Laurence Fink
Chairman and Chief Executive Officer at BlackRock
Thank you, Martin, and good morning to everyone, and thanks for joining the call. Throughout our history, BlackRock has been serving clients. We listen to them, we deliver to them as a fiduciary, and we evolve our capabilities to help them achieve their long-term outcomes across market regimes. We bring together the entire firm as a platform to deliver client outcomes. That's the defining factor of BlackRock's differentiated and industry-leading leadership.
As many of you have heard at our Investor Day last month, we are building the full platform strategy in asset management that brings together products, services and technology to solve our clients' investment and technology needs. We envision BlackRock to be the investment manager cloud for asset managers and for asset owners.
BlackRock's industry-leading results reflect our clients' continued confidence in long-term performance. We are delivering sustained organic growth and base fee growth even as the traditional asset management industry logs persistent outflows.
BlackRock generated $190 billion of total net inflows in the first half of 2023, including $80 billion in the second quarter, reflecting positive flows from wealth and institutional clients across regions. We grew technology services revenues and ACV as clients leveraged Aladdin to support their investment processes.
And we again delivered strong margins for our shareholders. Our scale platform and technology allow us to invest for future growth while maintaining a differentiated margin which we expanded in seven of the last 10 years.
Organic growth combined with positive markets and foreign exchange movements had led to an over $830 billion increase in BlackRock's AUM in the first six months of 2023. And as I speak with clients, I hear how the expectations of asset managers are expanding. It's why clients are doing more business with fewer managers. Clients are seeking a broad range of integrated services alongside a strong performance track record to help them achieve their desired outcomes.
Clients value BlackRock's unparalleled breadth and investment strategies which span regions, index and actives, and both public and private markets, and are confident in our ability to deliver the investment performance they need through durable alpha and actives, proprietary deal flow and private markets for proper index tracking of ETFs.
Through a diversification and strong performance, we can help clients better match their long-dated liabilities, achieve their operational objectives and streamline their processes. This better enables them to address the needs of their own stakeholders.
Today, client conversations often move beyond products, they are about portfolios, they are about business transformation and how they could benefit from BlackRock's platform scale. That evolution from product to portfolio to platform creates enormous growth potential for BlackRock, and we are intentionally organizing ourselves around our clients, which helps ensure the one BlackRock we deliver is greater than any one part of the organization.
Investors are facing a complex landscape of competing fiscal and monetary policies with a number of structural forces shaping returns now and over the long term. These forces include a fragmented geopolitical landscape causing a rewiring supply chains, a transition to a lower carbon economy and the aging population in the developed world, all of which are likely to be inflationary over time.
This year, U.S. equity markets rally has been fueled by just a few technology firms, and hope that artificial intelligence will gain widespread adoption. I believe AI has a huge potential to enhance productivity and transpose [Phonetic] margins across sectors. It may be a technology that can bring down inflation. But in the meantime, potential banks continue to face a sharp trade-off between living with some inflation and/or damaging economic activity.
Against this backdrop, clients are turning to BlackRock to provide insights to help them manage risks. To capture new opportunities and to implement enterprise technologies, clients are choosing BlackRock for our platform combination of technology and advisory alongside ETF's active investing and private market capabilities.
Our ETF platform and franchise cuts horizontally across clients, product and the market ecosystem to provide access to an expanding world of investments. BlackRock captured the number one share of ETF industry flows in the second quarter of 2023, generating $48 billion of net inflows. These industry-leading net inflows was led by a continued demand for iShares bond ETFs, and we aim for our bond ETF AUM to more than triple to $2.5 trillion by 2030. This is not just because of the generational opportunities in fixed income, but because bond ETFs are also delivering benefits such as access, transparency and liquidity to both institutional and wealth clients at an accelerating pace. BlackRock will continue to drive bond ETF innovation and growth as the bond market modernizes, and investors move to capture significant opportunities in fixed income.
Our ETF business is evolving to increase access to all kinds of markets more efficiently with more transparency and more conveniently than ever before. We recently completed the largest global ETF launch in history with two transition focused ETFs. The launch is another example of our commitment to provide choice and access to our clients through the breadth of our leading transition and ETF capabilities. The ETF launched with nearly $3 billion in seed capital as we connected with BlackRock to execute on an innovative client solution.
Our clients are also focused on outcomes, and this manifests in a portfolio blending actives, index, private markets and cash. We often talk about how index ETFs are being used actively by all types of investors, and active managers are increasingly leveraging the many benefits of the ETF wrapper. In May, we launched two active ETFs led by Rick Rieder and Tony DeSpirito. These ETFs will be great tools for client advisers to gain access to our active insights within our ETF structure.
Clients choose BlackRock for performance. This is across multiple dimensions, including investment performance, client service and operational excellence. Across our active franchise, BlackRock has delivered durable investment performance with 81% and 90% of our fundamental equities and taxable fixed income AUM above benchmark or peer medium for the last five years.
Our global connectivity, our scale, our technology, our market access positions, positions us to deliver the alpha our clients need. Our expertise in portfolio construction and asset allocation combined with strong investment performance has differentiated BlackRock in the market.
We saw $73 billion of active net inflows in the first half of 2023 compared to active industry outflows. We're also unlocking opportunities for clients in private markets, where we have a $30 billion of committed capital, and we're growing in private markets organically through new launches, scaling of our successor funds, and at times we will execute our inorganic transactions to further expand our capabilities and global reach. To this end, we recently announced our planned acquisition of Kreos Capital, a leading provider of venture debt financing in Europe.
When we talk to clients about their private market allocation, the number one thing you're looking for as a selective manager is proprietary, differentiated deal flow. BlackRock's global network of relationships, our data, our analytics and flexible, adaptable capital needs, we could source unique deals for our clients. In doing so, we deliver value for our clients and our fund portfolio of companies.
Our long-term private capital team acquisition of Creed in May 2020 is an excellent example of the outcomes that can be achieved through the strength of our proprietary sourcing, our proprietary underwriting and value creation capabilities. LTPC acquired Creed during the depths of the COVID lockdown, and last month we announced that they had entered an agreement to sell the company to a strategic buyer Kering Beaute. The LTPC team had the conviction that Creed was an extraordinary business, with multiple levers for value creation that would help accelerate growth even during the pandemic. And with last month's agreement, the fund is expected to realize significant alpha for our clients.
I find more often now that companies want BlackRock as a trusted investor and a trusted partner. BlackRock is a long-term friendly capital with global client relationships. We invest early and we can stay invested through cycles, whether it's debt or equity or a pre-IPO through post-IPO. Companies recognize the uniqueness of our global reach, our brand and our expertise across markets and industries. We are a valued partner to these clients, and companies want to work with BlackRock and this enables our proprietary origination.
We are tapping into our deal flow across our private market's asset classes, and especially focusing on credit and infrastructure. Our connectivity across the real economy is bringing benefits to both clients and the communities in which our underlying investment projects operate. As I meet with clients around the world, I hear how our profile is strengthening in local markets as a result of our leadership in infrastructure investing.
In the United States, we partnered with AT&T and Gigapower JV and invested in Jupiter Power, which operates one of the largest battery storage fleets in Texas. And our relationships around the world continue to expand our reach in new ways. This is evident from our most recent investments, whether it's AirFirst in South Korea or Akaysha Energy which is building the world's largest grid scale battery storage facility, the Waratah battery in Australia. These are just a few examples. Our growing profile from these investments is leading to more and larger deal opportunities which will deliver growth for BlackRock's clients and to you, our shareholders.
The portfolio of the future is outcome-oriented, customized and seamlessly combined public and private markets. BlackRock is the only company that can offer both the portfolio investments and technology through eFront and Aladdin. Aladdin is bringing the portfolio of the future to life by providing technology in a digital-enabled and customized way, combining risk management, the investment book of record, performance, accounting and data all in one place.
Market volatility and growing cost pressures and complexities and optimizing whole portfolios underscore the need of enterprise operating and risk management technology. The value of Aladdin's integrated end-to-end technology platform is resonating. In the same way that clients are consolidating their portfolios with fewer asset managers, clients are looking to do much more with Aladdin. And over the last 12 months, 40% of our new annual contract value came from the expansion of existing relationships, and I'm pleased to say that our retention rates remain very high at 98%. We're not only expanding Aladdin's capabilities, we're also tackling bigger addressable markets by extending into adjacent offerings.
We're enabling a whole portfolio ecosystem empowering clients through data and opening Aladdin to drive even more innovation. We are creating deep integration with ecosystem providers and third-party technology solutions. Our recently announced partnership with Avaloq is the latest example. We are engineering Aladdin for the future, and as clients look to do more with fewer partners, our SaaS technology business will enable greater agility for clients in delivering higher recurring revenues for our shareholders.
Aladdin and Aladdin Wealth are increasingly core components of outsourcing relationships. Our success across a number of significant outsourced solutions over the past several years are catalyzing a dialogue with more and more clients. I recognize the headline multibillion-dollar mandates get much of the attention. But we're bringing our expertise to clients in all segments, not just large pension funds or insurers but also wealth managers and charities and endowments and family offices.
Second quarter results, including continued momentum in institutional and wealth outsourcing, particularly in family office models and SMAs. And last week, Quintet Private Bank announced they selected BlackRock to provide an expanded set of investment solutions, advisory solutions and risk management and technology. This is another example of how clients are turning to BlackRock as they scale and they grow their own business, and we help them do that.
Whether it's asset management or technology or the multitude of other industries, clients are consolidating their relationships and moving to platforms that provide strong performance in integrated services. BlackRock intentionally invested and built our business model to be in the forefront of this trend, and this is resonating in our results as clients increasingly turn to BlackRock for performance and for our platform services.
Our industry-leading results and momentum are a direct result of our dedicated employees and leadership team. Our success over the last 35 years has been built on the steadfast commitment to operate as one BlackRock, fully connected to our clients, on one platform with one culture using one technology.
It is our leadership team that is delivering the power of this hyper-connected platform to our clients. These leaders make us a hyper-connected team. The collaboration in their horizontal leadership are essential to our success and growth.
As I said in our Investor Day, I'm not planning to leave BlackRock anytime soon, but my goal has always been to ensure that when Rob Kapito and I move on, the firm is in even better hands than it is today, and I'm confident we are going to achieve that. In building the company, we have always taken a long-term view, and our approach in developing our leadership talent is no different. BlackRock's Board and I are highly focused on identifying and developing our next generation of leaders. We also seek to align their long-term interest with those of our shareholders, our clients and one another through shared incentives that reward long-term value creation.
A key part of this ongoing initiative is the recent issuance of a one-time, long-term equity incentive grants for a small group of leaders, featuring extended vesting periods. These awards represent a key long-term strategic investment in the success and stability of BlackRock's leadership plans. And as we execute on our platform as a service strategy, our goal is that these grants will help promote a continued, collaborative, long-term performance culture between our leaders across our horizontal leadership capabilities and for many years to come.
To close, I want to underscore that we are in the very early days of a long-term shift in client consolidation of their investment managers, their technology requirements towards a more comprehensive platform.
In the same way that organizations have traditioned from on-site data to hardware to cloud providers, many clients are now transitioning from in-house investment and technology models to BlackRock. For years, we have focused on delivering one BlackRock to our clients with horizontal connectivity, integrated services and a strong performance.
I truly believe this is the future of investing, and BlackRock is in forefront. I believe we are at one of the most exciting times in BlackRock's history, I could say very clearly that both Rob and I are energized by these new examples that we see every day and how we are delivering value for all of our BlackRock stakeholders.
Thank you, and let's open up for questions.
