Q4 2023 BlackRock Inc Earnings Call
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Speaker Change: Thank you Mr. Meade you may begin your conference.
Speaker Change: Okay.
Speaker Change: 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.
Speaker Change: We call your attention to the fact that Blackrock actual results may of course differ from the statements.
Speaker Change: As you know Blackrock has filed reports with the SEC, which lists some of the factors that may cause the results of Blackrock to differ materially from what we see today.
Speaker Change: Blackrock assumes no duty and does not undertake to update any forward looking statements.
Speaker Change: So with that I'll turn it over to Larry.
Thank you, Chris and good morning to everybody and happy new year.
Thank you for joining us today to discuss blackhawk's fourth quarter and full year results.
Speaker Change: We're also very excited to announce our agreement to acquire global infrastructure partners.
Speaker Change: And I'd like to welcome all our new partners from G IP in.
Speaker Change: And there are chairman and my friend and founder.
Speaker Change: Class C is <unk>.
Here with me alongside with Rob and Martin we're all here today.
Speaker Change: To your questions after our prepared remarks.
Thank you Larry My fellow partners and colleagues across J P and I are very excited about the opportunity to joined Blackrock.
Speaker Change: Combination will drive even better opportunities for our clients all of us at G. IP sharing the vision of delivering better outcomes suppliers and leading critical global investments that drive economic growth. Thank you.
Speaker Change: Thank you <unk>. This is another truly transformational moment for Blackrock.
Our firm is what it is today because we've taken a long term view on what market forces will drive outsized growth for our clients and for our firm.
Speaker Change: We're doing that again today guiding us always by the needs of our clients.
Speaker Change: Growing public deficits, a modernizing digital world advancing energy independence, and the energy transition are driving the mobilization of private capital to fund critical infrastructure.
Infrastructure investment is a fast growing market and a higher rate environment the ability to drive operational enhancements will be critical to investment performance.
Speaker Change: Today, we are announcing two transformational changes in anticipation of the evolution. We see ahead for the asset management industry and for the entire global capital markets.
Speaker Change: Our strategic re architecture of our organization will simplify and improve how we work and deliver for our clients.
Speaker Change: The acquisition of G. I P will propel our leadership in a fast growing market.
Hard asset infrastructure.
Speaker Change: These transformations in total.
Are the largest at Blackrock since we acquired BG I nearly 15 years ago.
Speaker Change: The planned combination of blackhawk's infrastructure platform and G. IP will provide clients access to market, leading investments and operating expertise across infrastructure private markets.
Speaker Change: The integrated platform will deliver clients substantial scale as our second largest private markets infrastructure manager in the world with over a $150 billion in client assets.
Speaker Change: In addition, <unk> will bring dedicated investment and operational improvement teams with track records of delivering deep value enhancements, which have led to impressive returns throughout its existence.
Okay.
Speaker Change: With a strong common culture of serving clients with excellence together, we will deliver for our clients a holistic global infrastructure manager across equity debt and solutions. We will provide the full range of infrastructure sector exposures and will offer unique originations across the.
Speaker Change: Developed.
Speaker Change: And the emerging markets.
Speaker Change: Blackrock has developed a broad network of global corporate relationships through many years of long term investments in both debt and equity.
Speaker Change: These long term relationships will help us lead critical investments in infrastructure that will improve outcomes for communities around the globe and generate long term investment benefits for our clients.
Speaker Change: I know I speak for the entire Blackrock Board of directors Blackrock leadership team and all of our employees when I say, we could not be more excited about the prospects of a blackrock Sally with our colleagues from G. IP.
Speaker Change: And we similarly look forward to welcoming our new clients and deepening our relationships with those clients, who already work with both of us.
Speaker Change: Blackrock is industry leadership comes from delivering sustained performance innovating and staying ahead of the needs of our clients today.
Speaker Change: Today, we announced several organizational changes to simplify and improve how we work and how we deliver for clients in anticipation of the major calls were making are the future of the capital markets and the entire asset management industry.
Speaker Change: The strong senior leaders, taking on new and expanded roles will keep us more tightly connected stimulate fresh thinking and help us better deliver for all our clients.
Let me now turn on to Martin to cover our 2023 results and take you through the specifics of the transaction our quarter.
Martin: Before I offer further contexts.
Martin: Okay.
Martin: Thanks, Larry Good morning, and happy new year to everyone.
Martin: Before I pass it back to Larry I'll review, our financial performance and business results and provide more detail on the G IP transaction.
We plan for a longer call today, so that we have plenty of time for questions.
Martin: While our earnings release discloses, both GAAP and as adjusted financial results I'll be focusing primarily on our as adjusted results.
Martin: The last two years have been a character building in all inspiring time for investors for clients and certainly for us at Blackrock. The monetary policy shock of a rapid rate rising campaign up ended 10 years of asset allocation practices and spurred repositioning of portfolios into cash in <unk>.
Martin: Market funds at the expense of risk assets.
Martin: At Blackrock, our businesses to serve clients with excellence and help them design portfolios for the future. We built blackrock to be a structural grower by having a platform of investment technology and product capabilities that go beyond investment outcomes, they deliver client scale, they deliver clients' business efficiency.
Martin: Where their clients are making wholesale portfolio allocation changes, we're just executing on tactical adjustments, they're doing it all within the Blackrock platform.
We've spoken throughout the year about what conditions, we would expect to bring investors out of cash and into risk assets is generally unfolding as we described with greater clarity on terminal rates in the fourth quarter. We saw evidence of portfolio re risking and we expect this trend to accelerate in 2020 for Blackrock to share winner when theres assets in.
Motion and clients continue to consolidate more of their portfolios with us.
In 2023, Blackrock generated 289 billion of total net inflows and delivered 1% organic base fee growth.
Martin: Accordingly, we finished the year with significant momentum in the fourth quarter generating approximately 96 billion of total net inflows in November and December we saw a surge in flows resulting in 6% annualized organic base fee growth for the last two full months of the year.
Martin: Full year revenue of $17 9 billion was relatively flat year over year operating income of $6 6 billion declined 2% from 2022, while earnings per share of $37 77.
Martin: Increased by 7%.
Martin: For the fourth quarter revenue of $4 6 billion was 7% higher year over year, driven by the impact of higher markets on average AUM and higher performance fees.
Martin: Quarterly operating income of $1 7 billion was up 9% while earnings per share of $9.66 was 8% higher versus a year ago also reflecting higher non operating income in the current quarter.
Non operating results for the quarter included 122 million of net investment income driven primarily by mark to market gains in our private equity co investment portfolios.
Martin: Our as adjusted tax rate for the fourth quarter was approximately 24% driven in part by discreet items. We currently estimate that 25% is a reasonable projected tax run rate for 2024. So the actual effective tax rate may differ because of nonrecurring or discrete items or potential changes in tax legislation.
<unk>.
Martin: Fourth quarter base fees and securities lending revenue of $3 6 billion was up 6% year over year, driven by the positive impact of market beta on average AUM, 2% organic base fee growth and higher securities lending revenue.
Martin: Sequentially base fee in Securities lending revenue was down 2% on an equivalent day count basis, our annualized effective fee rate was approximately three tenths of a basis point lower compared to the third quarter. This was primarily due to lower securities lending revenue underperformance of non U S equity markets and client preferences favor.
Martin: Lower fee fixed income and cash.
Martin: As a result of accelerating organic growth and global equity and bond market appreciation towards the end of the quarter. We entered the first quarter with an estimated base fee run rate approximately 6% higher than our total base fees for the fourth quarter.
Fourth quarter, and full year performance fees of $311 million and $554 million, respectively increased from a year ago, reflecting higher revenue from liquid alternatives and long only mandates.
Martin: Quarterly technology services revenue increased 7% year over year and full year revenue of $1 5 billion increased 9%, reflecting the successful onboarding of new clients and large E front on premises licenses renewals in the third quarter.
Martin: Annual contract value or <unk> increased 10% year over year as clients increasingly partnered with Blackrock for integrated technology solutions to drive business transformation and scale, we remain committed to low to mid teens ACB growth over the long term.
Martin: Total expense increased 1% in 2023, reflecting higher compensation G&A and direct fund expense, we effectively managed our discretionary spend in 2023, and we will continue to be disciplined and focusing our resources in areas with the greatest opportunity.
Martin: Our fourth quarter operating margin of 41, 6% increased by 40 basis points year on year as we continue to drive operating leverage and profitable growth after the market shock of 2022.
Martin: Our full year as adjusted operating margin of 41, 7% was down 110 basis points from a year ago. The decline primarily reflected the negative impact of markets and foreign exchange movements on our 2023 entry rate revenue as well as critical investments in our people and technology.
Martin: During the year, we reorganized two of our fastest growing businesses private markets and Aladdin to stay ahead of our clients' evolving needs and build on our past successes in these areas. These specifics groups further simplified their structures, resulting in a fourth quarter restructuring charge of 61 million comprised of severance and accelerated.
Martin: <unk> amortization of previously granted deferred compensation awards. This charge appears as a single line expense item on our 2023 GAAP income statement and has been excluded from our as adjusted results to enhanced comparison to prior periods.
Martin: In addition, we made resourcing decisions to free up investment capacity for our most important growth initiatives. This resulted in a one time compensation expense of $28 million in the fourth quarter, which is included in our as adjusted results.
Martin: Overall these two actions impacted approximately 3% of our workforce by taking a targeted and disciplined approach to how we shape our teams and evolve our skill sets to meet changing market and technology environments. We increased investment capacity, we enhanced organizational expertise and we create opportunities for operating leverage and career grew.
Martin: <unk>.
Martin: Looking forward, we're prioritizing investments to propel our differentiated organic growth and operating leverage we will aim to align investment spend with our highest conviction structural growth areas find additional ways to variable <unk> expenses and generate fixed cost scale through technology automation and optimization of our footprint through our innovation.
Martin: Hubs.
Martin: Excluding the impact of the GIC transaction at present, we would expect our head count to be broadly flat in 2024.
Martin: Also excluding the impact of <unk> and related transaction costs, we would expect a low to mid single digit percentage increase in 2024 core G&A expense.
Martin: Most core G&A growth should come from continued investment in technology as we look to operate more efficiently and better serve our clients.
Martin: One of our biggest long term advantages has been scale our ability to add significant assets managed with excellence without growing expenses linearly. Our platform strategy has delivered scale and operating leverage over time, and we're committed to delivering a premium operating margin.
Martin: Our capital management strategy remains consistent we invest first either to scale strategic growth initiatives will drive operational efficiency, and then return excess cash to our shareholders through a combination of dividends and share repurchases.
In 2023, we've returned over $4 5 billion to our shareholders through a combination of dividends and share repurchases.
Martin: Share repurchases have been a consistent element of our capital management strategy. Since 2013, we have repurchased close to $15 billion of Blackrock stock, which generated an unlevered compound annual return of 14% for our shareholders.
This time period, we reduced our share count by nearly 23 million shares or 13% for the trailing five years, we've lowered our share count by 10 million shares completing $7 8 billion of share repurchases at an average price of $563 for an IRR of over 15%.
Martin: Blackrock Board of directors declared a quarterly cash dividend of $5 10 per share representing an increase of 2% over the 2023 level.
Martin: At present based on capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price. We're targeting the purchase of one 5 billion of shares during 2024.
Martin: Full year total net inflows of $289 billion were positive across active and index as well as regions led by 156 billion of net inflows from clients in the United States and we had 70 products across our ETF and mutual fund ranges with over 1 billion in net inflows.
<unk> generated industry, leading ETF net inflows of 186 billion in 2023, representing 6% organic asset growth led by $112 billion of net inflows into our bond Etfs.
Fourth quarter ETF net inflows of 88 billion reflected significant momentum into year end helped by seasonal tax trades and portfolio Reallocations. We saw 28 billion of net inflows into precision exposures as institutional clients use these highly liquid instruments to re risk in the quarter.
Martin: With safe Haven cash, providing positive returns full year and fourth quarter retail net outflows of $8 billion to $9 billion, respectively were primarily due to allocations out of rising rates sensitive strategies, namely liquid alternatives and flexible bond funds. This was partially offset by strength in a period, which saw record net inflows of 12.
Martin: Billion in 2023, <unk> since acquisition has grown 95% to $80 billion.
Martin: Blackrock institutional business generated net inflows of $32 billion in 2023 led by active net inflows of 87 billion, including the funding of several significant outsourcing mandates throughout the year index net outflows of 55 billion were driven by redemptions from our low fee equity strategies as several large clients.
Martin: <unk> their allocations or redeemed for cash needs.
Martin: Finally, Blackrock cash management platform saw 33 billion of net inflows in the fourth quarter and 79 billion of net inflows in 2023, we're pleased with the continued strong growth in our cash and liquidity business with year end AUM up 14% or over 90 billion year on year, we're leveraging our scale and integration.
Cash offerings to engage with clients. We are using these products not only to manage liquidity, but also to earn attractive returns.
Martin: Demand for private markets remained strong with $14 billion of net inflows into Blackrock illiquid strategies during the year driven by infrastructure and private credit. We continue to expect these categories to be our primary growth drivers in the coming years.
Turning to our planned acquisition of <unk>. This is an exciting day for us our new partners, our clients and our shareholders. The combination will mark a transformational change in our private market scale and growth.
Martin: As the world's leading independent infrastructure manager with current client AUM of over 100 billion and fee based AUM of over $60 billion. The acquisition will create a highly complementary pro forma $150 billion infrastructure platform post closing tripling Blackrock infrastructure client assets the integration will nearly double.
Martin: <unk>, our private markets management fees to over $1 5 billion and add over $400 million in post tax annual FRE with FRE margins above 50%.
Martin: Since its founding in 2006 CIP has successfully scaled its equity flagship series from its $5 6 billion fund one to 20 plus billion in the most recent vintages <unk> current team of approximately 400 employees across 11 global offices has delivered strong long term performance for clients and as <unk>.
Martin: <unk> to generate approximately $760 million of management fee revenue in 2023.
Martin: Turning to the financial terms of the transaction, we are acquiring 100% of the business and assets of <unk> for total consideration of $3 billion in cash and approximately 12 million shares of Blackrock stock.
Martin: 7 million shares will be paid at closing and 5 million shares to be paid in approximately five years subject to certain performance measures Blackrock will fund the cash consideration through $3 billion of additional debt, which will not meaningfully change its leverage profile.
Martin: Primarily through growth synergies from proprietary deal origination larger transaction sizes capital formation scale, and multi asset class infrastructure investment innovation, we see opportunities to drive significant value creation for Blackrock shareholders.
The terms of this transaction ensure long term continuity and strong alignment of interest among <unk> and Blackrock to best serve clients employees and shareholders.
Martin: A substantial majority of the consideration paid at closing and approximately 75% of nominal total transaction consideration will be paid in Blackrock common stock.
P leadership will become meaningful shareholders of Blackrock with a shared ambition of driving one blackrock outcomes for our clients and shareholders, 100% of carried interest and capital commitments from all existing CIP funds will continue to be owned by the <unk> owners and employees. These are not economically included in the transaction perimeter and support.
Martin: <unk> long term retention and incentives of <unk> employees.
Martin: After closing <unk> management team will lead our combined infrastructure platform working with Blackrock strong investment teams in equity debt and solutions. The <unk> team will bring a talented group of investment and operational improvement professionals with a proven track record of building and running high performing private markets businesses.
Martin: Each of the <unk> founders will become party to a shareholders' agreement that requires shares to be voted in accordance with the recommendation of Blackrock Independent board at any meeting of Blackrock shareholders. We've provided additional detail on the transaction structure and terms in a supplement posted to the Blackrock Investor Relations website. This morning.
Martin: We expect the transaction to be modestly accretive to <unk> adjusted EPS and operating margin in the first full year post close which will exclude transaction related costs.
Martin: Given the structural growth trends of the private infrastructure market and what we see as a best in class whole portfolio infrastructure investing capability. We believe the transaction will be accretive to long term organic asset and base fee growth.
Martin: These capabilities can be a key source of earnings diversification and growth acceleration to meet or exceed our through the cycle, 5% or better organic growth ambitions.
Martin: Building on strong structural growth trends over this past year and the over one nine trillion of organic asset growth over the last five years, we're investing to deliver the industry's only comprehensive platform across public markets private markets and investment technology, having deliver differentiated organic growth in operating.
Martin: <unk> across the weakest markets in decades, we believe markets are trending to be strong for 2024 with a more risk on tone Blackrock share winner when assets are in motion, we see the pent up demand behind over one trillion in money market fund flows this year poised to deliver significant opportunities across risk assets are combination.
Martin: With <unk>, we'll put Blackrock in a leadership position to drive great outcomes for clients and deliver new engines of earnings growth for our shareholders. We've built an industry leader in structural growers like Etfs model portfolios outsourcing and investment technology with Aladdin, We're building a private markets leader at new levels of scale and we.
Martin: We see the best opportunities, we've had in years to get closer with clients and raise significant private capital, we enter 2024, and a stronger position than ever and all of US at Blackrock are excited about the opportunities ahead for our clients the firm and our shareholders with that I'll turn it back to Larry.
Larry: Thank you Martin.
Larry: We'll leave plenty of time for your questions later on but I wanted to describe how we evaluated bringing our firms together with GIC why do we think the timing is so opportune and how infrastructure private markets can be so beneficial to all our clients employees and to you our shareholders.
Larry: Infrastructure is a one trillion market forecasted to be one of the fastest growing segments of private markets in the years ahead.
Larry: A number of long term structural trends support an acceleration in infrastructure investments.
These include increasingly grow.
Larry: Rowing global demand and upgrading digital infrastructure like fiber broadband cell towers and data centers.
Larry: Renewed investments logistical hubs such as airports railroads shipping ports as supply chains are rewired.
Larry: And then moving towards increased energy independence in many parts of the world supported by Decarbonization infrastructure.
Larry: In the United States and around the world as a public need for greater investment in infrastructure. This growing needs create significant investment opportunities for clients.
The unprecedented need for new infrastructure, coupled with our record high government deficits means that private capital will be needed like never before.
Larry: That supply demand imbalance creates compelling investment opportunities for our clients at the same time corporates are looking to engage partners and new projects are partially derisking. It existing ones. These dynamics offer clients, especially those investing for retirement the high coupon inflation.
Larry: <unk> long duration investments indeed.
Larry: And we believe it will define the future of asset management for the next 20 years.
Larry: Our acquisition philosophy has always been about growth not about cost take outs <unk> consolidations.
Larry: Consistently these combinations have resulted in reaching heights that neither blackrock, nor emerge partners could ever reach on their own.
Larry: I truly believe that this will be the case again with the integration of Blackrock infrastructure and GIC.
Larry: Transformational transactions have strengthened our firm have strengthened our culture, and bringing top talent, new skills and experience into our organization.
Larry: Our culture has evolved as we welcome new teams and colleagues to Blackrock.
Larry: Today it represents a blending of the best parts of the cultures that have come together over the years.
Whats made our acquisitions. So successful was our steadfast commitment to a one blackrock culture totally connecting to our clients with one platform shared goals a common as Aladdin technology and as a result, Blackrock is greater than the sum of any one part and then that drives Blackhawks differentiate.
<unk> growth model.
Reaching this moment is quite personal and emotional for me or for our firms Blackrock in Gi P have similar origin stories.
Larry: We found at Blackrock on understanding investment risks and the factors and forces driving returns initially in fixed income and then across the equity markets and then globally.
Larry: We wanted to help long term investors better manage their risk in their portfolios in a scaled way through technology that is what drove our early investments in Aladdin and all the investments we've made since two enhance our understanding of risk factors to deliver superior outcomes for our clients.
Larry: CIP started with a similar focus in the infrastructure space.
Larry: Understanding operational risks and the factors and forces driving business efficiencies like Blackrock focus on understanding risk and fixed income <unk> built an active approach to analyzing in addressing operational risks.
Larry: My partners and I had the privilege of pioneering the mortgage backed securities market Bio is Gi partners in my opinion pioneered modern infrastructure investing in private markets.
Larry: And many of the Blackrock and GIC founders grew up in the same firms early in their careers, where we created common routes.
Larry: Some shared experiences most of them good sometimes bad.
Larry: And close client relationships.
The integration of Blackrock existing infrastructure platform with <unk> will result in a market, leading comprehensive infrastructure business with truly differentiated origination and asset management capabilities.
Larry: CIP will be highly complementary and has limited overlap by client and investment programs. The Blackrock existing leading franchises. These include diversified infrastructure for that infra solutions.
Larry: <unk> infrastructure and Decarbonization partners.
Blackrock has invested originally.
Larry: <unk> has invested organically and inorganically and growing our infrastructure platform, which has $50 billion in.
Larry: Having tripled since our acquisition of first reserve in 2017.
Larry: Blackrock has already demonstrated our access to some of the largest pools of capital in the world.
Larry: Deals like add dock pipeline transaction and being chosen to partner with sovereign wealth funds and governments that significant climate infrastructure strategy.
Larry: We have a sourcing capabilities, but greater AUM scale will enable us to have more sizeable positions. The planned combination of <unk> with Blackrock will accelerate investment scale.
Larry: Enabling us to grow faster.
Larry: <unk> deep relationships with clients corporates governments and sovereign wealth funds can accelerate investment opportunities.
Larry: GI pays all lending proprietary deal flow, leading proprietary deal flow has been supported by an investment sizes relationships and strong track record, including a long history of successful Jv's with large industrial partners.
Larry: Tip's deals spanned the world and sectors.
Larry: There are investments includes Gatwick Airport, Edinburgh Airport and Sydney Airport.
Larry: As Cypress, one data center and the port of Melbourne, and several other major renewable platforms.
Through the future combination of Blackrock, and <unk> will be able to connect our clients with bigger and better opportunities. While also accelerating growth diversifying revenues and generating earnings for our shareholders.
Speaker Change: Like Robin I'd buy.
Speaker Change: <unk> partners are all founders.
Speaker Change: We're excited about the opportunity to have new partners and new colleagues.
I am proud that the consideration in this transaction consists of approximately 75% of Blackrock stock.
Speaker Change: CIP founders will become among the largest shareholders of Blackrock and we plan to have bio joined.
Speaker Change: Our board of directors post closing of our transaction.
Speaker Change: There is no question spiritually or financially about whether we are long term partners. We have the same interest as significant shareholders alongside our broader shareholder base.
Speaker Change: Our one Blackrock culture has been central to our success over the last 35 years.
Speaker Change: And cultural alignment has been a core throughout our history of successful M&A.
Our founding to today, our firm is purpose driven focused on clients focus on risk management and powered by data and technology.
Speaker Change: Bringing our two businesses together result in a influx of top senior private market talent to Blackrock.
<unk> founders will lead our combined infrastructure platform with teams of talented investors and business builders, they bring with them a strong investment and performance culture and a commitment to working across one Blackrock.
I'm confident we will be looking back on today.
Speaker Change: As another transformational moment and the Blackrock history.
Speaker Change: Similar way when we can look back at our acquisition of <unk>.
Speaker Change: Merrill Lynch investment management, and our early days building Aladdin.
Our ability to adapt and to evolve and to grow has generated a total return of 9000% for our shareholders since our IPO in 1999.
Speaker Change: That is well in excess of our S&P return of four of 490% and representative of the business model, serving all our stakeholders.
I truly believe we're better positioned than ever before in our history and I'm very optimistic on the coming years ahead and the opportunities ahead for all of us.
Blackrock was built on optimism.
Speaker Change: When we founded Blackrock with new clients would be at the center of everything we do.
Speaker Change: We had a deep conviction in the long term growth and the importance of the capital markets and principle in practice those beliefs remain core to Blackrock today.
Speaker Change: We are more connected to our clients than ever.
Thousands of clients on behalf of millions of individuals around the world have entrusted Blackrock with one nine trillion.
Speaker Change: Of net new business over the last five years.
Speaker Change: Thousands more use our technologies to support the growth in commercial agility of their own business years of organic growth alongside a long term growth of the capital markets.
Speaker Change: <unk> underpins.
Our 10 trillion.
Speaker Change: <unk> assets.
Speaker Change: Which grew in 2023 by over one four trillion.
Speaker Change: In good times, and bad times, whether investors are adding or reducing risks are consistent and industry, leading organic growth demonstrates that clients are consolidating more of their portfolios with Blackrock.
Speaker Change: In 2023, our clients awarded us with $289 billion of net new assets. During this period of rapid change and insignificant portfolio Derisking.
Speaker Change: Blackrock differentiated business model has enabled us to continue to grow with our clients and maintain positive organic base fee growth.
Speaker Change: We've grown regardless of the market backdrops and even as most of the industry has experienced outflows.
I think back to 2016, and 2018, when uncertainty and cautious sentiment impacted investment behaviors, among institutional and individuals' many clients derisked and move to cash.
Speaker Change: Blackrock stayed connected with our clients, we stayed rigorous and driving investment performance innovating, new products technologies, and providing advice and portfolio design.
Speaker Change: <unk> clients, we're ready to move more actively step back <unk> to stepping back into the markets. They did it with Blackrock leading to new record flows.
Speaker Change: Where client flows and organic base fee growth at or above our targets.
Speaker Change: As we've seen before when investors, we're ready to put money back to work they did it with Blackrock.
Speaker Change: Clothes and organic base fee growth accelerated at the end of the year, we generated $96 billion of net.
Total net inflows in the fourth quarter, and we entered 2024 with great momentum.
Speaker Change: I spent much of 2023 on the road meeting with clients around the World and I plan to do the same thing in 2020 for starting this month.
Speaker Change: Our partnership approach and the performance we deliver is resonating both in markets, where we have a longstanding presence and those were our profile is just beginning and strengthening.
Speaker Change: Companies and clients increasingly want to work with Blackrock for companies, where we are investors. They appreciate that.
Speaker Change: But we are a long term consistent capital, we invest early and stay invested through cycles, whether it's debt or equity pre IPO or post IPO companies recognize the uniqueness of our global relationships, our brand and our expertise across businesses markets and industries.
Speaker Change: It makes us a very valuable partner.
And it turns enables us to be involved in their sourcing and then performance that we provide for our clients.
For example in November our diversified infrastructure franchise invested $550 million and Stratos.
Speaker Change: Commercially scaled direct air capture facility in Texas, which is expected to be the largest in the world upon completion.
Speaker Change: Through our funds joint venture partner Occidental Petroleum, we are providing our clients with investment access to a bespoke energy infrastructure project.
Speaker Change: This adjusted a latest example of our sourcing and execution of numerous distinctive deals for clients over the last 18 months.
Speaker Change: In the United States, we partnered partnered with AT&T and Giga power JV and invested in Jupiter power.
Speaker Change: Beyond the U S. Examples include such investments.
Brasil in Brazil, first ore in South Korea, Acacia energy in Australia later kind of wind farm in Kenya, just to name a few.
Speaker Change: Last month, we announced an innovative partnership with Altera that will we will see a $2 billion invested in the <unk>.
Speaker Change: Climate opportunity across Blackrock private debt and infrastructure equity strategies. This is one of our largest ever private markets mandates. It adds on to our very strong track record investing in the transition, including in emerging markets and extend our over $100 billion transition investment platform.
Speaker Change: Blackrock global network of relationships data analytics and flexible.
Speaker Change: <unk> capital means we could source unique deals for our clients and mobilized assets and accelerated innovation and economic growth.
Speaker Change: Our active investment insights our expertise our strong investment performance similarly, differentiating blackrock to the markets.
Speaker Change: We saw nearly $60 billion of active net inflows in 2023 compared to an industry outflows.
Speaker Change: Ross our active franchise Blackrock has delivered durable investment performance with 87% and 92% of fundamental equity and taxable fixed income AUM above benchmarks or peer medium for the past five year period.
Speaker Change: Okay.
Speaker Change: And Etfs Blackrock generated an industry, leading $186 billion of net inflows for 2023.
Speaker Change: Our long term leadership of the ETF industry is another testament to our global platform and our deep connectivity with our clients.
Speaker Change: Blackrock is the most scaled diversified ETF provider in the U S and globally.
Speaker Change: We are bringing the ETF benefits of liquidity, a price discovery and market efficiencies and access to investors around the world.
Speaker Change: Nearly half of the 2023 Ishares net inflows were from Etfs listed internationally in local markets led by our European Ishares net inflows of $70 billion Blackrock has in everyone's share of the European ETF market, where industry flows were up 70% in 2020.
Speaker Change: Free cash.
Catalyst trends that we saw in the U S years ago like the growth of the fee based advisory in model portfolios are just beginning to take route in Europe.
Speaker Change: Blackrock takes a client first approach to product innovation and we continue to develop products that are suited for the new investment regime. For example, we launched 19 active Etfs in 2023, leveraging the benefits of the ETF structure to help clients reached the outcomes they seek.
Some of these strategies provide access to the insights of our active portfolio managers, such as Rick reader and Tony to Spiro other use an option strategy to generate income will provide greater downside protection such as our buy right in buffer Etfs and in the fourth quarter, We launched a series of Lightpath target date.
Speaker Change: TFS.
Speaker Change: To provide an easier way to save for retirement, especially for the many Americans, who lack access to a workplace retirement plan.
Speaker Change: Just yesterday the eye.
Speaker Change: Ishares Bitcoin ETF began trading in another landmark moment that advances ETF innovation and expand access to bit point for investors. We will continue to provide more convenient and cost effective investment access across.
Speaker Change: Asset classes through innovation through risk management and technology.
Speaker Change: A lot of the operating system, United All of Blackrock and is fundamental and foundational to how we serve our clients across our platform is the key technology that powers Blackrock and Theres also powers many of our clients.
Speaker Change: Need for integrated data integrated risk analytics, and the whole portfolio views across public and private market is driving the ACB growth of Aladdin.
Speaker Change: In 2023, we generated $1 5 billion in technology service revenues clients are looking to grow and expand with Aladdin, reflecting <unk> strong harvesting activities.
With over 50% of the Aladdin sales being multi product.
Through its dynamic ecosystem of over 130000 users.
Speaker Change: Added platform is constantly in the state of innovation.
Investments in Aladdin AI co pilot enhancements and openness supporting ecosystem partnerships and advancing whole portfolio solutions, including private markets and digital assets are going to further augment the value of Aladdin for our clients.
We led our industry by both being an agent for and adapting to change our best years have followed tough years.
Speaker Change: As we continue to innovate and evolve our business to stay ahead of our clients. We are also evolving our organization and evolving our leadership team.
Speaker Change: As Martin mentioned, we undertook restructuring efforts that were designed to ensure we are aligning resources to our greatest growth opportunities and client needs as part of this a number of valued clients are valued colleagues and friends to part of the firm.
Speaker Change: We truly appreciate the contributions they made to Blackrock and wish all of them well.
Speaker Change: We're continuing to anticipate what clients' needs and shaping Blackrock so they could be getting our insights our solutions and the outcomes that they expect from us.
Speaker Change: As we look ahead, the re risking our client portfolios will create tremendous prospects for both our public and private market franchises.
So these are the times, where investors are making wholesale changes to the way they build portfolios and Blackrock is leading the way in helping investors build the portfolio of the future well that integrates public markets and private markets.
Digitally enabled we view that these changes are a big catalyst for Blackrock, we set ourselves up to be a structural grower in the years ahead with a diversified platform we built.
Speaker Change: And the need for integration data technology and risk management will continue to drive demand for Aladdin.
Speaker Change: Blackrock was founded on the belief in the long term growth of the capital markets.
Speaker Change: Our success has been shaped by a number of those calls and how we would evolve.
Speaker Change: Our client needs have always been our compass as we listen to them today, we have our eyes on themes. We believe that will define the next decade of asset management.
Speaker Change: The continued blurring the lines across product structure.
Speaker Change: Unprecedented it'll need for new infrastructure driving inflation protected current cash flow long duration returns, the accelerating capital markets and asset management industry around the world.
Speaker Change: We are positioning ourselves ahead of these transformations by making three major changes in how we work and how we deliver for each and one of our clients first.
Speaker Change: First we are creating a new strategic global product and solution business that will work across all of our investment strategies asset classes fund structures, while enabling our ETF and index business across the firm.
Speaker Change: We have always viewed etfs as a technology, a technology that facilitates investing and just as or Aladdin technologies has become core to asset management. So has have etfs. That's why we believe in embedding our Etfs and index businesses across the entire firm and that will accelerate.
<unk> further growth of Ishares and every investment strategy within Blackrock.
We are looking to the future and we believe that ETF Revolution that ice shares led will only continue to accelerate as Blackrock turns as our clients turn at Blackrock for Etfs as the preferred vehicle for investing in strategic and strategies of all types.
Speaker Change: Meg an ETF or a bitcoin my gosh, you could make an ETF for anything.
Speaker Change: Second we are creating a new international business structure to provide a unified leadership to allow us to be simultaneously more global but much deeper local and a fast growing international markets.
Speaker Change: <unk> has been a central player in the growth of the global capital markets and this is including the developing of retirement solutions in every market around the world and bringing the benefits the etfs to every market to assist them in growing their markets and third we are realigning our private markets business. The further leverage the potential of <unk>.
Speaker Change: And to meet the growing needs of our clients for infrastructure and other private market investments.
All of us at Blackrock have a lot of hard work and a lot of exciting work ahead of US we have a track record of quick intense and successful integrations.
Speaker Change: It will be more nimble and aligned with clients through our new architecture and with the aim to be delivering better experiences better performance better outcomes for all of our clients worldwide.
Speaker Change: I see excitement.
Speaker Change: Credible about of energy in our offices, while Theres a lot of hard work that come there really is a bright future for all of US ahead of us.
Over the past few months, we've seen decidedly more positive sentiment and tone in markets and among clients that are very optimistic will carry into 2024 and once again, we look forward to beginning of this next Blackrock shafter with our new partners and colleagues at G. IP.
Speaker Change: We entered 2024 with 10 trillion of our clients' money.
We entered the year with strong growth momentum.
Speaker Change: And we entered 2024 as an organization.
Speaker Change: Positioned in the future for growth and prosperity.
Speaker Change: At Blackrock, we are energized by a never done attitude and today I really feel that we're just getting started.
I see greater opportunity for Blackrock, I see greater opportunity for our clients and I see great opportunities for our shareholders today.
Speaker Change: Moral and stronger than ever before.
Speaker Change: Let me open it up for questions as I mentioned bio will also participate in the Q&A. Thank you.
Bio: 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 speaker setting and user handset to avoid any potential feedback.
Bio: These limit yourself to one question.
Bio: A follow up please reenter the queue.
Bio: So just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from Craig Siegenthaler from Bank of America.
Good morning, Craig happy New year.
Craig Siegenthaler: Hey, good morning, Larry Happy New year to you too and hope everyone is doing well and congrats on the deal.
Speaker Change: Thank you.
Speaker Change: My question is actually on the <unk> deal. So this is a high quality business strong track record.
Speaker Change: It's big enough to go public stand dependent, but they chose Blackrock and they decided to take stock. So I imagine gross synergies were a driver. So my question is really on the strategic rationale.
Speaker Change: How can Blackrock global distribution platform calibrate their growth and do you see specific client segments and I'm thinking private wealth, where you see low hanging fruit.
Speaker Change: Great question, I think it will be answered by million vial.
Speaker Change: So let me once again go over the strategic rationale.
Speaker Change: As I said in my prepared speeches.
Speaker Change: And I think I would echo everything I mean, as we say, we're just beginning I would say.
Speaker Change: A very bright investment horizon for infrastructure.
Speaker Change: As I said deficits matter.
Speaker Change: More and more governments are going to have more difficulties to do deficit financings and in turn more and more governments are even focusing on doing more public private I think I think <unk> success in the UK and Australia are very good examples of working with governments.
In terms of helping them.
Speaker Change: Of sell assets, but at the same time using the private sector to improve the quality of services.
Speaker Change: <unk> has been a leader in that I believe that.
Speaker Change: A lot of capital that is going to be needed as we digitize everything.
Speaker Change: The need for upgrading our electrical power grids.
Speaker Change: Worldwide is a must.
Speaker Change: The capital associated with that is going to be enormous.
Speaker Change: In my travels around the world more governmental leaders are talking about the need for energy independence.
Speaker Change: And they look if they have some form of energy theyre going to be try to be doing more of that but more importantly, or just as importantly, the amount of capital they need to provide to develop more decarbonising.
Speaker Change: Investments in wind and solar.
Speaker Change: To provide broader.
Speaker Change: Broader energy.
Speaker Change: Where their growth in their economies.
Speaker Change: <unk> is very important if we are going to decarbonize the world the amount of capital that infrastructure is going to be very necessary.
Speaker Change: If we are going to be more and more reliant on.
Speaker Change: On inter connectivity worldwide.
Speaker Change: Need for the upgrading of ports is vital.
Speaker Change: As more and more human beings grow into a middle class lifestyle that demand for air travel grows dramatically the need for a high quality airports rose dramatically and so.
Speaker Change: That's just one segment and then when you think about corporations.
Speaker Change: Corporations, historically disposed as divisions.
Speaker Change: Two private equity, we see more corporations instead of disposing divisions selling portions of those divisions, maybe keeping a major part of that selling parts of their infrastructure or partnering with companies and their infrastructure like the deal we did with <unk>.
Occidental petroleum for Eric capture the transaction Blackrock did with AT&T on five G build out across the United States. These are just a few examples pipelines in the Gulf region.
Speaker Change: And so the industrial logic is pretty large in our opinion that the next 10 years as it would be greatly about the expansion of the global capital markets and infrastructure.
Speaker Change: And so we believe that the demand for capital and infrastructure is OLED to grow larger than larger.
Speaker Change: And as I said, a few times in my prepared remarks.
Speaker Change: Having a long duration high coupon inflation protected asset is a very strong asset class for all retirement funds, but importantly, as you mentioned well, we believe a great opportunity to providing to the wealth management product. These two.
Speaker Change: <unk> products. So they can enjoy these type of long duration assets, they're going to throw off these above what I would say public market returns.
Speaker Change: And so I believe across the board sovereign funds.
Speaker Change: Both.
Speaker Change: Retirements, both in the <unk>.
Speaker Change: <unk> contribution space and the defined benefit space.
Speaker Change: Across the board. These are the preferred instruments and my calls with clients today I can tell you more and more.
Speaker Change: Sovereign wealth funds see infrastructure as a major growth area in their asset allocation.
Speaker Change: Bio talk about.
Speaker Change: Blackrock in us.
Speaker Change: Only just say at black from the Blackrock side, we only had one target.
Speaker Change: It only had one organization, where we believed.
Speaker Change: And their business model.
Speaker Change: It was only one organization, where we believe we had such complementary skill sets and then most importantly.
Speaker Change: It's a team of leaders under bile that we believed in.
Speaker Change: And we believe that will create real opportunities for Blackrock and I am pleased that <unk> will be joining the Blackrock forward post closing and importantly, we look forward to having the intellectual capital that CIP is bringing alongside our superb team and infrastructure.
Speaker Change: Sure.
Speaker Change: What I'll add to that is I think Larry is exactly right. We are about to me in the Golden age of infrastructure investment and so the question for us our Gi P. It was always how do we accelerate the work we've done a bit of kept trying to do what we were doing by ourselves, but we thought that looking at it.
Speaker Change: Both point of view for the point of view or infrastructure investing Larry's right, yeah tremendous tailwind instead of going to drive the demand for private capital in infrastructure investing.
Speaker Change: On our client side of the pension funds and sovereign wealth funds asset managers infrastructure.
Speaker Change: Infrastructure is what they wanted to invest it they like the fact that infrastructure has a very high yields the average yield on our mature funds over the last 15 years.
Speaker Change: 8%, Okay. That's in a world of zero interest rates generally 8%.
Speaker Change: They like the fact that these assets are uncorrelated to other asset classes thinking about what's going on today infrastructure assets are doing very well we have <unk>.
Speaker Change: 19 companies in our flagship funds.
Speaker Change: 812 of them double digit EBITDA growth last year.
Speaker Change: Five of them single digit EBITDA growth the only one that didn't was because it's sold assets.
Speaker Change: Compare that to the other real asset plus commercial real estate debt.
So investors love the fact that these asset classes.
Speaker Change: Not correlated.
Speaker Change: I like the fact that there's a lot of downside protection because they provide essential services and so these are all sort of.
Speaker Change: Congress that will float.
Speaker Change: Do we accelerate what we're doing.
Speaker Change: The marriage with Blackrock.
<unk>.
Rob Kapito: Rob Capito said.
Rob Kapito: This is a deal where one plus one equals four.
Speaker Change: I'm not sure whether it's three or four but I know Rob is directly correct. Okay.
Speaker Change: When we look at the two businesses, they're very complementary Blackrock has built a terrific infrastructure business, we've tripled the size of it over the last over the last of years that we've owned it.
But they make mid market or mid coffee vessels.
Speaker Change: Make large cup investments.
Speaker Change: We have a terrific infrastructure that business.
Speaker Change: Mostly investment grade.
Is it mostly below investment grade.
Capital solutions business that we don't have so if you put these two businesses together, we can go to clients large cap mid cap clients offer them a complete a real solutions you want investment grade debt. We've got you on that.
Speaker Change: That's an investment grade debt, we've got it okay and so we think this will allow us to accelerate the rate at which we can provide investment opportunities for our clients and look it's always nice to think Youre right.
Speaker Change: The approval of the put in is what people say when you call them.
Speaker Change: Larry mentioned, he and I have been on the phone with our clients and this is what they've said.
This is a fantastic transaction.
Speaker Change: One for us as clients too.
Speaker Change: Two for Blackrock and <unk> IP no I wish I had known that with Blackrock ahead of JP, because then I'll just ask for a higher price but.
Speaker Change: So it's all worked out very well.
And I think the other thing you should be people should recall is.
Speaker Change: I hope Martin of <unk> might be safer.
Speaker Change: We're taking 75% of the consideration in stock.
The initial offer from Blackrock was actually a little modest okay. We like the fact that Blackrock thinks their stock is undervalued.
Speaker Change: And the fact that we are taking 75% in Blackrock stock tells US you also think it's undervalued.
Speaker Change: And the final thing I'd say is we actually looked at Larry has talked about how the cultures are very different I think thats absolutely true.
Speaker Change: <unk> also looked at what Blackrock has actually done pointed to the acquired businesses.
Speaker Change: Interesting Congress.
Speaker Change: <unk> <unk> three trillion in assets when we bought it to date.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: Okay. So now straight up.
Speaker Change: Okay. Okay. So that's actually a little scary.
Speaker Change: Infrastructure, they've tripled the size.
Speaker Change: So it's clear to me the subliminal message is we have to at least triple the size of the infrastructure.
Speaker Change: Going forward.
Speaker Change: I hope that answers your question.
Speaker Change: Okay.
Speaker Change: We'll go next to Michael Cyprus with Morgan Stanley.
Michael J. Cyprys: Happy New year Michael.
Michael J. Cyprys: Hey, good morning, happy new year, and congratulations on the transaction.
Michael J. Cyprys: Just curious what are the plans for integration if you could talk about that a bad in any particular lessons that you take away from other private market transactions acquisitions that we've seen across the industry as you think about driving success here.
Speaker Change: Thanks, Mike Happy New year.
Speaker Change: We have a really strong track record of successful integrations that Blackrock and we believe this transaction will prove to be another success, I think Larry and <unk> spokes very much about the common cultures, the shared vision the opportunities the growth with clients.
Speaker Change: We know that CIP shares the same laser focus on clients and values that we do rigorous investment process and us.
Speaker Change: And the structuring the transaction was also done to reduce strain on teams and help facilitate the transition into new leadership and a more diversified platform.
Speaker Change: Some of the organizational changes that we also announced today are going to help us be more nimble and aligned with our clients. We've reorganized businesses for the future with the aim of delivering better experience performance and outcomes for clients. The thing I'd add is.
Speaker Change: Larry talked about in his prepared remarks, our integrated operating platform.
Speaker Change: And he talked about our track record and integrations.
Speaker Change: We have built our private markets business with substantial inorganic activity going back all the way to the early two thousands and we built a lot of the existing infrastructure business that we have today also through inorganic transactions that have been successfully integrated so we've been doing this for 10 years in the infrastructure space and look forward to accelerating it.
Speaker Change: With Io and his partners and the entire <unk> team, who have substantial experience and business building in alternatives and the last thing I'll say just about integration is.
Speaker Change: I think in many ways. This is a less complex integration and that these are highly complementary platforms bio just talked you through in terms of some of the differences and investing acumen and solutions on the equity side on the debt side and so in many ways. We have limited amounts of overlap both in clients as well.
Speaker Change: As in the characteristic of our investment solutions in many ways that makes the integration I think nimble or and easier to position with clients.
Speaker Change: <unk>.
Speaker Change: More agile for us to bring the platforms together.
Speaker Change: Let me just add one thing.
Illinois are going to be on the road a lot and we're going to.
Speaker Change: With the combined organization, we have an amazing story.
Speaker Change: And we are going to be.
Speaker Change: Telling everybody the story from the corporation sides to governments I, just got an email from a big government, saying, Okay. There are things we can do more so that was a nice E mail that I just received.
But I do believe our key is making sure our clients are the investors that are invested in.
Speaker Change: <unk> and Blackrock and Gi P that they understand the merits of the combination.
Speaker Change: They think this is even better for them and our job is to make sure that everybody sees it and we execute that way.
Speaker Change: But we are very excited about this and I look forward to being on the road with bio.
Speaker Change: We'll go next to Michael Brown with VW.
Michael Carrier: Michael Happy New year.
Michael Carrier: Hi, Good morning, Thank you happy new year to you as well.
Michael Carrier: Maybe I'll just.
Michael Carrier: Transition to the organic growth outlook here as we think about 2024.
Michael Carrier: Obviously, there's been a lot of optimism around the acceleration of the fixed income flows here with what seems to be a more visible interest rate trajectory. So sorry to hear about maybe some of your early conversations youre, having with institutional clients regarding allocations and what they are and how you expect that to progress through 2024, and when you think about.
The fixed income inflows were at where should we think about where that money will kind of shift from is it is it from the money market funds or is it kind of the ownership of direct securities moving into into funds are from bank deposits just love some commentary on that thank you Larry.
Speaker Change: Great Mike Martin.
Speaker Change: I'll start just on some of the organic growth outlook, and then Rob will talk a little bit about your specific fixed income 23, and 2023, obviously, we delivered 289 billion of total net inflows and 1% organic base fee growth.
Rob Kapito: We continue to have conviction here in our 5% basically target over the long term we've reached it on average over the last five years and met or exceeded it in six of the last 10, and importantly, I think the.
Rob Kapito: The way our shareholders.
Rob Kapito: Evaluate us years marked by significant market volatility 2016, 2018, 'twenty two 'twenty three we generated positive organic base fee growth and these last two years no doubt have been more challenged on base fee growth through tough markets, where we've continued to generate positive growth while the industry has seen seem to Kay we don't aim.
Rob Kapito: As you know to be the fastest grower in any quarter or any year, we aim to deliver more consistent and durable organic growth through market and over the long term I would note we saw excellent momentum to finish the fourth quarter as I mentioned in my remarks in November December we generated an annualized 6% organic base fee growth rate and that to me.
Rob Kapito: <unk> suggests that we can trend towards our 5% through the cycle target as rates stabilize and the market is more constructive. This is some of the best organic base fee growth momentum we've seen since 2021.
Speaker Change: Do you want to flag two things the first of which is <unk>.
Speaker Change: I'd, particularly flag that ice shares in Europe is really well positioned and I think it's going to be a bigger part of the organic base fee growth story over time European ETF industry flows are up 70% year on year European Ishares had almost 50% flow market share and a lot of the long term trends that propelled the U S industry to high <unk>.
Speaker Change: Growth rates are taking hold in Europe. So I think it's just the beginning we also see this combination with <unk> and the potential for higher management fee growth and illiquid alternatives.
Speaker Change: Stirring diversifying our overall organic base fee growth trajectory suddenly to Rob on fixed income, yes. So I'll just add just two things Mike I wake up every morning, salivating about seven trillion thats sitting in money market accounts.
Speaker Change: Waiting.
Rob Kapito: To move and in order for it to move you have to have a wide plate of products. That's what we have been developing and client solutions. A lot of this is going to come from money that's flowing into model portfolios, which we are the leader in and a lot of it is going to come from digital.
Rob Kapito: <unk>, well, which is a $17 billion global market, it's growing at 15% and Etfs are becoming the investors preferred vehicle with access to investments and then lastly, as we blend the active and passive business together, we're going to see a lot of active fixed.
Rob Kapito: Income portfolios move into an ETF wrapper.
Rob Kapito: We're the leader in ETF wrappers as well so I think there is a huge huge runway.
Rob Kapito: For fixed income and really the windows is right behind our back for that.
Okay.
Your next question comes from Brian Bedell of Deutsche Bank.
Brian Bedell: Great. Thanks, Good morning, happy New year and also good afternoon, Brian.
Good morning, maybe just to ask about the infrastructure. Another angle of this just your outlook for.
Brian Bedell: For fund raising over the next one to two years given your the products that you have and your thoughts around the growth in that $760 million of fee related revenue and maybe just the timing of it.
Brian Bedell: You have you said it a successful fund of 2019 that was a 22 billion funds. So you are.
Are you in the market now for a fund or will soon be in do you expect to exceed that.
And then also just the.
Brian Bedell: In that retail channel.
The desire to create democratized.
Brian Bedell: Our infrastructure products for retail investors that had some liquidity features.
Brian Bedell: Okay.
Speaker Change: Thanks, I'll start and then I'm sure there'll be some additional color.
Speaker Change: First of all clients continue very much to increase their allocations to illiquid alternatives and private markets. These are the client needs that drove our acquisition of <unk> front the moves that bring us here today.
Speaker Change: With GIC.
And the moves that we've made organically and inorganically to build market leading alternatives capabilities.
Speaker Change: Blackrock, our alternatives client assets now totaled 330 billion, including liquid credit or private markets. The liquid alternatives have reached $166 billion in assets with about $140 billion and fee paying AUM and private credit private equity solutions and infrastructure were the main drivers of Q4 and full.
Speaker Change: All year flows with $4 billion and about $14 billion, respectively. Since 2021, we've had excellent momentum in our private markets fundraising. We've raised approximately 96 billion of gross capital across our platform and we continue to see good momentum with clients. We're building on vintages and strong track records. So we can scale successor.
Speaker Change: Funds, we expect our primary growth drivers as I've said over the next three to five years to be infrastructure and credit and private equity solutions, where we build great franchises.
Speaker Change: We continue to see terrific opportunities, Larry and bio have really talked about with some of these are but I do think Blackrock has a durable competitive advantage that's been built through our public markets our relationships with global corporates, our advisory work with sovereigns in the public sector around the world as well as the as well as our <unk>.
Speaker Change: Technology capabilities of the year and bringing together a lot of this public and private sector long term objectives officially moving capital to key drivers of industrial transformation, that's often when Blackrock at its best So we're very optimistic and energized by our capital formation opportunities, particularly with our new partners at VIP and <unk>.
Speaker Change: As Larry and <unk>, they're both going to be traveling a lot. So I'm looking forward to her.
Speaker Change: Those sessions I think will help us grow together, but importantly, I think really bring innovative solutions to corporates through partnerships and unique public private opportunities for us that will help grow our illiquid alternative space fees and assets.
Speaker Change: <unk> in the final stages of raising a very large fund.
Speaker Change: Because it's in the.
Speaker Change: And the stages of raising the money that we cannot talk about it so.
Speaker Change: Standby, but.
Speaker Change: It's in.
Speaker Change: In the late stages of fundraising.
Speaker Change: The other thing is that we are very good at structuring product for the individual investor, whilst investor and I'm looking forward to working with <unk> team to figure out how our teams can get together and democratize those investments because as Larry mentioned before this is.
Speaker Change: Such a perfect retirement products long duration, good yield equity upside.
Speaker Change: Going to open up new areas of growth that we have not tapped yet.
Speaker Change: Yes.
Speaker Change: Your next.
It comes from Brennan Hawken of UBS.
Good morning, Thanks for taking my question. Good morning, gentlemen, how are you happy new year.
Speaker Change: The new year.
Speaker Change:
So curious.
Speaker Change: Question on the deal here.
Speaker Change: Is this.
The deal that you would consider transformational or is this more indicative of a desire to continue to add more alts capabilities going forward and then one just sort of a little bit more granular roughly.
Roughly 400 million and FRE is based on 24 forecast from what I can understand.
Speaker Change: Can you give maybe an indication about where Gi piece FRE was for.
Speaker Change: 2023.
Speaker Change: Oh.
Speaker Change: Thanks Brennan for the question. It's Martin first of all this is on a sale of a transaction that we consider transformational most definitely our clients feel its transformation.
Martin: The volume of E. Mails I can see on Larry screen suggests to me that is transformational.
Martin: And it's what we've talked about is transformational transactions. It's transformational in terms of the capabilities that Blackrock has and can offer to clients and its transformational in terms of the financial and earnings.
Martin: Packed to the firm so those two axes of how we've always measured transformational in terms of our capabilities and in terms of the financial impact.
Martin: And on both fronts. This is definitely a transformational transaction.
Martin: <unk> generated really strong performance.
Martin: Performance as well as FRE growth I'm not going to comment on the 2023. It will let the 2024 speak for itself, but we continue to see great breakout growth opportunities in terms of being able to expand our fee paying AUM across the illiquid alternatives platform with infrastructure as a priority as well as growing base fees.
Martin: And in a way that adds to our 5% organic growth objective through the cycle. Let me just add on some of our.
Martin: Small and large.
Martin: Transformational deals.
Transformational deals could be as large as it is.
As a <unk> transaction.
Martin: But if you remember everyone. When we did that transaction most people hated it.
Martin: It did not see the merits.
Martin: The marriage of <unk>.
Martin: Active and passive did not think cultures can merge.
Martin: Did not understand Etfs as a technology.
And as <unk> was saying earlier, when we bought Pgi was under $300 billion ish.
Ishares assets and now it's over three five trillion.
Martin: And this pattern in the past 10 years, we acquired first reserve when it had about $3 billion.
Martin: It's more than tripled its assets in a number of years in terms of infrastructure.
Martin: Just recently, we acquired a period.
Martin: And the assets are 95% since we acquired <unk>.
Martin: And then just as importantly in technology buying a front, we made a statement that.
Martin: Whole portfolio analytics are going to become very important not just public market analytics and we are now the leading technology platform, both in private and public and you dovetail. All of this is it's all wrapped around our global view of where the global capital markets are doing.
Martin: Technology needs for markets and in the movement and I do believe all of this is going to be playing out as I said in my prepared remarks, I truly believe infrastructure and reconfirm that infrastructure is at the very beginning.
Martin: And the greater the need of capital and because of that.
Martin: Type of asset is that the demand for this type of investment is really going to be strong and we believe this is what are our statement is we believe the next 10 years is going to be a lot about infrastructure.
Martin: And this will become more and more of a major component of the entire private market ecosystem.
Martin: Okay.
Speaker Change: Your next question comes from Patrick Davitt of Autonomous research.
Speaker Change: Good morning, Patrick and good morning, everyone and happy new year How's it going.
Speaker Change: You guys have been pushing this idea that the <unk>.
Speaker Change: <unk> trillion in money funds will start to rotate into risk assets for a while now.
Speaker Change: The historical data, we can see from past cycles does not really show that at least from what we can see.
Speaker Change: And it looks like last year was maybe came more from bank deposits than risk positions.
Speaker Change: What are you seeing maybe that we can't see that suggest the cycle will be different and if rates really are higher for longer can't both money funds and bonds win with <unk> 17 trillion, it's still sitting in bank deposits.
Speaker Change: Yes, so it's Rob here. So the answer is it's going to be dependent upon rates and alternative investments. So I think history shows when the cycle stops that's when people first start to re risk we saw about 40 billion come out.
Rob Kapito: <unk> market funds to us as people re risk and then theres market volatility and it stops. So I think we have to get to what people feel as the end of the cycle and rates and then people will look the benefit for US is then when they re risk they usually come into <unk>.
Rob Kapito: Our precision investments, which are higher fee.
Rob Kapito: Type investments and yield really matters so.
Rob Kapito: If you look at it there's a blurring between the bank deposits into money markets all dependent upon rates, but once that cycle stops and it's been a start and stop over the last.
Year at least especially in the fourth quarter.
Rob Kapito: But that's how we look at it.
Your next that will be our last question comes from Bill Katz from TD Cowen.
Bill Katz: Okay. Thank you and good morning, everybody.
Bill Katz: Thank you Larry afternoon tune of team and congrats on the transaction sorry, my phone cut out a little earlier today that hasn't been working from home.
Bill Katz: Just a little bit of the Q&A earlier on.
Speaker Change: For Morton, perhaps just little technical question at this point.
Speaker Change: As you sort of model out the modest accretion as you look forward I was just sort of wondering how does the economics on the performance fees work it looks like you're keeping about 40% of the incremental opportunity.
Speaker Change: So it give us a sense of what kind of returns <unk> put up over time, and how does that flow down to performance fees and then I would presume that as part of the guidance that this new fund that they are in the market for now that Larry just sort of intimated, it's going to be coming shortly.
Part of the economics, and then when you say great in the pit the St. FRE margin can you sort of give us a little more sense on that I'm, just trying to back into the fee rate as well as the absolute margin. Thank you.
Speaker Change: Yeah.
Speaker Change: Thanks Bill.
Speaker Change: I'm sorry, your phone wasn't working so it's great to great to hear from you happy new year.
Speaker Change: So.
Speaker Change: As we said, we expect the transaction to be modestly accretive to EPS.
And to operating margin in the first full year post close we expect it to be accretive to long term organic asset.
Speaker Change: And base fee growth over time.
Speaker Change: We are adding we expect to be adding pro forma 400 million plus of post tax margin accretive FRE as a result of the transaction.
The transaction structured so that we're acquiring 100%.
Speaker Change: The assets and business of <unk>, So all of the future management based fees will.
Speaker Change: We will be within the transaction perimeter.
Speaker Change: And Thats, where we derive our estimates for the 2024 and beyond.
Speaker Change: Our growth in the business.
Speaker Change: In terms of thinking about the fee rates the fee rates are relatively comparable overall to the Blackrock illiquid alternatives, but think north of 100 basis points in terms of how you're modeling that out.
Speaker Change: As you noted in.
Speaker Change: The deck that we posted to the Investor Relations website. The transaction is that G. IP owners and employees are keeping 100% of the carried interest for existing Gi P funds.
Speaker Change: And future funds will be 60% to the <unk> teams and 40% to Blackrock.
Speaker Change: I'm not going to talk about fund raising or future funds, but we would expect those performance fees to come on in in later years not in the near term given the trajectory for how vintages come on.
Speaker Change: We would expect improvement in the fee related earnings growth over the next two years.
Speaker Change: Thanks.
Speaker Change: Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink do you have any closing remarks.
Fink: Thank you operator, I want to thank everybody for joining.
Fink: Joining us this morning and for your interest in Blackrock, our fourth quarter and full year performance is a direct result of.
Fink: Our steadfast commitment to serving clients and evolving for our long term needs.
Fink: Our clients.
Fink: Our acquisition of <unk>, and the organizational changes will be transformational and accelerating our growth ambitions and delivering value for our clients and for our shareholders.
Speaker Change: Hopefully everyone could hear that we are.
Credibly excited about the opportunities ahead of us the opportunity to having partners like bio and his team and we believe we have never been in a stronger position.
Speaker Change: Two to grow with our global capital markets and to grow.
Speaker Change: And being a very large.
Speaker Change: By serving firm and helping our clients meet their future needs.
Speaker Change: Have a very good quarter.
Speaker Change: And tried to enjoy it as much as possible. Thank you.
Speaker Change: This concludes today's teleconference. You may now disconnect.
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