Larry Fink
Chairman and Chief Executive Officer at BlackRock
Thanks, Gary. Good morning everyone, and thank you for joining the call. The first half of 2022 brought on a combination of macro, financial and economic challenges that investors haven't seen in decades. Rising energy prices, disrupted supply chains in hawkish pivots of central banks to confront inflation has sparked the re-assessment of growth, profitability and risk across financial markets. Central banks are trying to rein in supply-driven inflation running at multi-decade highs without triggering a deep recession. Demand in the economy now is about the same as it was in pre-COVID, but as pandemic restrictions have lifted, we are seeing that it's easier to restart demand than it is to restart supply. Countries and companies were already re-evaluating their interdependencies following supply chain disruptions during the pandemic. And the Russian invasion of Ukraine has only intensified the prioritization of supply chain resiliency and security over cost of these supply chains and efficiencies of these supply chains.
In the United States, the Fed's effort to fight inflation through faster rate hikes helped push the US dollar to a 20 year high in the quarter, impacting consumers companies, portfolios in the United States and around the world. US companies with international businesses, including BlackRock are facing foreign exchange headwinds impacting the value of their overseas earnings. Markets are reflecting investor anxiety as investors evaluate the potential impact of these pressures. 2022 ranks as a worst start in 50 years for both stocks and bonds, with global equity markets down 20% and the aggregate bond index down about 10%. While BlackRock is not immune to these markets and foreign exchange headwinds, we see it as an opportunity to strengthen our relationship with all our clients worldwide. And it is during these uncertain times like these that the resiliency and diversification of our platform is most evident.
BlackRock generated $175 billion of total net inflows in the first half of 2022, including $90 billion in the second quarter. And these flows do not yet include any funding of the significant portion of the large client mandate we announced last quarter. The substantial organic growth demonstrates our ability to deliver industry leading flows even in these most challenging environments.
Even after the worst first half declines in decades, BlackRock's assets are up over $2.5 trillion since the beginning of 2019. And what I am most impressed with -- at the same period, we generated $1.5 trillion of AUM through organic growth alone. No one else in the industry has come close to that.
Our strategic investments over the years, including iShares, ETFs, private markets, active whole portfolio solutions at Aladdin, have allowed us to build a comprehensive platform to solve our clients' needs across market environments. Cannot think of a time when BlackRock's strategic focus has been better aligned to the market and the needs of our clients than it is today. We see more and more clients looking for a partner who can provide a truly whole portfolio approach across index, across active in cash, across private markets, but all underpinned by global insights and our industry-leading risk management technology. Only BlackRock can offer that. That is why clients are entrusting us with more of their portfolios. That is why BlackRock has seen such a substantial increase in OCIO mandates. That is why we had record Aladdin mandates this year.
Connectivity with clients is even more important in a volatile and uncertain environment. Our clients more than ever are turning to BlackRock to help them navigate uncertainty. There have been incredible demand for clients for insight from BlackRock. During the recent months of volatility, we have hosted numerous large-scale events to share our market outlook, in addition, our direct connectivity with our clients. In the first half of the year, the BlackRock Investment Institute had hosted calls reaching a record number of clients, providing unique global insights, further amplifying our connectivity and reinforcing our voice with our clients globally. This connectivity enables us to better understand the challenges our clients are facing. And our comprehensive solutions have enabled us to help clients reallocate risk, rebalance, increase liquidity and capture opportunities in response to market moves.
Our iShares business is one of the examples where our continuous innovation has allowed us to deliver new solutions for clients and for growth for the firm. 20 years ago, in December of 2002, iShares launched the first US domiciled bond ETF, innovation that went on to break down many barriers in fixed income investing. Today, both individual investors and large institutions are using bond ETFs for convenient, efficient exposures to thousands of global bonds and to make quick specialized recalibrations to their portfolio. In other words, they are using bond ETFs for active investing. The challenges associated with high inflation to rising interest rates are attracting more first-time bond ETF users and prompting existing investors to find new ways to use ETFs in their portfolios for active investing.
In the second quarter, we generated $31 billion of fixed income ETF net inflows led by a record flows in the month of May. Fixed income ETFs once again delivered a market quality that clients expect from us in stressed markets, providing liquidity, providing price transparency. US fixed income ETF trading volume reached new records. In fact, the second quarter average volumes was up over 50% compared to last year.
Our growth this quarter highlights the diversity of our fixed income ETF product range and our ability to serve clients as their needs change. As we still see this is the early days of a major transformation of how people invest in fixed income, we expect the bond ETF industry will nearly triple and reach $5 trillion in AUM at the end of the decade, driving significant growth in the broader ETF industry. When you consider that we build our fixed income ETF platform in an extremely low yield environment, it is particularly exciting to consider how rising rates will bring a whole new set of investors into these funds.
Beyond liquidity and market access, investors also turned to iShares ETF for long-term investments. We saw growth in each of our ETF product categories in the quarter for $52 billion of total ETF net inflows. BlackRock's active platform demonstrated continued momentum in systematic equities, LifePath target date, alternative strategies and great opportunities in our industry-leading fixed income platform like SIO. We believe we will outpace industry flows and active management due to our strong long-term investment performance and our diversified platform. While market volatility impacted shorter term performance in some funds, long-term performance remains strong with approximately 85% of our active taxable fixed income and fundamental equity AUM above medium and benchmark tiers for the five-year period.
The diversity of our broad investment management platform enables us to capture changes in demand within active or as investors change allocations to index or private markets. We saw this phenomenon in fixed income during the quarter where active fixed income net outflows were offset by inflows in fixed income ETFs and index LDI strategies as certain clients look to reallocate or immunize their portfolios. We also saw it as client demand shifted to cash as the interest rate environment improved, and we continue to see strong demand for illiquid alternative strategies with clients growing their allocations to private markets to improve portfolio diversification and seek sources of yield in uncorrelated returns.
In alternatives, we raised nearly $8 billion through committed and net flows across liquid and illiquid strategies. And liquid flows were driven by private credit and infrastructure and liquid flows were led by our systematic multi-strategy funds, which takes a credit-oriented approach. Since 2021, BlackRock raised over $55 billion of gross capital across our entire alternatives platform. One of the biggest long-term opportunities in alternatives will be the intersection of infrastructure and sustainability. Recent supply shocks have only increased the focus on energy security and compounded the need for infrastructure investments. Last month, we announced it a perpetual infrastructure strategy that will partner with leading infrastructure businesses over the long-term to help drive the energy transition from shades of brown to shades of green. This will help address the historic long-term investment opportunity presented by the global transition to a low-carbon economy.
By 2050, an estimated $125 trillion of investments is needed globally to reach a net-zero. That applies an annual investment needs to grow to over $4 trillion compared to the $1 trillion a year -- that is being achieved this year. As a fiduciary, we're working with clients to help them understand, to help them navigate and for clients to choose and help that transition.
BlackRock's cash management platform reached record AUM levels in the quarter and generated $21 billion of net inflows. Surging short-term rates, flattening yield curves and now an inverted yield curve has made cash not just a safe place, but now also a more profitable place for investors to wait as they evaluate how to optimize their portfolios for the future. Even during low-rate environments, we invested in our cash business and have grown our share positioning us well to benefit from the reassurgence of client demand as rates rise. BlackRock's diverse cash management offerings, including governments, prime municipals, ESG strategies allow us to serve all our clients' cash allocation needs.
Market volatility, growing cost pressures and increasing complexities and optimizing whole portfolios have only underscored the need for robust enterprise operating and risk management technology. The value of Aladdin's integrated end-to-end technology platform and leading risk analytics became particularly evident in these market conditions, when portfolio managers needed real-time information, sophisticated tools to manage risk exposures and make investment decisions. We saw record Aladdin Climate mandates in the first half of 2022, expanding our range of technology solutions with strong demand for our newer capabilities, including Aladdin accounting, eFront and whole portfolio view. The market environment has also reinforced the need for offerings like Aladdin Wealth. Users of Aladdin Wealth by financial advisers at our largest clients have increased by more than 40% since the onset of market turbulence this year as financial advisers look to assess portfolio risk for all their clients for their entire business.
BlackRock's technology and risk management capabilities are also supporting the growth of our OCIO business. Since the beginning of 2019 and with the anticipated funding of the $150 billion AIG mandate later this year, we all have raised over $430 billion for major OCIO and fixed income insurance outsourcing assignments. As the trend towards outsourcing increases BlackRock is well positioned to capture this opportunity and be a trusted partner for our clients.
Another major trend defining our industry over the past several years has been interest in sustainable investing. And we continue to see strong client demand for sustainable strategies. BlackRock manages nearly $475 billion in dedicated sustainable AUM on behalf of our clients and we saw over $20 billion of net inflows across active index and cash management in the quarter. One note -- particularly the noteworthy strategy we announced in May was an $800 million commitment raised for the BlackRock Impact Opportunity Fund. This fund is first of a kind a return-seeking multi-alternative strategy that invest in businesses and projects owned and led by serving people of color.
The topic of sustainable investing has sparked a lot of debate in recent months. In many ways, it reminds me of my early days being in the mortgage market. When I started my career working as a mortgage trader in the 1970s, shocking? Mortgage loans were first being securitized into bonds. There were lots of questions from investors, lots of questions from policymakers, lots of questions from regulators alike. While the mortgage market has since had many ups and downs, it is today a $10 trillion market. And with the appropriate underwriting standards, it has played a vital role in delivering attractive returns to investors and making homeownership affordable for millions.
Just two years ago, sustainable investing was not a priority for many clients. It is now one of the fastest-growing segments of the asset management industry and one of the topics our clients are asking more questions than in any part of our business. I continue to believe that we are in the early days of this trend. Two years ago, I said, I believe it will fundamentally reshape finance. I still believe that. But as in the early days of the mortgage market, there are a lot of questions. And with the mortgage market, the key to avoiding excesses and missteps is through better data and through better analytics. That's why BlackRock is so focused on leveraging and creating better ESG data and analytics to help our clients better understand risk and opportunities in their portfolio, including those related to global transition to a low-carbon economy.
ESG data indexing is still an evolving area. And we are working with our partners to assess and refine the best available data to help our clients meet their investment objectives in alignment with ESG preferences. We have long encouraged companies to report on sustainability issues so that investors better analyze how companies are navigating the transition to a low-carbon economy and other critical investment considerations. We believe that common taxonomy and coordinated high-quality disclosure framework will allow investors to more effectively compare data across companies and geographies.
We must also recognize that the energy transition itself is a journey and will not occur overnight. It is not going to be a straight line. It can only work if the energy transition is fair and just. To ensure the continuity of affordable energy during the transition, companies will need to invest in both fossil fuels like natural gas and renewable sources of energy. That is why we are working with energy companies throughout the world who are essentially meeting society's energy needs, and we will play a critical role in helping any successful transition.
Another area that has been increasingly interested with our clients is digital assets. BlackRock has been studying the ecosystem, particularly in areas that are relevant to our clients, including StablePoint, crypto acids, tokenization, permissional blockchains. Last quarter we announced our minority investment in Circle, a global Internet payment company and issue our USD Coin, a stablecoin that is one of the fastest growing digital assets in the world. As part of our relationship, we became their primary manager of their US DC cash reserves with assets invested entirely in short-term US treasuries.
The digital asset space is a developing area that has attracted increased attention from investors and policymakers, and we are encouraged by the discussion of the debate that is occurring about the creation and implementation of an appropriate regulatory approach and framework. The crypto asset market has witnessed a steep downturn in valuations over recent months, but we are still seeing more interest from institutional clients about how to efficiently access these assets using our technology and product capability. This is a space that we are continuing to explore to help our clients who want to learn more and to help them -- who wanted to participate in these assets and to do it in a transparent and an efficient way.
BlackRock continues to innovate in a variety of areas to expand the choices we offer clients to help them achieve their goals. Last fall, we announced the BlackRock Voting Choice initiative, which uses technology to help eligible institutional clients participate in proxy voting decisions. In the second quarter, we further expanded the opportunities for eligible clients, including public and private pension funds, insurance companies, endowments, foundations, sovereign wealth funds to participate in proxy voting decisions. Following years of work on technology and regulatory barriers, nearly half of our clients' index equity assets including pension funds representing more than 60 million people have simple and efficient options to vote their preferences if they choose. The client assets currently available for voting choice nearly 25% are held by clients who have so far elected to exercise their own voting preference and we're working to expand choice even further. We're committed to a future where every investor, even individual investors can ultimately have the option to participate in proxy voting processes as they choose.
Over the course of BlackRock's 34-year history, and in the years since the financial crisis and our acquisition of BGI, markets have experienced various periods of volatility and uncertainty. BlackRock has always come through stronger. It is through periods like this clients more deeply connected with BlackRock's platform and we have more opportunities to work with our clients to continue to differentiate ourselves, and we are working with more and more of our stakeholders worldwide. We have always emphasized the connections between BlackRock taking a long-term view of our business and delivering differentiating growth for our shareholders. Many of BlackRock's biggest successes have grown out of times of uncertainty and disruption. I see more opportunities for BlackRock today than ever before and I am incredibly excited about our future.
As we look to realize those opportunities, we will continue to invest for the future and evolve ahead of our clients' changing needs. The diversification, the resiliency of our platform allows us to pursue critical investments while maintaining our focus on expenses and on our margins. We will continue to manage what we can control, bringing together the entire firm to serve every one of our clients, big or small, to strategically invest in the highest growth opportunity in the future, leveraging our scale to deliver benefits to our clients and operating more efficiently. We will continue to drive forward on our commitments to our clients, to our shareholders, to our employees. And as I said earlier, I believe that BlackRock's position has never been stronger.
With that, operator, let's open it up for questions.
