The operator, Jennifer, introduces the speakers for the BlackRock Incorporated Second Quarter 2024 Earnings Teleconference. The speakers include Chairman and CEO Laurence D. Fink, CFO Martin S. Small, President Robert S. Kapito, and General Counsel Christopher J. Meade. The call will include a question-and-answer period. Before starting, Meade reminds listeners that forward-looking statements may differ from actual results and BlackRock is not responsible for updating them. Fink addresses the recent assassination attempt on former President Trump and urges unity and civility in the country. Small will now take over.

In the second quarter of 2024, BlackRock saw strong financial performance and growth, with double-digit operating income growth and record AUM. They are focusing on organic growth and expanding into new areas such as private markets and technology. This is expected to drive long-term growth and diversification for the company.

BlackRock's strong organic growth and technology platforms are expected to drive earnings growth and multiple expansion for shareholders. With over $10.6 trillion in assets under management, BlackRock is becoming a top long-term capital partner in both public and private markets. The company's relationships with clients, corporates, and the public sector are leading to unique opportunities in infrastructure and private markets, fueling organic growth. As equity markets reach record highs and investors become more willing to take on risk, BlackRock is well-positioned to benefit. The company has also been selected for a diverse range of client mandates, including active equity and fixed income, liquidity accounts, private markets, and multi-product Aladdin assignments.

BlackRock had a strong second quarter, with total net inflows of $82 billion and 3% annualized organic asset and base fee growth. The company's revenue and operating income were up 8% and 12% respectively compared to the previous year, driven by positive organic base fee growth and market movements. Non-operating results included net investment gains of $113 million. The company's as-adjusted tax rate for the quarter was approximately 24%, and they estimate a 25% tax rate for the remainder of 2024. Base fee and securities lending revenue were up 7% year-over-year, but securities lending revenue was lower. The company's annualized effective fee rate remained flat compared to the first quarter. Ending spot AUM was 2% higher than quarterly average AUM due to market recovery.

In the fourth quarter, BlackRock saw a 39% increase in performance fees, driven by both liquid alternatives and long-only products. Quarterly technology services revenue also increased by 10%, with a 10% increase in annual contract value. The company remains committed to low- to mid-teens ACV growth and has a strong multi-product pipeline. Total expenses increased by 5%, primarily due to higher incentive compensation and G&A expenses. Employee compensation and benefit expenses were up 4%, while G&A expenses increased by 7% and sales, asset, and account expenses increased by 4%. The company's as-adjusted operating margin improved by 160 basis points from a year ago. BlackRock expects to see profitable growth and operating leverage as markets improve. The company also expects its headcount to remain flat in 2024 and a low- to mid-single digit percentage increase in core G&A expenses.

BlackRock's capital management strategy involves investing in their business to support growth and efficiency, returning excess cash to shareholders, and making strategic acquisitions. They exceeded their planned share repurchases due to attractive valuation opportunities. They anticipate continuing this strategy for the rest of the year and expect to close their acquisition of GIP in the third quarter. The recent acquisition of Preqin will expand their private markets capabilities and potentially lead to the creation of private market benchmarks. Despite a large outflow from one client, BlackRock saw positive flows in both active and index products in the second quarter.

BlackRock, a leading ETF issuer, had the highest net inflows in the first half of 2024, with diversified flows in various product types, channels, and regions. In the second quarter, fixed income and core equity ETFs had the highest net inflows, followed by Precision ETFs and the Bitcoin ETF. Retail net inflows were driven by Aperio, which recently reached $100 billion in AUM. BlackRock's models business is also growing, with partnerships with Envestnet and GeoWealth to expand personalized investment strategies.

GeoWealth's custom models on their platform combine public and private markets for a streamlined and scalable approach. Institutional outflows of $2 billion were impacted by a single client redemption, but there were also inflows in private markets and cash management. BlackRock's strategy is focused on future client needs, investment capabilities, technology, and scale generation, and they are seeing momentum and growth across their platform.

BlackRock's core business growth has been strong, with significant growth since their last earnings call in April. They have seen a record-breaking second quarter for ETFs, models, Aladdin, and private markets. They are also executing landmark mandates and closing planned acquisitions, which have received positive feedback from clients and stakeholders. BlackRock is confident in their ability to reach their 5% organic base fee growth target and expects the addition of GIP to double their private markets base fees and add $100 billion in AUM focused on infrastructure. They are constantly striving to anticipate market trends and meet the needs of their clients.

BlackRock is a leader in buy-side risk management technology, having launched Aladdin over 20 years ago. They have made strategic moves, such as acquiring BGI and iShares, to transform the industry and have seen significant growth in assets under management. They continue to focus on transforming private markets, with the recent acquisition of GIP and planned acquisition of Preqin. These moves will allow them to offer a holistic global infrastructure manager and improve data and analytics capabilities in private markets.

BlackRock's recent acquisition of Preqin, Aladdin, and eFront presents an opportunity to bring indexing principles to the private markets through standardization of data and benchmarking. The company's strong track record and global relationships make it a valuable partner for companies seeking long-term, consistent capital. This has led to positive flows in both active and index investments, with ETFs being a significant driver of growth. Additionally, the company's technology services revenue has grown and there are plans for funding scaled institutional wealth management in the near future.

BlackRock has been selected to manage several large mandates, including a $10 billion US corporate plan and fixed-income and equity strategies for global financial clients. This, along with other recent mandates, is expected to drive future growth for the company. BlackRock's operating income and earnings per share have both increased, and the company remains committed to delivering strong organic growth. With many investors still holding onto cash, BlackRock sees potential for increased flows into equities and credit markets. The company is confident in its ability to meet its 5% organic base fee growth target and is working towards building a firm that can exceed this target.

BlackRock's unified platform and strong client relationships have led to an increase in demand for strategic partnerships and innovative solutions. The success of BlackRock's joint venture with Temasek and the recent fundraising for its inaugural fund demonstrate the trust and diversity of the investor base. BlackRock's expertise in insurance, fixed income, and private markets has allowed them to expand their mandate with insurance clients and secure large-scale allocations for private structured credit and infrastructure debt. The company's dedicated insurance portfolio management team further strengthens their relationships with insurance clients.

BlackRock sees a significant opportunity to work closely with insurance clients by leveraging their GA business as a source of long-term capital for private debt franchises. The company has received positive reception from clients for their planned acquisition of GIP, which will allow them to meet the growing demand for infrastructure in areas such as AI, data centers, and energy transition. BlackRock's relationships with corporates and sovereigns position them at the center of the investment opportunity in generative AI, which requires investments in infrastructure. The company's Diversified Infrastructure fund has already invested in a data center platform powered by renewable energy, and the acquisition of GIP will add more global data center assets to their portfolio.

BlackRock plans to be a leader in the capital markets space and drive capital formation for their clients. They have a strong focus on retirement and have recently launched LifePath Paycheck and expanded their capabilities in active target date and infrastructure investments. They are also expanding their presence in international markets, including a joint venture in India and a new investment platform in Riyadh. In the US, they are investing in the creation of the Texas Stock Exchange to increase access and liquidity in domestic equity markets. This is in line with their history of investing in market structure opportunities for the benefit of their clients.

ETFs are becoming increasingly popular as they provide easy access to capital markets and make investing simpler for clients of all sizes. BlackRock's ETF platform has seen positive flows and record-breaking numbers in the first half of 2024. They are also expanding their market through innovations in product offerings, particularly in active ETFs and bond ETFs. BlackRock's technology, Aladdin, is not only the foundation for their own operations, but also for many of their clients. Clients are utilizing technology investments in the fintech and data ecosystems.

BlackRock is partnering with clients to provide comprehensive technology solutions for their entire portfolio, including risk analytics, investment management, and accounting capabilities. They have invested in acquiring eFront and integrating it with Aladdin to offer a whole portfolio view, and their planned acquisition of Preqin will expand their capabilities to include data. As private market allocations continue to grow, there is a significant opportunity for BlackRock to provide integrated enterprise-level investment technology, data, and analytics. Their success comes from anticipating and meeting clients' long-term needs and constantly innovating and evolving. Their global network of relationships, data, and analytics are key differentiators for deepening client relationships and accessing unique investment opportunities. With their planned acquisitions and strong core business, BlackRock's capabilities have never been stronger.

The company's platform integrates public and private markets, as well as technology, data, and risk analytics. This will lead to better portfolio outcomes for investors and growth opportunities for shareholders. The company is optimistic about its organic growth and has a strong pipeline, with a 3% organic base fee growth in Q2. The company sees excellent momentum and has a target for May and June.

The speaker discusses the growth of the company's fees in the past few months, and predicts that the market will experience a reset due to rate cuts. They mention previous election cycles and how the company has outperformed during those periods. They also mention the potential for growth in private markets and technology. The CEO adds that the company's positioning in iShares is strong and they are having dynamic conversations across the world and products.

BlackRock's delivery of active ETFs and innovation in crypto has allowed them to have more conversations with clients about differentiated products. The feedback on their planned acquisition of GIP has been positive, with many investors showing interest in partnering and developing new initiatives. BlackRock sees great potential in the confluence of power, AI, and data centers, which they believe will require trillions of dollars in investments. Their conversations with various parties, from sovereign wealth funds to RIA channels, have revealed a growing need for data and analytics, which BlackRock is well-positioned to provide with Aladdin, eFront, and Preqin. They are taking a bold approach, as seen with their successful acquisition of eFront and Aperio, and are confident in their ability to assist investors.

In this paragraph, the speaker discusses the potential for growth in systematic equities and the use of AI for investments at BlackRock. They also mention the importance of technology in driving investment performance and the consistent growth rate in technology spending among clients. The CFO adds that clients are looking to retire legacy systems and consolidate their technology providers.

BlackRock's CEO, Laurence Fink, discusses the company's plans for deep integrations across the fintech and data ecosystems with the Aladdin platform. They have seen strong revenue growth in their tech services and have a target of low- to mid-teens growth in ACV. The recent acquisition of Preqin is expected to accelerate this growth. Fink also mentions that they are currently in talks for potential Aladdin assignments that are the largest and broadest they have ever had, with a focus on the ability to provide both public and private data analytics and a track record of timely delivery.

BlackRock's reputation for delivering technology platforms on time has led to a new opportunity with the combination of Preqin, eFront, and Aladdin. This could expand their platform into benchmarking and indexing, which was previously not possible for asset managers. The company sees this as a unique opportunity and is committed to providing a differentiated platform in the private markets. If successful, it could add a new revenue line for BlackRock. In regards to the GIP deal expected to close in the third quarter, the company expects to see flows in the infrastructure space and may be in the market raising funds for various strategies over the next 12 months.

BlackRock is excited about the Preqin transaction and the opportunities it presents in the private markets. They are currently in the process of legally separating the two entities, but are already having great conversations and business integration meetings. They expect to announce more deals and opportunities in the third quarter. When asked about the potential for ETFs in the private markets, BlackRock's Martin S. Small expressed excitement about the transaction and the potential for growth and data services.

The speaker discusses the potential for growth of Preqin by integrating it with Aladdin and eFront capabilities, offering new data products, and leveraging scale. The reaction to the transaction has been positive from GPs, LPs, and service providers. The transaction is expected to close before the end of the year.

BlackRock has received inquiries from various organizations about how they can utilize the data and analytics capabilities of Aladdin, Preqin, and eFront. The company sees this as a great opportunity to transform the capital markets, similar to how they have transformed public markets with Aladdin and ETFs. While fixed income flows have been mixed, BlackRock still sees potential for growth in this area as interest rates evolve.

The speaker discusses the current trend of clients re-risking in fixed income and the growth of ETFs in this market. They mention the increase in private credit and infrastructure debt and the potential for more alpha in this space. They believe the company is well positioned for when clients move out of cash and into fixed income and alternative income-oriented products. A question is then asked about the strong quarter in cash management.

The speaker discusses the recent cash flows and growth in the cash platform at BlackRock, with $30 billion coming from government and international prime funds. They also mention the increase in balances in early April and the growth of the platform by 50% over the last five years. The speaker expects investors to re-risk and mentions the trend of clients being more mindful and tactically flexible in managing cash. They also note the growth of bond ETFs as a surrogate for managing cash.

Larry and Laurence discuss the recent growth in bond ETFs and how they have been used as cash proxies by clients managing their liquidity. They also mention that some pension funds are derisking by reducing their equity holdings and investing in other fixed-income instruments like infrastructure. Clients who were previously overweighted in illiquid strategies like private equity are also keeping more cash balances, but this may change if the private equity market becomes more liquid. Overall, there is a mixed bag of asset allocation strategies among clients.

The speaker believes that there will be a shift towards more bond allocation and private investments, with ETFs becoming a larger part of portfolios. They also mention BlackRock's strong position for this trend. The speaker concludes with thanking the audience and expressing optimism for the future.

This summary was generated with AI and may contain some inaccuracies.