BlackRock Q4 2023 & Acquisition Earnings Call Transcript

There are 12 speakers on the call.

Operator

Good morning. My name is Jennifer, and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the BlackRock Incorporated 4th Quarter 2020 3 Earnings Teleconference. Participants for today's call will include Chairman and Chief Executive Officer, Lawrence D. Fink Chief Financial Officer, Martin S.

Operator

Small President, Robert S. Capito General Counsel, Christopher J. Meade and Global Infrastructure Partners Founder and Chief Executive Officer, Bayo Angulassi. 2. Thank you.

Operator

Mr. Meade, you may begin your conference.

Speaker 1

Thank you. 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 2

We call your attention to

Speaker 1

the fact that BlackRock's actual results may, of course, differ from these statements. As you know, 2017. BlackRock has filed reports with the SEC, which list some of the factors that may cause the results of BlackRock to differ materially from what we see today. 4th quarter. BlackRock assumes no duty and does not undertake to update any forward looking statements.

Speaker 1

So with that, I'll turn it over to Larry.

Speaker 3

Thank you, Chris, and good morning to everybody and Happy New Year. Thank you for joining us today to discuss BlackRock's Q4 and full year results. We're also very excited to announce our agreement to acquire Global Infrastructure Partners. And I'd like to welcome all our new partners from GIP and their Chairman and my friend and founder, Baoyon Glassie,

Speaker 4

Thank you, Larry. My fellow founders and colleagues across GIP and I are very excited about the opportunity to join BlackRock. 6. Our combination will drive even better opportunities for our clients. All of us at GIP share in the vision of delivering better outcomes for clients and leading critical global investments that drive economic growth.

Speaker 4

Thank you.

Speaker 3

Thank you, Bio. This is another truly transformational moment for BlackRock. Our firm is what it is today because we've taken 6. 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.

Speaker 3

Today, we are announcing 2 transformational changes in anticipation of the evolution we see ahead for the asset management industry and for the entire global capital markets. Our strategic re architecture of our organization will simplify and improve how we work and deliver for our clients. And the acquisition of GIP will propel our leadership in a fast growing market for hard asset infrastructure. The planned combination of BlackRock's infrastructure platform and GIP will provide clients access to market leading investments 6 and operating expertise across infrastructure private markets. The integrated platform will deliver clients substantial scale as the 2nd largest private markets infrastructure manager in the world with over $150,000,000,000 in client assets.

Speaker 3

In addition, GIP will bring dedicated investment and operational improvement teams with track records of delivering deep value enhancements, 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 developed and the emerging markets. BlackRock has developed a broad network of global corporate relationships through many years of long term investments in both debt and equity. 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. I know I speak for the entire BlackRock 2017.

Speaker 3

Our Board of Directors, BlackRock's leadership team and all of our employees when I say we could not be more excited about the prospects of the BlackRock family with our colleagues from GIP. And we similarly look forward to welcoming our new clients and deepening our relationships with those clients who already work with both of us. BlackRock's industry leadership comes from delivering sustained performance, Innovating and staying ahead of the needs of our clients. 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 we are making on the future of the capital markets and the entire asset management industry. The strong senior leaders taking on new and expanded roles will keep us more tightly connected, Let me now turn on to Martin to cover our 23 results and take you through the specifics of the transaction, our quarter, before I offer further context.

Speaker 2

Thanks, Larry. Good morning and Happy New Year to everyone. Before I pass it back to Larry, I'll review our financial performance and business results and provide more detail on the GIP transaction. We plan for a longer call today so that we have plenty of time for questions. While our earnings release discloses both GAAP and as adjusted financial results, I'll be focusing primarily on our as adjusted results.

Speaker 2

The last two years have been a character building and awe inspiring time for investors, for clients Certainly for us at BlackRock. The monetary policy shock of a rapid rate rising campaign upended 10 years of asset allocation practices and spurred repositioning the portfolios into cash and money market funds at the expense of risk assets. 2017. At BlackRock, our business is 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.

Speaker 2

They deliver client scale. They deliver clients business efficiency. Whether clients are making wholesale portfolio allocation changes We saw evidence of portfolio re risking and we expect this trend to accelerate in 2024. BlackRock is a share winner when there's assets in motion and clients continue to consolidate more of their portfolios with us. In 2023, BlackRock generated 289,000,000,000 of total net inflows and delivered 1% organic base fee growth.

Speaker 2

Importantly, we finished the year with significant momentum in the 4th quarter, generating approximately $96,000,000,000 of total net inflows. In November December, we saw a surge in flows resulting in 6% annualized organic base fee growth for the last 2 full months of the year. Full year revenue of $17,900,000,000 was relatively flat year over year. Operating income of $6,600,000,000 declined 2% from 2022, while earnings per share of $37.77 increased by 7%. For the Q4, revenue of $4,600,000,000 was 7% higher year over year, driven by the impact of higher markets on average AUM and higher performance fees.

Speaker 2

Quarterly operating income of $1,700,000,000 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 $122,000,000 of net investment income, driven primarily by mark to market gains in our private equity co investment portfolios. Our as adjusted tax rate for the 4th quarter was approximately 24%, driven in part by discrete items. We currently estimate that 25% is a reasonable projected tax run rate for 2024, though the actual effective tax rate may differ because of non recurring or discrete items 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. Sequentially, base fee and securities lending revenue was down 2%.

Speaker 2

On an equivalent day count basis, our annualized effective fee rate was approximately 0.3th of a basis point lower compared to the Q3. This was primarily due to lower securities lending revenue, underperformance of non U. S. Equity markets and client preferences favoring lower fee fixed income and cash. As a result of accelerating organic growth and global equity and bond market appreciation toward the end of the quarter, we entered the Q1 with an estimated base fee run rate approximately 6% higher than our total base fees for the 4th quarter.

Speaker 2

4th quarter and full year performance fees of 311,000,000 and $554,000,000 respectively, increased from a year ago, reflecting higher revenue from liquid alternatives and long only mandates. Quarterly technology services revenue increased 7% year over year and full year revenue of 1,500,000,000 increased 9%, reflecting the successful onboarding of new clients and large eFront on premises licenses renewals in the 3rd quarter. Annual contract value or ACV increased 10% year over year as clients increasingly partnered with BlackRock Total expense increased 1% in 2023, reflecting higher compensation, G and A and direct fund expense. We effectively managed our discretionary spend in 2023 and we'll continue to be disciplined in focusing our resources in areas with the greatest opportunity. Our 4th quarter operating margin of 41.6 percent increased by 40 basis points year on year as we continue to drive operating leverage and profitable growth after the market shock of 2022.

Speaker 2

Our full year as adjusted operating margin of 41 point 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. During the year, we reorganized 2 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 specific groups further simplified their structures, resulting in a 4th quarter restructuring charge of $61,000,000 comprised of severance and accelerated 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 enhance comparison to prior periods.

Speaker 2

In addition, we made resourcing decisions to 6 to 3 up investment capacity for our most important growth initiatives. This resulted in a one time compensation expense of $28,000,000 in the 4th quarter, which is included in our as adjusted results. 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 growth. Looking forward, we're prioritizing investments to propel our differentiated organic growth and operating leverage.

Speaker 2

We'll aim to align investment spend with our highest conviction structural growth areas, find additional ways to variabilize expenses and generate fixed cost scale through technology, automation and optimization of our footprint through our innovation hubs. Excluding the impact of the GIP transaction at present, we'd expect our headcount to be broadly flat in 2024. Also excluding the impact of GIP and related transaction costs, we'd expect a low to mid single digit percentage increase in 2024 core G and A expense. Most core G and A growth 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.

Speaker 2

2017. Our capital management strategy remains consistent. We invest first either to scale strategic growth initiatives or drive operational efficiency and then return excess cash to our shareholders through a combination of dividends and share repurchases. 3. In 2023, we returned over $4,500,000,000 to our shareholders through a combination of dividends and share repurchases.

Speaker 2

Share repurchases have been a consistent element of our capital management strategy. Since 2013, we've repurchased close to $15,000,000,000 of BlackRock stock, which generated an unlevered compound annual return of 14% for our shareholders. Over this time period, we reduced our share count by nearly 23,000,000 shares 13%. For the trailing 5 years, we've lowered our share count by 10,000,000 shares, completing 7,800,000,000 of share repurchases at an average price of $5.63 for an IRR of over 15%. BlackRock's Board of Directors declared a quarterly cash dividend of $5.10 per share, representing an increase of 2% over the 2023 level.

Speaker 2

At present, based on capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price, full year total net inflows of $289,000,000,000 were positive across active and index as well as regions led by $156,000,000,000 of net inflows from clients in the United States. And we had 70 products across our ETF and mutual fund ranges with over $1,000,000,000 in net inflows. BlackRock generated industry leading ETF net inflows of $186,000,000,000 in 2023, representing 6% organic asset growth led by $112,000,000,000 of net inflows into our bond ETFs. 4th quarter ETF net inflows of $88,000,000,000 reflected significant momentum into year end, helped by seasonal tax trades and portfolio reallocations. We saw $28,000,000,000 of net inflows into precision exposures as institutional clients use these highly liquid instruments to re risk in the quarter.

Speaker 2

With safe haven cash providing positive returns, full year and 4th quarter retail net outflows of $8,000,000,000 $9,000,000,000 respectively, This was partially offset by strength in Iperio, which saw record net inflows of $12,000,000,000 in 2023. Index net outflows of $55,000,000,000 were driven by redemptions from our low fee equity strategies as several large clients adjusted their allocations or redeemed for cash needs. Finally, BlackRock's cash management platform saw $33,000,000,000 of net inflows in the 4th quarter $79,000,000,000 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 $90,000,000,000 year on year, we're leveraging our scale and integrated cash offerings to engage with clients who are using these products not only to manage liquidity, but also to earn attractive returns. Demand for private markets remains strong with $14,000,000,000 of net inflows into BlackRock illiquid strategies during the year, driven by infrastructure and private credit.

Speaker 2

We continue to expect these categories to be our primary growth drivers in the coming years. Turning to our planned acquisition of GIP. 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. GIP is the world's leading independent infrastructure manager with current client AUM of over $100,000,000,000 and fee based AUM of over $60,000,000,000 The acquisition will create a highly complementary pro form a $150,000,000,000 infrastructure platform post closing, tripling BlackRock's infrastructure client assets.

Speaker 2

The integration will nearly double Our private markets management fees over $1,500,000,000 and add over $400,000,000 in post tax annual FRE with FRE margins above 50%. Since its founding in 2006, GIP has successfully scaled its equity flagship series from its $5,600,000,000 fund 1 to $20,000,000,000 in the most recent vintages. GIP's current team of approximately 400 employees across 11 global offices has delivered strong long term performance for clients and is expected to generate approximately $760,000,000 of management fee revenue in 2023. Turning to the financial terms of the transaction, we are acquiring 100 percent of the business and assets of GIP for total consideration of $3,000,000,000 in cash and approximately 12,000,000 shares of BlackRock stock. 7,000,000 shares will be paid at closing and 5,000,000 shares to be paid in approximately 5 years, subject to certain performance measures.

Speaker 2

BlackRock will fund the cash consideration through $3,000,000,000 of additional debt, which will not meaningfully change its leverage profile, Primarily through growth synergies from proprietary dealer 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 GIP and BlackRock to best serve clients, employees and shareholders. A substantial majority of the consideration paid at closing and approximately 75% of nominal total transaction consideration will be paid in BlackRock common stock. GIP leadership will become meaningful shareholders of BlackRock with a shared ambition of driving 1 BlackRock outcomes for our clients and shareholders. 100% of carried interest and capital commitments from all existing GIP funds will continue to be owned by the GIP owners and employees.

Speaker 2

These are not economically included in the transaction perimeter and support long term retention and incentives of GIP employees. After closing, GIP's management team will lead our combined infrastructure platform, Working with BlackRock's strong investment teams in equity debt and solutions, the GIP 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. Each of the GIP founders will become party to a shareholders agreement that requires shares to be voted in accordance with the recommendation of BlackRock's 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. We expect the transaction to be modestly accretive to as adjusted EPS and operating margin in the 1st full year post close, which will exclude transaction related costs.

Speaker 2

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. 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. Building on strong structural growth trends over this past year and the over $1,900,000,000,000 of organic asset growth of the last 5 years, We're investing to deliver the industry's only comprehensive platform across public markets, private markets and investment technology. Having delivered differentiated organic growth and operating margin across the weakest markets in decades, we believe markets are trending to be strong for 2024 with a more risk on tone. BlackRock's a share winner when assets are in motion.

Speaker 2

We see the pent up demand behind over $1,000,000,000,000 in money market fund flows this year, poised to deliver significant opportunities across risk assets. Our combination with GIP will 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 see the best opportunities we've had in years to get closer with clients and raise significant private capital. We enter 2024 in 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.

Speaker 2

With that, I'll turn it back to Larry.

Speaker 3

Thank you, Martin. We'll leave plenty of time for your questions Later on, I want to describe how we evaluated bringing our firms together with GIP, why we think the timing is so opportune Infrastructure is a $1,000,000,000,000 market forecasted to be one of the fastest growing segments of private markets in the years ahead. Increasingly growing global demand and upgrading digital infrastructure like fiber broadband, cell towers and data centers. Renewed investments in logistical hubs such as airports, railroads, shipping ports as supply chains 2 are rewired and a movement towards increased energy independence in many parts of the world supported by decarbonization infrastructure. The unprecedented need for new infrastructure coupled with the record That supply demand imbalance creates compelling investment opportunities for our clients.

Speaker 3

At the same time, corporates are looking to engage Partners in new projects are partially de risking existing ones. These dynamics offer clients, especially those investing for retirement, the high coupon inflation protected long duration investments they need. And we believe it will define the future of asset management for the next 20 years. Our acquisition philosophy has always been about growth, not about cost takeouts and or consolidations. Consistently, these combinations have resulted in reaching heights that neither BlackRock no Emerge Partners could ever reach on their own.

Speaker 3

I truly believe that this will be the case again with the integration of BlackRock Infrastructure and GIP. Transformational transactions have strengthened our firm, have strengthened our culture and bringing top talent, new skills and experience into our organization. Our culture has evolved as we welcome new teams and colleagues to BlackRock. Today, it represents a blending of the best parts of the cultures that have come together over the years. What's made our acquisition so successful was our steadfast commitment to 1 BlackRock culture totally connecting to our clients with one platform, shared goals, a common Aladdin technology and as a result BlackRock is greater than the sum of any one part And then that drives BlackRock's differentiating growth model.

Speaker 3

Reaching this moment is quite personal and emotional for me. Our firms BlackRock and GIP have similar origin stories. We founded 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. We wanted to help long term investors better manage the risk in their portfolios in a scaled way through technology. That is what drove our early investments in Aladdin and all the investments we made since to enhance our understanding of risk factors to deliver superior outcomes for our clients.

Speaker 3

GIP started with a similar focus in the infrastructure space, understanding operational risks and the factors and forces driving business efficiencies. Like BlackRock's focus on understanding risk and fixed income, My partners and I had the privilege of pioneering the mortgage backed securities market. BIO and its GIP partners, in my opinion, pioneered modern infrastructure investing In Private Markets. And many of the BlackRock and GIP founders grew up in the same firms early in their careers, 2, where we created common roots from shared experiences, most of them good, sometimes bad, 2 asset management capabilities. GIP will be highly complementary and has limited overlap by client and investment programs of BlackRock's existing leading franchises.

Speaker 3

These include diversified infrastructure, InfraDebt, Infra Solutions, Climate Infrastructure and Decarbonization Partners. BlackRock has invested originally has invested organically and inorganically in growing our infrastructure platform, which has $50,000,000,000 in AUM, having tripled since our acquisition of First Reserve in 2017. BlackRock has already demonstrated our 6. We're winning deals like Ad hoc Pipeline transaction and being chosen to partner with sovereign wealth funds 3 and governance on significant climate infrastructure strategy. We have the sourcing capabilities, but greater AUM scale will enable us to have more sizable positions.

Speaker 3

The planned combination of GIP with BlackRock will accelerate investment scale, Enabling us to grow faster. BlackRock's deep relationships with clients, corporates, governments and sovereign wealth funds can accelerate investment opportunities. GIP's own lending proprietary deal flow leading proprietary deal flow successful JVs with large industrial partners. GIP's deals span the world and sectors. 2017.

Speaker 3

Their investments include Gatwick Airport, Edinburgh Airport and Sydney Airport and Cypress 1 Data Center and the quarter, Millburn and several other major renewable platforms. Through the future combination of Black diversifying revenues and generating earnings for our shareholders. Like Rob and I, BIO and his partners are all founders. We're excited about the opportunity to have new partners and new colleagues. I'm proud that the consideration of this transaction consists of approximately 75% of BlackRock stock.

Speaker 3

GIP's founders will become among the largest shareholders of BlackRock 2. And we plan to have Baio join our Board of Directors post closing of our transaction. 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. Our 1 BlackRock culture has been central to our success over the last 35 years.

Speaker 3

And cultural alignment has been core throughout our history of successful M and A. For our founding to today, our firm is purpose driven, focused on clients, focused on risk management and powered by data and technology. Bringing our 2 businesses together results in an influx of top senior private market talent to BlackRock. GIP's founders will lead our combined infrastructure platform with teams of talented investors and business builders. I'm confident we'll be looking back on today as another transformational moment in the BlackRock history.

Speaker 3

In a similar way, when we could look back at our acquisition of BGI, 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 9,000 percent for our shareholders since our IPO in 1999. That is well in excess of our S and P return of 4 90% 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 3

When we founded BlackRock, we knew clients would be at the center of everything we do. We had a deep conviction in the long term growth The importance of the capital markets. In principle and practice, those beliefs remain core to BlackRock today. 6. We are more connected to our clients than ever.

Speaker 3

Thousands of clients on behalf of millions of individuals around the world have entrusted BlackRock with $1,900,000,000,000 of net new business over the last 5 years. 2017. Thousands more use our technology to support the growth and commercial agility of their own business. Years of organic growth alongside 3rd quarter consolidating more of the portfolios with BlackRock. In 2023, our clients awarded us with $289,000,000,000 of net new assets.

Speaker 3

During this period of rapid change and significant portfolio derisking. 2017. BlackRock's differentiated business model has enabled us to continue to grow with our clients and maintain positive organic base fee growth. We've grown regardless of the market backdrops and even as most of the industry has experienced outflows. I think back to 2016 2018 when uncertain cautious sentiment impacted investment behaviors among institutional and individuals.

Speaker 3

Many clients derisked and moved to cash. BlackRock stayed connected with our clients. We stayed rigorous in driving investment performance, Stepping back into the markets, they did it with BlackRock, leading to new record flows for client flows and organic base fee growth 3 at or above our targets. As we've seen before, when investors were ready to put money back to work, they did it with BlackRock. Close and organic base fee growth accelerated at the end of the year.

Speaker 3

We generated $96,000,000,000 of total net inflows in the 4th quarter And we entered 2024 with great momentum. I spent much of 2023 on the road, meeting with clients around the world and I plan to do the same thing in 2024 starting this month. Our partnership approach and the performance we deliver is resonating both in markets where we have a long standing presence and those where our profile is just beginning and strengthening. Companies and clients increasingly want to work with BlackRock. For companies where we are investors, they appreciate That we are a long term consistent capital.

Speaker 3

We invest early and stay invested through cycles, whether it's debt or equity, 2019 pre IPO or post IPO. Companies recognize the uniqueness of our global relationships, our brand and our expertise across businesses, markets and industries. This makes us a very valuable partner and in turn enables us to be involved in their sourcing and in performance that we provide for our clients. For example, in November, our diversified infrastructure franchise invested $550,000,000 in Stratos, 6, a commercially scaled direct air capture facility in Texas, which is expected to be the largest in the world upon completion. Through our funds joint venture partner Occidental Petroleum, we are providing our clients with investment access to a bespoke energy infrastructure project.

Speaker 3

This is just an latest example of our sourcing and execution on numerous distinctive deals for clients over the last 18 months. In the United States, we partnered with AT and T on Giga Power JV and invested in Jupiter Power. Beyond the U. S, examples include such investments of Brasol in Brazil, First Air in South Korea, Acacia Energy in Australia, Lake Turkana Wind Farm in Kenya, just to name a few. Last month, we announced an innovative partnership with Alterra that we will see a $2,000,000,000 investment in the climate opportunities across BlackRock's Private Debt and Infrastructure Equity Strategies.

Speaker 3

This is one of our largest ever private markets mandates. It adds on to our 2 very strong track record investing in the transition, including in emerging markets and extend our over $100,000,000,000 transition investment platform. BlackRock's global network of relationships, data, analytics and flexible Our active investment insights, our expertise, our strong investment performance similarly differentiates BlackRock's markets. We saw nearly $60,000,000,000 of active net inflows in 2023 compared to an industry outflows. Across our active franchise, BlackRock has delivered durable investment performance with 87% 92% of fundamental equity and taxable fixed income AUM above benchmark or peer medium for the past 5 year period.

Speaker 3

In ETF, BlackRock generated an industry leading $186,000,000,000 of net inflows for 2023. 2017. Our long term leadership of the ETF industry is another testament to our global platform and our deep connectivity with our clients. BlackRock is the most scaled, diversified ETF provider in the U. S.

Speaker 3

And globally. We are bringing the ETF benefits of liquidity, Nearly half of the 2023 iShares net inflows were from ETFs listed internationally in local markets, led by our European iShares net inflows of $70,000,000,000 BlackRock has a number one share of the European ETF market, where industry flows were up 70% and 2023. Catalyst trends that we saw in the U. S. Years ago like the growth of the fee based advisory and model controllers are just beginning to take root in Europe.

Speaker 3

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 and 2023, leveraging the benefits of the ETF structure to help clients reach the outcomes they seek. Some of these strategies provide access to the insights of our active portfolio managers, such as Rick Reeder and Tony DiSpirito. And in the Q4, we launched a series of LifePath target date ETFs to provide an easier way to save for retirement, especially for the many Americans 2.5% to $1,000,000,000 in the Q4 of 2018. The $1,000,000 in the Q4 of 2018 was $1,000,000 in the Q4 of 2018.

Speaker 3

Through innovation, through risk management and technology. Aladdin is the operating system uniting all of BlackRock And it's fundamental and it's foundational to how we serve our clients across our platform. 3. It is the key technology that powers BlackRock and it also powers many of our clients. The need for integrated data, integrated risk analytics and the whole portfolio views across public and private markets is driving the ACV growth of Aladdin.

Speaker 3

In 2023, we generated $1,500,000,000 in technology service revenues. Clients are looking to grow and expand with Aladdin, reflecting in strong harvesting activities with over 50% of the Aladdin sales being multi product. Through its dynamic ecosystem of over 130,000 users, the Aladdin platform is constantly in the state of innovation. Investments in Aladdin AI CoPilot's enhancements in 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.

Speaker 3

Our best years have followed tough years 2. And just 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. 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, valued colleagues and friends departed the firm. We are 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 3

As we look ahead, the rerisking of client portfolios will create tremendous prospects for both our public and private market franchises. Investors build the portfolio of the future, one that integrates public markets and private markets and it's 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. And the need for integration data, technology and risk management will continue to drive demand for Aladdin.

Speaker 3

BlackRock was founded on the belief in the long term growth of the capital markets. Our success has been shaped by a number of those calls and how we would evolve. 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 2 decade of asset management. The continuing blurring the lines across product structure, 6.

Speaker 3

We are positioning ourselves ahead of these transformations by making 3 major changes in how we work and how we deliver for each and one of our clients. 1st, we're creating a new strategic global product and solution business that will work across all our investment strategies, asset classes, fund structures, 2019. A technology that facilitates investing. And just as our 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 further growth 2 of iShares and every investment strategy within BlackRock.

Speaker 3

We are looking to the future 3rd, and we believe that ETF revolution that iShares led will only continue to accelerate. As BlackRock turns as our clients turn at BlackRock My gosh, you can make an ETF for anything. 2nd, 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 in a fast growing international markets. BlackRock 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 of ETFs to every market to assist them in growing their markets. And third, we are realigning our private markets business to further leverage the potential of GIP and to meet the growing needs of our clients for infrastructure and other private market investments.

Speaker 3

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. We'll 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. I see excitement and incredible amount of energy in our offices. While there's a lot of hard work to come, there really is a bright future for all of us ahead of us.

Speaker 3

Over the past few months, we've seen decidingly 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 this next BlackRock chapter with our new partners and colleagues at GIP. We entered 2024 with $10,000,000,000,000 of our clients' money. We entered the year with strong growth momentum and we entered 2024 as an organization position in the future for growth and prosperity. At BlackRock, we are energized by a never 3rd done attitude.

Speaker 3

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 opportunity for our shareholders today, Tomorrow and stronger than ever before. Let me open it up for questions. As I mentioned, BIO will also participate

Operator

figure setting and use your handset to avoid any potential feedback. Please limit yourself to one question. If you have a follow-up, please reenter the queue. Your first question comes from Craig Singenthal from Bank of America.

Speaker 3

Good morning, Craig. Happy New Year.

Speaker 5

Hey, good morning, Larry. Happy New Year to you too. I hope everyone is doing well and congrats on the deal.

Speaker 3

Thank you.

Speaker 5

My question is actually on the GIP deal. So This is a high quality business, strong track record. It's big enough to go public, stay independent, 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 5

How can BlackRock's global distribution platform accelerate their growth. And do you see specific client segments and I'm thinking private wealth where you see low hanging fruit?

Speaker 3

Great question. I think it will be answered by me in bio. So let me once again go over the strategic rationale. As I said in my prepared speeches, and I think Baia would echo everything I'm going to be saying, we're just beginning, I would say, As I said, deficits matter. More and more governments are going to have more difficulties to do deficit financing.

Speaker 3

And in turn, more and more governments are even focusing on doing more public private. I think GIP's success The UK and Australia are very good examples of working with governments in terms of helping them Sell assets, but at the same time using the private sector to improve the quality of services. And GIP has been a leader in that. I believe that not a capital that is to be needed Worldwide is a must. The capital associated with that is going to be enormous.

Speaker 3

In my travels around the world, more governmental leaders are talking about the need for energy independence. And they look if they have some form of energy, they're going to be trying to be doing more of that, but more importantly or just as importantly, the amount of capital they need To develop more decarbonizing investments in wind and solar, To provide broader energy for their growth in their economies is very important. If we are going to decarbonize the world, the amount of capital and infrastructure is going to be very necessary. If we are going to be more and more reliant 2. On interconnectivity worldwide, the need for the upgrading of ports is vital.

Speaker 3

As more and more human beings grow into a middle class lifestyle, the demand For air travel grows dramatically, the need for high quality airports grows dramatically. And so That's just one segment. And then when you think about corporations, corporations historically disposed the divisions To 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 in their infrastructure, Like the deal we did with Occidental Petroleum for air capture, the transaction BlackRock did with AT and T on 5 gs And so the industrial logic is pretty large in our opinion that the next 10 years is going to be greatly about the expansion of the global capital markets and infrastructure. And so we believe the demand 4, capital in a district is only to grow larger than larger. And as I said a few times in my prepared remarks, Having a long duration, high coupon, inflation protected asset is a very strong asset class For all the retirement funds, but importantly, as you mentioned wealth, we believe a 3.

Speaker 3

Great opportunity to providing to the wealth management products, these types of products, so they can enjoy These type of long duration assets are going to throw off these above what I would say public market returns. And so I believe across the board, sovereign funds, both retirements, Both in the defined contribution space and the defined benefit space, across the board, these are the preferred instruments. In my calls with clients today, I could tell you more and more sovereign wealth funds see infrastructure as a major growth area in their asset allocation. I'm going to let Bio talk about BlackRock and us. I would only just say at Black from the BlackRock side, we only had one target.

Speaker 3

We only had one organization where we believe In their business model, it was only one organization where we believe we had such complementary skill sets. And then most importantly, it's a team of leaders under bio that we believed in. I will be joining the BlackRock Board post closing. And importantly, we look forward to having the intellectual capital that GIP is bringing alongside our superb team in infrastructure.

Speaker 4

What I'll add to that is, I think Larry is exactly right. We are about to be in the golden age of infrastructure investing. And so the question for us at JIP was always how do we accelerate what we've done. We could have kept trying to do what we were doing by ourselves, But we thought that looking at it from both points of view, from the point of view of infrastructure investing, Larry is right, there are tremendous tailwinds that are going to drive the demand for private capital and infrastructure investing. On our client side, the pension funds and sovereign wealth funds, the asset managers, Infrastructure is what they want to invest in.

Speaker 4

They like the fact that infrastructure has very high yields. The average yield on our mature funds Over the last 15 years annual yield 8%, okay. That's in a world of 0 interest rates, we've already generated 8% a year. They like the fact that these assets are uncorrelated to other asset classes. Think about what's going on today.

Speaker 4

Infrastructure assets are doing very well. We have 19 companies in our flagship funds, 12 of them had double digit asset EBITDA growth last year, 5 of them single digit EBITDA growth. The only one that didn't was because it sold assets. Compare that to the other real asset class, Commercial Real Estate. Okay.

Speaker 4

So investors love the fact that these asset classes are not correlated. They like the fact that there's a lot of downtime protection, right, because they provide essential services, okay? And so these are all So congruence is that we thought, how do we accelerate what we're doing? And the marriage with BlackRock is the marriage made in heaven. Rob Capito said, this is a deal where 1 plus 1 equals 4.

Speaker 4

I'm not sure whether it's 3 or 4, but I know Rob is directionally correct, okay. When we look at the 2 businesses, they're very complementary. BlackRock has built a terrific stock to business. They've tripled the size of it over the last years that they've owned it. But they make mid market or mid cap investments.

Speaker 4

We make large cap investments. We have a terrific infrastructure debt business. It's mostly investment grade, Ours is mostly below investment grade. They have a capital solutions business that we don't have. So if you put these two businesses together, we can go to clients, Large cap clients, mid cap clients offer them a complete array of solutions.

Speaker 4

You want investment grade debt, we've got it. You want high less than 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 to our clients. 6. And look, it's always nice to think you're right.

Speaker 4

The proof of the pudding is what people say when you call them. And as 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. 1, for us as clients, 2, for BlackRock and 3, for GIP.

Speaker 4

Now I wish I had known they put BlackRock ahead of GIP because then I would have asked for a higher price, but it's all worked out very well. And I think the other thing 2. People should recall is and I hope Martin or Larry don't mind me saying this. We are taking 75% The initial offer from BlackRock was actually a low amount of stock, okay. We like the fact that BlackRock thinks their stock And the fact that we are taking 75% in BlackRock stock tells us we also think it's undervalued.

Speaker 4

And the final thing I'd say is we actually looked at Larry has talked about how the culture is very different. I think that's absolutely true. Well, we've also looked at what BlackRock has actually done when it has acquired businesses. Interesting congruence, iShares, BGI, dollars 3,000,000,000,000 in assets when they bought it, today,

Speaker 3

dollars 10,000,000,000

Speaker 4

Okay. So now it's $3,500,000,000 Okay. It's $3,000,000 Okay. So that's actually a little bit scary. Infrastructure, they tripled the size.

Speaker 4

So it's clear to me the subliminal message is we have to at least triple the size of our infrastructure portfolio going forward. I hope that answers your question.

Operator

We'll go next to Michael Cyprys with Morgan Stanley.

Speaker 3

Happy New Year, Michael. Hey, good morning. Happy New Year and congratulations on the transaction. Just curious what are the plans for integration, if you could talk about that a bit and 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 2

Thanks, Mike. Happy New Year. We have a really strong track record of successful integrations at BlackRock, and we believe this transaction will prove to be another success. I think Larry and Bayou spoke very much about the common cultures, the shared vision, the opportunities, the growth with clients. We know that GIP shares the same laser focus on clients and values that we do rigorous investment process in us.

Speaker 2

And the structuring of the transaction was also done to reduce strain on teams and help facilitate the transition into new leadership in a more diversified platform. 2. 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, Larry talked about in his prepared remarks, Our integrated operating platform, and he talked about our track record and integrations.

Speaker 2

We have built Our private markets business with substantial inorganic activity, going back all the way to the early 2000s. And we've 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 with Bio and his partners and the entire GIP team who have substantial experience in business building and alternatives. And the last thing I'll say just about integration is, 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 in 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 as in the characteristic of our investment solutions.

Speaker 2

In many ways that makes the integration I think nimble or and easier to position with clients and More agile for us to bring the platforms together.

Speaker 3

Let me just add one thing. Bio and I are going to be on the road a lot And we are going to with the combined organization, we have an amazing story And we are going to be telling everybody the story from the corporation sides to governments. I just got an e mail from a big government saying, okay, there are things we could do more. So that was a nice e mail that I just received. But I do believe our key is making sure our clients, the investors that are invested in BlackRock and GIP that they 2.

Speaker 3

I understand the merits of the combination and that they think this is even better for them and our job is make sure that everybody We'll Michael, Happy New Year.

Speaker 6

Hi, good morning. Thank you. Happy New Year to you as well. Maybe I'll just condition to the organic growth outlook here as we think about 2024. Obviously, there's been a lot of optimism around the acceleration of the fixed income flows and here with what seems to be a more visible interest rate trajectory.

Speaker 6

So So I have to hear about maybe some of your early conversations you're having with institutional clients regarding allocations and what they're and how you expect that to progressed through 2024. And when you think about the fixed income inflows, where should we think about where that money will kind of shift from? Is it from the money market funds or is it kind of the ownership of direct securities moving into funds or from bank deposits? Just I'd love some commentary on that. Thank you, Larry.

Speaker 2

Great, Mike. It's Martin.

Speaker 6

I'll start just on some

Speaker 2

of the organic growth outlook and then Rob will talk a little bit about your specific fixed income. In 2023, obviously, we delivered $289,000,000,000 of total net inflows and 1% organic base fee growth. We continue to have conviction here in our 5% base fee target over the long term. We've reached it on average over the last 5 years and met or exceeded it in 6 of the last 10. And importantly, I think, the way our shareholders Evaluate us years marked by significant market volatility 2016, 2018, 2022, 2023, We generated positive organic base fee growth.

Speaker 2

And these last 2 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 is seeing decay. We don't aim, 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 4th quarter. As I mentioned in my remarks in November December, we generated an annualized 6% organic base fee growth rate and that to me suggests that we can trend towards our 5 2.

Speaker 2

And then, through the cycle target as rates stabilize and the market's more constructive. This is some of the best organic base fee growth momentum we've seen since 2021. I do want to flag 2 things, the first of which is I'd particularly 2 flag that iShares in Europe is really well positioned, and I think it's going to be a bigger part of where 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.

Speaker 2

S. Industry to high growth rates are taking hold in Europe. So I think it's just the beginning. We also see this combination with GIP and the potential for higher management fee growth in illiquid alternatives as bolstering, diversifying our overall organic base fee growth 2 trajectory. So I'll give it to

Speaker 1

Rob on fixed income. Yes.

Speaker 7

So I'll just add just two things. Mike, I wake up every morning salivating about The $7,000,000,000,000 that's sitting in money market accounts, that's waiting to move. And in order for it to move, you have 2. To have a wide plate of products, that's what we have been developing in client solutions. A lot of this is going to come from money that's flowing into model portfolios, which we are the leader in.

Speaker 7

And a lot of it is going to come from digital wealth, Which is a $17,000,000,000 global market. It's growing at 15% and ETFs are becoming the investors' preferred vehicle And then lastly, as we blend the active and passive business together, We're going to see a lot of active fixed income portfolios move into an ETF wrapper. We're the leader in ETF wrappers as well. So I think there's a huge, huge runway for our fixed income and really the wind is right behind our back for that.

Operator

Your next question comes from Brian Bedell of Deutsche Bank.

Speaker 8

Great. Thanks. Good morning. Happy New Year and also good

Speaker 3

afternoon everyone. Good morning, Rob.

Speaker 8

Good morning.

Speaker 9

Thank

Speaker 8

you. Maybe just yet to ask about the infrastructure, 2. Sure. Another angle of this. Just your outlook for fundraising over the next 1 to 2 years, given your the products that you have and your thoughts around the growth in that, dollars 760,000,000 of fee related revenue.

Speaker 8

And maybe just the timing of it, I think you have a you said it was successful fund of 2019, that was $22,000,000,000 fund. So are you in the market now for a fund or will soon be and do you expect to exceed that? And then also just the in that retail channel, the desire to create democratized infrastructure products for retail investors that have some liquidity features.

Speaker 2

Thanks. I'll start and then I'm sure there'll be some additional color. First of all, clients continue very much to increase their allocations to illiquid alternatives in private markets. These are the client needs that drove our acquisition of eFront. Our private markets, liquid alternatives have reached $166,000,000,000 in assets with about $140,000,000,000 in fee paying AUM.

Speaker 2

And Private Credit, Private Equity Solutions and Infrastructure were the main drivers of Q4 and full year flows with $4,000,000,000 and about $14,000,000,000 respectively. Since 2021, we've had excellent momentum in our private markets fundraising. We've raised approximately $96,000,000,000 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 funds. We expect our primary growth drivers, as I said, over the next 3 to 5 years to be infrastructure and credit and Private Equity Solutions, about what some of these are, but I do think BlackRock has a durable competitive advantage that's been built through our public markets, relationships with global corporates, Our advisory work with sovereigns in the public sector around the world as well as our technology capabilities of the year I'm bringing together a lot of this public and private sector long term objectives, officially moving capital to key drivers of industrial transformation.

Speaker 2

That's often when BlackRock said its best. So we're very optimistic and energized by our capital formation opportunities, particularly with our new partners at GIP. And I think as Larry and Bayou said, they're both going to be traveling a lot. So I'm looking forward to How 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 3

GIP is in the final stages of raising a very large fund, which because it's in the stages of raising the money, we cannot talk about it. 2. So, stand by, but it's in the late stages of fundraising.

Speaker 7

The other thing is that we are very good at structuring product for the individual investor, the wealth investor. And I'm looking forward to working with BIO's team to figure out how our teams can get together and democratize those investments because As Larry mentioned before, this is such a perfect retirement product, long duration, good yield, equity upside. It's going to open up new areas of growth that we have not tapped yet.

Operator

Your next question comes from Brennan Hawken of UBS.

Speaker 10

Good morning. Thanks for taking my question.

Speaker 3

Good morning, Robin. How are you? Happy New Year.

Speaker 10

Happy New Year. So curious, a question on the deal here. Is this a deal that you would consider transformational or is this more indicative of a desire to continue to add more all its capabilities going forward. And then one just sort of a little bit more granular. The roughly $400,000,000 in FRE is based on 2024 forecast from what I can understand.

Speaker 10

Can you give maybe an indication about where GIP's FRE was for 2023?

Speaker 2

Thanks, Brandon, for the question. It's Martin. First of all, this is unassailably a transaction that we consider transformational. Most definitely our clients feel its transformation. The volume of emails I can see on Larry's screen Suggested to me that it's transformational.

Speaker 2

And it's what we've talked about as transformational transactions. It's transformational in terms of the capabilities that BlackRock has and can offer to clients And it's transformational in terms of the financial and earnings impact to the firm. So those two axes are how we've always measured transformational in terms of our capabilities And in terms of the financial impact, and on both fronts, this is definitely a transformational transaction. GIP has generated really 3 strong performance as well as FRE growth. I'm not going to comment on the 2023.

Speaker 2

It will let the 2024 speak for itself. But we continue to see great growth opportunities in terms of being able to expand fee paying AUM across the liquid alternatives platform with infrastructure 2 as a priority as well as growing base fees in a way that adds to our 5% organic growth objective through the cycle.

Speaker 3

Let me just add on some of our Transformational deals could be as large as a BGI transaction. But if you remember everyone, when we did that transaction, most people hated it. They did not see the merits, did not see the marriage of Active and passive did not think cultures can merge, did not understand EPS as a technology. And as Baile was saying earlier, when we bought BGI, it was under $300,000,000,000 in iShares assets and now it's over 3,500,000,000,000 In the past 10 years, we acquired First Reserve when it had about $3,000,000,000 and it's more than tripled its assets 2. Just recently, we acquired Aperio and the assets are up 95% since we acquired Aperio.

Speaker 3

And then just as importantly in technology buying eFront, we made a statement that Whole portfolio analytics are going to become very important, not just public market analytics. And we are now the leading technology platform, both in privates 20 and Publix. And you dovetail all of this is it's all wrapped around our global view where the global capital markets are doing, The technology needs for markets and 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 we confirm that infrastructure is at the very beginnings And the need of capital and because of the type of asset it is, the demand for this type of investment It's really going to be strong and we believe and this is what our statement is, we believe the next 10 years is going to be a lot about infrastructure. And this will become more and more of a major component of the entire private market ecosystem.

Operator

Your next question comes from Patrick Davitt of Autonomous Research.

Speaker 3

Good morning, Patrick.

Speaker 11

Hi, good morning, everyone. Happy New Year. How's it going?

Speaker 3

Happy New Year.

Speaker 11

You guys have been pushing this idea that the $7,000,000,000,000 in money funds will start to rotate into risk assets for a while now. But the historical data we can see from past Fed cycles does not really show that at least from what we can see. And it looks like last year's flows maybe came more from the bank deposits than risk positions. So what are you seeing maybe that we can't see that suggests this cycle will be different? And if rates really are higher for longer, can't both money funds and bonds win with $17,000,000,000,000 still sitting in bank deposits?

Speaker 11

Thanks.

Speaker 7

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 $40,000,000,000 come out of money market funds to us as people re rest And then there's market volatility and it stops.

Speaker 7

So I think we have to get to what people will feel is the end of the cycle in rates And then people will look. The benefit for us is then when they re risk, they usually come into more precision investments, which are higher fee type investments and yield really matters. So I think if you look at it, there's a blurring between the bank deposits and the money markets, all dependent upon rates. Once that cycle stops and it's been a start and stop over the last year at least, especially in the Q4,

Operator

Your next that will be our last question comes from Bill Katz from TD Cowen.

Speaker 9

Okay. Thank you and good morning everybody. Thank you, Larry. Happy New Year to you and the team and congrats on the transaction. Sorry, my phone cut out a little earlier today, the hazards are working from home.

Speaker 9

So I missed a little bit of the Q and A earlier on. Maybe for Martin perhaps just a little technical 2. At this point, as you sort of model out the modest accretion as you look forward, I was just sort of wondering how did the economics on the performance fees work? It looks like you're keeping about 40% of the incremental opportunity. But if you could still give us a sense of what kind of returns GIP has put up over time and how does that flow down 2 performance fees.

Speaker 9

And then I would presume that as part of the guidance that this new fund that they're in the market for now that Larry just sort of intimated is going to be coming 2. It will be part of the economics. And then when you say greater than the 50% 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 2

Thanks. Bill, I'm sorry your phone wasn't working. So it's great to hear from you Happy New Year. So as we said, we expect the transaction to be modestly accretive to EPS and to operating margin and the 1st full year post close. We expect it to be accretive to long term organic asset and base fee growth over time.

Speaker 2

We are adding we expect to be adding pro form a $400,000,000 plus post tax margin accretive FRE as a result of the transaction. The transaction is structured so that we're acquiring 100 percent of the assets and business of GIP. So all of the future management base fees We'll be within the transaction perimeter, and that's where we derive our estimates for the 2024 and beyond FRE growth in the business. 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. As you noted in the deck that we posted to the Investor Relations website, The transaction is that GIP owners and employees are keeping 100% of the carried interest for existing GIP funds And future funds will be 60% to the GIP teams and 40% to BlackRock.

Speaker 2

I'm not going to talk about fundraising or future funds, but we would expect those performance fees to come on in later years, Not in the near term, given the trajectory for how vintages come on. And we'd expect improvement

Operator

Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?

Speaker 1

4th quarter.

Speaker 3

Thank you, operator. I want to thank everybody for joining us this morning and for your interest in BlackRock. Our Q4 and full year performance is a direct result of our steadfast commitment to serving clients and evolving for our long term needs of our clients. Our acquisition of GIP and the organizational changes will be transformational 6 and accelerating our growth ambitions and delivering value for our clients and for our shareholders. Hopefully, everyone could hear that we are 2.

Speaker 3

Incredibly excited about the opportunities ahead of us, the opportunities of having partners like Bio and his team, 2. And we believe we have never been in a stronger position to grow with the global capital markets and to grow And being a very large client serving firm and helping our clients meet their future needs. Everyone have a very good quarter and try to enjoy it as much as possible. Thank you.

Earnings Conference Call
BlackRock Q4 2023 & Acquisition
00:00 / 00:00