BlackRock Finance Inc (BLK) — Q4 2024 Earnings Call Transcript

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. 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, which list some of the factors that may cause the results of BlackRock to differ materially from what we say today. BlackRock assumes no duty and does not undertake to update any forward-looking statements. So with that, I'll turn it over to Martin.

Thanks, Chris. Good morning and Happy New Year to everyone. It's my pleasure to present results for the Fourth Quarter and Full Year 2024. Before I turn it over to Larry, I'll review our financial performance and business results. Our earnings release discloses both GAAP and as adjusted financial results. I'll be focusing primarily on our as adjusted results. With over $600 billion in net new assets entrusted to BlackRock, 2024 was a milestone year of programmatic organic and inorganic actions rooted in client needs, investment capability expansion, technology, and scale. We executed breakthrough investment offerings and industry-leading partnerships. 2024 marks a quantum leap forward for BlackRock against our long-term value creation objectives and an invigoration of the future of asset management and technology services for our clients. We've spoken all year about how organic growth momentum and overall client sentiment has been improving. BlackRock saw record net inflows in 2024, powered by two back-to-back record flows quarters in the second half. Our annual revenue, operating income, and earnings per share each grew double digits. We made disciplined investments for profitable growth, delivering 280 basis points of margin expansion as our AUM grew to a new high of nearly $11.6 trillion. We enter 2025 from a position of strength, having generated 7% annualized organic base fee growth in the fourth quarter, our highest in three years. Our record client activity and the accelerating organic revenue growth we saw in 2024 are independent of the lift that we believe will come from GIP, HPS, and Preqin. Our structural growth businesses, ETFs, Aladdin, outsourcing, fixed income, are the strong foundations to serve clients and deliver on our through the cycle 5% organic growth objectives. We didn't need M&A to achieve and rise above our organic base fee growth target. Our expansions are about more deeply serving clients in high growth segments that can exceed our 5% goals. We enter 2025 on a new trajectory, with record AUM and operating income and having increased our effective fee rate by seven-tenths of a basis point. Over the course of 2025, we'll be integrating and adding the high-growth and earnings power of GIP, HPS, and Preqin. Clients have embraced our strategy. Our track record of successful acquisitions and integrations is bringing clients into deeper relationships with BlackRock. We finished 2024 with sequential quarters of at or above target organic growth. More importantly, that organic growth is broad-based across institutional, wealth, technology, and across regions. Clients want to consolidate more of their portfolios with a partner that's with them for the long term. They want portfolios that are seamlessly integrated across public and private markets that are dynamic and that are underpinned by data, risk management, and technology. BlackRock is now truly in a category of one. We've built a unique asset management and fintech platform that's integrated across public and private markets. With the close of the GIP transaction this past October and our planned acquisition of HPS, BlackRock's private markets and alternatives platform is expected to be $600 billion in client assets, a top-five provider, and over $3 billion in revenues or about 15% of 2024 revenues. BlackRock houses whole portfolio solutions for clients, the world's number one ETF franchise by assets, flows, and breadth of exposures, a $3 trillion fixed income platform across active and index, $700 billion managed for insurance companies, over $350 billion in models, direct indexing, and SMAs for wealth managers, and over $900 billion in cash management AUM, leading advisory services, and our proven Aladdin technology with $1.6 billion in revenues. Aladdin is powering a whole portfolio ecosystem across public and private markets with eFront in our planned acquisition of Preqin. On a pro forma basis for HPS and Preqin, private markets and technology are expected to make up over 20% of BlackRock's overall revenue. That's an ecosystem we feel wins with client needs and results in over 20% of our revenue base in long-dated, less market-sensitive products and services. Our mix continues to evolve towards higher secular growth areas with clients. We believe this will translate to higher and more durable organic growth, greater resilience through market cycles, and multiple expansion. In 2024 BlackRock generated a record $641 billion of total net inflows and delivered 4% organic base fee growth. We finished the year strong in the fourth quarter with $281 billion of total net inflows and 7% annualized organic base fee growth. Full-year revenue of $20.4 billion was up 14% year-over-year. Operating income of $8.1 billion was up 23% and earnings per share of $43.61 increased 15%. Fourth-quarter revenue of $5.7 billion was 23% higher year-over-year, driven by the impact of higher markets on average AUM and higher performance fees. Quarterly operating income of $2.3 billion was up 36%, while earnings per share of $11.93 was 23% higher versus a year ago. EPS also reflected a lower tax rate, partially offset by lower non-operating income and a higher share count in the current quarter. The higher share count included 6.9 million shares issued and delivered at the closing of the GIP Transaction. Non-operating results for the quarter included $7 million of net investment losses, primarily due to changes in co-investment valuations. Lower interest income in the current quarter reflected the delivery of cash at the closing of the GIP transaction, which was raised through our debt offering in March 2024. Our as adjusted tax rate for the fourth quarter was approximately 21% and benefited from discrete items. We currently estimate that 25% is a reasonable projected tax run rate for 2025. The actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. Fourth-quarter base fees and securities lending revenue of $4.4 billion was up 23% year-over-year and up 10% sequentially, driven by the positive impact of market beta on average AUM, organic base fee growth, and approximately $230 million of base fees from GIP. Our annualized effective fee rate was approximately seven-tenths of a basis point higher compared to the third quarter. Over time and with continued growth in infrastructure strategies and the successful closing of the HPS acquisition, we would expect to see positive leverage to base fee revenue, average fee rates, and organic growth as we grow private markets with clients. This is evidenced by this quarter's fee rate increase, primarily reflecting the onboarding of higher-fee rate private markets assets following the GIP closing. Fourth-quarter and full-year performance fees of $451 million and $1.2 billion, respectively, increased from a year ago, led by higher revenue from alternatives. We saw strong broad-based performance across hedge funds. Quarterly technology services revenue increased 13% year-over-year and full-year revenue of $1.6 billion increased 8%, reflecting the successful onboarding of a number of new clients and expanding relationships with existing clients. Full-year technology services revenue growth also reflects the prior year revenue impact of several clients' renewals of eFront on-premises licenses. Annual contract value or ACV increased 12% year-over-year. On a constant-currency basis, we estimate ACV would have increased 13% from a year ago. The need for integrated risk analytics and whole portfolio views across public and private markets is driving strong demand for Aladdin. We signed some of our largest clients ever in 2024. We remain committed to low to mid-teens ACV growth over the long term. Total expense increased 9% in 2024, primarily due to higher incentive compensation, G&A, and sales, asset, and account expense. Full-year employee compensation and benefit expense was up 11%, reflecting higher incentive compensation as a result of higher performance fees and operating income. Recall that year-over-year and sequential comparisons of fourth-quarter compensation expense are less relevant because we finalized full-year compensation in the fourth quarter. Full-year G&A expense was up 5%, primarily from planned technology investment spend, higher professional fees, and GIP's G&A expense. During the year, we made disciplined investments in business to drive operating leverage and profitable growth. Our fourth-quarter as adjusted operating margin of 45.5% increased 390 basis points year-over-year and our full-year as adjusted operating margin of 44.5% was up 280 basis points. Looking ahead, we aim to maintain our systematic approach to investing for profitable growth on the budgeting principles we've consistently articulated for the last 12 to 18 months. We'll continue to be disciplined in prioritizing our hiring and overall investments with the ambition of delivering market-leading organic growth and operating margin. At present, subject to regulatory approvals and other customary closing conditions, we expect our planned acquisitions of Preqin and HPS to close in the first quarter of 2025 and in mid-2025, respectively. Based on these closing timelines, we'd expect BlackRock's headcount to be higher in 2025. Our planned acquisitions of Preqin and HPS are expected to bring approximately 2,300 new colleagues to BlackRock. Additionally, excluding HPS, we would expect a mid-to-high single-digit percentage increase in 2025 core G&A expense. Most of the core G&A expense growth should come from consolidating the G&A expense of GIP and Preqin and continued investment in technology as we look to operate more efficiently and better serve our clients. Our capital management strategy remains consistent. We invest first, both organically and inorganically, either to scale strategic growth initiatives or drive operational efficiency. We then return cash to our shareholders through a combination of dividends and share repurchases. After investing for growth, we returned over $4.7 billion to our shareholders through a combination of dividends and share repurchases in 2024. This includes open-market repurchases of approximately $375 million and $1.6 billion for the fourth quarter and full year, respectively. Share repurchases have been a consistent element of our capital management strategy. In the last 10 years, we've repurchased 28 million shares at an average price of $510 per share. Today, we're trading at almost double that. This represents a more than 15% annualized return for our shareholders. For both the GIP and HPS transactions, BlackRock Equity proved a valuable currency in consummating these transactions and structuring them for alignment with our shareholders. At present, based on capital spending plans for the year and subject to market and other conditions, we're targeting the purchase of $1.5 billion of shares during 2025. In addition, and also subject to market and other conditions, we expect to seek Board approval later this month for an increase to our first-quarter 2025 dividend, consistent with our track record of continued dividend growth. Record full-year total net inflows of $641 billion were diversified across active index and cash as well as by region, led by $385 billion of net inflows from clients in the United States. BlackRock generated industry-leading ETF net inflows of $390 billion in 2024, representing 11% organic assets and 7% organic base fee growth. Record annual net inflows into our ETFs included $41 billion into our digital assets ETPs that were just launched in 2024. Fourth-quarter ETF net inflows of $143 billion reflected significant momentum into year-end, helped by seasonal portfolio reallocations. As U.S. equity indices and spot Bitcoin prices reached new highs in the quarter, clients used iShares products to re-risk and add these investment exposures to their portfolios. BlackRock's institutional platform generated net inflows of $74 billion in 2024, led by active net inflows of $64 billion, including the funding of several large outsourcing mandates from a variety of client types. Index net inflows of $9 billion were driven by $43 billion into fixed income. This was partially offset by $31 billion of net redemptions from low-fee index equity strategies. Several large clients, mostly outside the United States, rebalanced their portfolios amid record equity market levels. Full-year retail net inflows of $24 billion were led by continued strength in Aperio and inflows into active fixed-income mutual funds. Aperio had another record year in 2024 with net inflows of $14 billion and active fixed-income added $12 billion of net inflows. Demand for private markets remains strong with $9 billion of net inflows during the year driven by infrastructure and private credit. BlackRock's full-year net inflows also included the impact of successful realizations of $13 billion, primarily from private equity, private credit, and infrastructure strategies. Distributions are a key metric for measuring performance in the private markets. GIP has a strong track record of operating portfolio companies and ultimately returning capital to investors through exits with strong uplift. At present, we expect to recognize approximately $5 billion of realizations in the first quarter from older GIP fund vintages executing on successful exits. Starting this quarter, we've updated our earnings supplement to provide additional transparency into organic growth drivers and realizations activity for our private markets assets. We expect to make disclosure enhancements, particularly around private markets beginning in the first quarter of 2025. Finally, BlackRock cash management saw $81 billion of net inflows in the fourth quarter and $153 billion in 2024. Flows were driven by both U.S. government and international prime funds and included multiple large new client mandates. We continue to see strong growth in our cash and liquidity platform built on our scale and integrated offerings with AUM up 20% year-over-year. BlackRock's platform delivered record results in 2024, and the consistency of our results stands out even more over the long term with over $2 trillion of client net inflows over the last five years. While 2024 was a watershed year for BlackRock, it's just the start of our next growth story. We're better positioned than ever to build with clients and create value for our shareholders. BlackRock is a meaningful outperformer when assets are in motion and investors are re-risking. We're optimistic about market opportunities for our clients into 2025. I'm going to pass to Larry in a minute. But for those of you keeping score at home, this is Larry's 100th earnings call. We did a little research and counted only 15 current CEOs in the S&P 500 that have celebrated 100 earnings calls as the CEO. Larry, congratulations on a century of earnings calls. How does it feel?

I don't feel any older, and I have no complaints. It's been an enjoyable journey, and I believe the path ahead will be even better. The last 25 years have seen a lot of change in the world, but some things remain constant. My pre-earnings meal was the same as always: a bowl of cereal with blueberries. Thank you, Martin, and Happy New Year to everyone on the call. This marks our 100th earnings call, and I want to acknowledge the shareholders who have been with us since our IPO 25 years ago. I remember our initial roadshow when we worked to convince many of our current shareholders about the investment opportunities in BlackRock. We are also grateful to the analyst community for helping markets understand our business. Some of our equity analysts have been with us since the IPO, and I want to thank Bill Katz and Brian Bedell for their ongoing support. The best is yet to come. When we went public, we had 650 employees managing $165 billion in assets, and we started selling our Aladdin technology to clients that same year. Today, clients entrust us with nearly $11.6 trillion in assets under management, and Aladdin has over 130,000 users. Since our IPO, we've achieved an annualized total return for our shareholders of about 21%, compared to around 8% for the S&P 500. As Martin mentioned, 2024 is set to be a milestone year for BlackRock. Clients provided us with a record $641 billion in net inflows, including $281 billion in the fourth quarter. We are entering 2025 at a strong inflection point, having added $1.5 trillion in AUM, recorded record revenues and operating income, and increased our effective fee rate by 5%. We experienced historic client activity while executing the most significant acquisitions since BGI over 15 years ago. While it's common for companies to see clients pause during M&A activity, our clients are embracing and rewarding our strategy. Client activity picked up in the fourth quarter, leading to 7% organic base fee growth and 12% growth in technology services ACV. Our operating model performed exceptionally well in a year of significant change, crossing the $20 billion mark in annual revenues, up 14% from 2023. Our adjusted operating income increased by 23%, and our industry margins grew by 280 basis points to 44.5%. We continually aim higher for ourselves, knowing our clients and shareholders do the same. Our results consistently exceed even our ambitious expectations, as we surpassed Street estimates for flows, fee rates, base rates, total revenues, margins, and earnings per share. Our record organic growth and financial outcomes do not yet reflect the full integration or pending acquisitions of GIP, HPS, and Preqin, all of which have a history of strong revenue growth, profitability, and margin expansion. We are making organic investments in anticipation of structural trends that we believe will foster outsized growth in the coming years. We have momentum across our entire franchise, including our enhanced private market platform, and we are positioned to capture market opportunities that we believe will drive growth for BlackRock in the years to come. We invest in our talent, which is the most crucial investment we make annually. A key to BlackRock's success has been our focus on developing leaders with diverse experiences and connectivity across the firm, which I've termed horizontal leadership. We aim to identify individuals ready for new challenges and to place them in roles that advance their careers while pushing our business forward. Today, I am thrilled to announce that many leaders across the firm are taking on new and expanded roles that will help us enter our next growth phase. Part of this leadership transition is Mark Wiedman's decision to pursue his next chapter after nearly 20 years with BlackRock. We've discussed this transition for some time, and he will remain with us until spring. I want to take a moment to express my gratitude to Mark. He has been a great friend and has contributed significantly to driving growth for our clients and shareholders. He has also built a strong team of leaders ready to assume new responsibilities as we move forward. Mark will work closely with our leadership team over the coming months to ensure a seamless transition. We are grateful for his many contributions, partnership, and vision that have shaped BlackRock's successful evolution. Rob and I are proud of our leadership team, which reflects a wide range of experience and sustained excellence. Strategic acquisitions have historically strengthened our firm, enhanced our culture, and brought new talent and skills into our organization. Our culture has evolved as we welcomed new teams and colleagues over the years, representing the best parts of the cultures that have merged within BlackRock. A few months ago, we welcomed new talent with the completion of the GIP acquisition, and we have already seen great connectivity and enthusiasm within our teams. BlackRock's leadership, paired with top talent from GIP, HPS, and Preqin, enables us to serve our clients with excellence and seize upcoming opportunities. In my discussions with clients globally, there is eagerness to deploy capital, and they want to do so through BlackRock. Public markets are starting the year from a position of strength. Clients holding cash on the sidelines missed a 25% total return in equities last year. We anticipate 2025 to be a vibrant investment environment. As policies and economic issues unfold, the foremost factor will be the growth backdrop. Major forces such as AI, the evolution of debt financing, and the transition to a low-carbon economy are reshaping economies with long-term growth trajectories. Capital markets will be pivotal in this transformation. Private market assets are increasingly critical to capital markets, and blending public and private investments will be key to capturing growth opportunities fully. Traditional investing principles must adapt, including the classic 60-40 stock-bond mix. The relationship between stocks and bonds is under pressure, making resilient portfolio construction vital. Clients are turning to BlackRock for guidance on portfolio building and expanding their investment scope. Many will increasingly incorporate private markets, particularly private credit and infrastructure. We believe that active strategies can offer an advantage in a dynamic investment environment. BlackRock is well-positioned to leverage structural growth opportunities amid economic and capital market evolution. We have made coordinated investments to establish a premier long-term capital partner and technology provider across public and private markets. 2025 marks a new starting point for significant growth for BlackRock, our clients, and shareholders. Our recent GIP acquisition and the forthcoming acquisitions of Preqin and HPS enhance our ability to address evolving client needs and industry trends. Fifteen years ago, we acquired BGI and became the first large-scale provider to integrate both active and index investments. In 2024, we made bold moves to connect public and private markets through portfolio management and technology. The response to our recent announcement regarding the purchase of HPS has been overwhelmingly positive, and we see considerable opportunities to partner with clients and borrowers. The capabilities we're adding enhance our ability to serve clients more comprehensively and position us to raise significant private capital. For our shareholders, we believe that the increased contributions from private markets and technology will result in higher and more resilient organic growth, differentiated financial performance, and favorable re-rating multiples. Besides private markets, we are capitalizing on the strongest opportunity set we've witnessed across various growth engines, including technology, ETFs, multi-asset solutions, and models. We have invested for years to cultivate leading franchises that meet our clients' needs, which form our long-term growth pathways. Importantly, these are scaled and integrated on a single platform with a culture that prioritizes clients over products. Our ability to serve clients uniquely sets us apart from other asset managers. Aladdin has always been the operating system that integrates all of BlackRock. It has evolved alongside BlackRock to become the industry's most comprehensive operating system, supporting clients' scaling and commercial priorities. We are expanding Aladdin's capabilities to enhance how we serve clients through advanced risk management, scaled portfolio analytics across both public and private markets, and soon private market data through Preqin. The fourth-quarter growth of 12% in ACV results from several major mandates with large financial and corporate partners. The Aladdin technology suite appeals to clients, with over half of Aladdin sales involving multiple products. Clients using Aladdin’s holistic portfolio view have benefited from our acquisition of eFront, which allows seamless management of portfolios across both public and private asset classes on one platform. Technology is foundational to BlackRock. ETFs represent another example of how we view technology as a facilitator of investment. Since acquiring iShares, we have led the expansion of the ETF market by enhancing accessibility and introducing new asset classes and investment strategies. Approximately a quarter of the $390 billion in ETF net inflows went into products launched in the last five years. Our active ETFs attracted $22 billion in net inflows in 2024, with our Bitcoin ETP becoming the largest ETF launch in history, surpassing $50 billion in assets under management within a year, ranking as the third-highest asset-gathering ETF industry-wide after S&P 500 index funds. We are innovating both at the product and portfolio level and boosting our distribution capabilities to provide a unique investment solution. In Europe, we have significantly scaled our ETF offerings in a market that remains much younger than in the U.S. We achieved double-digit organic growth in the past two years, including over $90 billion in net inflows in 2024. Our European ETF platform is nearing $1 trillion in assets, surpassing the combined assets of the next five issuers. Much of this growth stems from individual investors as online banking, digital-first services, and ETF savings plans encourage first-time investors to start their retirement savings and secure a better future. From novice investors to sophisticated institutions, ETFs connect investors to capital market growth worldwide. Client needs are driving industry consolidation, with many investors preferring to partner with BlackRock as a large multi-asset provider. This trend is evident in wealth channels, where managed model portfolios are the primary method wealth managers use to scale practices and better serve clients. BlackRock leads the models business, supported by our multi-asset, multi-product capabilities in both ETFs and active strategies. We are building deeper relationships with major asset owners, including pension funds and corporations, as these clients recognize the benefits of extending their partnership with BlackRock. This year, clients entrusted us with over $120 billion in scaled outsourcing mandates, many from pension plans and retirement schemes helping millions save for their futures. Our LifePath target date franchise now manages over $0.5 trillion in assets, and we are expanding our efforts in this critical area to assist more individuals in preparing for retirement. In 2024, we introduced our LifePath Paycheck offering, which combines a traditional 401(k) plan with an option to purchase an annuity-based income stream as workers near retirement. This solution has become the fastest-growing lifetime income target date strategy in the defined contribution market, with $16 billion invested by year-end. We also adopted LifePath Paycheck for our own U.S. retirement plan, anticipating it will become the default offering in the industry. We are exploring opportunities to expand LifePath Paycheck to more partners and employees worldwide. Our platform is built to connect investors to the long-term growth of capital markets. In discussions with clients and government leaders globally, there is significant interest in the robust capital markets in the United States. Countries are eager to develop their own strong capital markets, which in turn fosters investment in local economies and creates jobs and wealth for citizens. Over the past few years, BlackRock has partnered with governments and sovereign wealth funds to enhance their local capital markets. We see tremendous opportunities in India, where digital infrastructure efforts are paving the way for widespread access to digital payments and financial products. Our joint venture with Jio BlackRock is expected to launch later this year, pending regulatory approvals. We are combining our investment expertise with the local market insight of Jio Financial Services to roll out digital-first assets with wealth management services. In Saudi Arabia, we are initiating an investment management platform in collaboration with a public investment fund to drive investments and economic growth locally. We are laying the groundwork today for what we believe will yield significant AUM over the next five to ten years. We have achieved great success with our large asset owners through collaborations, such as our decarbonization partnership with Temasek and our recent AI partnership with Microsoft and MGX, which aims to mobilize data centers and infrastructure investments. These global partnerships are accessible exclusively to BlackRock due to the strong relationships we have developed over many years with local partners, heads of state, and sophisticated asset owners. I have spent considerable time traveling over the past year, along with Rob and other leadership team members, to meet with clients. We are engaging with institutional clients, wealth clients, and increasingly with our largest asset owners around the world. Clients, corporations, and sovereigns seek to establish deeply integrated partnerships rather than simple set-and-forget investments. BlackRock stands apart in its ability to partner comprehensively and at scale with clients. We can collaborate with clients across their portfolios throughout the investment lifecycle, from ETFs to high-performing active and private markets, to technology and data through Aladdin, eFront, and eventually Preqin. The strength of our platform and the dedication of our employees in serving our clients have driven record results for our shareholders in 2024, even before the significant growth unlocked by our strategic acquisitions and organic investments in high-growth markets globally. 2024 was just the start; BlackRock enters 2025 with greater growth and upside potential than ever.

Hi, good morning, everybody. Happy New Year. I wanted to start with a discussion on Money Motion, that's something we talked about last year as well. As you think about 2025 and taking into account maybe the rates move we had recently, to what extent does that change the backdrop you're seeing in the marketplace today? And when it comes to more money in motion, what asset class do you guys expect to benefit most in 2025? Thanks.

Thanks, Alex. Happy New Year. Listen, it all starts with clients. We had back-to-back quarters of above or at target organic base fee growth, 5% in Q3, now 7% in Q4. It's definitely putting the lift we want in the trailing 12-month trend for our long-term through the cycle target. Full-year organic base fee growth was 4%. And so we're really entering 2025 with continued momentum in a real position of strength. Larry talked a bit about continued ETF exceptionalism, a very strong contribution to the 7% organic base fee growth in Q4, rounded out by private markets and alternatives, fixed income, and cash. Even in ETFs like higher-fee rate segments like active ETFs gathered over $20 billion in new assets, digital assets ETFs are driving higher organic base fee growth. We see those trends continuing into 2025. I would note that GIP's organic growth contributed to about one-half of a percentage point to the overall 7% organic base fee growth. So it didn't have an outsized impact on this quarter's above-target outcome. I do think it's a good indication that a growing infrastructure business, a growing private markets business can support obviously above trend, above-target, long-term targets. But looking into 2025, we've built the business around structural growers, ETFs, models, Aladdin, fixed income, target date funds. They all drive sustainable organic base fee growth through market cycles. In positive markets, our lived experience has been that these areas capture substantial upside, generating substantial earnings just like they did here in 2024, where we hit records. Continuing into 2025, we continue to see strength in structural growers, a bigger private markets business, and BlackRock as a meaningful outperformer in re-risking periods. Going back to previous election cycles and periods of central bank action, Alex, we had outsized upside capture. Look at 2017, 2018, 2021. We were well above 5% in those cycle targets. And I'd offer that I think we're even better diversified now. Even with higher-for-longer rates, we see short-duration active fixed-income yield strategies like our active ETF managed by Rick Rieder, BINK, the INX is the ticker, and our cash management platform as growth engines. And I think that recent macro events are also going to lead to some interesting opportunities in secondaries and private credit in a more supportive market. We've achieved our organic base fee growth target of 5% on average over the last five years. We hit 5% in Q3, 7% in Q4. We did it without the benefit of M&A. So we believe that HPS, Preqin, and GIP can help lift our business beyond those targets. It gives us a lot of conviction about our 5% or better goal going forward, Alex. So we look forward to updating everybody on progress.

Alex, let me discuss the rate market. We have been experiencing an inverted yield curve environment, where keeping money in cash provided the highest returns. While this meant missing out on some substantial movements in the equity market, the yield curve is beginning to steepen. Over time, this will allow for benefits from extending along the curve. Currently, there is nearly $10 trillion in money market funds, and that capital will eventually be utilized. With the yield curve steepening and interest rates rising, we anticipate significant opportunities in the fixed-income sector. As Martin mentioned, income-oriented investments like private credit and infrastructure are likely to become increasingly important for our investors in the next five to ten years. We should not overlook the importance of capital markets, which are set to develop more robustly, especially in Europe and other regions, creating even greater opportunities. The U.S. stands out for its unique advantages. Small startups and medium-sized companies have access to abundant capital, which is a key driver of the U.S. economy. I hope to see this model replicated in other economies. A strong banking system paired with a solid capital market system will significantly contribute to our future growth.

Hey, good morning, Larry, Martin. Happy New Year, Larry. Hope everyone is doing well. My question is on retirement. So BlackRock is the largest DCIO manager and one of the largest managers of AUM in 401(k) plans and target date funds. Currently, these strategies have a 0% allocation to alternatives, but the red sweep in November has many of us debating if alternatives will break into the retirement channel. Especially given your recent acquisitions of GIP and HPS, I don't know if any firm is better positioned for this team. So we wanted to get your updated prospects on alternatives finally breaking into the U.S. retirement channel.

Thanks, Craig. Happy New Year. I'll give it a go and then see if Larry has anything to add. But listen, we think of ourselves as a retirement company. More than half of the $11.6 trillion of assets that BlackRock manages are related to retirement. We've been at the forefront, I think, of product innovation. We've been at the forefront of advocacy for retirement solutions through our whole history. It was in fact Barclays Global Investors that pioneered the first target date fund back in 1993. It was a revolutionary concept eliminating, I think, some of the guesswork for retirement savers by automatically adjusting their investment mix over time. We now today, as you mentioned, have over $0.5 trillion of assets in LifePath and target date funds. We're the number-one DCIO provider. As Larry went through in detail, we've been innovating the target date structure to include guaranteed income with LifePath Paycheck. We see real potential benefits that retirees could have with greater diversification and better retirement outcomes by blending public and private markets. People have won Nobel Prizes talking about the market portfolio. It wasn't just about public markets; it's also about private markets. We've been doing work on product innovation and we've been thinking about how to bring private markets potentially into target date structures. We think the same innovations that powered LifePath Paycheck could ultimately power a target date structure with private markets and alternatives as part of the glide path. We'd also think about things like managed accounts and models, where we've been working on including public-private models as we announced with the Partners Group model portfolios, which we think can make their way into retirement accounts as well. We do think this is a real opportunity with our leading presence in these channels, we've got the relationships, the distribution, and the investment expertise to capitalize on these opportunities to create better retirement outcomes. We do think we're watching the space closely. For more tangible opportunities, we do think there'll have to be some reforms, potentially safe harbors litigation or advice reform in the U.S. to add private markets to DC plans. So we're watching the space closely, keeping in touch with the trade associations. We're doing a lot of work in keeping connected with Washington. But for years, we've tried to innovate. We've advocated on behalf of workers to improve retirement solutions. We think there is a real opportunity here. If there is an opportunity to bring private markets to the retirement channel, we will aim to be at the forefront, Craig.

Craig, let me add one more point that I think is essential. And that is having better analytics and data that will be fueling. I think, regulatory opportunities to expand offerings in the space. As you know, the retirement system is heavily weighted with a lot of regulation. The fiduciary standard is very high. As a result of that, the need for better market analytics and data is essential. This is one of the primary reasons why we sought out and acquired Preqin. Having the analytics that we have with eFront and Aladdin and the data that we will have will allow the entire market to have access to better information. We believe more and more asset managers will then take on Aladdin with Preqin data and eFront to help them navigate this. To me, dovetailing relaxed regulatory oversight can only happen if we have better systematic analytics and data to work with the investors under our Arista laws. I think this is essential and this is one of the key reasons why we made the acquisition of Preqin.

Hey, good morning. Happy New Year.

Good morning. Happy New Year.

It's been a little bit over a month since you announced the HPS acquisition. Just curious here in terms of the conversations you're having with clients, how that dialogue has evolved given the expanded private credit capabilities that you have? I believe insurance and private wealth were some of the areas that you were most excited about. Just curious what steps you might take to best maximize that opportunity here as you're thinking about 2025, what sort of growth might this translate into and which of the opportunities do you see as more near-term versus more medium to longer-term?

Well, obviously, we need to close and we expect to close sometime in the second quarter; that would be our objective. We're very excited about the client feedback related to HPS. It has been extraordinarily positive across all the channels. HPS has incredible relationships with clients worldwide, and that dovetails with our relationships across all the insurance companies. I do believe insurance will be one of the primary areas of growth for us. But as we were talking about earlier, if we could really expand in the wealth channels, HPS right now has about $20 billion in wealth channels already. We believe, with the BlackRock connectivity with all the wealth management organizations, that we have an opportunity to really increase that size by a dramatic amount. Our conversations that we've had globally, from Japan to the Middle East to Europe, probably one of the great surprises to me was the conversations we're having about expanding private credit as a part of these portfolios. As I said earlier, we did not do the HPS acquisition as a singular expansion; you have to overlay the design around buying Preqin and having eFront and bringing that together to provide better data and analytics to these markets. That will then provide much greater expansion of the market. We've seen that over the last 40 years: when you have better data and analytics as you expand new and frontier markets, they become large-scale markets through data and analytics. We believe we will be the best-suited organization to take advantage of that expansion of the private credit markets in the future.

Great. Good morning, everyone.

Mike, Happy New Year.

Happy New Year. I wanted to follow up on the expense guidance for the year. Thank you for the core G&A guide. I guess, as we think about the contribution from HPS, assuming that mid-2025 close, how should we think about kind of the guide including that? Then as we think about the margin, I appreciate that markets and FX are really going to impact the outcome. But could you just give us some thoughts on maybe the puts and takes that we should consider for the margin in 2025 relative to 2024?

Sure. Thanks for the question. Let me just put some context around it. I think our approach to shareholder value creation is to generate consistently market-leading organic growth. It's to drive operating leverage and industry-leading margins and to execute on a consistent capital management strategy. We have a strong track record of investing in our business for growth and scale while expanding capability. It's not just about growth; it's about profitable long-term growth. Our growth comes from being disciplined in making and managing continued investments in the business. We're keeping the rules-based budgeting principles that I've outlined over the last 12 to 18 months that size our operating investments in line with a prudent lens on organic growth potential. It's aiming to put flexibility in our cost base and variabilizing more expenses where we can. And most importantly, it's looking to generate fixed-cost scale, especially through investments in technology. I think you see in 2024, those scale indicators came through in the results. We grew operating income by over 20%, generated close to 3 percentage points of margin improvement versus 2023. We improved the margin by 390 basis points year-on-year in Q4 while operating income was up 30%. Since the end of 2022, a more rope metric is that BlackRock AUM is up $3 trillion, while headcount is up by a more modest 1,300 employees, about 7% headcount growth. We really see ourselves as continuing on that strategy of driving scale and productivity, which shows up in margin expansion. On the outlook for 2025, the guidance is mid-to-high single-digits excluding HPS, as I mentioned. In terms of the major influences, we think our budgeting approach in a positive market environment should drop more profitability into operating income. Market movements are our highest-margin item, both on the way up and on the way down. We see the conditions for reasonably positive growth in markets over the near to intermediate term. We believe we can continue to invest to accelerate growth and deliver margin expansion through this rules-based budgeting that I've outlined. We expect that the impact of positive markets on AUM and revenue through this budgeting approach would drive further margin expansion into 2025.

Hi, good morning. Happy New Year. Thank you for taking my question. I wanted to piggyback a little bit on Alex's question. What are your thoughts on the outlook for fixed-income flows as we look out to the next 12 months? I guess, maybe starting, where do you see investors position in fixed-income as we begin 2025? And do you get the sense generally that investors are under or over-allocated to fixed-income broadly? How do you see those allocations evolving this year? I think you've successfully made the case that the allocations are likely to increase. You made the case for a while that the allocations to cash are probably too high. How do we think about this sort of flowing into fixed-income allocations for the next 12 months?

So I'll take that one. Last time I mentioned I thought it would reign fixed-income. I'm going to continue that for 2025, but I won't go as far as a Nobel Prize, Martin, in fixed-income. A more balanced term structure of interest rates is an indicator that we're going to watch to indicate the potential demand for intermediate and longer duration fixed-income. This has been negative for years, and now the U.S. term premium has reached its highest level in a decade. Now we see that people are underallocated to fixed-income, and we see that through our models business. We see that they're looking to increase their weightings in longer duration fixed income. Whether there's above market steepener or a bear market steepener, I do believe that some of that large allocation to cash, which Larry mentioned being around $10 trillion, is going to look for opportunities to increase their income. And with countries around the globe at deficits, there is going to be a lot of issuance, and you'll see the premium over treasuries be significant enough to move that money from cash into intermediate and longer-term duration fixed income. So last year, we saw a strong demand. Our fixed income flows were $164 billion in 2024. That's driven 6% organic asset growth and that included $24 billion in the fourth quarter alone. One of the other reasons for this demand is better wrappers to express your interest in fixed income. We saw demand across iShares, non-ETF index, and active fixed-income, and active fixed income continue to include scaled institutional assignments as well, not just retail. This came primarily from insurance partners. I think spread income presents a great opportunity even if duration is not as reliable a diversifier as it used to be. We see a lot of clients that want to clip solid yields at the front end of the curve, and now we expect that to continue into the longer end of the curve. The run-up in equities last year actually made them over-allocated to equity, so they need to catch up in fixed income. I think it continues to roll into cash, and then cash, as rates change, will move into intermediate and longer duration fixed income paper, which will not only be in the public markets but also in the private markets as well.

Oh, great.

Hey, Brian.

Thanks. Good morning, guys. Hi, Happy New Year.

Happy New Year.

I can't imagine how you have grown since 1999 when you were the leading fixed-income manager. I always believed in the strength of the strategy, but the firm has certainly developed well beyond what anyone expected. Congratulations on that journey.

So have you turned 35 yet?

It's been quite a while for sure. As we consider the evolution of our strategy in alternatives, particularly regarding retail, I'd like to hear your thoughts on your confidence in expanding into the retail side of alternatives. There are still numerous obstacles to growth in these channels, as you mentioned with the 401(k) sector earlier. Within that context, could you share your perspective on the potential for Safe Harbor provisions in the 401(k) market and the interest from 401(k) plan sponsors in including alternatives in their portfolios, which would greatly benefit plan participants? Overall, I'd like to know your confidence in the retail market for alternatives as we move into 2025 and 2026, especially regarding the potential for 401(k).

Thank you so much. This is one of the businesses I'm most fond of here at BlackRock. We have strong relationships in wealth and retail markets across the globe. As Larry mentioned in his remarks, our aim is to help wealth managers build long-term portfolios that blend public and private market exposures. The market is still early, as you said, wealth manager and retail allocations to private markets are still in the low single digits on most of the Cerulli dinner data. We are focused on innovating to provide better access to private markets for wealth managers and retail investors, and that's across taxable and non-taxable accounts, retirement accounts. As we had previously announced, we're working on a first-of-its-kind managed model solution with the Partners Group. We think this will simplify Wealth Access, offering a single subscription model product with varied allocations based on risk tolerance while moving the private markets into a model portfolio with different risk tolerances that manage the cash flows on a single subscription document. We think that's a huge unlock. One of the barriers to adoption with wealth managers is just the operational burden and tax of managing multiple subscription documents and cash flows and distributions for private markets products. We think a managed account can do that better and increase access. In Europe and Asia, those markets are in a different place than the United States when it comes to our private markets in retirement accounts. We recently launched our new evergreen fund offerings under the LTIF 2.0 structure. Those initial offerings are in private equity solutions and multi-alternatives. Those evergreen funds, we are planning to also have infrastructure and private credit offerings in the future. We're looking at bringing similar structures in terms of evergreen products for the United States as well. The planned acquisition of HPS is going to bring real scale and expertise in the wealth channel for us, including more than $20 billion of wealth-focused assets in HLEND, one of the high-performing BDCs in the market. We think there is a great opportunity to continue to scale that in the channels where HPS is, but also bring that to the RIA market where BlackRock has a particularly large footprint. We have really excellent momentum in many of the strategies that we have in B debt. Our non-traded BDC has about $600 million plus in growing. Our credit interval fund CREDX, same deal has had a lot of growing. I do think that the biggest opportunity ahead of us is to integrate semi-liquid products and to integrate private markets into our over $300 billion managed models and SMA franchise. That would be the biggest unlock. I really do think it's our competitive advantage. It's at the heart of the model venture we have with Partners Group. It's at the heart of many of the previously announced partnerships we have with Envestnet, GeoWealth, iCapital, Case, and Vestmark. We think the two best execution channels for us here to help clients are target date funds and retirement accounts, assuming that we can have favorable conditions to do so, and managed models in wealth and retail channels and the LTIF structures in UK and Europe.

Okay, thank you very much.

Hi, Bill.

Good morning, guys. Thank you very much.

25 years.

Yes, it really does go by quickly. I recall the conversation about the IPO. Thank you for the recognition; it’s been a pleasure. I know one person is focused on the platform's evolution and your guidance regarding buybacks. As your earnings continue to grow, become more diversified, and more stable, how are you considering the payout in relation to your earnings? Additionally, how will you allocate that between dividend growth and share repurchases?

Thanks a lot, Bill. Our capital allocation strategy is consistent. As I mentioned earlier, it's first to invest in the business. That's our main focus: investing in the business to drive organic growth. We preference the dividend, and then the size of our share repurchases, they're an output after those allocations of capital. We don't manage the company to hoard excess cash on BlackRock's balance sheet. We have a very strong track record of returning that excess cash through share repurchases that are systematic. I think the size of future repurchases would result from a whole variety of factors: the levels of cash flow generation in organic growth and market beta and FX, the sizing of organic and inorganic investments, the leverage ratio of the company, the reasonableness of debt financing versus equity financing. So, all of these things would influence ultimately the sizing of the share repurchase program. But the share repurchase is an output, not an input into our capital management strategy. This year, we had $4.7 billion returned to shareholders. We know that BlackRock has become an attractive compounder between dividends and buybacks, and we want to keep that track record up for our clients and shareholders.

Yes, I do. Thank you, operator. I want to thank everybody for joining us this morning and your continued interest in our firm BlackRock. Our record results in 2024 are just the beginning of our next phase of growth. We invested ahead of our structural growth trends and drivers that we believe will define the future of the capital markets and asset management. We have a lot of exciting work ahead of us, including the planned addition and integration of Preqin and HPS. We entered 2025 better positioned than ever to deliver differentiating performance to our clients and value creation for our shareholders. Everyone, have a really wonderful quarter. Enjoy. Talk to you in next quarter. Thank you.