Q4 2021 BlackRock Inc Earnings Call
Good morning, My name is Jerome and I will be your conference facilitator today at this time I would like to welcome everyone to the block Crocs incorporated fourth quarter 2021 earnings teleconference. Our hosts for todays call will be chairman and Chief executive.
Officer, Laurence D Fink, Chief Financial Officer, Gary S. Shetland.
President Robert S Capito, and General Counsel, Christopher J Meade, 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 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.
Which lists some of the factors that may cause the results of Blackrock to differ materially from what we say today.
Blackrock assumes no duty not undertake to update any forward looking statements.
So with that I'll turn it over to Gary.
Yeah.
Thanks, Chris Good morning, and happy new year to everyone I hope everyone and their families are remaining safe and healthy. It's my pleasure to present results for the fourth quarter and full year 2021, before I turn it over to Larry I'll review, our financial performance and business results, while our earnings release discloses, both GAAP and as adjusted financial results.
As always I will be focusing primarily on our as adjusted results.
Throughout Blackrock history, we have consistently and systematically invested in our business with a long term focus and commitment to serving clients employees shareholders and the communities in which we operate as a result of these long term investments in 2020 . One we are we grew organically at our fastest rate ever and continue to expand our organic growth premium versus the <unk>.
Industry, even as our assets under management reached new highs.
We have continually invested to develop industry, leading franchises in Etfs private markets technology, our active investment platform and more recently in ESG and in China. These investments all reflect a singular focus on helping clients construct resilient whole portfolios and they are driving the record levels of growth we're seeing today.
Blackrock generated net inflows of 540 billion in 2021, representing 6% organic asset growth and 11% organic base fee growth each of our strategic priority areas drove significant growth during the year.
Importantly, despite fourth quarter volatility we finished the year with strong momentum generating $212 billion of total net inflows, reflecting annualized organic base fee growth of 9% continued strong flows from our entire active franchise along with record ice shares flows which benefited from typical year end rebar.
<unk> and tax management contributed to the fourth quarter is robust organic growth.
We continued to build out our platform in 2021, as the strength and stability of our operating model allowed us to aggressively reinvest in our business deliver record financial results and returned approximately $3 $7 billion of capital to shareholders.
Full year revenue of $19 4 billion was up 20% operating income of $7 5 billion rose, 19% and earnings per share of <unk> $39 18.
It was up 16% versus 2020.
For the fourth quarter Blackrock generated revenue of $5 1 billion and operating income of $2 $1 billion up 14% and 11% respectively from a year ago.
Quarterly earnings per share of $10 42 was up 2% versus a year ago, reflecting a higher effective tax rate and lower non operating income in the current quarter.
Non operating results for the quarter included $86 million of net investment income driven primarily by mark to market gains in our private equity co investment portfolio, our as adjusted tax rate for the fourth quarter was approximately 25% driven in part by discreet items. We currently estimate that 24% is a reasonable projected tax rate for.
<unk> 2022, though the actual effective tax rate may differ because of nonrecurring or discrete items or potential changes in tax legislation.
Fourth quarter base fee in securities lending revenue of $4 billion was up 17% year over year, primarily driven by 11% organic base fee growth and the positive impact of market beta on average AUM, partially offset by higher discretionary money market fee waivers versus a year ago and strategic pricing investments over the last year.
Sequentially fourth quarter base fees and securities lending revenue was up approximately 1% our fourth quarter annualized effective fee rate decreased by two tenths of a basis point from the third quarter as the continued positive impact of strong organic base fee growth was more than offset by the negative impacts of divergent equity beta which accelerated.
Into quarter end.
And lower securities lending revenue in the current quarter.
We incurred approximately $135 million of gross discretionary yield support waivers in the fourth quarter essentially the same as the third quarter, bringing total waivers to approximately $500 million for the full year given the current prospects for higher rates in the near term. We now anticipate most of these waivers would cease shortly after the first 25 basis point increase in the fed.
Funds rate, resulting in a one five basis point increase to our annualized effective fee rates recall that approximately 50% of these gross fee waivers are generally shared with distributors, reducing the impact on operating income.
For the year, we generated record performance fees of $1 $1 billion, which we're increasingly diversified compared to a year ago and reflected strong alpha generation across our platform, notably since a year ago performance fees from liquid alternatives have increased more than 150% and our unrecognized deferred carry balance has more than doubled.
To over $1 4 billion as our private markets platform continues to scale.
Quarterly technology services revenue was up 11% year over year and full year revenue of $1 $3 billion increased 12%.
Annual contract value or HCV increased 13% year over year, and we remain confident in our ability to continue delivering low to mid teens ACB growth as demand for Aladdin as end to end cloud based SaaS solution is stronger than ever.
We are heavily investing heavily investing to scale Aladdin for its next leg of growth in order to extend our capabilities in high demand areas, such as the whole portfolio private markets wealth and sustainability.
Total expense increased 20% in 2021, driven primarily by higher compensation G&A and direct fund expense for the full year compensation expense increased 20%, reflecting higher base salaries and higher incentive compensation driven by growth in operating income and higher deferred compensation expense.
Recall that year over year comparisons of fourth quarter compensation expense are less relevant because we determined final full year compensation in the fourth quarter.
Fourth quarter, G&A expense increased 15% year over year, reflecting higher marketing and promotional expense, which included higher T&D expense higher occupancy expense, partially driven by higher COVID-19 testing costs and higher portfolio of services and technology expense for.
For the full year, excluding approximately $350 million of noncore G&A expense, which included $274 million of aggregate fund launch costs core G&A expense was up 15% compared to 2020 recall that we exclude the impact of fund launch costs when reporting our as adjusted operating margin.
The year over year increase in core G&A was largely attributable to technology data and portfolio services expense all of which drive revenue growth.
Increased technology and data spend was driven by our Aladdin cloud migration market data investments to support our index and ESG franchises and broader tech spend to support productivity improvements.
<unk> two thirds of the increase in our 2021 portfolio of services expense related to sub advisory costs associated with significant <unk> wins and are offset by associated base fees.
<unk> thousand 21 direct fund expense increased 24% year over year, primarily reflecting higher average index AUM sequentially quarterly direct fund expense declined despite higher average index AUM due to higher rebates that seasonally occur in the fourth quarter.
Finally, full year intangible amortization expense increased $41 million year over year due to our <unk> acquisition, which closed in February 2021.
Our full year as adjusted operating margin of 45, 2% was up 30 basis points versus 2020, our business has never been positioned to take advantage of the opportunities before us and we remain deeply committed to investing responsibly and aggressively through market cycles. So we can continue to generate differentiated organic growth over the <unk>.
A long term.
Consistent with this growth ambition, we are once again targeting record investment in our people strategic priorities and platform infrastructure during 2022 at.
At present, we would expect head count to increase by as much as 10% with a continued focus on optimizing our talent pyramid from more junior roles and growing our footprint and I hub innovation centers. We would also expect core G&A to increase by 15% to 20% as we continued to invest in technology to scale, our operations and support.
Gross including completing Aladdin as cloud migration, delivering new Aladdin capabilities and continuing to open the platform to promote client innovation.
We are also investing through prudent use of our balance sheet to best position Blackrock for continued success. During 2021, we allocated $1 $5 billion of new seed and co investment capital to support our growth and our year end portfolio now approximates $3 7 billion.
Our strategic minority investments are reinforcing various elements of our strategy and simultaneously generating very attractive returns for our shareholders and we continue to invest inorganically when we see opportunities to accelerate our organic growth in key strategic growth areas as we did through our acquisitions of the physical climate and transition risk models of <unk>.
And <unk>, which will be critical to building best in class ESG capabilities within Aladdin.
We also remain committed to systematically returning excess cash to shareholders through a combination of dividends and share repurchases and returned an aggregate of $3 $7 billion to shareholders in 2021.
Since inception of our current capital management strategy in 2013, we've now repurchased over $11 billion of Blackrock stock, reducing our outstanding outstanding total shares by 11% and generating an unlevered compound annual return of 20% for our shareholders.
At present based on capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price. We are targeting the repurchase of one 5 billion of shares during 2022.
In addition, our board of Directors has declared a quarterly cash dividend of $4 88 per share representing an increase of 18% over the current level.
Finally in early December we completed a debt issuance to take advantage of current low interest rates and pre refinance our $750 million three and three eights notes. Due June 2022, we successfully raised $1 billion of new 10 year notes with a two 1% coupon the second lowest U S dollar coupon and Blackrock debt.
Tax.
As you will hear more from Larry Blackrock strategy has always been guided by our clients' needs. We relentlessly focus on helping them meet their financial objectives and are deeper and broader relationships with more clients are driving growth across our entire platform.
Fourth quarter total net inflows of 212 billion, representing 9% annualized organic AUM and base fee growth were led by flows into Etfs and our top performing active franchise record full year net inflows of $540 billion were positive across all client types investment styles and regions.
And reflected records for both Etfs and active strategies.
<unk> generated $306 billion of net inflows in 2021, representing 11% organic asset growth and 9% organic base fee growth record fourth quarter ETF flows of $104 billion, reflecting some seasonality, but also reflected the diversity of our product and client segments and accelerating secular shifts occur.
Going in the market with.
We saw continued strength in core, but our strategic products segments, particularly sustainable and fixed income were the largest contributors to our fourth quarter flows sustained.
Sustainable Etfs AUM of $150 billion nearly doubled during the year and our $750 billion fixed income ETF platform grew organically by double digits, even in one of the most challenging macro environments for fixed income in several years.
<unk> also continued to use our broad based precision exposures to express risk on sentiment during the year.
Blackrock generated full year retail net inflows of 102 billion, representing 12% organic asset growth and 14% organic base fee growth.
Significantly outperforming the broader mutual fund industry retail flows were positive in both the U S and internationally, reflecting broad based strength across our active platform.
Fourth quarter retail net inflows of $22 billion reflected similar trends, but also included the seasonal impact of capital gains and dividend reinvestment.
We remain well positioned to meet investor needs for risk adjusted Alpha and yield and our diversified fixed income platform with top performing strategies across total return unconstrained high yield and credit.
<unk> choice to investors in any rate environment.
Institutional index net outflows of $118 billion in 2021 reflected equity net outflows, including the previously disclosed $58 billion low fee institutional redemption in the second quarter.
Partially offset by fixed income net inflows as many large clients rebalance portfolios after significant equity market gains or tactically shifted assets to fixed income and cash.
Blackrock institutional active franchise generated a record 116 $9 billion of net inflows in 2021, reflecting broad based strength across all product categories and the funding of several significant both CIO mandates. We are seeing strong momentum in <unk> business evidenced by another significant core fixed income.
Funding in the fourth quarter. We also saw continued growth in our Lightpath target date franchise and remain committed to helping investors around the world plan and invest for retirement.
In the aggregate strong growth across active strategies led to 7% organic base fee growth for our institutional channel in 2021.
Across retail and institutional client types Blackrock generated a record $49 billion of active equity net inflows for the full year led by top performing franchises in technology Health Sciences, and U S growth equities as well as quantitative strategies, we remain well positioned for future growth in our active platform with over.
75% of our fundamental active equity systematic active equity and taxable fixed income assets performing above their respective benchmarks or peer medians for the trailing five year period.
Overall demand for alternatives also continued with $27 billion of net inflows into licked illiquid and liquid alternative strategies during the year driven by credit infrastructure, and our multi strat and global event driven hedge funds <unk>.
Alternatives fund raising notched a record in 2021, and we have approximately $36 billion of committed capital to deploy for institutional clients in a variety of strategies, representing over $230 million of future annual base fees and significant potential performance fees.
Finally, <unk> cash management platform generated $44 billion of net inflows in the fourth quarter and $94 billion of net inflows in 2021, as we continued to grow market share and a persistent low rate environment by leveraging our scale product breadth technology and risk management on behalf of clients.
It has been another strong year for Blackrock, our global scale and diverse platform allow us to continue investing for the future whether in good markets were more challenging months and our differentiated business model remains incredibly well positioned to sustain industry, leading organic growth and deliver long term growth long term shareholder value.
Our commitment remains to optimize organic growth in the most efficient way possible and we will do so responsibly to meet the needs of all stakeholders.
With that I'll turn it over to Larry.
Thank you Gary good morning, everyone.
Thank you for joining the call.
I Hope you all have have had a healthy and happy holiday season.
And then all of you are staying safe.
Throughout Blackrock history, we have relentlessly focused on helping our clients meet their investment goals and solve their most complex challenges.
We have continually invested and reinvested in our business to meet and anticipate.
Our clients are evolving and changing needs and to deliver the most comprehensive global investment and technology platform.
Our 2021 results truly demonstrated the benefits of those investments.
Blackrock delivered the strongest organic growth in our history.
Even as our assets under management reached new highs.
We generated $540 billion of net inflows in 2021.
Representing a record 11% organic base fee growth.
We also ended the year with strong momentum with 212 billion.
Fourth quarter net inflows.
<unk>, our seventh consecutive quarter.
Of organic based fee growth above our 5% target.
And we have steadily expanded our organic growth premium relative to the industry relative to our competitors as our clients continue to entrust us with more of their portfolios.
Importantly, <unk>.
Our growth is more diversified than it's ever been.
In 2021, our active platform, including alternatives contributed $267 billion in inflows.
Representing nearly half of our total net inflows.
Etfs remain a significant growth driver with record flows of 306 billion.
And our technology services revenues grew by 12%, reaching $1 3 billion.
This strong momentum across our entire business drove record financial results.
For the year of Blackrock delivered 20% revenue growth, 19% operating income growth.
16% EPS growth.
And at the same time, we expanded our margins.
Two years into the pandemic.
We continue to confront new virus strains.
We're confronting divergent restriction approaches.
Country by country, and even an uneven economy worldwide.
Meanwhile, inflation has reached the 40 year high as we see several structural changes take hold.
Consumer demand has shifted from services. The household goods as people are spending more time at home and benefiting from higher levels of savings.
Labor shortages are causing supply chain bottlenecks as people have more choice in the gig economy.
The rate in the United States has never been higher reflecting the confidence of employees and.
And we will need to recognize that the energy transition is inherently inflationary.
Given the significant cost differential between clean and traditional technology to date and that is why we are so optimistic about investing in green technology to move the energy transition forward.
Blackrock has always focused on evolving and staying ahead of our clients' needs.
Navigate change and they are coming to blackrock more than ever before.
The value Blackrock insights.
They value the breadth of our solutions.
They certainly value our global footprint.
As a result, Blackrock is building deeper partnerships with more clients across the across our whole portfolio throughout the world.
We have strong conviction in our ability to continue generating differentiated organic growth over the long term because we have built a platform to help our clients as a fiduciary to meet their objectives in all market environments.
And we continue to invest ahead of their involving needs and our swiftly and aggressively trying to embrace new market opportunities.
Our long term strategy remains to be remains to keep alpha and performance at the heart of Blackrock to.
To accelerate growth in ishares to build out our illiquid alternatives to continue to differentiate our technology to deliver a whole portfolio solution and become the global leader.
And sustainable investing.
Blackrock is a $2 six trillion dollars active manager.
And our multi year investment in incorporating data science sustainability and new tools for our portfolio construction is.
The resulting in stronger growth than at any time in our corporate history.
We generated a record $267 billion of net inflows from active strategies in 2021, including a second consecutive year of record active equity inflows.
Active strategies contributed over 60% of our annual organic base fee and our growth is significantly outpacing that of our peers and the broader industry as we take market share in this fragmented landscape.
Blackrock active mutual fund captured the number one share of industry flows in 2021, and our organic growth rate is triple that of the industry.
As Gary discussed our investment performance remains strong with 88% of our taxable fixed income and 78 of our fundamental active equity funds above benchmark or peer medium for a five year period and in the U S. Nearly 80% of our active mutual funds are rated either Morningstar four of Morningstar.
Five positioning us well for future growth.
Clients are increasingly increasing their allocation to alternative strategies is the search for diversification and higher returns.
Blackrock has built a broad platform across infrastructure private credit real estate and private equity to meet that demand.
We raised a record 42 billion and client capital in 2021 and are confident in our ability to accelerate our growth as the leader.
Pivot markets.
Infrastructure for example has significant secular tailwind.
Driving growth and will be an important engine of fiscal stimulus for economies looking to build for their future.
Blackrock is incredibly well positioned to capture opportunities in this area. We are one of the largest infrastructure managers in the industry with over $35 billion in client assets, including one of the largest renewable power platform, we have grown our platform four fold.
And the last five years and look forward to partnering with more clients as we raise new vintages in our flagship funds and launch new innovative strategies in this asset class.
Ishares also had a record year as.
As the global ETF industry crossed one trillion dollars.
An annual inflows for the first time.
Growth was driven by greater adoption globally from asset owners.
As it all asset managers wealth managers and more recently for many of the approximately $40 million first time investors, who opened self directed investment accounts over the last two years.
Blackrock Ishares Etfs generated a record 306 billion of net inflows in 2021.
We saw strength across each of our product categories, including over $100 billion of net inflows into our core Etfs for the first time and nearly $80 billion in our fixed income etfs and more than $50 billion.
Into each of our sustainable and precision ETF categories.
We saw strong client demand for fixed income Etfs, despite a challenging macro environment for fixed income more broadly.
Our growth benefited from the diversity of our product range across inflation linked bonds.
Municipal bonds.
Staying ability and emerging market exposures.
And the diversity of our client base, many of whom are increasingly using etfs.
Part of the active.
Portfolio construction.
Worldwide Etfs are increasingly becoming the vehicle of choice for accessing a broad range of investment exposures, both in a passive way and in an active way.
And as Barry or three ETF adoption comes down it is enabling a new generation of investors to access markets and more and more of them are looking to Etfs as a default investment vehicle.
For those wanting to create more customized indexes. Our Aladdin technology has long provided this capability to institutions and through our recent <unk> acquisition. We can now provide custom index capabilities to U S wealth advisors.
Following a breakout in 2020 momentum and sustainable investments continued.
We generated a record 104 billion of net inflows in 2021 as client demand for sustainable strategies accelerated.
We now manage $509 billion in sustainable AUM more than double from a year ago and remain committed to innovating and expanding choice for our clients.
One of the biggest opportunities of this generation will be helping our clients navigate the global transition to a net zero economy.
We have already seen four trillion of capital moved from traditional investments to sustainability ones in the last two years alone.
This is just the beginning.
Okay.
The transition will not happen overnight.
And it will require significant investment in technology.
Blackrock is working with companies across a wide range of carbon intensive sectors that are proactively transforming their businesses and who has the innovation will be critical to the world's decarbonization agenda.
We believe these companies will presented an important investment opportunity for investors Blackrock is intently focused on helping our clients participate in these opportunities and I understand the impact of the transition on their portfolios through better data and analytics, our ambition is to move more capital into transit.
<unk> than anyone else.
Yeah.
Our multi decade investment until Aladdin technology platform continues to differentiate Blackrock.
As an asset manager and a leading fintech provider.
We generated $1 $3 billion in annual technology revenues up.
Up 12% year over year.
We remain focused on continually evolving allotted for the next decade and beyond.
We are innovating and extending our capabilities into areas of high client demand.
Including whole portfolios, well and sustainability.
The combination of Aladdin and <unk> for example, which allows our clients to bring together their whole portfolio in one place and customize that scale has already been embraced by over two dozen clients and the pipeline.
Is the strongest it's ever been and growing.
So.
Black box investment strategies, our technology capabilities, and our one Blackrock culture.
Our truly what differentiates us and providing whole portfolio.
<unk> portfolio of solutions to our clients.
In my conversations with clients around the world I'm hearing about the challenges they are facing and their desire to consolidate the number of partners that they work with.
We are increasingly choosing blackrock as their partner of choice for those large strategic complex relationships.
This is resonating, especially in our work with insurance clients.
Our strong fourth quarter inflows included a previously announced 49 billion.
Active fixed income mandate from a large strategic insurance quiet.
Our wall at Blackrock is to leverage our insurance expertise and our diversified global platform across asset management technology sustainability advisory solutions to deliver fully and completely to our clients.
We see significant opportunity to work more closely with our insurance and broader OCI all clients in 2022 and beyond.
Our ability to address client challenges enables us to fulfill our purpose and drive long term performance it benefits all our stakeholders.
Over the last five years.
Clients have entrusted us with 1.8 trillion dollars of net new assets, that's our organic growth for the last five years.
We crossed 10 trillion in AUM in the fourth quarter.
As with every milestone we reached over the decade.
We are incredibly humbled.
By our client support.
And they are incredible trust.
We have placed on us.
All of us at Blackrock.
And take this deep responsibility in managing every dollar of clients awarded us whether it is that individual investors are using one of our etfs in their first portfolio our investment account.
Or a very large pension fund and trusting us with their whole portfolio. It is truly an honor.
That we recognize every moment and every day.
Blackrock is consistent results are possible because of our dedicated employees.
I often talk about the importance of putting a company's purpose at the foundation of our relationships with all stakeholders.
Our purpose is resonating with our employees more than ever.
Blackrock Employees' base has remained stable over the last two years amidst a turbulent environment.
And I'm extremely proud of how passionate our 18000 employees are in helping more and more people experience financial well being.
I want to take this moment to thank each and every one of our employees in every one of them individually for their continued partnership resilience and hard work and dedication through another difficult year.
Everything Blackrock does.
Is rooted.
And our culture of focusing on the long term.
And we will continue.
To innovate.
We will continue to be using our scale.
And contributing to a more equitable a more resilient future to benefit more clients.
The benefit of our employees.
And the benefit our shareholders and the people and communities worldwide, where we operate.
I firmly believe that the efforts of 2021 will position Blackrock to deliver value over the long run for all our stakeholders.
With that.
Let me 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 state your phone off asset speakers setting and use your handset to avoid any potential feedback please limit yourself to one question.
If you have a follow up please re enter the queue. We will pause for just a moment to compile the <unk> roster.
Your first question comes from the line of Alex <unk>.
<unk> with Goldman Sachs. Your line is open.
Hi, Alex happy New year.
Hey, good morning, everybody happy new year to you all as well.
Maybe it will get started with the question around just the active dynamics for Blackrock in 2021.
Clearly a great year record year of active flows across the board equities fixed income et cetera.
Sustainable do you think this trend will be I guess into 'twenty. Two and then I also was hoping you could expand on how faster increases in interest rates could also impact asset allocation decisions over the next 12 to 18 months.
Sure.
Excuse me I'm getting over a cold from my grandchild.
Our <unk>.
Results in our active investment strategies is is really one of the core.
Transformation of Blackrock over many years of work.
The history of Blackrock.
Was in active fixed income manager.
Our acquisition of <unk>.
With our fantastic quantitative approach to both fixed income and equity.
Active strategies.
Development in our.
And our illiquid space, where we built out that platform.
Our Recommitment and Florida.
Defy our fundamental equity teams over the last five years, which led to great performance.
In addition over the last five years, Alex and Youre aware of this our build out of our distribution team our buildout in the RIAA channel.
Having $102 billion of inflows from retail globally.
Portion of that was active.
It was not just building at our our our investment teams and fortifying them, but it was building out also our distribution sides of our businesses too.
<unk> built a lead to a well positioned.
As active strategies continue to be a choice with more and more investors worldwide.
And let's be clear many of our flows into Etfs were from active strategies too so across the board the $267 billion of inflows represented.
From great performance well positioned.
And I think that will continue to build in 2022 I would say the other major thing is and I talked about this quite a bit in my prepared remarks was our whole portfolio approach.
We believe more and more organizations are going to be looking to outsource large components of their of their balance sheets, whether its an insurance company pension fund and then <unk>.
And I'm looking for an organization that can position that quite well.
And because of our business model of having both.
<unk> and index products of course, having the technology to interface with our clients.
Whereas we are probably the best positioned the organization to the world to meet those type of opportunities and so if anything I think that momentum and active is going to accelerate going forward, especially in the OCI O.
Area.
And whole portfolios. This is going to be driving more and more of our success. Obviously, we saw flows in.
Sustainability that continues to be driven our success in liquids.
<unk> has really been a cornerstone of our 2021 results. So.
Extremely optimistic.
On our positioning for 'twenty, two and beyond in terms of.
Rising rates.
It really depends on how rising rates.
Are going to be resulting in are we going to see a flattening yield curve with rising rates are we going to see a steepening yield curve I tend to believe we're going to have more of a flat thereon.
Central banks raise rates, 8% to 10 times, which is the forward curve suggests.
We could have a two in a quarter or two and a half year or let's say short term rate. The real question is what does that mean for the 10 year rate.
Those questions and how that plays out is going to be very important.
Biggest opportunity that we have is how black box is positioned and the opportunities. We have I really do believe whether we have rising rates a flattening yield curve steepening yield curve, we will be part of the conversation with all of our investors worldwide.
Yes, Larry maybe I can just jump in on the rates just one thing for Alex I think obviously the dynamic between rates going up and our level of AUM I think is well known but I would just highlight a couple of things one is.
We are $2 eight trillion is primarily institutional for sure and obviously those are very sticky assets that are both strategic and matched for liability. So we think we have very sticky assets too as we're obviously very well positioned in terms of our broad based fixed income platform. So whether it's unconstrained high yield total.
Return of short duration I think we've got that so we're ready for a rotation.
And more importantly, I think really is if rates go up a bunch of cash is likely to come off the sidelines and so that'll that'll enable us to basically move that cash into.
Other asset classes and as I mentioned in my remarks, very importantly, we waived $500 million of fees last year.
Our cash business that first 25 basis point move by the fed and as many people think that could come as early as the first quarter, we think that will free up almost all of those waivers.
That'll have about a half a basis point increase on our annualized effective fee rate and obviously, we talked about while we share.
Roughly half of that with our distributors that will drop a significant amount of incremental profitability to the bottom line.
Your next question comes from the line of Craig Siegenthaler with Bank of America. Your line is open hi.
Greg Happy new year.
Hey, good morning, Larry Rob Gary Hope, you're all doing well.
First just wanted to congratulate you on being the first asset manager to reach 10 trillion.
Well, it's just that number.
Thank you though.
So my.
<unk> on the ETF business, we saw that the New York State insurance regulators, just published an update on the capital treatment of fixed income Etfs.
As bonds instead of equities I know this has been a focus for a while but do you think this could open the door to larger ETF allocations from your insurance company clients.
Can you give it to Rob.
That's a great question Craig.
As to catch everybody up towards the end of 2021.
You saw the New York Department of financial services, published a rule, which permits insurance firms to treat diversified liquid bond Etfs like bonds for the purpose of risk based capital and this puts bond etfs on a level playing field with bonds and insurers.
Portfolio.
So so far we are really excited by the initial client feedback and interest to Etfs.
Because of this rule, we are very optimistic as how this could lead to future growth and this is just another sign of an unlocked come as Etfs are gaining increased understanding.
And you know in the past, we've said that we expect by 2025 that Etfs are going to reach 15 trillion from 10 trillion today.
We still believe that and even at that level Etfs would still be a small part of the capital markets, which is why we think there are decades of growth ahead, and so we're very excited about the fact that insurers now will use more etfs to represent there.
Our bond portfolio.
A good question and a good insight value.
Your next question comes from the line of Michael Cyprus from Morgan Stanley . Your line is open.
Hey, good morning, everyone and happy new year, Thanks for taking the question.
Just wanted to ask on the latter and I was just hoping you could update us on your.
Number of a lot of initiatives you guys have a lot going on there from migrating to Microsoft Azure to the Snowflake partnership Aladdin climate, maybe you could just expand upon the progress on those different initiatives, where they stand some of them earlier stages and others you know what's what's.
Been built out what's left and that sort of early feedback from clients. Maybe you could talk a little bit of how you see that on locking the revenue growth ahead.
Well, let me.
That'd be.
Tackle.
The scale of Aladdin and alignment Aladdin climate and I'll have Gary.
Comment on the.
Progress was as you're in.
<unk>.
As I said in my prepared remarks.
Client demand for Aladdin is accelerated.
Especially with more and more remote working having a comprehensive platform.
A whole portfolio solution platform.
Sure.
Is is really.
Highlights.
Opportunities and the strength of Aladdin and more and more.
Investment firms.
Asset owners and insurance companies are looking for Aladdin as an opportunity to expand.
And their ability to navigate markets.
As we built out of Aladdin as you suggested my coffee.
We'll see.
Base aware Aladdin is growing out whether it is on the Aladdin provider connecting every Aladdin.
User to its custodial relationship intersecting that.
Aladdin wealth connecting.
Aladdin.
Two well wealth managers and having them more connected.
And we are in the beta sites right now of rolling out with.
With some of our Aladdin users already.
Climate.
And that will continue to be in my mind, one of the principal driver of utilization.
Going forward.
And then.
The greater utilization of alternative accommodation of Aladdin and he really extended Aladdin across the entire investment ecosystem end to end and so with Aladdin provider with Aladdin wealth and now Aladdin climate.
Across all the portfolios I do believe it is going to drive <unk>.
Accelerated growth for Aladdin going forward.
Credibly optimistic about the opportunities, we have and I truly believe as more and more.
Regulators are asking questions related to.
Climate, and how do you quantify climate as a risk.
The need for Aladdin.
Is essential in terms of understanding that risk as one measurement I mean, there are many other tools that people could use but it will be one of the measurements that people can utilize.
I would also add one of the great strengths for Aladdin over the last two years and why greater utilization is open Aladdin.
We are now, allowing every user of Aladdin to put their own.
Models.
That are proprietary to them.
Aladdin as a risk management system is not a monolithic system, what Aladdin has become as more of an operating ecosystem and helping the owners of money the asset managers, some money to really navigate across asset categories communication to clients.
Communications to there.
Sure the custodial bank.
And having your own proprietary risk system.
And that has been one of the great transitions of Aladdin and then dovetailing that the infrastructure of Aladdin related to Azure and <unk>.
Still flake and I'll allow Gary to talk about what we're doing out in the infrastructure to create a more resilient and Aladdin.
Thanks, Larry.
Mike I think you were specifically asking about kind of I'll give you just a couple of comments.
We are obviously migrating.
Aladdin from Blackrock managed data centers to the.
Loud and we think that that partnership with Microsoft in particular brings a number of enhanced capabilities.
Both ourselves and Aladdin clients I mean, the big four for us are to localized data hosting.
As Larry talked about really unlocking growth.
As a key part of our strategy to open Aladdin, where clients are really looking to use both data and Apis and ways that differentiate them and helped them express their own competitive advantage, we're looking to accelerate innovation and finally migrating to the cloud is going to help us support greater computing scale and elasticity at our clients.
So as we see client demand to use data clearly increasing.
More importantly, though its beyond just the cloud I mean, we're making investments really to address the needs of what we consider the investor for the future.
Obviously, a focus on whole portfolio solutions, you know about our acquisition of EE front, where we bring public and private capabilities together in one platform sustainably sustainability data and analytics, which will be very critical we talked about flexible tech solutions and connectivity that we just talked about but also integrated data ecosystem.
That will allow.
Clients to combine both Aladdin and non Aladdin data, which I think is going to be important.
We're about two thirds complete with our client migrations that is ahead of our initial our initial plan.
And we anticipate completing the remainder of those client migrations likely.
Likely in the first half of 2022.
Your next question comes from the line of Brian Dow led Deutsche Bank. Your line is open.
Great. Thanks, Good morning, good morning, good morning, happy new year.
Maybe just to circle back on sustainable investing it looks like there continues to be about.
Nearly 20% of your organic growth and you're now at over 500 billion in your Youre well on your way to making that one trillion mark well before the end of the decade.
This type of pace continues.
Maybe Larry if you could talk about how youre seeing.
Recent trends and demand momentum.
In the U S versus Europe , obviously Europe has been.
More of the growth engine over the long term on on sustainable investing but maybe if you can just talk about that differentiation and then also just on carbon transition as well.
Such a developing market I don't know if you have a view on what you know.
Longer term market opportunity for investment product could be from a from a AUM size in that area.
Sure products you are targeting for them.
Great.
Thanks, Brian .
Well.
In 2020, we made a large statement related to the tectonic shift that we see that is going to occur.
In the investment World.
And we continue to see.
Yes.
Rising interest in sustainability worldwide.
And I think.
Just by evidence of 2021, we saw a $31 billion of flows in the U S and sustainability.
$65 billion of flows from EMEA, which you suggested more in Europe .
<unk>.
$8 billion from APAC and.
We went from about $100 billion in 2000 $19 billion to $500 billion today.
Thank you.
We're a different spots as evidenced by those flows as you suggested.
In Europe , if you do not have a sustainability lens you will not.
The awarded any mandates today.
It is a component of all I want to underscore all investing in Europe today.
In the United States, it's still quite mixed depending on the institution.
But it is growing.
It's growing.
Cause a.
We are able to create a customized portfolios.
This is the power of Aladdin for customized portfolios for those clients are looking to.
To start.
Looking at sustainability as a as an investment opportunity in an investment risk.
And I believe this will continue to be driving flows in the coming years.
The big opportunity and the greatest opportunity in this area is investing in new is a new technology.
Yes.
As I said in my prepared remarks.
Yes.
Move to.
Two a green economy tomorrow without new technology, that's going to lead to.
Up.
And unfair.
Just transition.
And as we witness in so many places already with rising energy prices, we've seen government's capping energy cost to the consumer.
Even the European countries that are so focused on sustainability like France, and Spain have caps on heating and other things like that so this is going to be a very.
Long as discussed over the year and very long transition and very and it's not going to be a straight line.
The opportunity then is to be working with traditional hydrocarbon companies.
Who are going to be part of the solution.
It's going to be working with agricultural companies, who are part of solution.
It is is investing in new startups, whether it is to create blue or green hydrogen.
Blue or green ammonia.
To find new solutions for Green cement and steel.
For for investing in new opportunities and sequestering of hydrocarbons. So we believe climate transition opportunities for renewable power.
Four of these new technology is going to be.
Are going to be great and I do believe there's going to be huge investment opportunities going forward. So it's a combination of navigating your current portfolio.
As it as it Glenn but also the opportunities and investing in our side by side with hydrocarbon companies or investing in new technologies and new startups Gerry why don't you carry on and talk about.
Sustainability took place.
I think he got it Larry I think you you hit you hit on all the key parts of the question in terms of just flows I mean, unless Brian there was anything specific you wanted additional color on the flows I think Larry captured at EMEA was basically 65% of flows sustainability for the year, Larry mentioned, the U S being about 30.
$1 billion I think importantly, the U S was up 50% year over year.
Withstanding a it's still only about a third of those of those flows but otherwise I think Larry you captured it.
Yes.
Well then thank you.
Okay.
Alright, ladies and gentlemen, we have reached allotted time for questions. Mr. Fink do you have any closing remarks.
Thank you operator, I want to thank all of you for joining us today.
And your continued interest in Blackrock.
Our fourth quarter and full year performance is a direct result of our commitment.
So serving our clients investing for the long term anticipating their needs.
And hopefully you could you could hear from Gary and I and Rob we see tremendous opportunities ahead.
And Blackrock focus remains on investing in our people investing in the communities where we operate.
And to stay in front of our clients' needs. If we do all those well our shareholders are going to be the biggest beneficiary.
And I do believe this is what has enabled us to continue to deliver strong.
<unk> long term return for all of our shareholders.
Thank you again, and let's hope we have a great start in the new year, and we all stay healthy and safe.
Talk to you in a few months bye bye now.
This concludes today's teleconference. You may now disconnect.
Okay.
Alright.
Okay.
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Sure.
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