The paragraph is an introduction to BlackRock, Inc.'s Third Quarter 2024 Earnings Teleconference. The call is facilitated by Jennifer and hosted by key executives: Laurence D. Fink, Martin S. Small, Robert S. Kapito, and Christopher J. Meade. Christopher Meade, the General Counsel, starts by cautioning that any forward-looking statements made during the call might differ from actual results. He notes that BlackRock has filed reports with the SEC detailing factors that could cause these discrepancies. Martin S. Small then takes over to present the company's financial performance, highlighting as-adjusted results and positive client sentiment, leading to strong organic growth and some of BlackRock's best financial outcomes.

BlackRock reported its highest ever net inflows of $221 billion and achieved record quarterly revenue and operating income, while expanding its margin by 350 basis points year-over-year. The company experienced a 5% annualized organic base fee growth, its strongest in three years, driven by a solid pipeline and increased client interest in public and private markets. iShares, Aladdin, and fixed income products all showed significant growth, with iShares leading global flows and fixed income ETFs surpassing $1 trillion in assets. BlackRock's acquisition of Global Infrastructure Partners has significantly enhanced its infrastructure and private markets capabilities. The company sees fixed income and private markets as key growth opportunities and has partnered with Microsoft and NGX to leverage infrastructure for AI innovation.

The paragraph outlines BlackRock's strategic focus on expanding into private markets and enhancing services for wealth managers. By collaborating with Partners Group, BlackRock aims to revolutionize access to private markets through model portfolios, improving outcomes for clients. The upcoming acquisition of Preqin will enhance BlackRock's capabilities in private market data and analytics. The company is targeting a 5% organic base fee growth by focusing on high-growth areas such as private markets, technology, and model portfolios, which is expected to lead to stronger, more diversified revenue and potential for shareholder gains. BlackRock ended the quarter with $11.5 trillion in assets under management, with the potential for significant growth in new asset management and technology mandates globally.

In the third quarter, BlackRock reported net inflows of $221 billion, with revenue increasing 15% to $5.2 billion, driven by organic fee growth and market movements. Operating income rose 26% to $2.1 billion, while earnings per share increased 5% to $11.46, despite a higher tax rate. Net investment gains amounted to $108 million. Base fee and securities lending revenue grew 9% year-over-year and 4% sequentially. The firm expects a 25% tax rate for the remainder of 2024, acknowledging potential variability. The recent acquisition of GIP added significant assets and is anticipated to generate $250 million in management fees in the fourth quarter.

The paragraph discusses BlackRock's GIP portfolios, which contribute to competitive fees and diversify its asset types, enhancing its revenue mix and effective fee rate. There was a significant increase in performance fees, mainly due to strong hedge fund performance. Technology services revenue dipped slightly compared to last year due to previous license renewals but showed growth when excluding that factor, with annual contract value rising by 15% due to demand for Aladdin technology. A major U.S. asset manager adopted Aladdin, showcasing its effectiveness as a scalable investment management tool that boosts efficiency and growth. Total expenses increased by 8% due to higher compensation and operational costs.

The paragraph outlines BlackRock's financial and operational performance, highlighting a 10% year-over-year increase in employee compensation and benefits due to higher performance fees and operating income. General and administrative expenses grew 8% due to technology spending and professional services costs. Sales and account expenses increased by 6% due to higher direct fund expenses, which rose by 7% year-over-year, driven by higher average ETF assets under management. The adjusted operating margin improved to 45.8%, benefiting from market conditions and organic growth. The company plans to keep headcount flat in 2024 and anticipates a low to mid-single digit increase in core G&A expenses. It also mentions expected Q4 spending on technology and marketing and expects core G&A growth to be at the high end of projections after acquiring Global Infrastructure Partners, adding 400 new employees.

BlackRock's capital management strategy prioritizes investing in business growth and operational efficiency before returning excess cash to shareholders through dividends and share repurchases. The company issued 6.9 million shares for a GIP transaction, with 30% of the consideration deferred for performance milestones. In the third quarter, $375 million worth of shares were repurchased, with a similar amount planned for the fourth quarter. A planned acquisition of Preqin is expected to close by year-end 2024. The third quarter saw diversified net inflows of $221 billion, with significant contributions from ETFs, fixed income, and core equity. Cryptocurrency ETPs also grew, with $5 billion in net inflows.

In the third quarter, BlackRock experienced significant growth, raising $56 billion in net inflows from institutional clients, largely driven by fixed income, multi-asset, and several large insurance and pension outsourcing mandates. Institutional index net inflows totaled $29 billion, with additional positive flows in systematic equity, target date offerings, and private market strategies. Retail inflows of $7 billion were supported by demand for U.S. active fixed income mutual funds. Illiquid alternative strategies, such as infrastructure and private credit, also saw $1.5 billion in net inflows. Successful realizations in private equity and infrastructure contributed over $3 billion. Cash management added $61 billion in net inflows, spurred by new client mandates in US government and international prime funds. Overall, BlackRock delivered one of its strongest quarterly performances and remains well-positioned for future growth, particularly in periods of market shifts like investor re-risking and central bank policy changes.

The paragraph highlights BlackRock's optimism about strengthening client relationships and expanding market share, which it believes will lead to sustainable growth and increased earnings over time. It mentions celebrating BlackRock's 25th anniversary as a public company and the acquisition of Global Infrastructure Partners, with Adebayo joining BlackRock's Board. The company differentiates itself as a long-term, consistent investor rather than opportunistic, noting its significant and enduring client relationships, especially as it expands into private markets. The founder reflects on BlackRock's growth alongside the capital markets and the global desire to emulate the success of American capital markets.

The paragraph discusses BlackRock's significant growth and success in the face of increased reliance on capital markets due to government deficits and tighter bank lending. It highlights record net inflows for 2024, surpassing previous years, and an all-time high in assets under management, which now total $11.5 trillion. BlackRock's organic base fee growth and technology services growth have reached new highs, driven by strategic deals and a strong client pipeline. Their effective use of technology and global reach has led to record increases in quarterly revenues and operating income, along with a higher operating margin. The company anticipates continued momentum and diversified organic growth across its services.

In the third quarter of 2024, BlackRock experienced positive investment flows across all asset classes, client types, and regions. Active investments contributed $28 billion, while ETFs added $97 billion, with $248 billion in net inflows year-to-date. BlackRock continues to secure large institutional mandates, including becoming a fiduciary manager for a $30 billion Dutch pension fund. The firm's strong performance, technology, and local investment knowledge make it a preferred institutional partner. With increasing money market assets, including $61 billion in net inflows for BlackRock, there is a need for investors to take on more risk to achieve long-term returns. BlackRock is well-positioned to capitalize on structural trends such as technological advancements and globalization changes, connecting clients to opportunities across public and private markets. The firm aims to be a leading long-term capital partner.

Private markets are increasingly crucial in economic financing due to growing public deficits, reshaping investment landscapes. BlackRock is committed to enhancing client services by investing in private market opportunities, integrating GIP, and acquiring Preqin for better private market data and analytics. These efforts aim to mimic past successes with Aladdin. The rise of infrastructure presents significant investment opportunities, requiring a projected $75 trillion investment over 15 years. Infrastructure's inflation-protected returns make it appealing to clients, particularly those saving for retirement. With the GIP closing, BlackRock now offers superior infrastructure investment expertise to its clients.

The paragraph highlights the advantages and strategic initiatives of BlackRock and GIP as prominent infrastructure managers with $170 billion in client assets. They have demonstrated strong performance and successfully returned significant capital to investors. Their partnership with Microsoft and MGX has launched the Global AI Infrastructure Investment Partnership to invest in data centers and energy infrastructure, capturing the growing demand for compute power and AI infrastructure. This initiative aims to mobilize private capital and capitalize on a multi-trillion-dollar investment opportunity. BlackRock's extensive relationships with corporates and governments position them well to navigate this sector. Additionally, private credit is emphasized as a key component of client portfolios, with BlackRock managing over $85 billion in diversified private debt across various sectors.

The paragraph highlights BlackRock's growth and innovation in investment solutions, emphasizing its significant assets in fixed income and private credit. BlackRock has partnered with Partners Group to make private markets more accessible to retail investors, aiming to diversify portfolios and improve returns. The company utilizes its proprietary deal sourcing and technology, particularly the Aladdin platform, to enhance risk management, efficiency, and business resilience for clients. Aladdin's capabilities have attracted substantial client interest, driving growth and significant mandates from asset managers.

In the third quarter, BlackRock saw significant growth in both its active strategies and ETF inflows. With $28 billion in net inflows into active strategies, the year-to-date total reached $39 billion, driven by high-performing quant strategies. ETF inflows amounted to $97 billion, with strong growth across all regions, particularly in Europe. The iShares ETF platform achieved $1 trillion in assets, positioning it as a major bond manager. The growth was entirely organic, even in challenging fixed income environments. BlackRock also launched an Ethereum ETF, attracting more than $1 billion in net inflows soon after its debut. The company continues to innovate and expand its product offerings, benefiting from the strong performance and growing client demand.

The paragraph discusses BlackRock's achievements and future outlook. It highlights the growth of their Bitcoin product to $23 billion in nine months and reflects on the firm's successful listing on the New York Stock Exchange in 1999 at $14 per share, with the current trading price around $960. BlackRock has delivered a compounded annual total return of over 20% since its IPO, outperforming the S&P 500 in 19 out of 25 years. The firm credits its success to a client-focused growth mindset and adaptability, expressing optimism for continued growth. The paragraph ends with a transition to a Q&A session, where Craig Siegenthaler from Bank of America inquires about future net flow trends and re-risking activities post-election.

In the paragraph, Martin S. Small discusses BlackRock's strong performance in the third quarter with $221 billion in net flows, highlighting the resilience and growth in various sectors such as U.S. active fixed income mutual funds and systematic equity. He notes the firm's consistent positive active flows across multiple quarters since 2019 and anticipates continued asset growth, particularly in the seasonally strong fourth quarter. Small emphasizes BlackRock's historic success during re-risking periods and significant growth in its money market fund business, which is primarily institutional and has become nearly 70% larger over the past five years, now standing at $850 billion.

The paragraph discusses BlackRock's financial strategy, emphasizing the importance of maintaining cash in client portfolios alongside a renewed interest in fixed income markets, which benefits their growth trajectory. Laurence D. Fink highlights the increasing role of global capital markets in economic activities, presenting opportunities for better flows and prospects. Michael Cyprys from Morgan Stanley acknowledges BlackRock's strong quarterly performance and inquires about investment pacing towards 2025, particularly concerning cost management and margin enhancement. Martin S. Small outlines BlackRock's approach to creating shareholder value through industry-leading organic growth, operating leverage, and prudent capital management. He emphasizes the company's focus on profitable long-term growth, disciplined investment management, and efforts to increase cost flexibility by variablizing expenses.

In the paragraph, the speaker highlights BlackRock's focus on generating fixed cost scale through technology investments, enabling industry-leading margins with a 350 basis point margin expansion year-over-year and a 26% increase in operating income. Despite a flat headcount, assets under management have risen by $3 trillion since late 2022, showcasing the benefits of scale and productivity. The speaker emphasizes that technology, automation, and strategic firm structuring are key to ongoing margin expansion. Additionally, they attribute high margins to market movements and express optimism for continued market growth, which supports further investment to drive organic growth and margin enhancement. Following this, Alex Blostein of Goldman Sachs inquires about private markets, particularly regarding financial aspects of BlackRock's Global Infrastructure Partners (GIP).

The paragraph discusses BlackRock's excitement about the milestone of closing the GIP deal, welcoming over 400 new colleagues and leaders. It highlights positive reception from clients, consultants, and partners, emphasizing the deal as a revenue growth opportunity aimed at expanding capabilities and unlocking growth synergies. Fundraising momentum is strong, particularly for the AI Innovation Fund. The deal involves consolidating $116 billion in client AUM and doubling private markets management fees, with significant earnings and fees expected. The paragraph ends with Dan Fannon from Jefferies asking about BlackRock's M&A appetite and ability to integrate recent transactions.

The paragraph discusses BlackRock's focus on integrating GIP and closing the Preqin deal to enhance its private markets capabilities. The company views inorganic investments, like acquisitions, as tools to optimize organic growth while maintaining financial prudence. BlackRock achieved a 5% organic base fee growth target and sees opportunities to expand, particularly in infrastructure and private credit, where it manages significant assets. They aim to align any inorganic growth opportunities with their culture and strategy while leveraging relationships with insurance clients for growth.

The paragraph is an exchange during a financial earnings call where Glenn Schorr from Evercore questions Laurence Fink and Martin Small about their company's 5% EPS growth and organic growth targets. Schorr is impressed with the company's broad growth and large margins but suggests that earnings growth should also be a focus. Martin Small responds by emphasizing their commitment to 5% organic growth and achieving industry-leading margins and double-digit EPS growth. He notes that a high effective tax rate was the main factor affecting EPS growth this quarter, compared to a favorable tax benefit in the previous year. The exchange shifts to Brian Bedell from Deutsche Bank, who also acknowledges the successful quarter and inquires about the company's fee rate in relation to their 5% organic base fee growth target.

The paragraph discusses the organic growth in base fees and assets under management (AUM) following the GIP acquisition, which added 0.5 to 1 basis point of fee rate growth. The speaker, Martin S. Small, expresses optimism about the potential for fee rates to stabilize or increase due to the shift towards higher-fee products in private markets and away from lower-fee mandates. He highlights a 5% annualized organic base fee growth for the quarter, fueled by double-digit growth in revenues and operating income, alongside expanding margins. Although spot AUM increased to $11.5 trillion, it was slightly offset by lower-fee US equities outperforming international equities, leading to a marginal decrease in the annualized effective fee rate. The fee rate is primarily influenced by the asset mix, beta, FX, and organic growth.

The paragraph discusses the factors influencing fee rate trends on the platform, emphasizing a focus on meeting client needs across the entire portfolio, investing in technology, and driving organic growth efficiently. It highlights the potential positive impact on base fee revenue and average fee rates as the private markets business grows from $170 billion to $285 billion in client assets under management (AUM). The anticipated consolidation of GIP portfolios is expected to increase the fee rate by 0.5 to 1 basis point. Additionally, the speaker notes a long-term expectation of positive leverage on the fee rate as the business mix shifts towards illiquid and private markets. Bill Katz from TD Cowen expresses interest in the company's statement about revolutionizing the wealth management opportunity, seeking further elaboration on it.

The paragraph discusses the company's strategy and growth potential in wealth and retail markets, especially focusing on integrating public and private market exposures for wealth managers. They highlight their established presence in retail liquid alternatives, with over $40 billion in assets, and strategies like merger arbitrage and systematic multi-strategy commodity exposures. The company has seen success with retail alternatives in UK and Europe retirement markets and is expanding in the US with funds like a credit strategies fund and a non-traded credit BDC. There's a significant opportunity in increasing retail allocations to private markets, which are currently low. Their long-term goal is to integrate semi-liquid products into their managed models and SMAs to gain competitive advantage, leveraging partnerships with companies like Partners Group, InvestNet, and others.

The paragraph discusses the ongoing efforts to integrate public and private investment markets, similar to how ETFs and mutual funds have been integrated. Laurence D. Fink emphasizes that the future of investing will involve a seamless blend of public and private markets, driven by liquidity considerations. With the acquisition of Preqin and the combination of data analytics tools like Aladdin and eFront, the aim is to enhance transparency and opportunities in private markets. This integration is expected to parallel the significant impact ETFs have had on the markets, facilitated by advancements in data and analytics.

The paragraph discusses the potential impact of changes in U.S. presidential leadership on the digital assets industry and BlackRock's strategy in that context. Laurence D. Fink, responding to Ben Budish from Barclays, emphasizes that the utilization of digital assets like Bitcoin and Ethereum is set to increase globally, independent of regulatory changes. Fink acknowledges the need for better data analytics, transparency, and indexing to drive this growth and believes digital assets will gain wider acceptance as an asset class, similar to commodities like gold.

The paragraph discusses the development and acceptance of digital assets, emphasizing the importance of liquidity, transparency, and improved analytics in broadening the market. It compares the current phase of digital assets to the early days of the mortgage and high yield markets. The speaker believes that digital currencies, which differ from cryptocurrencies like Bitcoin, will be an area of focus, particularly regarding regulation and the digitization of national currencies like the dollar. They highlight the success of currency digitization in countries like India and Brazil and believe that blockchain technology, combined with AI, will enhance data analytics and market expansion. The paragraph also transitions into a discussion about changes in fixed income markets, referencing a $30 billion mandate won from a pension fund, amidst regulatory issues faced by a large institutional bond manager.

The paragraph captures a discussion during a Q&A session where the speaker refrains from commenting on specific clients or managers but emphasizes the ongoing movement of money in the market. They highlight the regular occurrence of large institutional mandates and opportunities each quarter. Additionally, there's mention of consistent OCIO mandates. The speaker deflects from press issues and notes that shifting large business blocks is common. Larry Fink, likely the CEO of BlackRock, follows with closing remarks, thanking participants for their interest and attributing BlackRock's success to its global relationships, data analytics, and integrated technology. He mentions ongoing integrations of acquired entities and expresses optimism about delivering strong client performance and shareholder growth in the future.

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