BlackRock, Inc. Q3 FY2025 earnings call

• Financial performance: Third quarter revenue was $6.5 billion, up 25% year over year. Operating income was $2.6 billion, up 23% year over year. Earnings per share was $11.55, up 1%. - Business developments: Finished the third quarter with record AUM of $13.5 trillion. Closed acquisitions of HPS and Elmtree, announced an $80 billion SMA solution with City Wealth, and onboarded a $30 billion pension mandate. Expanded capabilities across private markets, digital assets, data, and technology. - Product inflows: iShares ETFs had record net inflows of $153 billion in the third quarter. Digital assets EGPs raised $17 billion in the quarter. Cash management platform had $34 billion net inflows and crossed $1 trillion in AUM. Private market strategies saw $13 billion net inflows. - Acquisitions: Acquisitions of GIP, Preqin, and HPS contributed to revenue growth. The integration of acquired firms is progressing, with HPS bringing over 800 colleagues and the combined platform becoming a first call for clients.

In terms of segment performance, iShares ETFs generated $153 billion of net inflows in the third quarter, with core equity and index fixed income leading the way with $53 billion and $41 billion of net inflows respectively. Digital assets, EGPs, raised another $17 billion in the third quarter. Our cash management platform recently crossed $1 trillion in AUM, with $34 billion of net inflows in the quarter. Across private market strategies, $13 billion of net inflows were seen driven by strength in private credit, multi-alternatives, and infrastructure. Third quarter revenue was $6.5 billion, up 25% year over year. Operating income was $2.6 billion, up 23% year over year. Earnings per share was $11.55, up 1%. Base fee and securities lending revenue was $5 billion, up 25% year over year. Performance fees were $516 million, up 33% from a year ago. Quarterly technology services and subscription revenue was up 28% compared to a year ago, with annual contract value increasing 29% year over year including the impact of Preqin.

• Core G&A expense: Continue to expect a low teens percentage increase in 2025 core G&A expense, mainly driven by onboarding of GIP, Preqin, and HPS. - Share repurchases: In the third quarter, repurchased $375 million worth of shares and still anticipate repurchasing at least $375 million worth of shares in the fourth quarter. - Quarter performance: The fourth quarter has traditionally been the strongest for organic growth.

• Forward-looking statements risk: BlackRock's actual results may differ from forward-looking statements. - Tax risk: The actual effective tax rate may differ because of nonrecurring or discrete items or potential changes in tax legislation. - Market risk: Market movements can impact average AUM, which in turn affects financial results.

Q: Good morning, Larry. Hope everyone's doing well. Question is on the breadth of the 10% base fee organic growth in the quarter. So we can all see that iShares was the major driver of the AUM flows, but I was curious on what the contribution looked like on a revenue-adjusted basis, really because it looked like alts, digital assets, and systematic all look pretty sizable. When you look at it on a base fee basis.

A: Pardon? Hi, Craig. Thanks for the question. Just think contextually, I go back to our Investor Day in June, we outlined our growth plan to 2030 targeting five-plus percent organic base fee growth. Organic base fee growth continues to outperform that five-plus percent target at 10% for Q3, 8% in the last year, 8% for the trailing twelve months. And that growth continues to take higher each quarter, Craig. BlackRock, Inc.'s strategy has always been a whole portfolio strategy. We've always been about breadth, but I'd say this quarter and the way the strategy is playing out is what we're trying to do. That breadth is really impressive. It's every corner of a client's portfolio. And you see that in the contribution. The growth was highly diversified across franchises. Some of those are foundational platforms, like ETFs that we've been in for years, and others are more recent innovations from just the last few years. The top organic base fee growth contributors, you're right, they were in digital assets with iBit and Etha in the top grossing categories. Active ETFs we've had $40 billion of flows year to date that basically doubles what we did in active ETFs last year. Including two of the leading tickers there with DYNF that managed by the systematic team, that's now a $30 billion franchise. And BINC, the flexible income fund that's managed by Rick Reeder and the team, that's a $13 billion franchise. We had huge outsourcing wins that we noted. The Imperial direct indexing business continues to really grow a double-digit organic growth. And overall, we're seeing liquid alts also as a contributor from systematic and fixed income teams as well. With more growth coming from private markets, systematic strategies, and models, we think we should be able to power organic base fee growth. I think we're consistently at six, 7% or higher. And when markets are supportive like this, with risk-on sentiment, think that can tilt even higher. The last thing I'd flag is these strategies are contributing I think, to field improvement. We continue to see deals on flows increasing with these high-value add capabilities. We showed that in Investor Day in June. The fee yields on new assets to the firm are six to seven times higher than they were in 2023. And we'll continue to really aim at serving clients' whole portfolios and driving breadth.

Q: Hey, morning. Thanks so much for taking the question. Just wanted to ask about tokenization. I was hoping you could talk about your ambitions and steps that you're taking there, including how you might go about tokenizing ETFs. You already have the tokenized money fund with Petrol. So if you could talk about some of the traction there you're seeing and more broadly on use cases, how you see this developing? And when we think about tokenization, your views on what's been the holdback from wider adoption as this technology has been around for some time. What do you see as the major unlock here?

A: So, first of all, this is probably one of the most exciting potential markets for BlackRock, Inc. Let's just start off with our global footprint. With our scale operation in ETFs worldwide. And our leading position in terms of digital assets that we already are a part of. We are having conversations with all the major platforms today about how can we move forward on the whole digitization and tokenization of traditional assets they could play a role in the role of digital wallets. The theory is, as I said in my prepared remarks, if you could keep all your money in a digital platform, in a digital wallet, you could then seamlessly buy what we would traditionally say, traditional assets like stocks and bonds. You know, there was we we we we we had a survey related to the, you know, the of young people who are investing in equities that came out last weekend. And we believe if we could orchestrate a business plan around tokenization of ETFs. It is young people who are heavily users of tokenized assets. That we could introduce them to more and more traditional assets sooner in their life path the more prepared people will be related to long-term savings opportunities like in retirement. And so we are in deep conversations. We're spending a great deal of time on the tech on trying to develop our own technology related to do this. I do believe we have some exciting announcements in the coming years on how we could play a larger role on this whole idea of the tokenization and digitization of all assets. I mean, it is our belief that we need to move rapidly, not just financial assets, but we need to be tokenizing all assets. Especially assets that have multiple levels of intermediaries. So when you see the intermediaries in each and every intermediary is charging fees, for instance, like in real estate, the tokenization of these types of assets would eliminate much of the fees and it would make it you know, we're talking about homeownership and home the cost of homeownership. It would reduce the cost of buying real estate. That's something that we're not focusing on, but that to me, that is just one of the great applications and the simplification. But if we could legitimately move towards digital offerings of ETFs through tokenization, it could bring down the execution cost, the ability to deliver seamlessly remaining in a digital wallet environment. We believe this will begin a sooner and a broader pathway for more investments in our capital markets across bonds and stocks. Martin, do you want to add anything to that? You got it? That said, thank you.

Q: Hi, Alex. Hi, Larry. Good morning, everybody. Question you guys around private credit. The market has grown increasingly anxious given some of the recent dynamics both related to perhaps growth kind of amid lower rates and tighter spreads. As well as some of the kind of specific credit names out there. I'm curious what the HPS team is seeing on the ground, both with respect to credit trends across their direct lending portfolios in the third quarter. And any growth implications you're seeing for the asset class broadly from lower rates and tighter spreads?

A: Thanks, Alex. Hope you're doing well. So listen, I'd start by saying just that the heritage of BlackRock, Inc. and HPS definitely the combined firms it's steeped in rigorous underwriting. It's steeped in managing credit risk. Our clients, they expect us to generate risk-adjusted returns, attractive risk-adjusted returns, and they also, of course, expect us to protect their investments and protect their principal. So we've been talking a lot with the teams about the news. But I'd say the teams are generally seeing strong credit quality from borrowers. They're generally seeing a positive environment for credit investing. Even in syndicated loan markets, default rates have been declining. We, of course, read the same headlines that you do around private credit bankruptcies. But those exposures are actually in syndicated bank loan and CLO markets. They're not with large private credit managers and direct lending books. And in those very public cases, the ones that we're reading about, you're reading about, potential frauds also been reported. I think stepping back, when we talk to the teams, they always highlight the private credit market, the of banks and public debt markets is a 2-plus trillion dollar market. It's mainly focused on direct lending to corporates. Those are companies that borrow in private credit. They're not inherently riskier than those that borrow with banks or syndicated loan markets. And the team would highlight that private credit lenders have more control over credit agreements and terms, tend to have more access to management teams, have more information about company performance relative to the public markets. I think they'd also flag on much of what we're reading in the news that private asset-based finance is a smaller market, call it somewhere between $203 billion and $1 trillion, and the consumer receivables portion of that market is even smaller at maybe 10% of total. It's smaller in scope, and the reported cases look more like pockets of stress and things like deep subprime, or, again, where there's been potential fraud reported. They don't look like broad stresses on asset-based finance or consumer credit. All that said, I know the teams are being very vigilant with our clients and monitoring credit conditions, but they're not seeing widespread credit stresses at this point. We're seeing steady allocations to our non-traded BDCs in HLEND and B debt. You see the deployment numbers in the earnings release are strong and steady. They would tell you the historical experience is that when syndicated loan markets and banks may reduce their lending activity and volatility, that tends to be some of the best opportunity for private credit deployment. And the potential for wider spreads. That's generally, I think, good for continued access to credit for corporates. But it's also a good opportunity for clients to secure excess spread and long-term attractive risk-adjusted returns.