BlackRock, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Financial Performance: 2024 saw record net inflows of $641 billion. Full-year revenue was $20.4 billion (up 14% year-over-year), operating income $8.1 billion (up 23% year-over-year), and EPS $43.61 (up 15% year-over-year). Fourth quarter revenue was $5.7 billion (up 23% year-over-year), operating income $2.3 billion (up 36% year-over-year), and EPS $11.93 (up 23% year-over-year).
• Acquisitions: Planned acquisitions of Preqin and HPS are expected to close in Q1 2025 and mid-2025, respectively. The GIP acquisition closed in October 2024.
• Organic Growth: Fourth quarter had 7% annualized organic base fee growth, the highest in three years. Structural growth businesses like ETFs, Aladdin, outsourcing, and fixed income serve as strong foundations for organic growth.
• Capital Management: Returned over $4.7 billion to shareholders in 2024 through dividends and share repurchases. Targets $1.5 billion in share repurchases in 2025 and expects Board approval for a dividend increase in Q1 2025.

Segment Performance

• ETFs: Generated industry-leading net inflows of $390 billion in 2024, including $41 billion in digital assets ETPs launched in 2024. Fourth-quarter ETF net inflows were $143 billion. Organic base fee growth in ETFs was supported by higher-fee rate segments like active ETFs and digital assets ETFs.
• Aladdin: Technology services revenue in 2024 was $1.6 billion, up 8% year-over-year. Annual contract value (ACV) increased 12% year-over-year, driven by strong demand for integrated risk analytics and whole portfolio views across public and private markets.
• Outsourcing: Managed over $120 billion of scaled outsourcing mandates in 2024. LifePath target date funds managed over $0.5 trillion in assets, with the LifePath Paycheck offering having $16 billion invested at year-end.
• Fixed Income: Had $164 billion in net inflows in 2024, driven by 6% organic asset growth, including $24 billion in the fourth quarter. Driven by demand from insurance partners and various fixed-income strategies.
• Private Markets: With the acquisition of GIP, the private markets and alternatives platform is expected to have $600 billion in client assets, contributing over $3 billion in revenues (about 15% of 2024 revenues). Pro forma for HPS and Preqin, private markets and technology are expected to make up over 20% of total revenue.

Guidance

• 2025 Outlook: Will maintain a systematic approach to profitable growth. Planned acquisitions of Preqin and HPS are expected to contribute to growth. Target organic base fee growth of 5% or better. Mid-to-high single-digit core G&A expense growth is expected excluding HPS.
• Share Repurchases: Target purchase of $1.5 billion of shares in 2025; expects Board approval for a dividend increase in the first quarter of 2025.

Risks

• Regulatory Risks: Potential changes in tax legislation or regulatory approvals for acquisitions could impact financial results.
• Market Risks: Fluctuations in financial markets may affect assets under management (AUM) and revenue.
• Integration Risks: Challenges in integrating acquired companies (GIP, HPS, Preqin) could impact performance.

Question and Answer

Q: Good morning, everyone. 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?

A: 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, 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. And in positive markets, our lived experience has been that these areas capture substantial upside, generate substantial earnings just like they did here in 2024, which where we hit records. Looking into 2025, we continue to see strength in structural growers, a bigger private markets business, and BlackRock as a meaningful outperformer and re-risking periods. Going back to previous election cycles, 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 INC 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.

Q: Hey, Craig, Happy New Year. 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. And currently, these strategies have a 0% allocation to Alts, but the red sweep in November has many of us debating if Alts will break in the retirement channel. So 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 Alts finally breaking into the U.S. retirement channel.

A: 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. So we see real potential benefits that retirees could have with greater diversification, better retirement outcomes by blending public and private. I mean, people have won Nobel Prizes talking about the market portfolio. It wasn't just about public markets, it's also about private markets. And so we've been doing work, we've been doing work, we're always 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 counts as well. And so, we do think this is a real opportunity with our leading presence in these channels, we've got the relationships, the distribution, 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. And if there is an opportunity to bring private markets to the retirement channel, we will aim to be at the forefront, Craig.