BlackRock, Inc. (NYSE:BLK) Q4 2022 Earnings Call Transcript

BlackRock, Inc. (NYSE:BLK) Q4 2022 Earnings Call Transcript January 13, 2023

Operator: Good morning. My name is Keren, 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 Fourth Quarter 2022 Earnings Teleconference. Our host for today’s call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Gary S. Shedlin; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer period. Thank you, Mr. Meade, you may begin your conference.

Christopher Meade: 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 was 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 Gary.

Gary Shedlin: Thanks, Chris. Good morning and Happy New Year to everyone. It’s my pleasure to present results for the fourth quarter and full year 2022. Before I turn it over to Larry, I’ll review our financial performance and business results. While our earnings release discloses both GAAP and as-adjusted financial results, I will be focusing primarily on our as adjusted results. As a reminder, beginning in the first quarter of 2022, we updated our definitions of as adjusted operating income, operating margin and net income. Year-over-year financial comparisons referenced on this call will relate current quarter results to these recast financials. 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 industry-leading capabilities into our One 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. And while 2022 was one of the most challenging market environments in over 50 years, clients around the world once again turned 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 demonstrate that clients are increasingly consolidating more of their portfolios with 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 billion and delivered positive organic base fee growth. Importantly, we ended the year with strong momentum, generating approximately $114 billion of total net inflows in the fourth quarter representing 3% annualized organic base fee growth and reflecting continued momentum in iShares and significant outsourcing mandates. Full year revenue of $17.9 billion was down 8%. Operating income of $6.7 billion and earnings per share of $35.36 both declined 13% compared to 2021. For the fourth quarter, revenue of $4.3 billion was 15% lower year-over-year primarily driven by the impact of lower markets and dollar appreciation on average AUM and lower performance fees. Quarterly operating income of $1.6 billion was down 25%, while earnings per share 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 million 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 fourth quarter was approximately 23%, driven in part by discrete items. We currently estimate that 25% is a reasonable projected tax run rate for 2023 primarily due to an increase in U.K. tax rates, though the actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. Fourth quarter base fee and securities lending revenue of $3.4 billion was down 14% year-over-year, in line with the corresponding decline in average AUM primarily reflecting the negative revenue impact of approximately $1.7 trillion of market beta and foreign exchange movements on AUM over the last 12 months.

Sequentially, fourth quarter base fees and securities lending revenue was down 4% despite positive organic base fee growth in the quarter. Our fourth quarter annualized effective fee rate decreased by approximately 1.5 basis points from the third quarter reflecting the previously discussed impact on our fourth quarter entry rate, continued mix change favoring lower fee mandates and lower securities lending revenue. Fourth quarter and full year performance fees of $228 million and $514 million, respectively, decreased from a year ago. The decline primarily reflected lower revenue from liquid alternative and long-only mandates, partially offset by higher fees from illiquid alternatives. Notably, 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 carrier fee revenue exceeds $1.4 billion.

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 $1.4 billion increased 7%. Both periods reflected significant revenue headwinds associated with the FX impact on Aladdin’s non-dollar revenue, and market declines on Aladdin’s fixed income platform assets. Annual contract value, or ACV, increased 8% year-over-year. 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&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.

Recall that year-over-year comparisons of fourth quarter compensation expense are less relevant because we finalize full year compensation in the fourth quarter. 2022 direct fund expense decreased 7% year-over-year, primarily reflecting lower average index AUM. The sequential decline in quarterly direct fund expense also includes the impact of higher rebates that seasonally occur in the fourth quarter. Excluding product launch costs, fourth quarter G&A expense increased 2% year-over-year, reflecting ongoing strategic investments in technology and the impact of higher foreign exchange re-measurement expense, partially offset by lower occupancy and sub-advisory expense. For the full year, we estimate that core G&A expense was up 11% compared to 2021, primarily driven by higher technology spend associated with our Aladdin cloud migration and a return to more normalized levels of T&E expense.

Our full year as-adjusted operating margin of 42.8% was down 400 basis points from a year ago, primarily reflecting the negative impact of markets and foreign exchange movements on revenue and the ongoing longer-term strategic investments we have been making in technology and our people. BlackRock’s industry-leading organic growth is a direct result of the disciplined investments we have consistently made through market cycles. 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 and we emerged even stronger. Since July, we have been aggressively managing the pace of our discretionary spend, so we would be better prepared for 2023, a year in which we will need to increasingly focus our resources on areas of greatest opportunity.

In order to continue investing in our people and critical strategic priorities during the year, we recently restructured the size and shape of our workforce to free up investment capacity 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 but also create opportunities for our incredible talent. This resulted in a fourth quarter restructuring charge of $91 million primarily comprised of severance and accelerated amortization of previously granted deferred compensation awards for approximately 500 impacted employees or 2.5% of our global workforce. This charge appears as a single line expense item on our 2022 GAAP income statement and has been excluded from our as adjusted results to enhance comparison to prior periods.

Our business is incredibly well positioned to take advantage of the opportunities before us, and we remain deeply committed to optimizing organic growth in the most efficiently possible. At present, we would expect our head count to be broadly flat in 2023. We 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&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 sheet to best position BlackRock for continued success. During 2022, we allocated $1.2 billion of new seed and co-investment capital to support our growth, and our year-end portfolio now approximates $3.9 billion. Our strategic minority investments are reinforcing various elements of our strategy and simultaneously generating very attractive returns for our shareholders. During the year, we invested in Circle and became the primary manager of the U.S. DC 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 to shareholders through a combination of dividends and share repurchases and returned a record $4.9 billion to shareholders in 2022, including $1.9 billion of share repurchases, an increase of over 30% from 2021. Since inception of our current capital management strategy in 2013, we have now repurchased over $13 billion of BlackRock’s stock, 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 relative valuation of our stock price, we are targeting the repurchase of at least $1.5 billion of shares during 2023.

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 across our platform. Fourth quarter long-term net inflows of $146 billion, 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 billion were positive across all regions, led by net inflows of $230 billion from clients in the United States. BlackRock generated industry-leading ETF net inflows of $220 billion in 2022 and representing 7% organic asset growth and 3% organic base fee growth, including a record $123 billion in demand ETFs. Fourth quarter ETF net inflows of $90 billion reflected some seasonality but also reflected the diversity of our product and client segments.

Surging demand for our bond ETFs, which saw $47 billion of net inflows, represented the second best quarter in our history. 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 billion reflected ongoing industry pressures in active fixed income and world allocation strategies partially offset by strength in index SMAs and our systematic equity income and multi-strategy alternative funds. Fourth quarter retail net outflows of $15 billion reflected similar trends. BlackRock’s institutional business generated record net inflows of $192 billion in 2022 representing 4% organic asset and 3% organic base fee growth paced by approximately $170 billion of active net inflows, reflecting broad-based strength across all product types and the funding of several significant outsourcing mandates.

Fourth quarter Institutional active net inflows of $76 billion were 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 meet investor demand for risk-adjusted alpha and yield and our diversified active fixed income platform with strong three- and five-year performance records across total return, unconstrained, high yield and credit is especially well positioned for growth as interest rates stabilize in the latter part of the year. Demand for private markets also continued with $16 billion of net inflows into illiquid strategies during the year driven by private credit and infrastructure. In addition, as our private markets business continues to grow, we also raised significant new client commitments in 2022.

We now have approximately $34 billion of committed capital to deploy for institutional clients in a variety of strategies, representing approximately $260 million of future annual base fees and significant potential performance fees. Finally, BlackRock’s cash management platform experienced $32 billion of net outflows in the fourth quarter and $77 million of net outflows for the year. 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 a 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. 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 lies ahead with Martin Small as our next CFO. I know we will be in great hands. With that, over to you, Larry.

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Laurence Fink: Gary. Thank you. Excellent job. Good morning, everyone, and Happy New Year. Thanks, everyone, for joining this call. Today and throughout BlackRock’s history, we have 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 of their needs of all our clients’ needs, providing them with more choice, innovating to help them achieve financial well-being. 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 and technology platform to provide them with solutions that fit their unique objectives.

Our job is then to deliver the best financial returns based on their individual preferences. It is this differentiating platform that drives our differentiating results. BlackRock generated $307 billion in net new assets and positive organic base fees in 2022. These industry-leading results reflected the decision 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 for our clients’ confidence in BlackRock’s performance, our guidance and our fiduciary standard. In the United States, we generated $230 billion of long-term net inflows, and flows were positive across all regions throughout the world. 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 science turned BlackRock for more solutions across their entire whole portfolio.

We ended the year with very strong momentum with $114 billion of fourth quarter net inflows representing 3% annualized organic growth based fees. We estimate that BlackRock captured over 1/3 of the long-term industry flows in 2022, leading the industry and delivering positive organic base fees for the year. Over the past five years alone, BlackRock has delivered an aggregate $1.8 trillion in net inflows or 5% average organic asset growth compared to flat or negative industry flows. Over this five-year period of time 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. 2022 was 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 in 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.

We’ve seen a decline in birth rates, 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 is also an active hope, hope that the future will be better than the president. 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, flock 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 roll to show people the benefits of investing for the long term to give them hope that, over time, their returns with a balanced portfolio 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 our clients to capitalize on market disruption, to rethink portfolio construction, to consider the renewed income generation potential of bonds or to reallocate the sectors that may be more resilient in the phase of elevated inflation. BlackRock is uniquely positioned to help clients navigate opportunities in this environment because of our diversified platform and integrated investment management technology advisory expertise.

Our whole portfolio approach is resonating more than ever before and underpins the record $192 billion 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 this because we take and invest for them in the long term and in alignment with their beneficiaries whose time horizon span decades. In an increasingly complex investment environment, we’re seeing strong demand from clients looking to partner with BlackRock for outsourced solutions and expect this to continue in 2023. Just in the last two years, BlackRock has been entrusted to lead several significant outsourced mandates totaling over $300 billion in AUM, spanning existing and new clients.

And I’m proud to say our pipeline remains very strong. In 2022, BlackRock helped millions of investors plan for their financial futures as they continue to turn their ETFs for long-term investments. iShare has led the industry with $220 billion 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 as a testament to our scale, the demand from our clients and our diversification, we had over 70 different iShares ETFs with annual net inflow surpassing $1 billion. Our growth was well diversified across our core equity, our fixed income, factors, sustainable and thematic ETF product categories, and we have seen repeatedly in periods of market uncertainty investors turned to iShares’ precision exposure ETFs to make those tactical asset allocation decisions into year-end.

iShares bond ETFs generated a record $123 billion of net inflows. We again led the industry, and six 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. 20 years ago, iShares launched the first four U.S.-listed bond ETFs. And today, we provide over 450 ETF choices across our $760 billion iShare fixed income platform. In an uncertain rate and credit environment this year, iShare I shared bond ETF 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 iBonds.

The diversification means we can meet our clients’ demands as it evolves. Earlier this year, investors used iShares bond ETF to express preference for short treasuries and more recently, our high yield, our corporates, long-duration ETFs have been leading the flows. 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. Just a year ago, the U.S. two-year treasury note was yielding approximately 90 basis points, and today, they’re earning over 4% with corporate bonds earning over five and high-yield earning eight. Clients are coming to BlackRock to help them pursue generational opportunities in the bond market, and our leading $3.2 trillion fixed income and cash platform is well positioned to capture accelerating demand.

In addition to our industry-leading bond ETF flows, clients turned to BlackRock’s high-performing active platform, where over 80% of taxable fixed income assets are performing above benchmarks at a bare medium for the three- and four-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 billion in client capital in 2022 led by private credit and infrastructure. We’re successfully scaling successor funds, delivering larger funds through — raises of subsequently fund vintages.

In 2020, our third Global Energy and Power Fund raised a total of $5 billion surpassing the total assets of Vintage I and II combined. In 2022, the fourth fund raised $4.5 billion in investor — in initial investor commitments at first close, achieving over half of our targeted $7.5 billion 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, a joint venture with one of our diversified infrastructure funds and AT&T, which upon closing will provide fiber networks to customers and communities outside AT&T’s traditional service area. The network will advance efforts to bridge the digital divide and ultimately help spur local economies and the communities in which Gigapower operates.

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 in demand for renewable energy, infrastructure and technology. In Europe, the energy supply shocks in 2022 have only sharpened the focus 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 resonated 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 offerings.

We can be tools to help thread the needle between generation income and growth that could potentially outrun inflation. Aladdin is foundational to how we serve clients across our platform. 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 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. 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, and we are providing them with choice and flexibility. We are creating deep integration with ecosystem providers and third-party technology solutions. 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 first organization to build and launch technology empowering institution clients in BlackRock separate accounts to nearly 650 pooled vehicles to choose how to vote the shares of the companies they own through our own index capabilities. 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 plan serving more than 60 million people around the world. And in just the last six months, the number of index equity clients nearly committed to voting choice has more than doubled.

We are also working to expand this capability to individual investors in markets like the United Kingdom and in funds where it’s possible. The majority of BlackRock’s clients are investing to finance retirement. And BlackRock has been in the forefront of innovation and advocacy for retirement solutions throughout our entire history. We recently made a minority investment in the human interest, which is helping small and medium-sized businesses provide affordable, accessible retirement plans to their employees so more American can serve and save for a secured financial future. We believe human interest vision 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. That is how we built our industry-leading position and generated value for shareholders over the long run. The uncertainty and 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. We greatly appreciate the contributions they have made to BlackRock and wish the best for them.

BlackRock remains a growth company. Even with this restructuring, our head count will still be 6% higher than a year ago. Looking ahead, we have deep conviction in our strategy and ability to execute with scale and with expense discipline. We are honored that our clients have entrusted us with over $300 billion of net assets in 2022. We see similar clients’ needs reshaping and shaping the opportunity set for 2023, being a large insurance company seeking outsourced partnership with scale and expertise pension funds looking for attractive yields and less duration in credit risk, our financial advisers 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 and bond ETFs, huge opportunities in the rebuild out of infrastructure in the United States and the world and opportunities in transition finance.

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 value their companies deliver to shareholders, clients, 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 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.

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. This steadfast focus has not only enabled us to deliver for clients but also to drive growth for each and every one of our shareholders. Since our IPO, in 1999, BlackRock has delivered a 7,700% total return to our shareholders. And this is the strongest return of a financial services company and the S&P 500 over that period. I thank BlackRock employees for the commitment to upholding our culture and living every day our purpose.

They’re always striving to better serve each other and each of our clients and finding new and innovative ways to be helping our stakeholders achieve a financial well-being. I really do want to call out and thank Gary once more for his last earnings call. He’s been a friend way beyond his term at BlackRock. He’s been an adviser. Sometimes he’s been tough. Sometimes he’s been lovely, but Gary has been an important part of driving our growth over these last 10 years and driving 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 a 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.

Q&A Session

Operator: We’ll take our first question from Daniel Fannon with Jefferies. Please go ahead.

Daniel Fannon: I 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 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?

Laurence Fink: Rob.

Robert Kapito: I’ll take that one, Dan. Rob Kapito here. Clients have, as you know, experienced a very difficult market in 2022. There were joint double-digit declines across both global equities and bonds. 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 60-40 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 three areas that are more common are inflation protection because of the uncertainty of where rates are going to go.

They’re 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. 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 in 2022 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 actually earn very attractive yields without taking much duration or credit risk.

And our $2.5 trillion 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 in active and in passive, are ready. A lot of that will come through ETFs. And we expect that the industry is going to reach $15 trillion 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 of ETFs. 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.S. And an example Larry gave in his remarks was the recently announced infrastructure JV with AT&T called Gigapower, which is an example of this momentum, which we think there will be many other JVs available to us with other companies in renewable infrastructure. And private credit continues to expand as public financing retreats and more companies seek capital. And there are a couple of others that I think should be highlighted especially as growth areas for BlackRock. One is outsourcing, and we have seen this trend over the last several years. And our recent successes with significant sized mandates are going to position us well to execute on a strong 2023 pipeline.