Q1 2022 BlackRock Inc Earnings Call
Yeah.
Good morning, My name is my right now be a conference facilitator today.
At this time I would like to welcome everyone to the Blackrock incorporated first quarter 2022 earnings teleconference.
Our hosts for todays call will be chairman and Chief Executive Officer Laurence D Fink.
Chief Financial Officer, Gary S Shuttling.
President Robert S Capito.
And General Counsel Christopher Jamie.
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 draw your question. Please press the pound key thank you.
Mr. Meade you may begin your conference.
Yeah.
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 black box actual results may of course differ from these statements.
As you know Blackrock has filed reports with the SEC, which list some of the factors that may cause the results of Blackrock to differ materially from what we say today.
Blackrock assumes no duty and does not undertake to update any forward looking statements.
So with that I'll turn it over to Gary.
Thanks, Chris and good morning, everyone. It's my pleasure to present results for the first quarter of 2022.
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 I'll be focusing primarily on our as adjusted results.
As many of you know beginning in the first quarter of 2022, we updated our definitions of adjusted operating income operating margin and net income to exclude the impact of intangible asset amortization and other acquisition related costs and contingent consideration fair value adjustments.
We believe that excluding the impact of these expenses provides investors and management with a more useful understanding of our financial performance over time, while also increasing comparability with other asset management companies Blackrock regularly reviews, our disclosures with the goal of providing helpful information to our investors and we may consider additional non-GAAP .
<unk> in the future.
To provide consistent comparisons to historical results, we recast quarterly as adjusted metrics to account for these changes for 2020 and 2021 .
This recast was posted on Blackhawk's Investor Relations Web site in late March and also has been included on pages 12, and 13 of our earnings release, all year over year and sequential financial comparisons referenced on this call will relate current quarter results to these recast financials.
Blackrock is performance in the first quarter once again understand underscores the strength of our platform and our ability to serve clients in a variety of market conditions, we've invested for years to diversify our platform to develop industry, leading franchises in Etfs private markets technology active management and sustainable investing.
The successful multi year investments have enabled us to deepen our solutions oriented relationships with clients and have strengthened and diversified our organic revenue growth profile.
<unk> generated total net flows of $86 billion in the first quarter, representing 3% annualized organic asset growth with $114 billion of long term net inflows, partially offset by $27 billion of generally seasonal cash management outflows.
Quarterly long term net inflows were positive across all asset classes investment styles and regions.
Analyzed organic base fee growth of 2% reflected the impact of two sizable institutional index mandates and strong flows into core equity Etfs during the quarter.
First quarter revenue of $4 7 billion increased 7% year over year, while operating income of $1 $8 billion rose, 14%, reflecting the impact of approximately $185 million of closed end fund launch costs in the first quarter of 2021 .
Earnings per share of $9.52 was up 18% compared to a year ago also reflecting a lower effective tax rate and a lower diluted share count partially offset by lower non operating income in the current quarter.
Non operating results for the quarter included $29 million of net investment losses, driven primarily by mark to market declines in the value of unhedged seed capital investments.
Our as adjusted tax rate for the quarter was approximately 17% and included $133 million of discreet tax benefits, including benefits related to stock based compensation awards that vested in the first quarter of each year.
We continue to estimate that 24% is a reasonable projected tax run rate for the remainder of 2022.
So the effect actual effective tax rate may differ because of nonrecurring or discrete items or potential changes in tax legislation.
First quarter base fee in securities lending revenue of $3 8 billion was up 7% year over year, primarily driven by 8% organic base fee growth over the last 12 months sequentially base fee in securities lending revenue was down 3%, reflecting in part the impact of a lower day count in the first quarter.
On an equivalent day count basis, our effective fee rate was essentially flat compared to the fourth quarter.
The negative impact of divergent equity beta was offset by lower discretionary money market fee waivers, we incurred approximately $75 million of gross discretionary yield support waivers in the first quarter. However, waivers for our flagship funds were essentially removed following rate hikes by the bank of England and Federal Reserve in March recall that.
Proximately, 50% of gross fee waivers are generally shared with distributors. So the benefit to base fees as partially offset by higher distribution expense.
Performance fees of $98 million decreased from a year ago, primarily reflected lower revenue from liquid alternative and long only products, partially offset by higher fees from illiquid alternatives.
Recent market volatility could result in a reduced ability to earn performance fees from certain liquid alternative and long only products during the remainder of 2022.
Quarterly technology services revenue increased 11% from a year ago annual contract value or <unk> increased 13% year over year, and we remain confident in our ability to continue delivering low to mid teens ACB growth as we see strong demand for Aladdin end to end cloud based SaaS capabilities.
Total expense increased 3% year over year.
Driven primarily by higher compensation expense recall that expense in the first quarter 2021 included $185 million of closed end fund launch costs, which are excluded when reporting our as adjusted operating margin.
Employee compensation and benefit expense was up 7% year over year, reflecting higher base compensation, partially offset by lower incentive compensation driven in part by the lower mark to market impact of certain deferred cash compensation programs.
G&A expense was down 17% year over year, reflecting the previously mentioned closed end fund launch costs in the first quarter of 2021 excluding.
Excluding these costs G&A expense increased 19% from a year ago due to ongoing strategic investments in technology, including the migration of Aladdin to the cloud along with increases in marketing and promotional expense, including higher <unk> expense associated with our return to office strategy.
Sequentially G&A expense decreased 12%, primarily reflecting seasonally lower marketing and promotional expense and lower professional services and occupancy expense, partially offset by higher technology expense.
Disclosure enhancements introduced this quarter include. The addition of a separate G&A expense line item for sub advisory expense, which historically was included within portfolio services expense. We hope this will provide more transparency into costs associated with the successful growth of our <unk> business, which are more than offset by associated base fees.
As Larry will discuss in more detail momentum in our <unk> business is accelerating as the trend towards outsourcing increases and Blackrock is well positioned to capture this opportunity.
Direct fund expense increased 3% year over year, primarily reflecting higher average index AUM sequentially quarterly direct fund expense increased despite lower average index AUM due to higher rebates with seasonally occur in the fourth quarter.
Our first quarter as adjusted operating margin of 44, 2% was down 160 basis points from a year ago, primarily reflecting the ongoing strategic investments, we are making in technology and our people as we stated in January our business has never been better positioned to take advantage of the opportunities before us.
We are increasingly seeing clients looking for ways to optimize portfolio returns at a lower cost by forging deeper relationships with fewer managers, including fully outsourced relationships. These trends favor global comprehensive and scaled platforms like Blackrock as evidenced by several such wins over the recent quarters and we see more.
<unk> ahead.
As always we remain committed to optimizing organic growth in the most efficient way possible, we have deep conviction in the stability of our diverse business model, which has demonstrated strong resilience in a variety of markets and our ability to proactively manage our cost structure.
In the near term we remain focused on the opportunity set ahead of us and are continuing to invest responsibly to support our growth and to drive our strategic initiatives. We continually focus on managing our entire discretionary expense base and we will continue to be prudent in reevaluating, our overall level of spend if market conditions necessitate us doing so.
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 strategic.
To further accelerate our efforts.
Larry will discuss in more detail earlier this week, we announced a minority investment in circle. The operator of the market infrastructure for U S. D. C. A dollar based fully reserved stable coin and one of the fastest growing digital assets with more than $52 billion in circulation.
Circles technology currently enables a frictionless and real time transfer payments and is being explored for other applications across the financial ecosystem.
We previously announced an 18% increase in our quarterly dividend to $4 88 per share of common stock and repurchased $500 million worth of common shares in the first quarter.
At present based on our capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price, we still anticipate repurchasing at least $375 million of shares per quarter for the balance of the year consistent with our previous guidance in January .
As you'll also hear from Larry Blackrock relationships with our clients have never been stronger and they continued to turn to Blackrock to help them meet their long term investment needs.
Blackrock first quarter in total net inflows of $86 billion were positive across client channels and regions highlighting the breadth of our platform.
<unk> generated net inflows of 56 billion, representing 7% annualized organic asset and 4% annualized organic base fee growth.
Results once again highlight the unique diversity of our ETF product segments supported by particularly strong flows in core equity sustainable and commodity Etfs the.
The diversity of our ETF franchise enables us to generate durable industry, leading organic revenue growth in varying macroeconomic environments. For example, as inflation expectations persisted investors turned to our commodity Etfs, where we are now the clear category leader and as Larry will highlight our bond Etfs gathered net inflows and one of the most challenging.
Quarters for fixed income in recent history.
Retail net inflows of $10 billion were positive in both the U S and internationally and reflected strength in equities liquid alternatives and active multi asset funds.
<unk> institutional franchise generated $47 billion of net inflows as our global scale investment expertise in World class technology and risk management enabled us to increasingly serve as the partner of choice for institutional clients.
Blackrock institutional active franchise generated $16 billion of net inflows led by continued growth into our life path target date alternatives and systematic active equity offerings institutional index net inflows of $31 billion included approximately $70 billion from two large institutional clients with whom we have deep relationships.
Spanning multiple investment strategies.
Demand for alternatives also continued with $6 billion of net inflows into illiquid and liquid alternative strategies during the quarter driven by private credit infrastructure and liquid alternative offerings fund.
Fund raising momentum remains strong and we have approximately $36 billion of committed capital to deploy for clients in a variety of alternative strategies, representing a significant source of future base and performance fees are.
Our $330 billion alternatives and liquid credit platform has gained significant momentum over recent years and to provide increased visibility starting this quarter, we're including additional detail in our earnings supplement on AUM and committed capital managed by our alternatives team.
Overall, Blackrock generated approximately $20 billion of active net inflows during the quarter and has now generated positive active flows in all but one quarter since the beginning of 2019.
Finally, Blackrock cash management platform. So on net outflows of $27 billion, driven by redemptions from offshore Prime and U S government money market funds in line with the broader money market fund industry.
Blackrock has steadily grown our share of the cash management industry by leveraging our scale and delivering innovative distribution and risk management solutions for clients, we arent existing manager of the cash reserves that underpin U S. D C and we look forward to partnering with circle to expand that relationship and become their primary manager in the future.
In summary, our first quarter results once again highlight the benefits of the investments we've made in high growth areas to diversify and strengthen our platform. Many of the areas in which we are generating strong growth today, such as alternatives and ESG. We're not significant contributors just a few years ago. As a result, we are better able to deliver resilient organic.
Growth and develop deeper client relationships today than at any point in Blackrock history, 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 and good morning to everyone and thank you for joining the call.
As I wrote to shareholders last month, Russia's invasion of Ukraine.
Has created a humanitarian tragedy and is impacting not only geopolitics.
But also the global economies.
It is going to fundamentally alter the path of globalization that we've seen over the past 30 years.
The flow of goods and people across borders will still be a critical to economic growth and new technologies will continue to shrink geographic distances.
But countries.
And companies.
Are reevaluating their interdependencies in a way that we have not seen since the end of the Cold War.
As a fiduciary Blackrock is working to understand how these structural changes will impact our client portfolios.
And we will help them pursue their long term financial goals.
The breadth and scale of Blackrock platform enables us to serve clients in all market environments.
We invested over many years to build a comprehensive investment platform industry, leading technology and our global footprint with local expertise.
Well.
Ahead of the needs of our clients, we have grown as a trusted partner to all our clients.
We constantly work to provide our clients with that type of insight.
But close connectivity becomes even more important during periods of market volatility and uncertainty.
Over the last two months.
Following rushes invasion of Ukraine, Blackrock held over 200 client engagements and hosted market update calls attended by more than 4600 clients.
I also recently visited clients in Japan, and the Middle East and here in the United States, many of whom are trying to understand how geopolitical and macroeconomic shifts might impact their investment outcomes.
I remember the same heightened level of connectivity with our clients during the initial weeks of the pandemic in spring 2020.
I believe our relationships with clients have never been stronger.
Our clients appreciate our voice and our consistent advocacy for long term investing on their behalf.
Our first quarter's results demonstrates the strengths.
Blackrock generated $114 billion of net long term inflows in the first quarter Deb.
Demonstrating the breadth of our asset management platform.
And positive flows across all product types, all investment styles in all regions.
Organic growth in the quarter included two significant client mandates, reflecting our ability to deepen partnerships and build a comprehensive relationship with clients globally.
We also saw a 13% ACB growth in technology services.
As more clients recognize.
The benefits of Aladdin.
I'm incredibly excited about the opportunities ahead of us and we will continue to invest for the future.
Throughout our 23 year history as a public company.
We have demonstrated that we are intentional about our investment spend and focused on our margin.
I have found that in often in times of market uncertainty.
That is our greatest opportunity that we could find black.
Blackrock breadth and resilience enables us to play offense, when others may be pulling back.
Our agility in responding to opportunities and continue to and investments across market cycles have driven our industry, leading growth, our consistent growth and generating value for our shareholders.
Our investments are closely aligned with our strategy to keep alpha at the heart of Blackrock accelerated growth in Ishares and private markets and Aladdin.
To deliver whole portfolio advice and solutions to our clients and be the global leader.
And sustainable investing.
Yeah.
Our clients are trying to understand the implications of the rapidly changing investment environment.
The Russian invasion of Ukraine marks a profound geopolitical ship that is accelerating a reassessment of global supply chains.
It also creates a supply shock and commodities that is further increasing inflation.
Even before the war inflation was already top of mind for many investors is the effect of the pandemic, including the shift.
In consumer demand from services to capital goods labor.
Labor shortages and supply chain bottlenecks brought inflation in the United States and Canada.
United Kingdom across European Union to the highest level in decades.
Central banks are in a difficult position as he looked at carefully raise rates to contain inflation without harming economic activity and employment. They may eventually have to live with a supply driven inflation rather than take policy rates above neutral levels. However, they may be forced to be more aggressive policy stances.
Inflation expectation become unchartered.
Bond markets have been quick to price in the fed's rate projections and saw one of the worst quarters on record for the U S bond market the.
The market was down or the U S aggregate index was down more than 5%.
Equity markets on the other hand has shown some resilience following significant market volatility in the first quarter U S and European broad market indexes regained some of their losses and ended down in the quarter around 5% and 6% respectively.
As always Blackrock remains guided by our clients' needs and we constantly evolve. So we can be better serving them clients increasingly want to work with fewer partners, who can provide more and blackrock is uniquely positioned to capture opportunities as clients consolidate their investment providers, we have the investment expertise.
We have the operational excellence.
And the technology capabilities worked with clients of all types and sizes and we are well positioned to help them meet their objectives and to serve all of their own stakeholders.
The global insurance industry. For example is undergoing significant transformation as insurers optimize our operating model and leverage outsource investment management solutions, we have built a leading insurance platform compromising fixed income.
Fixed income investment specialists.
Insurance advisory expertise and Aladdin analytical capabilities to deliver the best of Blackrock to our insurance clients.
We are also seeing the results of these investments through deeper relationships with all of our clients and our significant opportunities are in front of us today.
Last month, we announced a significant assignment with AIG spending asset management, and Aladdin Blackrock will manage up to $150 billion of AIG in his life and retirement companies investment portfolio.
This is another great example of one Blackrock effort.
To bring together our platform to serve our clients in a way that no other asset manager can do.
All of US here at Blackrock take a deep responsibility in managing every dollar.
Every client who awards this money from institutions and trusting us with their whole portfolios to that individual investor using one of our Etfs in their first investment account.
In the first quarter, we once again saw investors using etfs to quickly allocate capital and manage risk during periods of volatility.
In the U S. Ishares secondary trading volumes were up nearly 40% compared to 2021 levels, providing clients worldwide with liquidity they needed in volatile markets.
We generated $56 billion of ETF net inflows in the first quarter with growth coming from each of our major product categories, including core strategic and precision Etfs.
In fixed income Etfs, we generated $8 billion of net inflows for the quarter similar to equity Etfs.
We are seeing more investors adopt and use fixed income etfs to gain market exposure and for tactical positioning within their fixed income exposures. We saw demand for treasury short duration inflation linked sustainable Muni, then based market exposures with more.
And then offset risk off sediments in areas like high yield and emerging markets.
Our growth in fixed income Etfs highly.
Highlight the diversity of our fixed income ETF product range, and our ability to deliver the market quality clients expect in stressed markets.
The liquidity, the transparency and lower transaction costs of fixed income Etfs present, a more efficient way for investors to access the entire bond market.
We believe that our fixed income Etfs will benefit from more long term secular tailwind that play a significant role.
In the modernization of the 100 trillion bond market.
Yes.
Blackrock generated $20 billion of active net inflows across our active equities multi asset and alternative strategies.
Investment performance remains strong over the long term positioning us well for future growth with 86% and 81% of our taxable fixed income and fundamental active equities are above benchmarks or peer medium for the three year, respectively and for the five year period, 90% of our taxable fixed income at 83% of our fundamental Act.
Equity AUM is above benchmark or peer medium.
In the U S, 75% of our active mutual funds are in our Morningstar four and five rated fund and we continue to generate growth and capture market share.
Across the U S active mutual fund franchise in the first quarter.
In alternatives, we generated $6 billion of net inflows across liquid and illiquid strategies led by private credit and infrastructure.
And we're continuing to steadily deploy assets on behalf of our clients, including another $5 billion in the first quarter.
Deployment activity was led by our climate Finance partnership strategies that we announced last year, which seeks to accelerate the flow of capital into climate related investments in the emerging markets what are the biggest opportunities and alternatives in the years ahead.
We'll be the intersection of infrastructure and sustainability.
In response to the energy shocks caused by the war in Ukraine in many countries around the world are reevaluating their energy dependencies and are looking for new sources of energy.
This may mean, increasing production of traditional energy sources in the near term, but I believe recent events will accelerate the shift towards greener sources of energy in many parts of the world over the long term and we will see a tremendous technological changes in the energy transition.
This presents a significant long term opportunity for investments and infrastructure renewable clean tech on behalf of our clients.
Blackrock has one of the largest renewable power platforms in the industry managing over $8 billion.
And climate.
Our client commitments and we are expanding our transition focus investment strategies.
Blackrock is committed to be helping clients navigate this energy transition we are working with energy companies throughout the world were essential in meeting society's energy needs and will play a critical role in any successful transition.
To ensure the continuity of affordable energy prices during the transition fossil fuels like natural gas will be important as a transition fuel.
Blackrock is also investing on behalf of our clients in natural gas pipelines for example in the Middle East we invested in one of the largest pipelines for natural gas, which will help the region utilized less oil for power production. These investments are great example of helping countries go from dark Brown, the lighter brown as a substitute oil with a cleaner.
Base fuel like natural gas.
Client demand for sustainable investments more broadly also continued to be strong we saw $19 billion of long term net inflows into both our active and index sustainable strategies in the first quarter.
Our ability to partner with clients across the whole portfolio and quickly adapt to rapidly shifting market environment continues to drive demand for Aladdin integrated end to end technology platform.
<unk> remains focused on investing in Aladdin to support it.
Areas such as <unk>.
Captors of growth and extending its capabilities into areas like whole portfolio private markets wealth.
Sustainable investment solutions.
We see the value proposition of Aladdin deeply resonating with clients and we generated a 13% technological service HCV growth over the year over year.
Clients are increasingly combining aladdin with our newer offerings, such as E front or Aladdin accounting highlighting the benefits of our continuous innovations and investments to stay ahead of our clients' needs.
Our Aladdin client relationships are long term in nature, and we will have historically seen industry leading contract renewable rates.
The recent market environment has also reinforced the need for offerings like Aladdin wealth.
Usage of Aladdin wealth by financial advisors at our clients has increased by more than 40% during the first quarter as financial advisors look to assess portfolio risks to assess market exposures across every one of their clients across their entire business.
We have over two dozen global client Aladdin wealth clients and expect further growth to come from expansion into different wealth segments and in markets around the world.
We are increasingly interest seen interest from our clients at Blackrock is also studying digital assets and their associated ecosystem, including crypto assets stable point, <unk> and permission block change, where we see a potential to benefit our clients and capital markets more broadly.
Earlier this week, we announced that Blackrock made a minority investment in circle, a global Internet payment firm and the sole issuer of USD coin a dollar based fully reserve stable coin, which is one of the fastest growing digital assets in the world.
Blackrock is already the manager USD see cash reserves and we look forward to be expanding our relationship to become the primary manager.
Right.
Client cash reserves.
Over the past year that we have worked with circle, we have been so impressed with their mission their management team their technology.
And their thoughtful approach to growth.
Blackrock has always led by listening to our clients by anticipating and embracing change and then investing in ahead of their future needs.
Let me say again, we're very honored by the deep trust our clients place in us.
My recent meetings with our clients around the world have only strengthened my conviction in the opportunities that Blackrock has in front of us.
I believe we have never been better positioned for our future.
As always I am incredibly proud of our employees, who live our principles.
True to our purpose and are focusing on the long term needs of our shareholders long term needs of our clients.
The needs of our colleagues.
Needs and long term issues that are impacting the communities, where we work every day.
With that let's open it up for questions.
Thank you at this time I would like to remind everyone in order to ask a question. Please press Star then the number one on your telephone keypad.
If you do ask a question. Please take your phone off of each speaker's setting and use your handset avoid any potential feedback.
Limit yourselves to one question.
Do you have any follow up please reenter the queue.
We'll pause for just a moment to compile the Q&A roster.
Your first question comes from Craig Siegenthaler from Bank of America. Please go ahead.
Hey, Craig.
Hey, Good morning, Larry Hope you and the team are doing well.
We are healthy and safe. Thank you and I hope you too are getting too.
That's great.
Larry My first question is on fixed income demand any inflationary backdrop, and we know there is some reaction of lower bond price in the quarter by Ishares.
Ishares bond ETF flows are still positive, but given your wide product breadth in fixed income and I'm thinking about unconstrained Sio.
I wanted your perspective on future client demand trends in fixed income just given the likely fast ramp in fed funds over the next 12 months, although we're probably like youre likely going to see a fighter aircraft tail.
Well as I've been saying.
I think we're going to have an inverted yield curve for some time, but let me get into the specifics of your question.
Obviously fixed income is a broad universe of different products different maturities or durations.
During market volatility like we witness you would see outflows from retail as they move into different products, maybe into cash maybe in the equities.
But if anything in fixed income institutionally, you see it very stable and if we have.
Rising 10 year, and 30 year rates youre going to youre going to see a huge movement.
In <unk>, a pension fund liabilities, which is going to create huge demand. That's why I believe we're going to have an inverted yield curve, which I've been talking about for quarters.
But tactically investors can move out of longer duration, lower duration or shorter duration.
Obviously, if cash and money market funds.
Begin yielding to two 5%, you'll see movement away from maybe longer dated funds into shorter dated funds so let's be clear.
Movement within fixed income is quite large as I talked about 40% greater turnover in our fixed income Etfs. Some of that is repositioning across a portfolio and that's what we're witnessing and I think thats just highlights the resiliency of fixed income Etfs that is able to.
Really.
To help investors worldwide with that type of liquidity, but I think our clients around the world are going to be navigating. This you mentioned Sio Sio, obviously with a unconstrained duration.
Depending on the investors wishes and how they think they should be positioned is it.
Example of innovation within fixed income.
That investors can now.
Give it an IR investment team under Rick reader in this case, the ability to navigate around that that duration, they're not stuck to the duration of the aggregate index and I believe that we did see flows there we're going to continue to see real opportunities in the unconstrained. This is why we have developed.
So I think across the board Youre seeing port.
Folios are being navigated around FIC.
Fixed income, but we basically broadly saw clients are reevaluating, where they should be.
Across the yield curve, we continue to see broad based demand for municipals.
In this country and so across the board, we're not seeing any real.
Panic at all in the fixed income market. Despite the worst performance in fixed income and 30 plus years in one quarter.
So I would say rising rates as an opportunity not a problem.
I would tell you clearly that that.
This is where the conversation in deep partnership is really helping us with our clients and helping them navigate how should they think about duration and how should they think about inflation how can they can they create a a.
A return thats above long term inflation rate. So these are all the issues at that.
We are in dialog with but I think we are very well positioned for working with our clients on on a rising rate environment.
And let me open it up to Rob to give you a little more tactical information so.
Just to follow up on Larry's comments, we typically are helping clients assess their duration and maturity risk, especially in their core bond portfolios and we help them rotate within fixed income depending upon what they're seeking protection from which could be rising rates in different parts of the curve.
And that is why we saw a 1 billion and a half of net inflows into <unk> and <unk> as Larry described that are less constrained, but more importantly, we.
We see this in the ETF market, because it's the ability for people to gain market exposure and tactical positioning very quickly within fixed income.
Lot of times, you have to accumulate the positions over a period of time, it's much faster quicker diversified if you do that through ETF fixed income. So we're seeing flows across the board. The performance has been good but certainly clients are concerned how to reposition in a rising rate environment.
Yes.
Yeah.
Okay.
Your next question comes from the line of Dan Fannon from Jefferies. Please go ahead.
Thanks, Good morning Darren.
I was hoping you could talk about the outsource CIO opportunity you guys have had several large wins, maybe discuss the dialogue that you're having with prospective clients and how you see I don't know the size of opportunity of that overtime.
Yeah.
So.
Yes.
Yeah.
We are having dialogue with pension funds worldwide on this with insurance companies worldwide.
Because of <unk>.
<unk>.
Comprehensiveness of our investment platform because of Aladdin.
We provide a unique position with all these companies on in terms of outsourcing whether it's.
Part of a general kind of an insurance company or the entire pension fund.
Now, it's last year or what.
Our big win with British share in the U K, we are having many conversations right now with other pension funds, who are looking to see what how blackrock can help them.
<unk> their long term goals and aspirations, we're working with many insurance companies and see can we provide them with better support better investment opportunities than if they.
And they can leverage our team with maybe their existing team.
And manage a part of their portfolios together so the conversations are probably more robust.
There's probably more opportunities across pension funds.
And insurance comes at any time in our history.
And we look at where as well positioned as any firm in the world on it Rob do you want to have anything more to say on that yes, I think the business of managing money has gotten very complicated very expensive firms have not invested in the technology that they need.
And the scale and size of what we can do can help them get better investment performance at a better price and certainly sourcing with the scale and size that Blackrock has can help them. So we actually can go in and have a dialogue work together with the company and the <unk>.
That they have there.
And do it faster better cheaper.
Handle the operations and technology as well.
Yes.
[laughter].
Your next question comes from the line of Bill Katz from Citigroup. Please go ahead.
Thank you very much I appreciate the added disclosure this quarter as well.
A question for Gary Hanna.
That's what I heard you talk a little bit about what we're willing to reevaluate the expense growth guide just given the market backdrop, but I also heard so at a high level of commitment to spending so in that light can you triangulate between prior guidance in terms of year on year expense growth, particularly the G&A and the run rate pacing for.
Quarter, and then was there anything unusual in the comp.
This quarter that would suggest some upward bias into the second quarter. Thank you.
Thanks, Bill and good morning.
So.
I think your question is about spend for the year and then I'll come back to your.
More detailed questions on G&A and comp I think just echoing on what both Larry and Rob said.
We've obviously invested for years to focus on developing industry, leading franchises in many high growth areas that we're doing incredibly well and I think as we talked about back in January you know last year, we grew organically at our fastest rate ever.
And we continue to expand that growth premium relative to the industry and we were able to increase our margin and I think.
Importantly, as I mentioned in my remarks, you know many of the areas in which we are generating strong organic growth today.
Its alternatives traditional active ESG, we're simply not significant contributors to our business just a few years ago and we continue to see very significant opportunity again, as Larry and Rob just talked about particularly as clients are optimizing their operating models are looking for these deeper relationships with fewer managers and we've talked to.
A number of those those wins so our overall goal here has not changed we remain committed to optimizing that organic growth in the most efficient way we can.
And I think as we've done in the past we've shown in the past we have deep conviction in the stability of our model.
Our ability to manage our cost structure and we've done that throughout our history weather.
It was in 2016 or 2018, both years, where we increased our margin we've been agile, but we've also continued to invest and I think we are very focused for the near term.
On continuing to support that growth with both historically and future and in that regard we have made no major change to our discretionary spending plans that we laid out to you.
In January but.
As we said we will be prudent in reevaluating that level of spend if market conditions suggest that we do so.
As it relates to comp.
You know I don't think Theres anything there. Obviously there is you know which is in the overall bid environment. There was some benefit.
<unk> to mark to market on deferred cash comp, but it was made it doesn't go down then we don't get that benefit so in some respects those those are correlated and in terms of G&A I would just say that.
As a coffee up to what I, just said, which is that we've made no major changes we tend to spend a little slower in the first quarter than we do.
Towards the rest of the year as it relates to our G&A spend.
Your next.
Next question comes from the line of Michael Cyprus from Morgan Stanley . Your line is open.
Great. Thanks.
For taking the question Hey, good morning, Larry Gary around we've seen a lot of money flow into the private markets over the past couple of years in a very low interest rate backdrop, and now that interest rates are rising a lot of concerns around inflation and where the end game may be in rates I guess, how do you think about that will impact client demand for private assets. So there are certain parts of the private markets.
Think will hold up better and see better growth and how is this evolving.
How are these evolving trends influencing your strategy within the private market space and where do you see the biggest opportunity for Blackrock.
Yeah.
Huge demand Mike from <unk>.
For our private credit and loans those are the two areas and as you know couple of years ago. We did an acquisition in the loan area because of the performance of that product has been great. During various cycles and these are good mom and pop.
<unk> type companies that don't have access necessarily to the public markets and it's very expensive.
Due diligence is required so you have to have the team to do that but certainly in the private markets. Both in credit and in loans. We are seeing increased demands and I think that's also a function of rates because they give you much more of a cushion for rising rates.
Then the more obvious liquid credit products. There is also a huge demand for real assets.
And that is been an area of growth for us as you know and a lot of people are using that for an inflation hedge. So the textbook says when youll see inflation you sell growth to you by value you buy tips and Youll buy real estate and all of those.
Including infrastructure make for good good investments so.
We're pretty well positioned you know that we take a multi asset approach to build portfolios that are going to be resilient. That's what people are expecting for us and that is why you see the unconstrained bond funds get money and as I mentioned before 1 billion and a half into Sio and <unk> X.
<unk> inflows into equities.
And our dividend growth offerings can also be tools to help thread the needle between generating income and growth.
That could potentially outrun inflation and traditionally real assets like commodities infrastructure real estate will insulate our portfolio against higher inflation. So we've seen some clients tactically allocate to commodities in that area, we had about $7 billion of net.
Those.
Let me just add one more point as I said in my prepared remarks.
The interconnectivity between sustainable investing in infrastructure is going to be enormous whether it is a pipeline in Saudi Arabia.
Our pipeline from Texas to Mexico.
Or investing in the sequestration of hydrocarbons.
An H <unk> and in the Midwest of the United States.
The building out of new renewable platforms of charging stations.
Across the board the conversations we're having.
With.
New innovative companies.
Technology, and the robustness of our conversations with the largest energy companies in the world.
Our connectivity in this space has never been greater.
I would say with high confidence in high conviction in the opportunities to place a lot of money and very unique investment opportunities in this interconnectivity of sustainability and infrastructure is going to be large and it's going to be multiple years of investing.
Your next question comes from Brian Bedell from Deutsche Bank. Please go ahead.
Great. Thanks, good morning folks.
Hi, Brian how are you.
Hey, good morning, maybe.
Maybe just to tag on to that last part of that question to expand that and sort of put that into another question. So the the obviously that the increasing demand for energy transition that you've alluded to on on several conference calls now I guess first of all do you see the geopolitical situation.
Reading that trend on a more permanent basis, even if things do ease up.
And and then looping that in with the products that you are able to come out with which do tend to have higher fee rates in the alternatives area.
If you can comment on just the confidence of continuing to generate faster organic base fee growth versus a U M. Putting aside of course these lumpy.
Data that can really influence that.
Yeah.
As I said.
Large dialogues.
Traditional.
Hydrocarbon companies energy companies.
We've had numerous conversations with the leaders of any every energy company in the world about how they are moving.
Going forward.
I think the geopolitical issues as you frame. The question is going to spur a huge amount of investing huge amount of investing in the exploration and development of more.
Oils.
But at the same time elevated energy prices is going to accelerate de carbonization technology.
And I think what youre seeing whether whether it's the trillion investment in infrastructure that the United States.
Voted for last year.
And now the real commitment out of Europe .
To build.
LNG.
Plants.
To have less dependency on one supply chain Russian gas.
I believe in our conversations even at country levels are very large and how can they create multiple supply chains for energy and that is a combination of de carbonization technology in a combination of insurances.
Having energy to meet the needs of society. So all of this is going to be it's just a long term project.
It's not going to be a straight line as my letters wrote about.
Any energy transition has to be fair and just where it doesn't work we are witnessing that now the supply shocks.
And now the excess demand and so all of this is playing out that it's going to create a an investment boom.
The combination of fiscal spending on U S part the European part.
We had.
All of us in every country, we have conversations about.
De carbonization or what the utilization of hydrogen I was in Japan last week, a lot of conversations on hydrogen and what role can that play in Japan.
Two trips to the middle East more conversations about.
Yeah.
They move with a lot of Sun and solar moving more towards.
More renewables the movement away from oil as a.
U as they utilize a lot of oil for power production, the Saudi Arabia to move to gas so moving from dark Brown light Brown. All of this is just going to stimulate a lot of excess.
Demand for product.
And supply of product.
I would have said for the last few years the bigger issue is supply of product not demand that I do believe the supply quotient over the next few years is going to be larger, which just means more and more opportunities.
And where we are.
Our forecast for new growth in these areas. We are forecasting the build out of three large infrastructure funds to meet these needs.
Your next question comes from the line of Brennan Hawken from UBS. Please go ahead.
Good morning, Thanks for taking my question.
I just had a question on ESG.
And maybe what Youre hearing theres been an emerging debate amongst investors.
Around some of the.
The lagging performance in ESG, we've seen commodities strengthen a lot of your comments around commodity strength certainly would point to.
Some some support behind some of those commodities producers.
Are you are you hearing any shift in dialogue early on around.
That component and then maybe a consideration of.
Of making some shifts in defining energy as regionally as they have in the past and are you seeing any early signs of demand shifting in that product.
Clearly a secular shift, but maybe we see some cyclical weakness in the near term any color will be appreciated. Thank you.
Well first of all good great question, very tightly, especially with a rising energy prices and all the issues of supply shocks in hydrocarbons.
And all my letters I said, a energy transition is not a straight line.
It's a 30 to 50 year.
Time frame for us to move that forward as that today, it's not tomorrow.
Okay.
And the key is making sure.
We have an energy transition that that fills the needs of all our societies and higher energy prices really crushes emerging markets.
At our RMC.
The poor in every country that is dependent a higher percentage of their.
Of their disposable income that goes to energy and obviously you couple that with the food inflation.
It has a severe impact does that change the long term nature of the long term nature of.
ESG or.
You were framing it more on the on the sustainability side not really.
Because we're going to we always said, we're going to have to invest in new technologies to bring down that green premium well the green premium obviously is reduced with higher energy cost today, but we still have that green premium a lot of the technologies. A lot of this is just going to take quite a bit of time, but if you just look at the evidence of our first quarter we had.
About $19 billion of sustainable flows obviously, that's down from prior quarters, but certainly up from two years ago much of it. It was an active strategies as I talked about.
What we're trying to do in the alternative space 8 billion was in Etfs. So.
I'm not going to respond to any one quarter valuation of course in quarters, where you have rising energy prices.
Energy companies, and we would as they've done fantastically well as they should be they were cheap they're undervalued. They were trading below book in many cases without the market has come to appreciate much of that as you know also I've always said I don't believe in divestiture.
Blackrock has over $180 billion in investments and in this so we are working with all the companies about how to move forward.
And so as in terms of.
A one quarter return on one product versus another let me be clear most investors are not doing this for a quarter or even a year. These are long term views on the movement towards more of a de carbonization few.
Future of the world and that doesn't change anything now we have rising energy prices from energy shocks, it's very harmful for society.
And governments are responding in Europe , you've seen many governance, putting caps on energy prices, because it really arms or populate.
So this is a really complex difficult issue.
But I don't think it changes anything in the long term and let me be clear of Blackrock is the largest investor.
For pension funds and retirements than anyone we have a long term responsibility and making sure over the long run that are beneficiaries to achieve their long term aspirations and goals.
And so there is no question that this energy transition.
As is real.
But it's going to be not a straight line.
Okay.
Ladies and gentlemen, we have reached the allotted time for questions. Mr. Frank do you have any closing remarks.
Thank you operator.
Once again I want to thank everybody.
For your continued interest in Blackrock.
I strongly believe our first quarter performance is a direct results.
Our commitment.
And our deep commitment to our clients.
As I said, just a minute ago and our desire investing for them over the long term ahead of their needs.
We see tremendous opportunities ahead of us and Blackrock is focused to be remaining in working with all our all of our people.
With all the communities, where we operate.
And working in a comprehensive way.
As we've tried to stay in front of the clients needs.
Yeah, we continue to stay in front of the clients needs. If we continue to be a voice of long term investors I believe we will continue to deliver those durable returns that all of you our shareholders expect from us and that is our commitment to you.
Everyone have a good quarter.
This concludes today's teleconference. You may now disconnect.
And along those lines.
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