BlackRock, Inc. (BLK) Q1 2022 Earnings Report, Transcript and Summary

Good morning. My name is Myra, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated First Quarter 2022 Earnings Teleconference. Our hosts 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 speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

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 lists 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.

Thanks, Chris, and good morning, everyone. It’s my pleasure to present results for the first quarter of 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’ll be focusing primarily on our as adjusted results. As many of you know, beginning in the first quarter of 2022, we updated our definitions of as adjusted operating income, operating margin, and net income to exclude the impact of intangible asset amortization, other acquisition-related costs, and contingent consideration fair value adjustments. We believe that excluding the impact of these expenses provides investors and management with a more useful understanding of our financial performance over time, while also increasing comparability with other asset management companies. BlackRock regularly reviews our disclosures with the goal of providing helpful information to our investors, and we may consider additional non-GAAP adjustments in the future. To provide consistent comparisons to historical results, we recast quarterly as-adjusted metrics to account for these changes for 2020 and 2021. This recast was posted on BlackRock’s Investor Relations website in late March and also has been included on Pages 12 and 13 of our earnings release, while year-over-year and sequential financial comparisons referenced on this call will relate current quarter results to these recast financials. BlackRock’s performance in the first quarter once again underscores the strength of our platform and our ability to serve clients in a variety of market conditions. We’ve invested for years to diversify our platform and to develop industry-leading franchises in ETFs, private markets, technology, active management, and sustainable investing. These successful multiyear investments have enabled us to deepen our solutions-oriented relationships with clients and have strengthened and diversified our organic revenue growth profile. BlackRock generated total net flows of $86 billion in the first quarter, representing 3% annualized organic asset growth with $114 billion of long-term net inflows, partially offset by $27 billion of generally seasonal cash management outflows. Quarterly long-term net inflows were positive across all asset classes, investment styles, and regions. Annualized organic base fee growth of 2% reflected the impact of two sizable institutional index mandates and strong flows into core equity ETFs during the quarter. First quarter revenue of $4.7 billion increased 7% year-over-year, while operating income of $1.8 billion rose 14%, reflecting the impact of approximately $185 million of closed-end fund launch costs in the first quarter of 2021. Earnings per share of $9.52 was up 18% compared to a year ago, also reflecting a lower effective tax rate and a lower diluted share count, partially offset by lower non-operating income in the current quarter. Non-operating results for the quarter included $29 million of net investment losses, driven primarily by mark-to-market declines in the value of unhedged seed capital investments. Our as-adjusted tax rate for the quarter was approximately 17% and included $133 million of discrete tax benefits, including benefits related to stock-based compensation awards that vested in the first quarter of each year. We continue to estimate 24% as a reasonable projected tax run rate for the remainder of 2022, though the actual effective tax rate may differ because of nonrecurring or discrete items or potential changes in tax legislation. First quarter base fee and securities lending revenue of $3.8 billion was up 7% year-over-year, primarily driven by 8% organic base fee growth over the last 12 months. Sequentially, base fee and securities lending revenue was down 3%, reflecting in part the impact of a lower day count in the first quarter. On an equivalent day count basis, our effective fee rate was essentially flat compared to the fourth quarter as the negative impact of divergent equity beta was offset by lower discretionary money market fee waivers. We incurred approximately $75 million of gross discretionary yield support waivers in the first quarter. However, waivers for our flagship funds were essentially removed following rate hikes by the Bank of England and Federal Reserve in March. Recall that approximately 50% of gross fee waivers are generally shared with distributors, so the benefit to base fees is partially offset by higher distribution expense. Performance fees of $98 million decreased from a year ago, primarily reflected lower revenue from liquid alternative and long-only products, partially offset by higher fees from illiquid alternatives. Recent market volatility could result in reduced ability to earn performance fees from certain liquid alternative and long-only products during the remainder of 2022. Quarterly technology services revenue increased 11% from a year ago. Annual Contract Value, or ACV, increased 13% year-over-year and we remain confident in our ability to continue delivering low-to-mid-teens ACV growth as we see strong demand for Aladdin’s end-to-end cloud-based SaaS capabilities. Total expense increased 3% year-over-year, driven primarily by higher compensation expense. Recall that expense in the first quarter of 2021 included $185 million of closed-end fund launch costs, which are excluded when reporting our as-adjusted operating margin. Employee compensation and benefit expense was up 7% year-over-year, reflecting higher base compensation, partially offset by lower incentive compensation, driven in part by the lower mark-to-market impact of certain deferred cash compensation programs. G&A expense was down 17% year-over-year, reflecting the previously mentioned closed-end fund launch costs in the first quarter of 2021. Excluding these costs, G&A expense increased 19% from a year ago due to ongoing strategic investments in technology, including the migration of Aladdin to the cloud along with increases in marketing and promotional expense, including higher T&E expense associated with our return-to-office strategy. Sequentially, G&A expense decreased 12%, primarily reflecting seasonally lower marketing and promotional expense and lower professional services and occupancy expense, partially offset by higher technology expense. Disclosure enhancements introduced this quarter include the addition of a separate G&A expense line item for sub-advisory expense, which historically was included within portfolio services expense. We hope this will provide more transparency into costs associated with the successful growth of our OCIO business, which are more than offset by associated base fees. As Larry will discuss in more detail, momentum in our OCIO business is accelerating as the trend towards outsourcing increases, and BlackRock is well positioned to capture this opportunity. Direct fund expense increased 3% year-over-year, primarily reflecting higher average index AUM. Sequentially, quarterly direct fund expense increased despite lower average index AUM due to higher rebates that seasonally occur in the fourth quarter. Our first quarter as-adjusted operating margin of 44.2% was down 160 basis points from a year ago, primarily reflecting the ongoing strategic investments we are making in technology and our people. As we stated in January, our business has never been better positioned to take advantage of the opportunities before us. We are increasingly seeing clients looking for ways to optimize portfolio returns at a lower cost by forging deeper relationships with fewer managers, including fully outsourced relationships. These trends favor global, comprehensive and scaled platforms like BlackRock’s as evidenced by several such wins over the recent quarters, and we see more opportunities ahead. As always, we remain committed to optimizing organic growth in the most efficient way possible. We have deep conviction in the stability of our diverse business model, which has demonstrated strong resilience in a variety of markets and our ability to proactively manage our cost structure. In the near term, we remain focused on the opportunity set ahead of us and are continuing to invest responsibly to support our growth and to drive our strategic initiatives. We continually focus on managing our entire discretionary expense base, and we will continue to be prudent in reevaluating our overall level of spend, if market conditions necessitate us doing so. Our capital management strategy remains, first, to invest in our business and then to return excess cash to shareholders through a combination of dividends and share repurchases. We continue to invest through prudent use of our balance sheet to best position BlackRock for continued success through seed and co-investments to support organic growth and through strategic investments to further accelerate our efforts. As Larry will discuss in more detail, earlier this week, we announced the minority investment in Circle, the operator of the market infrastructure for USDC, a dollar-based fully reserved stable coin and one of the fastest-growing digital assets with more than $52 billion in circulation. Circle’s technology currently enables the frictionless and real-time transfer of payments and is being explored for other applications across the financial ecosystem. We previously announced an 18% increase in our quarterly dividend to $4.88 per share of common stock and repurchased $500 million worth of common shares in the first quarter. At present, based on our capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price, we still anticipate repurchasing at least $375 million of shares per quarter for the balance of the year consistence with our previous guidance in January. As you’ll also hear from Larry, BlackRock relationships with our clients have never been stronger, and they continue to turn to BlackRock to help them meet their long-term investment needs. BlackRock’s first quarter and total net inflows of $86 billion were positive across client, channels and regions highlighting the breadth of our platform. ETFs generated net inflows of $56 billion, representing 7% annualized organic asset and 4% annualized organic base fee growth. Results once again highlight the unique diversity of our ETF product segments, supported by particularly strong equity, sustainable and commodity ETFs. The diversity of our ETF franchise enables us to generate durable, industry-leading organic revenue growth in varying macroeconomic environments. For example, as inflation expectations persisted, investors turn to our commodity ETFs, where we are now the clear category leader, and as Larry will highlight, our bond ETFs gathered net inflows in one of the most challenging quarters for fixed income in recent history. Retail net inflows of $10 billion were positive in both the U.S. and internationally and reflected strength in equities, liquid alternatives and active multi-asset funds. BlackRock’s institutional franchise generated $47 billion of net inflows as our global scale, investment expertise and world-class technology and risk management enable us to increasingly serve as the partner of choice for institutional clients. BlackRock’s institutional active franchise generated $16 billion of net inflows, led by continued growth into our LifePath target date, alternatives and systematic active equity offerings. Institutional index net inflows of $31 billion included approximately $70 billion from two large institutional clients with whom we have deep relationships, spanning multiple investment strategies. Demand for alternatives also continued, with $6 billion of net inflows into illiquid and liquid alternative strategies during the quarter driven by private credit, infrastructure and liquid alternative offerings. Fundraising momentum remains strong, and we have approximately $36 billion of committed capital to deploy for clients in a variety of alternative strategies, representing a significant source of future base and performance fees. Our $330 billion alternatives and liquid credit platform has gained significant momentum over recent years. And to provide increased visibility, starting this quarter, we’re including additional detail in our earnings supplement on AUM and committed capital managed by our alternatives team. Overall, BlackRock generated approximately $20 billion of active net inflows during the quarter and has now generated positive active flows in all but one quarter since the beginning of 2019. Finally, BlackRock’s cash management platform saw net outflows of $27 billion, driven by redemptions from offshore prime and U.S. government money market funds, in line with the broader money market fund industry. BlackRock has steadily grown our share of the cash management industry by leveraging our scale and delivering innovative distribution and risk management solutions for clients. We are an existing manager of the cash reserves that underpin USDC, and we look forward to partnering with Circle to expand that relationship and become their primary manager in the future. In summary, our first quarter results once again highlight the benefits of the investments we’ve made in high-growth areas to diversify and strengthen our platform. Many of the areas in which we are generating strong growth today, such as alternatives and ESG, were not significant contributors just a few years ago. As a result, we are better able to deliver resilient organic growth and develop deeper client relationships today, than at any point in BlackRock’s history. Our commitment remains to optimize organic growth in the most efficient way possible, and we will do so responsibly to meet the needs of all stakeholders. With that, I’ll turn it over to Larry.

Thank you, Gary, and good morning to everyone, and thank you for joining the call. As I wrote to shareholders last month, Russia’s invasion of Ukraine has created a humanitarian tragedy and is impacting not only geopolitics, but also the global economies. It’s going to fundamentally alter the path of globalization that we’ve seen over the past 30 years. The flow of goods and people across borders will still be critical to economic growth and new technologies will continue to shrink geographic distances, but countries and companies are reevaluating their interdependencies in a way that we have not seen since the end of the Cold War. As a fiduciary, BlackRock is working to understand how these structural changes will impact our client portfolios, and we will help them pursue their long-term financial goals. The breadth and scale of BlackRock’s platform enables us to serve clients in all market environments. We invested over many years to build a comprehensive investment platform, industry-leading technology and a global footprint with local expertise. By evolving ahead of the needs of our clients, we have grown as a trusted partner to all our clients. We constantly work to provide our clients with that type of insight, but close connectivity becomes even more important during periods of market volatility and uncertainty. Over the last two months, following Russia’s invasion of Ukraine, BlackRock held over 200 client engagements and hosted market update calls attended by more than 4,600 clients. I also recently visited clients in Japan and the Middle East and here in the United States, many of whom are trying to understand how geopolitical and macroeconomic shifts might impact their investment outcomes. I remember the same heightened level of connectivity with our clients during the initial weeks of the pandemic in spring 2020. I believe our relationships with clients have never been stronger. Our clients appreciate our voice and our consistent advocacy for long-term investing on their behalf. Our first quarter’s result demonstrates these strengths. BlackRock generated $114 billion in net long-term inflows in the first quarter, demonstrating the breadth of our asset management platform and positive flows across all product types all investment styles in all regions. Organic growth in the quarter included two significant client mandates, reflecting our ability to deepen partnerships and build a comprehensive relationship with clients globally. We also saw a 13% ACV growth in technology services as more clients recognize the benefits of Aladdin. I’m incredibly excited about the opportunities ahead of us, and we will continue to invest for the future. Throughout our 23-year history as a public company, we have demonstrated that we are intentional about our investment spend and focused on our margins. I have found that often, in times of market uncertainty, that is the greatest opportunity that we could find. BlackRock’s breadth and resilience enables us to play offense when others may be pulling back. Our agility in responding to opportunities and continued investments across market cycles have driven our industry-leading growth, our consistent growth and generated value for our shareholders. Our investments are closely aligned with our strategy to keep alpha at the heart of BlackRock, accelerated growth in iShares, in private markets and Aladdin to deliver a whole portfolio advice and solutions to our clients and be the global leader in sustainable investing. Our clients are trying to understand the implications of the rapidly changing investment environment. The Russian invasion of Ukraine marks a profound geopoliticalship that is accelerating a reassessment of global supply chains. It also creates a supply shock in commodities that is further increasing inflation. Even before the war, inflation was already top of mind for many investors as the effect of the pandemic, including the shift in consumer demand from services to capital goods, labor shortages and supply chain bottlenecks, broad inflation in the United States, in Canada and the United Kingdom, across European Union to the highest level in decades. Central Banks are in a difficult position as we look to carefully raise rates to contain inflation without harming economic activity and employment. They may eventually have to live with a supply-driven inflation rather than take policy rates above neutral levels. However, they may be forced to be more aggressive policy stance of inflation expectations become unchartered. Bond markets have been quick to price in the Fed’s rate projections and saw one of the worst quarters on record for the US bond market. The market was down or the US aggregate index was down more than 5%. Equity markets, on the other hand, has shown some resilience. Following significant market volatility in the first quarter, US and European broad market indexes regained some of their losses and ended down the quarter around 5% and 6%, respectively. As always, BlackRock remains guided by our clients’ needs, and we constantly evolve so we could be better serving them. Clients increasingly want to work with fewer partners who could provide more, and BlackRock is uniquely positioned to capture opportunities as clients consolidate their investment providers. We have the investment expertise. We have the operational excellence and the technology capabilities work with clients of all types and sizes, and we are well positioned to help them meet their objectives and to serve all of their own stakeholders. The global insurance industry, for example, is undergoing significant transformation as insurers optimize their operating model and leverage outsourced investment management solutions. We have built a leading insurance platform compromising fixed income investment specialists, insurance advisory expertise and added analytical capabilities to deliver the best of BlackRock to our insurance clients. We are also seeing the results of these investments through deeper relationships with all our clients, and significant opportunities are in front of us today. Last month, we announced the significant assignment with AIG, spanning asset management and Aladdin. BlackRock will manage up to $150 billion of AIG and its life and retirement company’s investment portfolio. This is another great example of one BlackRock effort, to bring together our platform, to serve our clients in a way that no other asset manager can do. All of us here at BlackRock take a deep responsibility in managing every dollar for every client who awards us money. From institutions entrusting us with their whole portfolios to that individual investor using one of our ETFs in their first investment account. In the first quarter, we once again saw investors using ETFs to quickly allocate capital and the managed risk during periods of volatility. In the US, iShares’ secondary trading volumes were up nearly 40% compared to 2021 levels providing clients worldwide with the liquidity they needed in volatile markets. We generated $56 billion of ETF net inflows in the first quarter with growth coming from each of our major product categories, including core strategic and precision ETFs. In fixed income ETFs, we generated $8 billion in net inflows for the quarter. Similar to equity ETFs, we are seeing more investors adopt and use fixed income ETFs to gain market exposure and for tactical positioning within their fixed income exposures. We saw demand for treasury, short duration, inflation-linked, sustainable munis and broad-based market exposures would more than offset risk-off sentiments in areas like high yield and emerging markets. Our growth in fixed income ETFs highlight the diversity of our fixed income ETF product range and our ability to deliver the market qualities clients expect in stressed markets. The liquidity, the transparency and lower transaction costs of fixed income ETFs present a more efficient way for investors to access the entire bond market. We believe that our fixed income ETFs will benefit from more long-term secular tailwinds that play a significant role in the modernization of the $100 trillion bond market. BlackRock generated $20 billion of active net inflows across our active equities, multi-asset and alternative strategies. Investment performance remains strong over the long-term, positioning us well for future growth with 86% and 81% of our taxable fixed and fundamental active equities above benchmark or peer medium for the three-year, respectively, and for the five-year period. 90% of our taxable fixed income, 83% of our fundamental active equity AUM is above benchmark or peer medium. In the U.S., 75% of our active mutual funds are in a Morningstar four or five rated fund, and we continue to generate growth and capture market share across the U.S. active mutual fund franchise in the first quarter. In alternatives, $6 billion of net inflows across liquid and illiquid strategies led by private credit and infrastructure. And we’re continuing to steadily deploy assets on behalf of our clients, including another $5 billion in the first quarter. Deployment activity was led by our climate finance partnership strategy that we announced last year, which seeks to accelerate the flow of capital into climate-related investments in the emerging markets. One of the biggest opportunities in alternatives in the years ahead will be the intersection of infrastructure and sustainability. In response to the energy shocks caused by the war in Ukraine, many countries around the world are reevaluating their energy dependencies and are looking for new sources of energy. This may mean increasing production of traditional energy sources in the near term. But I believe recent events will accelerate the shift towards greener sources of energy in many parts of the world over the long-term, and we will see a tremendous changes in the energy transition. This presents a significant long-term opportunity for investments in infrastructure, renewable, clean tech on behalf of our clients. BlackRock has one of the largest renewable power platforms in the industry, managing over $8 billion of assets and client commitments. And we are expanding our transition-focused investment strategies. BlackRock is committed to be helping clients navigate this energy transition. We are working with energy companies throughout the world, who are essential in meeting society’s energy needs. It will play a critical role in any successful transition. To ensure the continuity of affordable energy prices during the transition, fossil fuels like natural gas will be important as a transition fuel. BlackRock is also investing on behalf of our clients in natural gas pipelines. For example, in the Middle East, we invested in one of the largest pipelines for natural gas, which will help the region utilize less oil for power production. These investments are a great example of helping countries go from dark brown to lighter brown as a substitute oil with a cleaner base fuel like natural gas. Client demand for sustainable investments, more broadly also continue to be strong. We saw a $19 billion of long-term net inflows into both our active and index sustainable strategies in the first quarter. Our ability to partner with clients across the whole portfolio and quickly adapt to rapidly shifting market environments continues to drive demand for Aladdin’s integrated end-to-end technology platform. BlackRock remains focused on investing in Aladdin to support its areas, such as chapters of growth, and extending its capabilities into areas like whole portfolio, private markets, wealth and sustainable investment solutions. We see the value proposition of Aladdin deeply resonating with clients, and we generated a 13% technological service ACV growth over -- year-over-year. Clients are increasingly combining Aladdin with our newer offerings such as eFront or Aladdin accounting, highlighting the benefits of our continuous innovations and investments to stay ahead of our clients’ needs. Our Aladdin client relationships are long term in nature, and we will have historically seen industry-leading contract renewable rates. The recent market environment has also reinforced the need for offerings like Aladdin Wealth. Usage of Aladdin Wealth by financial advisers at our clients has increased by more than 40% during the first quarter as financial advisers look to assess portfolio risk, to assess market exposures across every one of their clients across their entire business. We have over two dozen global client -- Aladdin Wealth clients and expect further growth to come from expansion into different wealth segments and in markets around the world. We are increasingly interest -- seeing interest from our clients that BlackRock is also studying digital assets and their associated ecosystem, including crypto assets, stable coin, tokenization and permission blockchains, where we see a potential to benefit our clients and capital markets more broadly. Earlier this week, we announced that BlackRock made a minority investment in Circle, a global Internet payment firm and the sole issuer of USD coin, a dollar-based fully reserved stablecoin, which is one of the fastest-growing digital assets in the world. BlackRock is already the manager of USDC cash reserves, and we look forward to begin expanding our relationship to become the primary manager of the cash reserves. Over the past year that we have worked with Circle, we have been so impressed with their mission, their management team, their technology and their thoughtful approach to growth. BlackRock has always led by listening to our clients, by anticipating and embracing change and investing in ahead of their future needs. Let me say again, we are very honored by the deep trust our clients place in us. My recent meetings with our clients around the world have only strengthened my conviction in the opportunities that BlackRock has in front of us. I believe we have never been better positioned for our future. As always, I’m incredibly proud of our employees who live our principles, who are staying true to our purpose and are focusing on the long-term needs of our shareholders, the long-term needs of our clients, the needs of our colleagues and the needs and long-term issues that are impacting the communities where we work every day. With that, let’s open it up for questions.

Thank you. [Operator Instructions] Your first question comes from Craig Siegenthaler from Bank of America. Please go ahead.

Hey, Craig.

Hey. Good morning, Larry. Hope, you and the team are doing well.

We are healthy and safe. Thank you. I hope you too are feeling too.

That’s great. Larry, my first question is on fixed income demand and the inflationary backdrop. And we know there is some reaction to lower bond prices in the quarter, but iShares bond ETF flows are still positive. But given your wide product breadth in fixed income, and I’m thinking about unconstrained SIO, I wanted your perspective on future client demand trends in fixed income just given the likely fast ramp in Fed funds over the next 12 months, although we’re probably likely going to see a flatter year growth, too.

Well, as I’ve been saying, I think we’re going to have an inverted yield curve for some time, but let me get into the specifics of your question. Obviously, fixed income is a broad universe of different products, different maturities or durations. During market volatility, like we’ve witnessed, you would see outflows from retail as they move into different products, maybe in the cash, maybe in the equities. But if anything, in fixed income institutionally, you see it very stable. And if we have rising 10-year and 30-year rates , you’re going to see a huge movement in defeasing of pension fund liabilities, which is going to create a huge demand. That is why I believe we’re going to have an inverted yield curve, which I’ve been talking about for quarters. But tactically, investors can move out of longer durations to lower duration or shorter duration. Obviously, if cash and money market funds begin yielding 2%, 2.5%, you’ll see movement away from maybe longer-dated funds into shorter-dated funds. So let’s be clear, movement within fixed income is quite large. As I talked about, 40%, greater turnover in our fixed income ETFs, some of that is repositioning across a portfolio, and that’s what we’re witnessing. And I think that just highlights the resiliency of fixed income ETFs that is able to really help investors worldwide with that type of liquidity. But I think clients around the world are going to be navigating this. You mentioned SIO. SIO, obviously, with an unconstrained duration, depending on the investors’ wishes and how they think they should be positioned, is a great example of innovation within fixed income that investors can now give our investment team, under Rick Rieder in this case, the ability to navigate around that duration. They’re not stuck to the duration of the aggregate index. And I believe that’s -- we did see flows there. We’re going to continue to see real opportunities unconstrained. This is why we’ve developed SIO. So I think across the board, you’re seeing portfolios are being navigated around fixed income, but we basically broadly saw clients are reevaluating where they should be across the yield curve. We continue to see broad-based demand from municipals in this country. And so across the board, we’re not seeing any real panic at all in the fixed income market, despite the worst performance in fixed income in 30-plus years in one quarter. So, I would say rising rates is an opportunity, not a problem. I would tell you clearly that this is where the conversation and deep partnership is really helping us with our clients and helping them navigate how should they think about duration, and how should they think about inflation, how can they -- can they create a return that’s above long-term inflation rates. So, these are all the issues that we are in dialog with. But I think we’re very well positioned for working with our clients on a rising rate environment. And let me open it up to Rob to give you a little more tactical information.

Yeah. So just to follow-up on Larry’s comments, we typically are helping clients assess their duration and maturity risk, especially in their core bond portfolios. And we help them rotate within fixed income depending upon what they’re seeking protection from, which could be rising rates in different parts of the curve. And that is why we saw $1.5 billion of net inflows into SIO and FIGO, as Larry described, that are less constrained. But more importantly, we see this in the ETF market, because it’s the ability for people to gain market exposure and tactical positioning very quickly within fixed income. A lot of times, you have to accumulate the positions over a period of time. It’s much faster, quicker diversified if you do that through ETF fixed income. So we’re seeing flows across the board. The performance has been good, but certainly clients are concerned how do we position in a rising rate environment.

Your next question comes from the line of Dan Fannon from Jefferies. Please go ahead.

Thanks. Good morning.

Hi Dan.

I was hoping you could talk about the outsourced CIO opportunity. You guys have had several large wins. Maybe discuss the dialog that you’re having with prospective clients and how you see, I don’t know the size or opportunity of that over time?

So, we are having dialog with pension funds worldwide on this, with insurance companies worldwide. Because of comprehensiveness of our investment platform, because of Aladdin, we provide a unique position with all these companies in terms of outsourcing whether it’s part of a general kind of an insurance company or the entire pension fund. We announced last year what’s our big win with British share in the UK. We’re having many conversations right now with other pension funds. We’re looking to see what -- how BlackRock can help them achieve their long-term goals and aspirations. We’re working with many insurance companies and see can we provide them with better support, better investment opportunities, and they can leverage our team with maybe their existing team and manage a part of their portfolios together. So, the conversations are probably more robust. There’s probably more opportunities across pension funds, and insurance comes at any time in our history, and we look at we’re as well-positioned as any firm in the world on it. Rob, do you have anything more to say on that?

Yes. I think the business of managing money has gotten very complicated, very expensive. Firms have not invested in the technology that they need, and the scale and size of what we can do can help them get better investment performance at a better price and certainly sourcing with the scale and size the BlackRock has can help them. So we actually can go in, have a dialogue, work together with the company and the people that they have there. And do it faster, better, cheaper and handle the operations and technology as well.

Your next question comes from the line of Bill Katz from Citigroup. Please go ahead.

Okay. Thank you very much. I appreciate the disclosure this quarter as well. Maybe a question for Gary. On one hand, I sort of heard you talk a little bit about we were willing to reevaluate the expense growth guide given the market backdrop, but I also heard sort of a high level of commitment to spending. So in that light, can you triangulate between prior guidance in terms of year-on-year expense growth, particularly for G&A and the run rate pacing for first quarter? And then was there anything unusual in the comp this quarter that would suggest some upward bias into the second quarter? Thank you.

Thanks, Bill, and good morning. So I think your question is about spend for the year, and then I’ll come back to your more detailed questions on G&A and comp. I think just echoing on what both Larry and Rob said, we’ve obviously invested for years to focus on developing industry-leading franchises in many high-growth areas that we’re doing incredibly well in. And I think as we talked about back in January, last year, we grew organically at our fastest rate ever, and we continue to expand that growth premium relative to the industry, and we were able to increase our margin. And I think, importantly, as I mentioned in my remarks, many of the areas in which we’re generating strong organic growth today, whether it’s alternatives, traditional active, ESG, were simply not significant contributors to our business just a few years ago, and we continue to see very significant opportunity. Again, as Larry and Rob just talked about, particularly as clients are optimizing their operating models, they’re looking for these deeper relationships with fewer managers, and we’ve talked about a number of those wins. So our overall goal here has not changed. We remain committed to optimizing that organic growth in the most efficient way we can. And I think as we’ve done in the past, we’ve shown in the past, we have deep conviction in the stability of our model and our ability to manage our cost structure. And we’ve done that throughout our history, whether it was in 2016 or 2018, both years where we increased our margin. We’ve been agile, but we’ve also continued to invest. And I think we are very focused for the near term on continuing to support that growth at both historically and future. And in that regard, we have made no major change to our discretionary spending plans that we laid out to you in January. But as we said, we will be prudent in reevaluating that level of spend if market conditions suggest that we do so. As it relates to comp, I don’t think there’s anything there. Obviously, there is, which is in the overall -- environment. There was some benefit attributed to mark-to-market on deferred cash comp. But if beta doesn’t go down, and we don’t get that benefit. In some respects, those are correlated. And in terms of G&A, I would just say that, as a copy out to what I just said, which is that we’ve made no major changes, we tend to spend a little slower in the first quarter than we do towards the rest of the year as it relates to our G&A spend.

Your next question comes from the line of Michael Cyprys from Morgan Stanley. Your line is open.

Great. Thanks.

Hey, Mike

Thanks for taking the question. Hi, good morning, Larry, Gary. We’ve seen a lot of money flow into the private markets over the past couple of years and a very low interest rate backdrop. And now that interest rates are rising, a lot of concerns around inflation and where the end game may be in rates. I guess how do you think about that will impact client demand for private assets? Are there certain parts of the private markets that you think will hold up better and see better growth? And how is this evolving -- how are these evolving trends influencing your strategy within the private market space? And where do you see the biggest opportunity for BlackRock?

Huge demand, Mike, from -- for private credit and loans. Those are the two areas. And as you know, a couple of years ago, we did an acquisition in the loan area because the performance of that product has been great during various cycles. And these are good mom-and-pop type companies that don’t have access necessarily to the public markets, and it’s very expensive. And due diligence is required, so you have to have the team to do that. But certainly, in the private markets, both in credit and in loans, we’re seeing increased demands. And I think that’s also a function of rates because they give you much more of a cushion for rising rates than the more obvious liquid credit products. There’s also a huge demand for real assets, and that has been an area of growth for us, as you know. And a lot of people are using that for an inflation hedge. So the textbook says when you see inflation, you sell growth, you buy value, you buy tips and you buy real estate. And all of those, including infrastructure, make for good investments. So we’re pretty well positioned. You know that we take a multi-asset approach to build portfolios that are going to be resilient. That’s what people are expecting for us. And that is why you see the unconstrained bond funds get money. And as I mentioned before, $1.5 billion into SIO and FIGO, equities, inflows into equities. And our dividend growth offerings can also be tools to help thread the needle between generating income and growth that could potentially outrun inflation. And traditionally, real assets like commodities, infrastructure, real estate will insulate a portfolio against higher inflation. So we’ve seen some clients tactically allocate to commodities. And in that area, we had about $7 billion of net inflows.

Let me just add one more point. As I said in my prepared remarks, the interconnectivity between sustainable investing and infrastructure is going to be enormous, whether it is a pipeline in Saudi Arabia, or a pipeline from Texas to Mexico, or investing in the sequestration of hydrocarbons and H2O in the Midwest of the United States. The building out of new renewable platforms of charging stations. Across the board, the conversations we’re having with new innovative companies in technology and the robustness of our conversations with the largest energy companies in the world, our connectivity in this space has never been greater. And I would say with high confidence and high conviction, the opportunities to place a lot of money in very unique investment opportunities in this interconnectivity, sustainability and infrastructure is going to be large and it’s going to be multiple years of investing.

Your next question comes from Brian Bedell from Deutsche Bank. Please go ahead.

Great. Thanks. Good morning folks.

Hi, Brian.

Hi. Good morning. Maybe just to tag on to the last part of that question to expand that and sort of put that into another question. So the -- obviously, the increasing demand for energy transition that you’ve alluded to on several conference calls now, I guess, first of all, do you see the geopolitical situation accelerating that trend on a more permanent basis, even if things do ease up? And then looping that in with the products that you’re able to come out with, which do tend to have higher fee rates in the alternatives area, if you can comment on just the confidence of continuing to generate faster organic base fee growth versus AUM, putting aside, of course, these lumpy mandates that can really influence that?

As I said, we’re in large dialogues with the traditional hydrocarbon companies, energy companies. We’ve had numerous conversations with the leaders of every energy company in the world about how they’re moving forward. I think the geopolitical issues, as you framed the question, is going to spur a huge amount of investing, huge amount of investing in the exploration and development more oil, but at the same time, elevated energy prices is going to accelerate decarbonization technology. And I think what you’re seeing, whether it’s the $1 trillion investment in infrastructure that the United States voted for last year and now the real commitment out of Europe to build LNG plants to have less dependency on one supply chain Russian gas, I believe in our conversations, even at country levels are very large and how can they create multiple supply chains for energy. And that is a combination of decarbonization technology and a combination of insurances, of having energy to meet the needs of society. So all of this is going to be -- it’s just a long-term project. It’s not going to be a straight line as my lenders wrote about. Any energy transition has to be fair and just or it doesn’t work. We are witnessing that now, the supply shocks and now excess demand and so all of this is playing out that it’s going to create an investment boom, the combination of fiscal spending on the US part, the European part. We had -- as in every country, we have conversations about decarbonization or the utilization of hydrogen. I was in Japan last week, a lot of conversations on hydrogen and what role can that play in Japan. Two trips to the Middle East, more conversations about -- as they move with a lot of sun and solar moving more towards more renewables, the movement away from oil as they utilize a lot of oil for power production in Saudi Arabia to move to gas, so moving from dark brown light brown. All of this is just going to stimulate a lot of excess demand for product and supply of product. And I would have said, for the last few years, a bigger issue is supply of product, not demand. Then I do believe the supply quotient over the next few years is going to be larger which just means more and more opportunities. And we are -- in our forecast for new growth in these areas, we’re forecasting the build-out of three large infrastructure funds to meet these needs.

Your next question comes from the line of Brennan Hawken from UBS. Please go ahead.

Good morning. Thanks for taking my question. I just had a question on ESG and maybe what you’re hearing. There’s been an emerging debate amongst investors around some of the lagging performance in ESG. We’ve seen commodities strengthen. A lot of your comments around commodity strength certainly would point to some support behind some of those commodities producers. Are you hearing any shift in dialogue early on around that component and that may be a consideration of making some shifts in defining energy as rigidly as they have in the past? And are you seeing any early signs of demand shifting in that product, albeit clearly a secular shift? But maybe we see some cyclical weakness in the near term here. Any color would be appreciated. Thank you.

Well, first of all, great question, very timely, especially with the rising energy prices and all the issues of supply shocks in hydrocarbons. In all my letters, I said an energy transition is not a straight line. It’s a 30 to 50-year time frame for us to move that forward. It’s not today. It’s not tomorrow. And the key is making sure that we have energy transition that fills the needs of all societies, and higher energy prices really crushes emerging markets and harms -- the poor in every country that is dependent, a higher percentage of their disposable income that goes to energy. And obviously, you couple that with food inflation, it has a severe impact. Does that change the long-term nature of ESG or as I think you’re framing it more or on the sustainability side? Not really, because we’re going to -- we always said we’re going to have to invest in new technologies to bring down that green premium. Well, the green premium obviously is reduced with higher energy cost today, but we still have that green premium in a lot of the technologies. A lot of this is just going to take quite a bit of flow at the time. But if you just look at the evidence of our first quarter, we had about $19 billion of sustainable flows. Obviously, that’s down from prior quarters but certainly up from two years ago. Much of it was an active strategy. So as I talked about, what we’re trying to do in the alternatives space, $8 billion was in ETFs. So, I’m not going to respond to any one quarter valuation. Of course, in quarters where you have rising energy prices, energy companies, and we would -- they’ve done fantastically well as they should be. They were cheap, they were undervalued. They were trading below book in many cases and how the market has come to appreciate much of that. As you know, also, I’ve always said, I don’t believe in divestiture. BlackRock has over $180 billion in investments in this. So we are working with all the companies about how to move forward. And so in terms of a one quarter return on one product versus another, let me be clear, most investors are not doing this for a quarter or even a year. These are long-term views on the movement towards more of a decarbonization future of the world, and that doesn’t change anything now. We have rising energy prices from energy shocks. It’s very harmful for society, and governments are responding. In Europe, you’re seeing many governments putting caps on energy prices, because it really harms their populate. So, this is a really complex difficult issue, but I don’t think it changes anything in the long-term. And let me be clear, BlackRock is the largest investor for pension funds and retirements than anyone. We have a long-term responsibility in making sure over the long run, that our beneficiaries to achieve their long-term aspirations and goals. And so, there’s no question this energy transition is real. But it’s going to be not a straight line.

Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?

Thank you, operator. Once again, I want to thank everybody for your continued interest in BlackRock. I strongly believe our first quarter performance is a direct results of our commitment and our deep commitment to our clients, as I said just a minute ago, and our desire investing for them over the long-term ahead of their needs. We see tremendous opportunities ahead of us, and BlackRock has focused to be remaining and working with all our people, working with all the communities where we operate and working in a comprehensive way as we try to stay in front of the clients’ needs. If we continue to stay in front of the clients’ needs, if we continue to be a voice of long-term investors, I believe we will continue to deliver those durable returns that all of you, our shareholders, expect from us, and that is our commitment to you. Everyone, have a good quarter.

This concludes today’s teleconference. You may now disconnect.