BlackRock Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
January 13, 2023

Key Takeaways

  • In 2022 BlackRock generated $307 billion of net new assets and delivered industry-leading organic base fee growth, ending the year with strong momentum including $146 billion of long-term net inflows in Q4.
  • Full-year revenue of $17.9 billion was down 8% and operating income of $6.7 billion declined 13% year-over-year, while Q4 revenue of $4.3 billion (–15%) and EPS of $8.93 (–16%) reflected negative market beta and FX headwinds.
  • BlackRock’s strategic growth areas—iShares ETFs (record $220 billion net inflows in 2022, including $123 billion in bond ETFs), private markets (≈$16 billion of illiquid net inflows) and Aladdin (10% ACV growth)—continued to gain traction.
  • The firm took a $91 million restructuring charge (2.5% of global workforce) to reallocate resources, expects headcount to be broadly flat in 2023 and anticipates mid- to high-single-digit core G&A expense growth as it invests in technology, Hudson Yards and Aladdin Cloud.
  • BlackRock returned a record $4.9 billion to shareholders in 2022 through dividends and buybacks (including $1.9 billion of repurchases) and is targeting at least $1.5 billion of share repurchases in 2023.
AI Generated. May Contain Errors.
Earnings Conference Call
BlackRock Q4 2022
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good morning. My name is Taryn, and I will be your conference facilitator today. Today's call is being recorded. At this time, I would like to welcome everyone to the BlackRock Incorporated 4th Quarter 2022 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Lawrence D.

Operator

Fink Chief Financial Officer, Gary S. Shevlin President, Robert S. Cappido and General Counsel, Christopher J. Meade. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer period. Thank you. Mr. Meade, you may begin your conference.

Speaker 1

Good morning, everyone. I'm Chris Meade, the General Counsel of BlackRock. Conference call, I'd like to remind you that during the course of this call, we may make a number of forward looking statements. Call, we call your attention to the fact that BlackRock's actual results may of course differ from these statements. As you know, BlackRock has filed reports with the SEC, conference call,

Speaker 2

we will discuss some of the factors that may cause the results of BlackRock to differ materially from what we say today. BlackRock assumes no duty time,

Speaker 1

it does not undertake to update any forward looking statements. So with that, I'll turn it over to Gary.

Speaker 3

Conference call, please

Speaker 4

go ahead. Thanks, Chris. Good morning and happy New Year to everyone. It's my pleasure to present results for the Q4 and full year 2022. Before I turn it over to Larry, I'll review our financial performance and business results.

Speaker 4

While our earnings release discloses both GAAP and as adjusted financial results, call, I will be focusing primarily on our as adjusted results. As a reminder, beginning in the Q1 of 2022, we updated our definitions of Throughout BlackRock's history, we have consistently invested in our business with a long term focus and commitment to serving clients across market environments. We have established leadership positions in high growth areas such as ETFs, private markets, outsourced solutions and technology. And we have integrated these industry leading capabilities into our 1 BlackRock business model and culture to create a distinct and differentiated value proposition for clients. As a result of these investments, we grew organically at our fastest rate ever in 2021.

Speaker 4

And while 2022 was one of the most challenging market conference in over 50 years, clients around the world once again turn to BlackRock for advice and assistance to construct more resilient portfolios. In good times and bad times, whether adding or reducing risk, our continued industry leading organic growth demonstrates that clients are increasingly consolidating call, we will now begin to discuss

Speaker 3

more of their portfolios with

Speaker 4

BlackRock for long term solutions that solve their most challenging investment needs and address their unique risk preferences and priorities. During 2022, BlackRock generated industry leading total net inflows of over $300,000,000,000 call, we delivered positive organic base fee growth. Importantly, we ended the year with strong momentum, generating approximately $14,000,000,000 of total net inflows in the 4th quarter, representing 3% annualized organic base fee growth and reflecting continued momentum in iShares end, significant outsourcing mandates. Full year revenue of $17,900,000,000 was down 8%. Operating income of $6,700,000,000 and earnings per share of $35.36 both declined 13% compared to 2021.

Speaker 4

For the Q4, revenue of $4,300,000,000 was 15% lower year over year, primarily driven by the impact of lower markets time, we expect to be in the range of $1,600,000,000 was down 25%, while earnings per share time, we expect to be in the range of $8.93 was 16% lower versus a year ago, also reflecting higher non operating income and a lower effective tax rate in the current quarter. Non operating results for the quarter included $159,000,000 of net investment income, Driven primarily by mark to market gains in our private equity co investment and seed investment portfolios and our strategic minority investment in Envestnet. Our as adjusted tax rate for the Q4 was approximately 23%, driven in part by discrete items. We currently estimate that 25% is reasonable projected tax run rate for 2023, primarily due to an increase in U. K.

Speaker 4

Tax rates, though The actual effective tax rate may differ because of non recurring or discrete items or potential changes in tax legislation. Quarter, base fee and securities lending revenue of $3,400,000,000 was down 14% year over year, in line with the corresponding decline in average AUM, call, primarily reflecting the negative revenue impact of approximately $1,700,000,000,000 of market beta and foreign exchange movements on AUM over the last 12 months. Sequentially, 4th quarter base fee and securities lending revenue was down 4% despite positive organic base fee growth in the quarter. Our 4th quarter annualized effective fee rate decreased by approximately 1 half of a basis point from the 3rd quarter, reflecting the previously discussed impact on our 4th quarter entry rate, Continued mix change favoring lower fee mandates and lower securities lending revenue. 4th quarter and full year conference fees of $228,000,000 $514,000,000 respectively decreased from a year ago.

Speaker 4

The declines primarily reflected lower revenue As our Private Markets business continues to scale, full year performance fees from liquid alternatives increased 42% year over year And our unrecognized deferred carry balance, which represents a portion of our potential future carry fee revenue exceeds $1,400,000,000 call, our Aladdin business delivered record net new sales in 2022 and demand for our technology solutions has never been stronger. Quarterly technology services revenue increased 4% year over year and full year revenue of $1,400,000,000 increased 7%. Both periods reflected significant revenue headwinds associated with the FX impact on Aladdin's non dollar revenue and market time, we have a strong balance sheet. We are pleased with the results of the quarter. We are pleased with the results of the quarter.

Speaker 4

On a constant currency basis, we estimate ACV would have increased 10% from a year ago. Total expense decreased 4% in 2022, reflecting lower compensation, direct fund expense and G and A expense. For the full year, employee compensation and benefit expense was down 5%, primarily reflecting lower incentive compensation due to lower operating income and performance fees And lower mark to market impact of certain deferred compensation programs, partially offset by higher base compensation. Call, the year over year comparisons of 4th quarter compensation expense are less relevant because we finalized full year compensation in the 4th quarter. 2022 direct fund expense decreased 7% year over year, primarily reflecting lower average index AUM.

Speaker 4

The sequential decline in quarterly direct fund expense also includes the impact of higher rebates that seasonally occur in the 4th quarter. Excluding product launch costs, 4th quarter G and A expense increased 2% year over year, reflecting ongoing strategic investments in technology and the impact of higher quarter, we expect to be approximately $1,000,000,000 to $1,000,000,000 partially offset by lower occupancy and sub advisory expense. For the full year, call, we estimate that core G and A expense was up 11% compared to 2021, primarily driven by higher technology spend associated with our Aladdin Cloud migration time, we will be conducting a return to more normalized levels of T and E expense. Our full year as adjusted operating margin of 42.8% was down 400 basis points from a year ago, time, we are pleased to announce that our results reflect the value of our business and our people. BlackRock's industry leading organic growth is a direct result of the disciplined investments we have consistently made through market cycles.

Speaker 4

As we've shown throughout our history, it's often in times of greatest uncertainty where BlackRock's differentiated model enables us to continue playing offense time, we emerge even stronger. Since July, we have been aggressively managing the pace of our discretionary spend, so we would be better prepared for 2023, year, in which we will need to increasingly focus our resources on areas of greatest opportunity. In order to continue investing in our people call, we have been conducting a strategic priority for our most important growth initiatives. By taking a targeted and disciplined approach to how we shape our teams, we not only increase investment capacity for these initiatives, call, we will also create opportunities for our incredible talent. This resulted in a 4th quarter restructuring charge of $91,000,000 call, primarily comprised of severance and accelerated amortization of previously granted deferred compensation awards for approximately 500 impacted employees time, we are 2.5% of our global workforce.

Speaker 4

This charge appears as a single line expense item on our 2022 GAAP income statement At present, we would expect our headcount to be broadly flat in 2023. Optimizing the shape of our talent pyramid and growing our footprint in Ihub Innovation Centers will continue to be central to our talent strategy, allowing us to continue to support growth at scale. In addition, we would also expect a mid to high single digit increase in 2023 core G and A expense, Driven by the upcoming move to our new Hudson Yards headquarters, continued investment in technology to scale our operations and support future growth And the annualized impact of migrating Aladdin clients to the cloud, which is now substantially complete. We are also investing through prudent use of our balance To best position BlackRock for continued success. During 2022, we allocated $1,200,000,000 of new seed and co investment capital to support our growth And our year end portfolio now approximates $3,900,000,000 Our strategic minority investments are reinforcing various elements of our strategy And simultaneously generating very attractive returns for our shareholders.

Speaker 4

During the year, we invested in Circle and became the primary manager of the USDC cash reserves. And we recently made a minority investment in Human Interest, a tech enabled end to end retirement plan solutions provider, Which is helping Americans employed by smaller businesses access easier ways to save for their retirement. We also remain committed to systematically returning excess cash call, we are pleased to shareholders through a combination of dividends and share repurchases and returned a record $4,900,000,000 to shareholders in 2022, call, including $1,900,000,000 of share repurchases, an increase of over 30% from 2021. Time since inception of our current capital management strategy in 2013, we have now repurchased over $13,000,000,000 of BlackRock stock, call, reducing our total outstanding total shares by 13% and generating an unlevered compound annual return of approximately 15% for our shareholders. At present, based on capital spending plans for the year and subject to market conditions, including the relevant valuation of our stock price, We are targeting the repurchase of at least $1,500,000,000 of shares during 2023.

Speaker 4

As you will hear more from Larry, BlackRock's strategy has always been guided by our clients' needs. We are relentlessly focused on providing choice, delivering strong investment performance And executing our fiduciary duties with excellence. This enables us to build deeper and broader relationships with more clients and drive differentiated growth call, we are conducting a question and answer

Speaker 3

session across

Speaker 4

our platform. 4th quarter long term net inflows of $146,000,000,000 representing 8% annualized organic asset growth were led by flows into strategic growth areas including ETFs, outsourced solutions and illiquid alternatives. Full year long term net inflows of 393,000,000,000 call, we are positive across all regions, led by net inflows of $230,000,000,000 from clients in the United States. BlackRock generated industry leading ETF net inflows of $220,000,000,000 in 20.22, representing 7% organic time, we expect to be conducting a record $123,000,000,000 into bond ETFs. 4th quarter ETF net inflows of $90,000,000,000 reflected some seasonality, but also reflected the diversity of our product and client segments.

Speaker 4

Surging demand for our bond ETFs, which saw $47,000,000,000 of net inflows represented the 2nd best quarter in our history. Call, we also saw continued strength in core equity ETFs as well as precision exposures as clients reassessed tactical asset allocation changes during the quarter. Full year retail net outflows of $20,000,000,000 reflected ongoing industry pressures in active fixed income and world allocation strategies, call, partially offset by strength in index SMAs and our systematic equity income and multi strategy alternative funds. 4th quarter retail net outflows of $15,000,000,000 reflected similar trends. BlackRock's institutional business generated record net inflows $192,000,000,000 in 2022, representing 4% organic asset and 3% organic base fee growth pace by approximately $170,000,000,000 of active net inflows, reflecting broad based strength across all product types time, we are pleased to announce that the funding of several significant outsourcing mandates.

Speaker 4

4th quarter institutional active net inflows of 76,000,000,000 call, we're also positive across all product types and included the funding of the substantial remainder of the AIG CoreBridge fixed income mandate. We remain well positioned to be in investor demand for risk adjusted alpha and yield and our diversified active fixed income platform conference call, with strong 3 5 year performance records across total return, unconstrained, high yield and credit is especially well positioned for growth as interest rate stage, demand for private markets also continued with $16,000,000,000 of net inflows into illiquid strategies during the year driven by private In addition, as our Private Markets business continues to grow, we also raised significant new client commitments in 2022. We now have approximately $34,000,000,000 of committed capital deployed for institutional clients and a variety of strategies representing call, we have approximately $260,000,000 of future annual base fees and significant potential performance fees. Call, we will now begin the call to discuss our financial results. Finally, BlackRock's cash management platform experienced $32,000,000,000 of net outflows for the year.

Speaker 4

Despite a particularly challenging year for the broader institutional liquidity industry, BlackRock became the number one international money market provider And as rates stabilize, we are well positioned to grow market share by leveraging our scale, product breadth, technology and risk management capabilities. Before I hand it over to Larry one last time, I'd like to take this moment to thank him for giving me the opportunity to be CFO of this amazing organization for the last 10 years. It's truly been the highlight of my career and I'm deeply grateful for the feedback, advice and wisdom I have garnered from our shareholders, our sell side analysts, Our Board, my BlackRock colleagues and most of all, the amazing finance team I've had the privilege to work alongside. Call, I would like to turn the call over to Mr. President.

Speaker 4

BlackRock is incredibly well positioned to continue generating differentiated growth and delivering for clients, employees and shareholders. And I look forward to continuing the journey in my new role. I'm even more excited for what lies ahead with Martin Small as our next CFO. I know we will be in great hands.

Speaker 3

With that, over to you, Larry. Jerry, big hug. Thank you. Excellent job. Good morning, everyone, and Happy New Year.

Speaker 3

Thanks, everyone, for joining this call. Time, we are focused on delivering the best financial returns for each and every client. In line with our objectives and goals, we remain relentless about staying ahead We serve clients of all types, large, small, individuals and institutions in all parts of the world. So providing them choice is critical in helping each of them achieve their unique financial goals. We have built the industry's most comprehensive and integrated investment Deliver the best financial returns based on their individual preferences.

Speaker 3

It is this differentiating platform that drives our differentiating results. BlackRock generated $307,000,000,000 in net new assets and positive organic base fees In 2022, these industry leading results reflect by the decisions by thousands of organizations and investors That continually place their trust in BlackRock. The consistency of our results across both good and bad markets, Markets up and down comes from our clients' confidence in BlackRock's performance, Our guidance and our fiduciary standard. In the United States, we generated $230,000,000,000 of long term net inflows and flows were positive across all regions throughout the world. Call, we generated organic growth across index and active and across all long term asset classes From fixed income to equities to multi asset to alternatives, as clients turn to BlackRock for more solutions across their entire whole portfolio.

Speaker 3

We ended the year with very strong momentum with $114,000,000,000 of 4th quarter net inflows, Representing 3% annualized organic growth base fees. We estimate that BlackRock captured over 1 third The long term industry flows in 2022, leading the industry and delivering positive organic base fees for the year. Over the past 5 years alone, BlackRock has delivered an aggregate $1,800,000,000,000 in net inflows or 5% average organic Asset growth compared to flat or negative industry flows. Over this 5 year period of time conference call, have been both rallies and contractions. But BlackRock has always delivered growth, reflecting The power of our connectivity to our clients, our fiduciary standards and a diversified platform.

Speaker 3

2022 is a year of transition and a complex market environment for every one of our clients. We witnessed transformation in the geopolitical world order that rewired globalization and supply chains, upending assumptions about inflation And drove the normalization and eventually tightening of monetary policy. Production constraints, labor shortages and call, energy and food price disruptions and price increases followed the Russian invasion of Ukraine, causing inflation to hit a 40 year high, Sparking a cycle of rate hikes by central banks. Inflation continues to be a top concern despite recent Cooling we saw at the end of this year and the beginning of this year, global growth continues to slow. The challenges society has experienced not just in the past year, but since the pandemic Has eroded hope and reinforced pessimism in many parts of the world.

Speaker 3

We've seen a decline in birth rates and an increase in aging populations, a rise in nationalism and populism. And I fear that we are entering a period of economic malaise. To correct this, the role of business becomes even more critical than ever. Leaders must continue to invest in technology and research and development to improve long term prospects And to provide a vision that offers hope about the future. Fundamentally, investing There's also an act of hope, hope that the future will be better than the present.

Speaker 3

If people do not have hope, They will not take money out of the bank account and invest it in a 30 year retirement outcome. Today, the financial narrative is so often about the near term market moves, the topic of the day, like the latest meme stock or media headlines about political polarization, throughout our history BlackRock has taken a long term approach to investing. It is BlackRock's role to show people the benefits of investing for the long term to give them hope that over time their returns with a balanced portfolio time, we can deliver long term financial security. Against the current backdrop, BlackRock has an even greater obligation to help our clients Wade through the uncertainty and give them the confidence to invest in the long term. We see many opportunities for clients to capitalize on market disruption, to rethink portfolio construction, call, we are pleased to consider the renewed income generation potential of bonds or to reallocate the sectors that may be more resilient in the face of elevated inflation.

Speaker 3

BlackRock is uniquely positioned to help clients navigate opportunities in this environment because of our diversified platform portfolio approach is resonating more than ever before and underpins the record $192,000,000,000 of long term net inflows from institutional clients In 2022, institutional clients are choosing BlackRock because of our scale, our resources And the expertise to take on the challenges of each and every market. Clients select us because we think time, we are pleased to announce that we are in the long term and in alignment with their beneficiaries whose time horizon spanned decades. Call, we are seeing strong demand from clients looking to partner with BlackRock for outsourced solutions and expect this call, we will now begin the call to continue in 2023. Just in the last 2 years, BlackRock has been entrusted to lead several significant outsource mandates totaling over $300,000,000,000 in AUM spanning existing and new clients. And I'm proud to say our pipeline remains very strong.

Speaker 3

In 2022, Black conference call, help millions of investors plan for their financial futures as they continue to turn ETFs for long term investments. IShares led the industry with $220,000,000,000 of net inflows. We are proud that iShares offers the most choice in our industry. In 2022 alone, we launched over 85 new ETFs globally and that is testament to our scale, The demand from our clients that are diversification, we had over 70 different iShares ETFs call, with annual net inflows surpassing $1,000,000,000 Our growth was well diversified across our core equity, time, the investors turn to iShares precision exposure ETFs to make those tactical asset allocation decisions into year end. IShares Bond ETFs generated a record $123,000,000,000 of net inflows.

Speaker 3

We again led the industry And 6 of the top 10 asset gathering bond ETFs in 2022 were iShares. When I started my career a long time ago as a bond trader, it was much more difficult for individuals to assess the bond market. Their options were high cost mutual funds or paying large markups to brokers to buy bond directly. Call, iShares launched the first 4 U. S.-listed bond ETFs.

Speaker 3

And today, we provide over 4.50 ETF choices across our $760,000,000,000 iShares fixed income platform. In an uncertain rate and credit environment this year's iShares Bond ETFs benefit for having the most diverse product offerings in the industry spanning governments, investment grade, high yield, emerging markets, municipals, innovations like Buy Rights and I Bonds. The diversification means we can meet our clients' demands as it evolves. Earlier this year, investors used I Share's bond ETFs expressed preference for short duration treasuries. And more recently, our high yield, our corporate Long duration ETFs have been leading the flows.

Speaker 3

The role of bonds in the portfolio is increasingly relevant for the first time in years, investors can actually earn very attractive yields without taking much duration or credit risk. Call, just a year ago, the U. S. 2 year treasury note was yielding approximately 90 basis points. And today, they're earning over 4% with corporate bonds earning over 5 and high yield earning 8.

Speaker 3

Clients are coming to BlackRock to help them pursue generational time, we have a number of opportunities in the bond market and our leading $3,200,000,000,000 fixed income and cash platform Is well positioned to capture accelerating demand. In addition to our industry leading bond ETF flows, clients turn to BlackRock's high performing active platform, where over 80% of taxable fixed income assets are performing above benchmarks or baremedium For the 3 5 year period, there will be more money moving around and as investors recalibrate, We believe we will benefit as clients build portfolio with high performing active investments alongside ETFs and of course private market strategies. The need for income and uncorrelated returns against the backdrop of higher inflation and a more challenged market for Public equities will continue to drive demand for private markets. We raised $35,000,000,000 in client capital in 2022 led by private credit and infrastructure. We're successfully scaling successor funds, delivering larger funds through raising the subsequently fund vintages.

Speaker 3

In 2020, our 3rd Global Energy and Power Fund raised a total of $5,000,000,000 surpassing the total assets of Vintage 1 and 2 combined. In 2022, the 4th fund raised $4,500,000,000 in investor initial investor commitments at first close, achieving over half of our targeted $7,500,000,000 raise. Our diversified infrastructure funds are providing social and economic benefits to communities in the United States and around the world. We recently announced an agreement to form GigaPower, conference call, a joint venture with 1 of our diversified infrastructure funds and AT and T, which upon closing will provide fiber networks to customers and communities outside AT and T's traditional service area. The network will advance efforts to bridge the digital divide and ultimately help call, we are pleased to report our local economies and the communities in which Gigapower operates.

Speaker 3

One of the largest opportunities in infrastructure investing over the coming years will be the Renewable Infrastructure. In the United States, the Inflation Reduction Act contains a range of measures to spur greater investment and demand Renewable Energy, Infrastructure and Technology. In Europe, the energy supply shocks in 2022 have only sharpened the focus call, on energy security and given rise to the European Commission's repowerEU plan for Renewal Energy Investment. Client demand for income and uncorrelated returns also resonate in our multi asset and fundamental active equity platforms. Where we saw in our tactical asset allocation and equity dividend franchises, we see great opportunities for clients in our income and dividend growth equity offering, call, we can be tools to help thread the needle between generation income and growth that could potentially outrun inflation.

Speaker 3

Aladdin is foundational to how we serve clients across our platform. Call, it helps us deliver precise tracking for our iShares ETFs. It allows us to onboard and service increasingly large complex mandates And it has consistently demonstrated its value in proceeding and processing high trading volumes And providing transparency into portfolios of in volatile markets. Our multi decade investment in Aladdin continues to differentiate BlackRock and continues to differentiate Aladdin, both as an asset manager And as a leading FinTech provider, periods of market volatility have historically underscored the importance of Aladdin. And in 2022, we saw record net sales of Aladdin contributing to 10% growth In our annual contract value on constant currency basis, we see clients doubling down on technology and leveraging fewer providers To do more with less, this is evidenced by our mandate this year about half spanning multiple Aladdin products.

Speaker 3

We continue to evolve and enable clients to further simplify their operating infrastructure with Aladdin. Clients increasingly want to tailor how they use Aladdin to meet their own unique and specific needs, this time, our partners include asset servicers, cloud providers, digital asset platforms, trading systems and others Who can work with clients in their Aladdin environment to provide a more customized and seamless end to end experience. We continue to innovate in a variety of areas to expand the choice we offer clients. We're transforming on how clients can engage with companies They are invested in through our voting choice technology. BlackRock was the 1st organization to build and launch technology empowering institution clients in BlackRock separate accounts and nearly 650 pooled vehicles to choose How to vote the shares of the companies they own through our own index capabilities?

Speaker 3

Nearly half of our clients' index equity assets under management are now eligible. This includes all public and private pension plans we manage in the United States As well as retirement plans serving more than 60,000,000 people around the world. And in just the last 6 months, the number of index The majority of BlackRock's plans are investing to finance retirement. And BlackRock has been in the forefront of innovation and Which is helping small and medium sized businesses provide affordable, accessible retirement plans to their employees, so more Americans can serve We believe human interest visions aligns closely with BlackRock's mission Of helping more people experience financial well-being by making retirement plans accessible to more Americans. We've always believed in being agile in how we manage BlackRock.

Speaker 3

That is how we built our industry leading position and generated value for shareholders over the long run. Time, we continue to see the opportunity around us makes us even more important that we stay in front of the changes in the market and focus on delivering for each and every client. To extend our market leadership, we must invest in our people, Invest in our platform for the long term by allocating resources where they are needed most in ways that are cost effective and support our ability to scale. As Gary mentioned, our restructuring effort resulted in a number of valued colleagues and friends leaving the firm. Call, we greatly appreciate the contributions they have made to BlackRock and wishing the best for them.

Speaker 3

BlackRock call remains a growth company. Even with this restructuring, our headcount will still be 6% higher than a year ago. Looking ahead, we have deep conviction in our strategy and ability to execute with scale call, we see similar clients' needs reshaping and shaping the opportunity set for 2023. Being a large insurance company seeking outsource partnership with scale and expertise, pension funds looking for attractive yields and less time, we are committed to our financial advisors using our models and iShares to build better portfolios to meet the challenges the long term challenges of our clients. The investments we have made over the years have also positioned us to capture emerging opportunities in bond ETFs, Huge opportunities in the rebuild out of infrastructure in the United States and the world and opportunities in transition finance.

Speaker 3

Our momentum in Aladdin has never been stronger and our advisory capabilities continue to play a critical role in our dialogue with clients. I've spoken frequently over the years about the need for CEOs to effectively articulate the values their companies deliver to shareholders, time, we are committed to our employees and other stakeholders. Similarly, as the CEO of BlackRock, I have a responsibility to articulate The BlackRock story and it has never been more critical to do that than now. Over the past year BlackRock conference call has been the subject of a great deal of political and media discourse. It is my duty to address the questions being asked of us, A responsibility that I take very seriously, some of these people have suggested we are either too progressive, Some of them suggested we're too conservative in how we manage our clients' money.

Speaker 3

I'm going to just tell everybody we're neither. We're a fiduciary. We put our clients' returns first. We offer every client investment choices And then pursue their objectives that they choose and the performance they seek. I want to make it clear to our clients, our shareholders and all our stakeholders that we will be deterred in pursuing the outcomes that our clients desire.

Speaker 3

This steadfast focus has not only enabled us to deliver for clients, but also to drive growth call, we will now begin the call for each and every one of our shareholders. Since our IPO in 1999, BlackRock has delivered a 7,700 percent total return to our shareholders. And this is the strongest return of any financial services company in the S and P 500 over that period. I thank BlackRock employees for the commitment to upholding our culture and living every day our purpose. Call, we're always striving to better serve each other and each of our clients and finding new and innovative ways to be helping our call, I really do want to call out and thank Gary once more for his last earnings call.

Speaker 3

He's been a friend way beyond his term at BlackRock. He's been an advisor. Call, sometimes he's been tough, sometimes he's been lovely, Andy but Gary has been an important part of driving our growth over these last 10 years And drive the success of our share price for our shareholders. I am thrilled personally and professionally he will continue to be with us at BlackRock as the Vice Chairman And I look forward to having Martin Small join us as the CFO for our next call in April. Thank you, everyone, and let's open it up for questions.

Operator

We'll take our first question from Daniel Fannon with Jefferies. Please go ahead.

Speaker 4

Wanted to follow-up on your comments around asset allocation and thinking about conversations you're having with clients here Into 2023, clearly fixed income is an area that you've talked about. Can you talk about do you need to see rates peak before you start to see that demand? Are you Seeing it now and then also what other kind of assets outside of fixed income or products that you see really incremental demand as we think about this year?

Speaker 3

Rob? I'll

Speaker 5

take that one, Dan. Rob Capito here. Clients Have, as you know, experienced a very difficult market in 2022. There were joint double digit declines across call, I don't think we have to wait to actually call rates, where they're going to top or not To know that the traditional sixty-forty portfolio has been challenged And right now, they need a partner to help them rethink their allocations, which are going to have to be much more nimble Because of the change in market structure and specifically how each asset class is going to be managed, We find that they are turning to BlackRock more and more for both insights and solutions. And the 3 areas that are more common are inflation protection because of the uncertainty of where rates They are looking for income both from the products they have and from cash And they're looking at how to navigate the private markets, which continue to grow in size.

Speaker 5

Call, we have built over the years a platform that is allowing us to address these client needs Both in good markets and in bad ones. And I think the results that Larry described call, we will now begin to demonstrate how we have been able to participate significantly for our clients. But now to answer your question even more directly, we see a lot of tailwinds that I think are going to support Our growth trajectory into 2023, the first one is certainly fixed income Because for the first time in years, insurers and pension funds can time, we actually earn very attractive yields without taking much duration or credit risk. And our $2,500,000,000,000 fixed income platform is strong, the performance across our flagship franchises are excellent and we are well positioned to help clients add back to their allocations As the rate environment stabilizes, so our fixed income teams, both inactive and in passive, are ready. A lot of that will come through ETFs.

Speaker 5

And we expect that the industry is going to reach $15,000,000,000,000 in the next few years with iShares leading the growth as it did in 2022, Whether it's through fixed income, core or precision, we have the most diversified lineup And as you know, in the U. S, ETFs only represent 2.3% Of the bond market. So we have a lot of runway here. On the private market side, I would emphasize infrastructure And private credit. And one of the largest opportunities will be in renewable infrastructure, And that will benefit even more from the Infrastructure Reduction Act that has been passed in the U.

Speaker 5

S. And an example Larry gave in his remarks was the recently announced infrastructure JV conference call with AT and T, called GigaPower, which is an example of this momentum, call, which we think there will be many other JVs available to us with other companies in renewable infrastructure. Call, we will now begin the call to discuss our financial results. And there are a couple others that I think should be highlighted, especially as growth areas for BlackRock. One is outsourcing.

Speaker 5

And we have seen this trend over the last several years. And our recent successes with significant size mandates Are going to position us well to execute on a strong 2023 pipeline. One that has been overlooked There is a shift in wealth management from individual stock fund selection call, we will now begin the call to Other model managers using iShares and other index products as building blocks In very large size in their asset allocation. And then of course, lastly is Aladdin because you know that in periods Market volatility, it has historically increased the importance of Aladdin to our clients As we saw in our record net sales in 2022. So all of these position us

Operator

our next question comes from Alex Blostein with Goldman Sachs. Please go ahead.

Speaker 3

Hi, Alex.

Speaker 6

Good morning, everybody. Hello. Happy New Year to you as well. Gary, congrats again on your next move and maybe in spirit of this being your CFO earnings call, we'll get an expense question in there. So I heard you on the core G and A guide mid to high single digits for 2023, maybe help us frame sort of the market conditions that this guide contemplates.

Speaker 6

And I guess how you're thinking about the expense base more broadly, Including compensation, compensation rate, things like that for the year.

Speaker 4

Thanks, Alex. So maybe just some context, right? And I think we've spent the last couple of calls talking about our philosophy I'm really trying to drive organic growth because we know that that is obviously a critical driver of our PE multiple. And I think we are also mindful that we come through these periods of volatility, generally better positioned than our competitors because of our diversified model that gives us the ability to continue to invest going forward when others Simply can't do it. And I think as we've talked about, there's this conundrum, right, which is on the one hand, we know that our PE multiple is driven time, I'd like to provide growth and on the other hand, just understanding that in the context of the overall market, our revenue run rate is down and there is a little bit of a misalignment Between our expense base and our revenue capture rate versus where it was a couple of years ago.

Speaker 4

But I think as we saw Coming out of the pandemic, we continued to invest in our business and that resulted ultimately in the 2 best years in BlackRock's history call in 2021 and in 2022, we've once again delivered by generating over $300,000,000,000 of net inflows, While most of the industry has been in outflow. So our challenge today really remains to ensure that we can continue to invest in our highest growth opportunities. And we're obviously committed to doing that by trying to relentlessly reallocate resources across the organization. We obviously don't go into a year Predicated on any beta assumptions, we try to take beta out of it. I think Rob, the beta did an amazing job of time, we're not really explaining where we think most of the growth potential are on the revenue side.

Speaker 4

And so it's with that in mind that in July, We really began to more aggressively manage the pace of our hiring and our discretionary spend and more recently determined to affect a broader restructuring Of the size and the shape of the workforce to really free up that investment capacity to ensure that we can continue to basically drive our most important growth initiatives And obviously create opportunities for our talent to develop and prosper. So I think you've seen that and we talked about that. For next year, We expect our headcount will be broadly flat. We are going to continue to optimize our talent pyramid and grow conference call, we will be conducting a time, we expect a mid to high single digit increase in our core G and A expense that's coming off a lower base, because as you know, we initially had given you guys 13% to 15% increase, we actually came in closer to 11. So we'll be growing off a lower base and that will continue to be driven by The variety of things that I mentioned on the call, Hudson Yards, technology to scale ops and obviously the annualization of a number of time, I really want to remind everyone that our highest margin business is beta.

Speaker 4

And obviously, we've seen that both on the way up and we also see it on the way down. And as markets hopefully recover, we are very confident to see to say that our revenue growth over the long term should meaningfully outpace our growth in any of these discretionary expense items and ultimately be accretive to our operating margin.

Operator

We'll take our next question from Michael Cyprys with Morgan Stanley. Please go ahead.

Speaker 3

Hi Michael, happy New Year.

Speaker 7

Thanks. Hey, good morning. Happy New Year. And Gary, congratulations on an amazing 10 year run as CFO. I wish you all the best in your new role.

Speaker 7

Just a question on Aladdin. Hoping you could unpack a bit of the strength that you're seeing in Aladdin with the record wins And how you think about extending the platform to other use cases and verticals and how you're thinking about the drivers of growth over the next several years?

Speaker 3

Broadening the capabilities of Aladdin as you know over the last 10 years whether it's Aladdin provider, the work we are doing related To the trading platforms, so on top of that with Aladdin Accounting, using Aladdin for private markets And then I would say probably one of the more interesting directions is using Aladdin for whole portfolio reviews and views, all of this is just leading to more and more conversations. On top of that, As we built up deeper and deeper expertise in different products, the clients who have historically hired us years ago, who Only let's say in a fixed income platform are now looking at Aladdin across privates, across equities, across other areas. So Let's be clear, a lot of the growth is with existing clients, but also a lot of growth is now with the new clients. So we're not only just Seeing clients in the old geographic footprint, we're seeing new clients expanding geographically, More and more clients flows now in Europe, much more in the Middle East. We won our first client in Africa.

Speaker 3

Over the years, we've become one of the leading technology platforms for the pension fund community In South America and Mexico, so Aladdin is becoming one of the key enterprise component of the ecosystem in various parts of the world. And I do believe when you have market Shocks when you have dislocations and volatility, it truly underscores the need for a more fulsome connected enterprise operation. Historically, people thought of Aladdin as risk management. Most people are not hiring Aladdin for risk management as much as It's flow through enterprise operating system. Having that connection with a custodial bank, having the ability to have accounting, Having a whole portfolio analysis and helping them truly drive a whole portfolio analytical understanding.

Speaker 3

And so all of this is just leading to more and more opportunities, whether it's a focus on sustainability or a focus on call, operations are focusing on again risk management. Aladdin is just very well positioned to meet the needs of the clients And we're more focused than ever on enhancing the Aladdin value proposition. Let's be clear, In declining markets, clients are worried about their expenses. And yet, What we proved in 2022 with declining expenses, Aladdin Enterprise Systems can actually lower expenses In a holistic way. And so what we're trying to do is show the true ability Two clients worldwide about how can Aladdin be a component to drive greater and greater success in terms of operational success, Investment success, but over time, Aladdin can drive down expenses too for any operation.

Operator

We'll move to our next question with Craig Siegenthaler with Bank of America. Please go ahead.

Speaker 3

Hey, Craig. Happy New Year.

Speaker 8

Hey, good morning, Larry. Happy New Year. And Gary, thanks for your help over the last 9 years, I'm sure you're going to really miss these quarterly earnings calls.

Speaker 3

I can tell you he's going to be sulking.

Speaker 4

I'll miss you, Craig. All

Speaker 8

right. So just a follow-up to Rob's comments on the First question for the potential for fixing and rebalancing. Do you think passive will win the majority of inflows like we've seen in equities for the last decade? Or do you think active will grab a healthy split of share as we've seen in fixed income really up until just this last year?

Speaker 3

Great question. So the majority of investors and Fixed income ETFs are not passive. They're active. We've been talking about this actually began talking about this in 2012, where we believe the simplicity, The liquidity, the operational abilities to use fixed income ETFs to get your factor exposures, the duration, the convexity, the credit exposures you're looking for, you could do that through investing in These index instruments, but you're certainly not passively navigating or managing them. And I truly believe what we saw in 2022, movements out of mutual fund Into ETFs provides much greater precision expertise to manage You're fixing exposures through ETFs.

Speaker 3

And I believe this is going to become one of the most important Transformations in the entire capital markets that more and more Abbond exposures are going to be utilized through ETF purchases and it's not it is not passive. It is highly active And that's where people get confused because they think about ETF As a passive instrument, both bonds and stocks and what we have been trying to identify over the years and now most certainly we saw that in 2022 in bonds That is far from a passive instrument. It is an index liquid investment To allow you to get your exposures that you're seeking and you're able to navigate those exposures. Look, I believe how investors are going to use it, they're going to use it side by side with their true active bond investing. So I'm not trying to suggest bond, active investing, buying individual bonds is going away.

Speaker 3

It's not. But for the bulk of most fixed income portfolios, you do not need to have all individual bonds. You can express a large component of that through ETFs. And then if you have the great credit expertise, mortgage expertise where you could really find true value in individual bonds, you're going to do that. But let's be clear, Most organizations can't do that in totality in their entire fixed income universe.

Speaker 3

And so I believe ETFs are going to continue to grow, especially in fixed income. Rob talked about how we believe this is the beginning And we believe this is going to simplify investing. It's going to make investing in bonds easier With more liquidity and it's going to be cheaper and I believe this is only the beginning. Using index like instruments like bond ETFs To actively invest, to actively express your exposures that you're seeking alongside side by side call, we are seeing that with every, if not all, but I'm going to say every active bond investor is now using ETFs as a component of their active expression of exposures.

Speaker 5

I would just add, Craig, one thing is I believe we are going into a period of time in fixed income where you can add alpha In your individual bond selection or where you are on the curve and you can do it through both active and passive Larry is saying, but it will all come down to the ability to add alpha. I can give you an example now in the short end of curve, which a year ago was very low yielding, today we can find opportunities To earn a 5.5% to 6% in a very short duration, that is going to be active. So it is a combination of both, but it will depend on where our client can find the most alpha to determine the split

Operator

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

Speaker 3

Call, operator, I want to thank everybody for joining this morning and for your continued interest in BlackRock. Our Q4 and full year performance is a direct result of our commitment in serving our clients each and everyone individually, Providing them choice and helping them to guidance with our fiduciary standards and helping them evolve and build their needs I'm incredibly excited about 2023 and the opportunities ahead of us, and I believe BlackRock is in a position Unlike any other time in our history, I want to thank all of you and everyone please have a great start to our new year.

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