on these strategies for all our clients.
Our leadership in alternative only just begun and we're seeing momentum accelerate as we scale our offerings as we source our capabilities and our integration of data and technology into the management of private market assets.
We've been investing in all aspects of our Aladdin technology to better serve our clients' needs.
We saw demand for our unified whole portfolio of technology, and we enhanced Aladdin with <unk> to offer portfolio construction and risk analytics capability.
In one view across all public and all private markets.
We created an end to end platform that enables straight through processing between the asset owners.
The asset managers.
Custodians through Aladdin provider.
We created Aladdin wealth.
It help for.
Financial advisors build better portfolios for millions of clients around the world.
We recognize the growing impact of sustainability risks and the opportunities on our clients' portfolios.
And as I will discuss in more detail later on we are investing to systematically integrate climate and broader sustainable factors across all our investment offerings and risk management processes.
We manage over $200 billion in long term sustainable assets today.
And more recently.
Well clients increasingly focus on the importance of after tax returns in their investment we acquired a period to enhance Blackrock <unk> ability to meet these clients needs.
The investments, we made and continue to make in our platform enables blackrock to have a holistic perspective.
A voice that resonates with our stakeholders.
More clients than ever before are turning to Blackrock for insights and for guidance.
They want to hear from us on topics, such as how to position their portfolios for rising interest rates and inflation, how should they think about the U S deficits, how to think about the potential opportunities from new infrastructure policies and how to invest for a net zero world.
We're vocal on issues that are important to our stakeholders like cultural issues that impact our employees that policies.
That impact our communities, we speak loudly and work for all our stakeholders.
The benefits of Blackrock differentiating approach are clear in the strength and consistency of our results.
As Gary told you our total net inflows of 172 billion in the first quarter were diversified across all client types.
Asset classes investment styles and regions and represented an 8% annualized organic asset growth and a record 14% annualized organic base fee growth.
As a COVID-19 vaccine rollout continues and restrictions are eased.
Significant acceleration of economic activity as anticipated despite the consistently high numbers of cases around the world.
And now the introduction of many new variants.
Investors are navigating their portfolio through uncertainties, such as the strength of the reopening structural changes to the economies and fiscal policy and consequences for growth and inflation when activity is more fully restored.
Interest rates coming off historically low levels have put pressure on fixed income assets and led to lead to a rotation within equity from growth to value.
Unlike the taper tantrum of 2013, however, the recent rise in rates had been gradual as investors look for greater compensation for holding longer duration bonds.
And investor appetite for risk.
Assets remain very strong.
There's a lot of money in motion today, the level of fiscal support we have seen over the past year is for at times that of the global financial crisis, but many investors continue to keep significant amounts of cash on the sidelines.
To reach their investment goals, they all need to deploy that money in solutions that provide yield and preservation of their assets.
Blackrock is deliberately built our industry, leading fixed income business to meet clients' needs regardless of the rate environment.
Changing rates that manifest in rotating within fixed income and Blackrock diversified platform and strong active performance with 84% of our taxable fixed income assets above benchmark or peer medium for a three year period was well positioned for the demand we saw $17 billion of net inflows in <unk>.
Active fixed income driven by unconstrained.
Total return municipals international and high yield bond funds.
Client demand for active strategies.
Continue to accelerate at Blackrock.
Blackrock generated $59 billion of active net inflows across asset classes in the first quarter, including another record quarter for active equities.
Strong active flows included nearly $5 billion of launch on the Blackrock innovation and growth Trust. The second largest ever closed end fund launch in the United States.
By innovating in product structure.
Generating strong investment performance.
And offering strategy is aligned with the needs of our clients.
We are leading the turn around of the closed end fund IPO market.
Blackrock strong active performance and flows are a direct result of these investments that I spoke about to build a platform with collaborative intelligence advanced data and technologies in our whole portfolio approach, we have never ever been more.
Better positioned to deliver durable alpha for our clients and I am confident we will continue to capture more demand for active strategies as we further strengthen our platform and invest in our platform.
Illiquid alternatives, we are seeing the magnitude of client flows increase every year.
In the first quarter, we generated a record $11 billion of inflows and commitments.
Result, spanning from private credit to infrastructure to private equity solutions, including the final close of our inaugural $3 billion private equity secondary fund.
Infrastructure investments will be a key component of long term returns and client portfolios as governments launch long overdue infrastructure products and projects to restart their economies and build for a more resilient future.
The two trillion dollar infrastructure plan in the United States will create significant opportunities for putting capital to work on this asset class.
Within infrastructure renewables represent more than 50% of the transactions globally, and Blackrock is well positioned with one of the industry's largest renewable power franchises.
We recently closed the third vintage of our global renewable power fund raising nearly $5 billion, which is more than the first and second vintage combined.
I shares in Blackrock Etfs generated $68 billion of net inflows in the first quarter.
The strongest start to a year in our history.
Importantly flows reflects the diversity of our ETF platform and the benefits of strategic investments, we made over time to support the adaptation of Etfs. The evolution of new uses the reduction in barriers like commissions and growth in areas such as model portfolios.
The work we are doing to expand our sustainable Ishares business is a great example of how we continue to innovate ahead of our clients' needs.
We generated 17 billion of net inflows in the quarter across the sustainable Ishares spectrum from screens to thematic strategies.
We recently crossed $100 billion of AUM in this category up from 26 billion.
Just a year ago.
So global transition to a net zero economy will impact every company's growth prospects and Blackrock believes these.
Believes that they are adapting and pivoting their strategies and business models ahead of this tectonic shift.
It will outperform over the long term.
Every investor we will need to position their portfolios accordingly, and Blackrock is investing to provide clients with more choice as we become a leader.
It's sustainable and climate aware investing.
We launched two low carbon transition readiness Etfs last week, raising a total of nearly $2 billion, representing the largest ETF launch.
In U S history.
Traditionally climate products had been backward looking really focus on reported greenhouse gas emissions using advanced data and analytics and research driven by insights Blackrock developed a forward looking active climate investment strategy and a transparent active ETF vehicles. These.
Active Etfs are the first of their kind in a great example of our Blackrock innovating to expand access to sustainable strategies for more investors worldwide.
In total Blackrock manages $353 billion in sustainable investment, including cash.
And we believe this category will grow to more than one trillion dollars by 2030.
Sustainable investing presents opportunities for Blackrock not only in terms of AUM growth, but is it demand.
For industry, leading technology and data.
As sustainability becomes a critical building block in portfolios.
Investors need a clear understanding of how sustainable related risks and opportunities impact their portfolio.
What are the newest opportunities for Blackrock is powering portfolios to a new sustainable standard with Aladdin because climate risk is investment risks our ambition to make Aladdin climb at the standard for assessing this risks with investors' portfolio in helping clients navigate and capture investment opportunity.
Presented by the transition to a net zero economy.
Investments, we have made in Atlanta, it over the years to serve more clients with better risk analytics and in operating systems and the benefit of scale drew.
Growth, a 12% year over year growth in technology services revenues.
We consistently hear from clients that poor quality or availability of ESG data and analytics is the biggest barrier to deeper and broader implementation of sustainable investing.
That is why we are evolving Aladdin sustainability to help clients better assess their exposures in their positions across all of their portfolios.
Our minority investment in clarity AI will integrate analytics and data covering 30000 companies and nearly 200 companies within Atlanta.
And our partnership with Rep risk will give clients the ability to identify ESG risk exposures in private investments and create a holistic view of risk across their portfolios.
Advancing towards a net zero economy by 2050 will require more than better data and analytics. It will require transformational innovation and carbon reduction and elimination eliminating technologies.
Blackrock has partnered with Tomasic to establish a decarbonization partners to invest in innovative decarbonization solutions to help accelerate global efforts.
This initiative will provide clients with an opportunity to participate in a net zero transition by complementing Blackrock for existing renewable power and energy infrastructure investment platform.
In line with our strategic focus on technology and sustainability, we dominated Hans Vestberg, chairman and CEO of Verizon.
Two our board of directors for his deep experience in international markets technology and sustainability.
At the same time, I wont affect math as Kelly, Nevada for his passion and his dedication to Blackrock and its shareholders over the last 13 years. He will not stand for reelection at Blackrock annual meeting next month and it will be missed by our entire board and by me and the entire leadership team at Blackrock.
Our results for the speed of our forward momentum on underscores the importance of Blackrock fiduciary approach in culture.
I truly believe our culture is what sets Blackrock apart.
It drives our performance.
It pushes us to innovate it pushes us to stay ahead of our clients' needs.
And it guides, our decisions and it guides our behaviors.
Critical to our culture is building an environment of inclusivity belonging trust and creating a safe environment.
More than ever before at Blackrock for leadership team and I are focused on instilling. This culture with all of our 16700 employees around the world and evolving it to ensure that every employee I wouldnt underscore every employee feels a sense of belonging.
The strength of our first quarter results across ice shares private markets technology, and active and sustainable strategies is more broad base today than any point in our history.
Our global.
Global scale, and our unique client interactions give us greater ability to invest in our clients' future and ultimately for the benefit of our shareholders.
I see tremendous opportunities ahead for Blackrock focus remaining on embracing change investing for the long term. So we can best serve all our stakeholders.
And I look for it to executing on our ambitious plans in the years ahead.
With that operator, let's please open it up for questions.
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 be careful enough speaker setting and use your handset to avoid any potential feedback please limit yourselves to one <unk>.
If you have a follow up please re enter the queue, we'll pause for just a moment to compile the <unk> roster.
Your first question comes from Brian Bedell with Deutsche Bank.
Your line Greg.
Okay, Brian Thank you Gary.
Congrats on a fantastic quarter again.
Just one.
Two part question on on sustainable investing.
First wanted to make sure I got the numbers correct I heard 353 billion and sustainable.
AUM and Alex for her.
I thought I heard you say 200 billion I just wanted to make sure.
For those two numbers were and then in the <unk> for.
We had 17 billion of ice here, but what what additional flows would be coming into the other sustainable products.
And then the broader question would be on the on the Temasek.
Partnership and more broadly for carbon transition.
Obviously, a huge Ah <unk>.
Moving on our fields have you thought about what the what the asset management Tam might be in that yoga.
How you might tackle that true not only this partnership but they're obviously for the Etfs, you're launching on other products as well.
Well first I apologize for that would be credit any confusion. So let's start up we do have $200 billion of sustainable long term.
Assets. The the differences we have a broad base cash management space that is becoming more and more sustainable. So if you add the cash side of the short term cash it comes up.
To that $300 billion number.
I hope I answered that question properly now to.
Uh huh.
I think as I think the opportunity and transition is amazing.
Yeah.
Yeah.
It is estimated we need to spend 50 trillion dollars to have a decarbonize world.
And to do that is investing in new technologies.
And we are very pleased that having a partner and temasek.
And we have had many conversations with them related to how you know how can we bring.
The world closer to a two.
For a decarbonize world without a premium or a without a green premium.
And this is specifically so relevant not just in the United States, but it is so relevant in the emerging world. The emerging world is still growing and still had greater need for electricity greater need for building. The emerging world is just at the beginning of their economic growth and so if we are going to get to a net zero world.
Need for innovation and investing.
For green hydrogen to bring that premium down to zero for bio fuels.
For sequestering carbon at a very inexpensive price all of these are going to require new technologies for agriculture agricultural producers over.
Close to 15% of the carbon footprint when you related to that and so we have many areas where it is going to require new technologies and I truly believe we are going to have many young people instead of going into data and technology related to the social side.
Right.
<unk> technology I believe many many innovations are going to come from young startup innovative companies, but I would also say I am very bullish on our traditional hydrocarbon and chemical companies as they pivot and I've had conversations recently with a CEO of a very large oh.
Oil and gas company, just yesterday I had a conversation with a CEO of a very large chemical company and we are actually talking to us about how can blackrock invest with them side by side.
On.
On technology for Decarbonization, I mean, the science and technology that our existing companies.
In terms of the understanding of carbon and understand the science of transforming to a more decarbonize world is great and so we are very encouraged about investing in startups and that's what the art Tomasic Blackrock decarbonization funded but we actually are having.
Conversations about investing with our infrastructure teams with our private teamed with our debt teams to finance. This we've had numerous conversations with companies related to bio fuels and so when we our employees are flying around the world that we could have a footprint that is net.
And so all of these are great opportunities for us and the investors worldwide.
And Brian just to as Gary just to quickly just capture what Larry was talking about in terms of long term.
In total the flow number in terms of sustainable strategies for the quarter was 24 billion long term.
That broke down into $17 billion in Etfs and $7 billion on what we would call active.
And I would basically say that that was very broad based across the platform and primarily equity, but also on fixed income multi asset and also on that represents in the aggregate on a long term basis about a 50% annualized.
Organic growth rate our inflows.
Yes.
Your next question comes from Dan Fannon with Jefferies. Your line's now okay.
Thanks, Good morning, Larry I was hoping you could expand upon on the institutional backdrop today in terms of the risk profile.
How those conversations are evolving with the <unk>.
Backdrop, and what's going on with fixed income and how we should think about kind of re risking or de risking in this kind of backdrop.
Oh, Hi, Dan Thank you.
I you know, there's not one consistent conversation going on institutionally, obviously the question of inflation.
The question of the deficits matter are private and conversations with our fixed income investors now.
Some fixed income investors are looking to derisk, but derisking by going into low too low duration or unconstrained strategies.
Some of them are looking to say I need more credit or I need more coupon to take on debt duration risk and so we still see demand in high yield evident by our flows. So I don't think there's one specific.
Trend.
But I would say day.
But the narrative around the question of inflation deficits.
Our aim at becoming a very prominent part of our conversation. So obviously many questions related to equity valuations the rotation from growth for value as that overdone at this moment, especially if the vaccination that would take longer than other questions on that and so those are the probably the dominant conversation.
But if anything Dan as we've said interest.
Some of the prepared remarks, there is incredible pools of cash on the sidelines.
I'd say overall.
Our clients are still sitting with big pools of money overall, they're still under invested.
I'd say as a 10 year treasury.
Rises in rates.
Liabilities become less burdensome and so.
And if there is any continuing wising of the 10 year rate the need for extending duration is no longer as is necessary.
And so.
But the dialogues are very robust now.
You know many many clients are putting in allocating more and more to privates and alternatives.
Many clients now are using.
Etfs for active exposures, that's accelerating not decelerating.
And so I Wouldnt say theres nothing thats prominent in any one conversation, except one thing the conversation around sustainability. There is not a conversation today with institutional clients on.
How should they think about climate risk how should they think about transition risk and as I. Just said in my prior question. What we are trying to have our clients focus on not the fear of transition not the enormous need for transition, but the opportunities that transition will entail to get it.
Right.
The investment technologies to make sure that we don't have this green premium.
Or the net zero world will not happen, especially in the emerging world and so this is the this is the beauty of I would say of capitalism. This is the beauty of capital markets that that more and more clients are looking to be more prepared for this long term trend.
And many many clients are asking the question what role should their portfolio play on this and this.
And this long term trend.
Your next question comes from Michael Cyprus with Morgan Stanley. Your line is now open.
Hey, good morning, Thanks for taking me Hey, good morning. Thanks for taking the question I just wanted to circle back to some of the investment spending commentary.
We're articulating here I was just hoping maybe you could elaborate a little bit on on how youre thinking about investing here, where specifically and maybe if you could just maybe focus a little bit more on how would you characterize the pace of investment spend here in 'twenty, one versus maybe the last couple of years and does that accelerate just given the market uplift.
Are you thinking about pacing that.
Thanks, Thanks, Mike So.
We are we you know I think as we indicated previously we're definitely accelerating our pace of investment spend into 'twenty one.
That's a combination of a couple of things.
I mean I think the first thing is that I think it's really critical to note and look back at our results not only for this quarter, but on the momentum for the last year, how that effectively reflects the fact that we have consistently spent in our business to stay ahead of client our client's needs.
And across across the franchise I mean without that consistent level of investment to try and stay ahead of those needs. We don't generate $525 billion on flows and 14% organic base fee growth.
With four quarters over a $100 billion.
We believe and you've heard Larry reaffirm it that our business has never been better positioned to take advantage of those opportunities whether it's sustainable Glenn has been talking about a lot. This morning, private markets technology, China, and we are going to pursue those opportunities Ah Ah.
On a responsibly that being said, we obviously remain margin aware all the time, we're focusing on managing the entire discretionary expense base as always and we're committed to optimizing growth on the most efficient way possible, but our accelerated spend this year is really a function of what I, just said, which is all the opportunities that we see before us.
And the reality that we just didnt spend what we thought we were going to spend in 2020, we made a strong commitment.
On to our employees not to reduce our head count and I think that was a good thing because we saw the work units on the volumes increased throughout the year, we didn't really turn the hiring spigot back on until the second half and frankly late in the second half of.
Last year, and so a lot of what we're doing this year is catching up.
To our business.
We went into a year with a very specific budget in terms of our discretionary spend whether that was in hiring or spending on G&A.
And we have made no changes to that since we last last chatted, obviously I think between beta in organic growth, where we're ahead of where we thought.
In terms of our of the business, but you know our intent is to continue to spend throughout the year.
So the original budget, we definitely got off to a little bit of a slower start in terms of Tac MMP spend we're obviously anticipating some pickup in T&D towards the end of the year and it's a it's full speed ahead in terms of our plans for the year.
Your next question comes from Craig I'm seeking taller with credit Suisse. Your line is now open.
Hi, Craig.
Hey, good morning, Larry.
My question is on Aladdin. So if we look at the 16% year on year growth in annual contract revenues can you talk about the components for the growth between the core operating system platform provider, Aladdin and Aladdin for wealth and I also wanted to hear how the portfolio analytics and risk management tools are now encompass.
Yes, Jake and helping investors to build better portfolios across factors like sustainability.
So Craig I'll I'll take the first one that I can I'll, let Larry jump in and talk about our.
Our our investment across the platform in terms of sustainability on analytics and some of the things we're up to.
We talked about the fact that we did have 12 over 12% year over year growth in revenue.
And I think as always you know the large preponderance of our technology services revenue today remains what we would call kind of the institutional Aladdin component, obviously, we have other parts of that.
In terms of a variety of different whether its aladdin wealth for accounting or a bunch of other things, but you know the majority of that well the majority of that growth is still year over year tied to the institutional business some of the component adds.
Debt, where basically anticipating growth and over time, we are still at the early stages.
And so there's no question that as we begin to grow out things like Aladdin climate, which is really just getting started we think that's going to be having a much more significant impact on our year over year growth. There's no question that we believe that the demand for integrated in a resilient investment management technology is increasing.
<unk> has increased awareness on the importance of technology.
Seeing industry consolidation shifting product usage and regulatory requirements, creating the need for more holistic and flexible solutions and our pipeline for the remainder of the year is as strong so again.
Again continue to feel very good about that business as I mentioned, the ACB of 16%.
A little ahead of where we normally anticipate that just by virtue of the comparison to a year ago, but we are we feel really really good about our positioning.
In that business, especially given our whole portfolio view across public and private markets.
Just add debt.
If you think about the growth of Aladdin for.
From a platform that was just analyzing bonds.
To where we are today.
The demand from our clients in terms of having it on an operating system that.
That is end to end and operating system that is connected to.
To the custodial bank like Aladdin provider.
And on.
Operating risk management system that not only connects public markets, but private markets.
Yeah.
And.
And we built those platforms around that and then with the need of more information at the financial advisers fingertip. So they could provide deeper broader risk analytics to their clients.
And Thats Aladdin wealth.
We have built Aladdin around the needs of our clients to offer a better experience.
Or outcomes.
And then I can't think of a better and more important time when a lot of it was necessary. When we were all working remotely until on working remotely and having an operating system that is connected worldwide and the our clients worldwide.
Have you has actually become.
More enthusiastic about how Aladdin shapes and helps their business, we believe Aladdin actually improved their performance and there's an there is research by third parties that suggest those who have Aladdin have better financial performance.
Then.
When do you think about climate risk and transition risk that is going to encompass from cash to those long dated private it's across the entire portfolio across all products across all regions the need for Aladdin climate, and having data and analytics to justify.
The investments we have to live under the department of Labor rule of remaining to be a fiduciary and so we have to justify as a fiduciary that climate risk is.
Investment risk.
And so more than ever before I believe Aladdin is as well positioned.
How we navigated to making it end to end through the custodian to the wealth manager.
Now publics and privates.
And then importantly, now with sustainability really speaks about the resiliency of the operating system and why we continue to have deeper broader conversations with more clients.
Your next question comes from Alex at Boston with Goldman Sachs. Your line is now open.
Good morning, Alex.
Larry Good morning, good morning, everybody.
Was hoping we could spend a minute on blackrock initiatives in private markets, specifically and I guess looking back over the last couple of months.
Guys raise debt $3 billion secondary is fine and I think I saw a $5 billion of renewable power fund.
Els is in the fundraising pipeline over the next call. It 12 to 18 months and what areas I guess within private markets do you want to lean into more both organically and inorganically given that space continues to experience a pretty significant growth.
So we've had a focus on our alternatives business for the last several years.
And while we haven't raised $20 billion in one fund we've raised $2 billion 10 funds and on those continue to grow so.
We have a our current focus will be on credit, which is where our clients are looking to invest.
As Larry mentioned and sustainable we're looking at renewable energy, which we just raised won a very large fund.
We will be following very closely the infrastructure bill.
And figure out how we can raise assets.
That we can deliver to our clients for infrastructure, which for many of our clients who had like long duration type assets infrastructure fits very well. So we will probably go in that direction a bit more.
And then simply and seeing.
Seeing how the private equity market evolves and where our clients can earn alpha a draw.
Drove our secondary and Liquidations fund as some of the older vintages come due.
From some of these stable private equity companies that are looking to start new funds.
But liquidate what is left in the older funds. So what we're trying to do is really.
Have a very careful eye on where we think the next value chain is and cannot be described bolt on a liquid form and in alternatives are fun, but what I would tell you is that our general theme is alternatives are going to become less alternative.
And so we are following that very carefully.
And currently we are very focused on that how that compares with.
What our team thinks about sustainability and ESG going forward and how we combine the two.
Your next question comes from Robert Lee with <unk> Your line.
It is now open.
Great. Thanks.
How's everyone doing hope everyone's doing well.
I'm curious to know.
So.
How are you thinking about are clients starting to think about.
I guess, it's a popular thing now, but you know digital assets and I don't mean crypto per se, but now how are you starting to think about digital as in potential new.
Asset class or.
And best in class and then I guess as part of that.
Maybe being a little facetious, but are we going to see wide in digital in two years on.
And on these calls.
Well.
Aladdin is all digital.
But but.
So.
And our dialogue with our clients clients are asking questions related to what what is the role of <unk>.
Grip toward digital assets related to a part of their portfolio as you suggested Robert it is perceived as a possibly new asset class.
Similar to maybe commodities or gold.
We don't believe it is a substitute for currency, but I do believe we're gonna have digitization of currencies.
It is just it's a conversation we are investigating.
And how we can create.
You know.
How we could create different products. If there is client demand related to crypto, but.
Let me just frame it and I think whatever reason for our success with our clients over the last 33 years, there's been a consistency of focusing on long term long term investing it is not about the markets and the behaviors of the markets and the ins and outs for the markets.
Much of the dialogue today related to you know, whether it's a gamestop or what goes on with read it. It was about the tick tock on the day trading.
And then.
The activities around bitcoin and other crypto, we're fascinated about it we're excited about it as more people are enjoying looking at it but most of it is about trading and ins and outs of the marketplace and so in our dialogues with our clients worldwide. It is not a major question that has been.
As it.
It is not a major conversation related how does that fit into their portfolio with summit does does it fit into their portfolio is a long term investor.
And I would just say overall.
The actions around products that are around trading and the navigation of markets in new asset classes.
It is not about it it's just not about the whole foundation of our platform about long term investing.
And so.
If somebody really wanted to build a big deep dialogue related to this they're probably going to go to another source and that is just not a large foundation of the conversations we're having now I mean, the conversations we're having with on sustainability.
Is greater today than it was the last time, we spoke to you.
For the conversation, we're having about.
About transition opportunities.
So much greater than it was a quarter ago and I believe the momentum there I believe the opportunity there is so much larger than <unk>.
How is a crypto asset a long term asset.
And so I don't want to diminish.
Anything related to crypto.
And digital ideas I'm fascinated about it I think there is going to be an asset class, we'll see how it performs over a long term and it may be a great asset class, but.
Let's wait and see.
Ladies and gentlemen, we have reached the allotted time for questions. Mr. Frank do you have any closing remarks.
Thank you operator.
I want to thank all of you for joining us this morning.
And for your continued interest in Blackrock.
Our first quarter results.
Again are a direct result of our steadfast commitment.
To serving our clients.
We are spending all our time trying to position our firm to staying in front of.
There needs to try to anticipate their needs. So we can be.
The first conversation.
With every client and.
And I believe we're fulfilling that we're fulfilling a need in the entire financial services industry by focusing consistently on long term not we're not here to talk about the tick tock on the market on the ups and downs. It is about focusing on items like retirement focusing on <unk>.
Items like sustainability and stakeholder capitalism.
These are the things that we believe are 1 billion resiliency.
Two the Blackrock business model, but also building long term.
Well for our clients and serving our clients well.
Our job is to build a better future for our clients.
So they could build savings and make investing easier making investments more affordable.
Helping advance.
Sustainability investing.
And contributing in our communities to have a more resilient economy and I believe our first quarter results.
Truly illuminate.
Our positioning with our clients our positioning in the community and we're winning more share of mind more share of wallet for their clients than ever before and we will continue to invest as Gary said.
For our future to stay in front of our clients' needs and have a good quarter, we'll talk to you later bye now.
This concludes today's teleconference. You may now disconnect.
[music].
Okay.
[music].
Okay.
[music].
Hum.
Yes.
[music].
Sure.