Earnings Call Transcript
BlackRock, Inc. (BLK)
Earnings Call Transcript - BLK Q1 2025
Operator, Operator
Good morning. My name is Katie, and I will be your conference facilitator today. I would like to welcome everyone to the BlackRock, Inc. First Quarter 2025 Earnings Teleconference. Our host for today's call will be the Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Martin S. Small; 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. Thank you. Mr. Meade, you may begin your conference.
Christopher Meade, General Counsel
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 Martin.
Martin Small, CFO
Thanks, Chris. Good morning, everyone. It's my pleasure to present results for the first quarter of 2025. Before I turn it over to Larry, I'll review our financial performance and business results. Our earnings release discloses both GAAP and as-adjusted financial results, and I'll be focusing primarily on our as-adjusted results. We've built BlackRock's platform to help clients in all market environments. Even against a sharp change in markets and uncertainty in fiscal and monetary policy, our strategy to anchor our business and structural growth engines like private markets, ETFs, digital assets, whole portfolio solutions, systematic and tax-managed strategies, and technology, that strategy helped again deliver above-target 6% organic base fee growth. That's alongside double-digit growth across the board in revenue, operating income, and earnings per share and with 100 basis points of margin expansion in the first quarter of 2025. The first quarter demonstrates the benefits of our investments to make the BlackRock platform more all-weather across asset management and technology, integrating public and private for clients and shareholders. Our platform is showing its ability to be more resilient and deliver higher and more consistent organic growth through market cycles. We're a partner with both long-term perspective and ability to move quickly in times of stress. We've been through times of economic and market disruption before, during the financial crisis, COVID, and in 2022. So more than ever, it's important that we continue our successful track record of being strongly connected to our clients, policymakers, and employees locally in all the markets in which we operate. We don't think of ourselves as a U.S. firm with international offices. We're a European firm. We're a Canadian firm. We're a Middle Eastern firm. We aspire to be the best partner to our clients. We work to help governments and clients understand markets and complex questions at the intersection of investor portfolios and geopolitics. We lead with empathy and trusted advice. These periods of uncertainty with major market resets are often catalysts for client changes to asset allocation and portfolio construction. Benefiting from our breadth, BlackRock has a track record of share gains when there's money in motion. We historically did that as a public markets focused firm. Now with money in motion again, BlackRock is better positioned to serve our clients and grow with leading capabilities that integrate public and private markets. We finished the record quarter with record AUM, record units of trust of $11.6 trillion. Over the last 12 months, clients trusted BlackRock with $670 billion of new assets making more than 60% of our year-over-year AUM growth organic. First quarter net inflows continued our growth with $84 billion. As a management team, we look at core flow trends away from episodic large low-fee institutional index redemptions, of which we had $55 billion in the quarter. Excluding that activity, BlackRock delivered approximately $140 billion of net inflows in the quarter. Organic asset and base fee growth were driven by client demand for private markets, strategic and precision categories within ETFs, as well as top-performing systematic strategies. These are all capabilities we've invested in over recent years and demonstrate the success of our structural growth strategy. Turning to our financial results. First quarter revenue of $5.3 billion increased 12% year-over-year, driven by the impact of organic growth and higher markets on average AUM. Base fees consolidated in the GIP transaction and higher technology services and subscription revenue. Operating income of $2 billion was up 14% and earnings per share of $11.30 was 15% higher versus a year ago. EPS also reflected lower non-operating income, a lower tax rate, and higher share count in the current quarter. The higher year-over-year share count included shares issued and delivered at the closing of the GIP transaction on October 1, 2024. Non-operating results for the quarter included $68 million of net investment gains driven primarily by mark-to-market non-cash gains on our co-investment portfolio and a gain on a minority investment. Our as-adjusted tax rate for the first quarter was approximately 16% and reflected $195 million of discrete tax benefits. A portion was related to stock-based compensation awards that vest in the first quarter of each year. We continue to estimate that 25% is a reasonable projected tax run rate for the remainder of 2025. The actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. First quarter base fee and securities lending revenue of $4.4 billion was up 16% year-over-year, driven by positive impact of market beta on average AUM, organic base fee growth, and approximately $285 million in base fees from GIP. On an equivalent day count basis, our annualized effective fee rate was a tenth of a basis point higher compared to the fourth quarter. This was mainly due to the impact of approximately $60 million higher catch-up base fees associated with private markets fundraising. Excluding first quarter catch-up fees and including the impact of market and foreign exchange movements towards the second half of the first quarter, we entered the second quarter with base fees approximately 1% lower than the first quarter. Performance fees of $60 million decreased from a year ago, primarily reflecting lower performance revenue from private markets and liquid alternatives. Quarterly technology services and subscription revenue was up 16% compared to a year ago. Growth reflects sustained demand for our full range of Aladdin technology offerings and the closing of the Preqin transaction on March 3. Preqin added approximately $20 million to first quarter revenue. Annual contract value, or ACV, increased 30% year-over-year, including the Preqin acquisition and increased 14% organically. We remain committed to low to mid-teens ACV growth over the long term. Total expense increased 10% year-over-year, reflecting higher sales, asset and account, G&A, and compensation expense. Employee compensation and benefit expense was up 7%, reflecting higher headcount associated with the onboarding of the GIP and Preqin employees and higher incentive compensation linked to higher operating income. G&A expense increased 12%, primarily driven by the GIP and Preqin acquisitions and continued technology investments. Excluding the impact of the GIP and Preqin acquisitions, G&A would have increased 6% from a year ago. Sales asset and account expense increased 14% compared to a year ago, primarily driven by higher direct fund expense and distribution costs. Direct fund expense was up 16% year-over-year, mainly due to higher average index AUM. Our first quarter as-adjusted operating margin of 43.2% was up 100 basis points from a year ago, reflecting the positive impact of markets on revenue and organic base fee growth. We continue to execute on our financial rubric. This approach has yielded profitable growth and operating leverage in good markets, and we believe will add more resilience to our operating margin when markets are less supportive. In line with our January guidance, which excludes the impact of HPS and related transaction costs, at present, we continue to expect a mid to high-single digit percentage increase in 2025 core G&A expense. Our capital management strategy remains consistent. We invest first in our business either to scale strategic growth initiatives or drive operational efficiency and then return cash to our shareholders through a combination of dividends and share repurchases. We repurchased $375 million worth of common shares in the first quarter. At present, based on our capital spending plans for the year and subject to market and other conditions, we still anticipate repurchasing at least $375 million of shares per quarter for the balance of the year, consistent with our January guidance. We continue to target mid-2025 at the closing of the HPS transaction, which remains subject to regulatory approvals and other customary closing conditions. Last month, an investor consortium, including BlackRock announced the acquisition of Viridium Group. Viridium is Germany's leading closed block life insurance consolidator and fourth largest life insurance company. Upon the close of the transaction, BlackRock will have a non-controlling, non-consolidated minority equity investment in Viridium, and help the company access a broader range of private markets investment opportunities in support of policyholders and the company. We expect that growth to be in private credit strategies, including infrastructure and corporate debt as well as asset-based finance. The transaction is expected to close in the second half of 2025, subject to regulatory approvals and other customary closing conditions. Also in March, we issued $1 billion of euro-denominated 10-year debt at a coupon of 3.75% to refinance our euro-denominated notes maturing in May 2025. The euro debt aligns our capital structure with our global business. Beginning in the first quarter, we refined our AUM presentation to further highlight growth areas within BlackRock. The updates primarily focus on our private markets and ETF platforms. We believe these changes provide investors with further transparency into channels powering BlackRock's organic growth strategy. In the first quarter, BlackRock generated total net inflows of $84 billion. Excluding low-fee institutional index outflows driven by rebalancing, BlackRock's net inflows were $140 billion. ETF net inflows of $107 billion were positive across all channels led by core equity and fixed income ETFs with net inflows of $46 billion and $34 billion, respectively. Our innovative product launches across ETFs continue to see widespread adoption as clients use our latest offerings to access a range of investment exposures. Our active ETFs contributed $9 billion of net inflows, and our digital asset ETPs generated another $3 billion. Inflows into these higher fee ETF categories contributed to 7% annualized organic base fee growth for ETFs in the first quarter. Retail net inflows of $13 billion were led by record quarterly flows in Aperio, sustained demand for fixed income offerings and our systematic liquid alternatives funds. Institutional active net inflows were $8 billion, driven by demand for infrastructure private markets, our LifePath target date franchise, and systematic active equity offerings. These inflows were partially offset by a handful of client-specific redemptions from active fixed income primarily due to reinsurance activity. Institutional index net outflows of $46 billion were concentrated in low-fee index equities, partially offset by inflows into index fixed income. Our institutional channel delivered 7% long-term organic base fee growth in the quarter, benefiting from client demand for private markets and systematic strategies. In private markets, we saw an aggregate $7 billion of net inflows led by infrastructure and private credit. Liquid alternatives added $2 billion of net inflows, primarily into global equity market neutral and multi-strategy funds run by our systematic teams. Finally, BlackRock's cash management platform saw $1 billion of net inflows in the first quarter. Cash management results reflected growth in the Circle Reserve Fund, partially offset by seasonal redemptions from U.S. government funds. We've built our business around structural growers, ETFs, private markets, tax-managed and systematic, data-driven investing, and whole portfolio solutions. It's not just that they're less market sensitive; there are secular shifts in the way clients are doing business, that's what gives those categories tailwinds. When markets are strong, they'll grow faster. When markets are weaker, they may grow slower, but they still grow. Our first quarter results show our strategy in action. We surpassed our 5% organic base fee growth target even with more stressed and uncertain markets. Markets may take some time to sort out saber-rattling around trade and tariffs, but BlackRock and our clients see growth and opportunity. Clients may look to preserve capital in the near term, but ultimately, we'll continue investing. It will be a market where clients are looking for advice, and where BlackRock shines as an integrated whole portfolio provider. Looking ahead, we believe our strategy will continue to deliver for both our clients and shareholders, resulting in market-leading organic growth, differentiated operating leverage, and earnings multiple expansion over time. With that, I'll turn it over to Larry.
Laurence Fink, CEO
Thank you, Martin. Good morning, everyone, and thank you for joining the call. BlackRock's positioning and connectivity with clients are stronger than ever, and it's clear in our results. Our structural growth strategy resonated in the first quarter with secular growth across our businesses, even with a volatile market backdrop. We delivered above target 6% organic base fee growth, which represented our best start of the year since 2021, that's in a quarter where the S&P 500 ended 9% off its February peak. It's proof of BlackRock's enhanced structural strength, where we can power organic revenue growth that's undeterred by market movement. Revenues grew double-digit, and our as-adjusted operating margin expanded by over 100 basis points. First quarter total net inflows were approximately $140 billion, excluding the episodic institutional index equity activity that Martin mentioned. Importantly, net inflows and organic base fee growth were well diversified across the entire BlackRock platform. We invested ahead of our secular growth opportunities and ahead of where our clients are going. This quarter represents the largest organic basic drivers, where strategies we developed in just the last few years, including GIP, our digital asset offerings, Aperio, active ETFs as well as our tech and data-driven systematic equity franchise. Strength in our foundational businesses also underpinned results with a record start of the year for iShares, ETF, and a 14% technology ACV growth. Uncertainty and anxiety about the future of the markets and the economy are dominating each and every client conversation. I was traveling in Europe last week when the sweeping U.S. tariffs announcements went beyond anything I could have imagined in my 49 years in finance. I wrote in my Chairman's letter last week that no system has done more to generate wealth for more people than the capital markets. As the capital markets have grown, more people than ever before are investing in the stock market. A little more than 60% of Americans own stocks in one way or another, in mutual funds and ETFs, and in individual shares and especially in their own retirement accounts like 401(k)s and IRAs. So this isn't Wall Street versus Main Street. The market downturn impacts millions of ordinary people's retirement savings. Their investments for their child's college education and tuition or steps they're taking to have more financial stability. We're in a period of geopolitical and economic activity, but we have seen this before. When there are big pivots in the world, big structural changes in the market, like the financial crisis, the European debt crisis or COVID, or the surging inflation in 2022, BlackRock stayed in front of our clients and made some of our greatest leaps forward. At BlackRock, we really challenge ourselves not to get mired down in all the negativity, but to navigate, mitigate, and move forward, working with each and every client to help it. In recent weeks, we've connected with thousands of clients, providing them with real-time information and our views on unfolding events. BlackRock's expertise is built and delivered through our nearly 23,000 employees located in 30 plus countries. Together, they serve clients in more than 100 countries. The majority of our workforce is actually based outside the United States. Our international workforce includes people in our global platform centers in Europe, in India, and our international commercial offices all across the world. This enables us to bring global insight and investment strategies locally and to bring local insights globally. We need to be an American in the United States, a German in Germany, a Japanese in Japan, a Canadian in Canada, and a Mexican in Mexico. It's also to bring opportunities we see in each and every country to our global client base. It's contributing loyalty to build a country's capital market and retirement system and working for each and every client in each and every country. Probably 80% of what we bring to our clients, our clients are looking for global strength, global expertise, they're looking for scale, and operating efficiencies, and investment talent. But it's the last 20% of the magic where it occurs. It's where you show the best of BlackRock in a local setting anywhere in the world. It doesn't matter whether the client is large or small or where they are, but to know that BlackRock is working for them, and we show that we are working for each and every one of them. We're intentionally shaping our platform around the needs of our clients. And we talk about this in every quarterly result. It's about the clients, building a premier global public-private market investment technology firm. We've assembled a leading franchise across active strategies, ETFs, private markets, technology to serve the complete range of our clients' needs and to help them in each and every one of their ambitions. Whether seeking capital preservation and cash and short duration, or capitalizing on opportunities in equities or looking for income and uncorrelated returns in private markets, BlackRock's comprehensive offering is leading to clients consolidating more of their portfolios with us. I look at our cash business as one example of how we help clients manage asset allocation and liquidity. Our cash AUM is up at an all-time high as of April. Now it's at $950 billion. At BlackRock, we're always listening and deeply listening to each and every client and looking ahead to what their future needs will be. We're working with them on long-term issues, not the ups and downs of the market or the next tweet or the next issue. We're constantly testing ourselves to see where we need to do more to be more different, to be faster, to be working on behalf of our clients. I said last quarter that it's just the beginning. The successful arcs of BlackRock of GIP and Preqin and soon HPS are all coming together in a shared story. GIP and Preqin employees moved into our BlackRock headquarters earlier this year, and we expect HPS to join shortly after the closing. It's one BlackRock physically and definitely one BlackRock spiritually. We're seeing how sensitive public markets are to uncertainty and how quickly they can move in reaction to policy proposals. These dynamics could drive even more capital flows into private markets as investors look to insulate portfolios from tariff impacts and seek attractive income and growth. Last year, we invested in enriching our private markets information and data platform to serve our clients more. We are seeing the results today and are positioned for this type of secular growth as economic uncertainty plays out. In infrastructure, our combination with GIP just six months ago has already unlocked differentiated opportunities for our clients. Last month, we announced the largest infrastructure investment in our history. We have an agreement in principle to acquire a significant portfolio of 43 ports in more than 20 countries. We had a strong existing relationship with the seller of these assets and as a long-term shareholder. Our partners in this consortium include Mediterranean Shipping Company, one of the world's leaders in shipping and logistics, and Terminal Investment Limited, which is one of the world's largest global container terminal operators. Upon closing on this deal, our consortium, our investors will have a portfolio of approximately 100 ports around the world. Together, we know how to invest in, own them, improve on them, and operate them. We have recently expanded our AI infrastructure partnership, and we're excited to welcome xAI and NVIDIA, as partners alongside Microsoft and MGX. Since this announcement, AIP has attracted significant capital interest and advanced key discussions on AI infrastructure projects. The partnership will meet the expected target of $30 billion in capital from investors, asset owners, and corporations. And over time, we believe this can unlock over $100 billion in investment potential, including debt financing of these infrastructure projects. Both AIP and the Landmark Ports announcement are early confirmations of the power and value of GIP pairing with BlackRock. It's unlikely either of us on our own would have been part of these transactions. At the heart of the GIP acquisition was our conviction in how our combined relationships, our combined expertise would come together and deliver fantastic investment opportunities for each and every client worldwide. We expect to scale our private credit AUM to approximately $220 billion following our planned acquisition of HPS. The opportunity set for private credit is expanding as a variety of borrowers from startups to large corporate partners seek more flexible execution as they evaluate their financing needs, and the longer-duration lower-risk returns of investment-grade private debt are driving increased allocations from insurance companies. BlackRock already manages approximately $700 billion for the insurance industry, primarily in index public credit strategies, and our Aladdin Technology powers over 100 different insurance companies. As Martin mentioned, our investment in Viridium is the latest example of our commitment to supporting partners through broad solution sets, including investments, capital, and insurance expertise. BlackRock has a meaningful role in helping manage Viridium’s private market investments going forward, including in infrastructure investments and private credit. The upcoming addition of HPS represents even more opportunities to extend our insurance relationships across all private credit markets. We also expect HPS to advance our positioning in the quickly growing alts to wealth space, including through their approximately $20 billion of wealth-focused BDC offerings. We've had recent success with our own non-traded BDCs, including placements with RIAs and large traditional distribution platforms. And we're looking forward to leveraging our shared expertise and expanded network to grow our combined franchises even further after closing. Our acquisition of Preqin brings leading capabilities in private market data to our technology platform and now triples our desktop reach to more than 300,000 users. We believe this acquisition enriches growth potential, not only for BlackRock private markets and technology franchises but for the entire private market industry as a whole. Growth is diversified across our Aladdin franchise as clients are increasingly choosing to leverage the integrated capabilities of our public private market workflow and data offerings. It's more important than ever for our clients to have a clear, unified view of their portfolio from the building blocks of asset allocation to the minutiae of trade execution and accounting. Aladdin recently went live with our first client in Korea, adding to our scaled relationships with leading institutions around the world. And looking ahead, we see more opportunity to expand our relationships with Preqin's more than 4,400 clients. BlackRock is a global firm, but one that operates hyper-locally. We connect our clients across regions to both local and global capital markets. The U.S. investment opportunity set is still going to be very relevant. We see our role outside the United States to both help our clients understand dynamics of the United States markets and enabling them to channel investments into their own capital markets. Strong local capital markets underpin the development of each and every country's robust retirement system. BlackRock is partnering with governments and sovereign wealth funds in these efforts. In India, we expect our joint venture with Jio BlackRock to launch later this year, subject to regulatory approvals. We believe we can transform access to investing for Indians, ultimately contributing to the development of our retirement system and a better financial future for each and every one of our clients in India. In Saudi Arabia, we launched an investment management platform to partner with the public investment fund to drive capital into the local markets. It's managed by a dedicated BlackRock team in Riyadh. We're also working in the Kingdom to help develop a mortgage-backed securities market and the establishment of a secondary market for mortgage loans, which should help banks lower the cost of mortgages and make home ownership more accessible for citizens in the Kingdom. In Europe, we are making it easier for more and more people to shift from savings to investing through ETFs and digital-first offerings. Our European ETF platform crossed over $1 trillion for the first time this quarter and is well-positioned for the future with approximately 40% market share by AUM. The European ETF market has opened in 2025 with record demand. iShares European net inflows have more than doubled compared to the flows at this time last year. BlackRock iShares is well-positioned to capture significant upside in the coming years with our leading platform and diversified offering. We continue to innovate new products and new uses and recently brought our Bitcoin ETF to Europe. This builds on the success of our Bitcoin ETF launch in the United States last year and Canada in January. They continue to gain adoption with another $3 billion of net inflows in the first quarter. We see large opportunities for growth in digital assets and more broadly for blockchain and tokenization technology. Digital assets drove cash management net inflows this quarter as we continue to manage cash-based reserves through our relationship with Circle. And BlackRock tokenized digital liquidity fund available on a public blockchain became the first Wall Street-issued fund to cross over $1 billion in AUM and just recently surpassed $2 billion. BlackRock will continue to look for ways to push on-chain finance forward as part of our leadership in financial technology and innovation and data. BlackRock's global scale, our relationships worldwide and locally, and our industry-leading technology has made us the first call for more clients and partnerships than any other time. They are seeking BlackRock to have conversations; it's not about the TikTok at any one single day of the market. They're looking to us to talk to them on long-term trends, working with them to help them design a portfolio that can lead them to better futures. We're not a transactional organization. BlackRock has always remained focused on the long term with consistency, always there with capital. With corporations, we often have relationships going back decades as long-term investors in their debt and their equity. And through our financial markets advisory practice, we're the adviser of choice that governments, central banks, and other public and private capital market participants turn to when they need frameworks to support their economy and their capital liquidity. Since the financial crisis, FMA has been more trusted to counsel the Fed, governments of Greece and Ireland, and Bank of Canada and many others. We have a long history of providing guidance on practical targeted monetary and fiscal solutions in support of the global economy. We will continue to work with clients. We will continue to work with governments around the world to help them navigate developments in the economies and help them build out the global capital markets. I'd note that the market downturn this year is different from what we've seen in other shocks since the financial crisis. We do not see systemic risks; that there is no pandemic. The financial system has shown it's safe and sound, and the resiliency of the market is trading more volume with liquidity than any other time. With all this volatility, the markets have proven to be quite successful and have worked quite well. Obviously, there's near-term uncertainty, but the big macro trends that were in place 80 days ago actually are still around. I know it's hard to believe, but the mega forces like artificial intelligence, surging demand for global infrastructure, and an ongoing evolution of debt financing presents transformative investment opportunities. Build-outs of data centers and energy, the need for power grids in semiconductor plants and other infrastructure are beginning and are going to be growing dramatically over the coming years. Obviously, more policy clarity will help this uncertainty, but I remain very optimistic about the capital coming into the markets over the long term. I want to end by saying that I believe that we are in a better position to meet our client demand at BlackRock than ever before. This is reflective of our depth, the quality of our dialogue and the deepness of our relationships, and the length of our relationships with our clients worldwide. We are having the highest quality of conversations with our clients worldwide here in the United States than ever before. Actually, in markets like today, clients are putting an even greater premium on BlackRock and the differentiating value proposition that BlackRock can offer them. We have remained in good times and bad times their trusted partner. I'd like to thank our employees for their steadfast focus on delivering for our clients and driving value for our shareholders. Once again, we're very proud that BlackRock generated 6% organic base fee growth against this very complex market backdrop, driven by categories that we've only invested in recent years like the structural long-term growers like infrastructure, like ETFs and like systematic equities. We lead with a growth mindset. We lead with optimism. Long-term winners don't get bogged down in pessimism. They break down barriers to find solutions to help build that optimism with each and every client over the long run. We try to see through the pessimism of the short run, and that is exactly what we are doing, and we're excited for the opportunity to do great work beyond today and tomorrow, throughout 2025 and going forward in the coming years ahead. I want to thank everybody. So operator, let's open it up for questions.
Operator, Operator
Thank you. Your first question comes from Michael Cyprys with Morgan Stanley.
Michael Cyprys, Analyst
Hey, good morning, Larry and Martin.
Laurence Fink, CEO
Hi, Michael.
Michael Cyprys, Analyst
Hey. Thanks for taking the question. Maybe just given so much going on around the world, maybe just starting off with the current backdrop. Curious in your conversations with clients, are you getting any sort of sense of how retail and institutional allocations may shift as we look forward from here? And how are clients approaching their decision-making in this current backdrop? Thank you.
Laurence Fink, CEO
So, Michael, we have not observed any clients completely giving up at this point. We are dedicating significant time to our retail investors. There's been a notable increase in cash deposits in April, which is uncommon for this time of year, with $20 billion coming in this month. It's important to note that there are over $12 trillion sitting in money market funds, representing a substantial reserve that will be deployed in the future. We're engaging in many discussions regarding fixed income. As the yield curve steepens—something we strongly believe will continue in the upcoming months—we expect more investors to extend their duration, leading to more opportunities. If you look at the yield curve and assess where private credit is currently valued, you could earn 8% or more today. With the ongoing market uncertainties, this is a reasonable place to allocate funds for the short to medium term. That said, we have not witnessed a significant capitulation among our equity clients. In fact, many clients are inquiring about when they should purchase more equities. While some may think now is not the time to buy the dip, we must exercise caution. Over the last 15 years, interest in U.S. capital markets has expanded, which now account for 75% of the global capital market value. As Europe shifts its focus from regulation to growth, could it emerge as a more attractive destination for capital? Are we seeing potential reallocations elsewhere? The U.S. greatly benefited from a significant reallocation into its markets. While we have yet to see a systemic reallocation into other global markets, it's a pertinent question as there’s a growing belief that Europe might finally be prioritizing growth over containment. We've noticed that many conversations are centered around whether this is the right time to extend duration in fixed income or to increase equity exposure. Additionally, I want to emphasize that client demand for infrastructure remains unchanged; in fact, there is increased interest in infrastructure strategies that can provide mid-teen returns and serve as strong safeguards against inflation over the long term. The prospects for infrastructure investment are arguably the best we've seen. Our systematic equity team has been performing exceptionally well, maintaining strong interest and consistent inflows. We witnessed inflows into systematic equities in the first quarter, and discussions regarding transitioning from fundamental equities to systematic equity are becoming more common. However, it's still early to identify any significant, widespread shifts among our major clients.
Operator, Operator
Thank you. We'll take our next question from Craig Siegenthaler with Bank of America.
Craig Siegenthaler, Analyst
Good morning, Larry, Martin. Hope everyone is doing well.
Laurence Fink, CEO
Good morning. How are you, Craig?
Craig Siegenthaler, Analyst
I’m good. So there's a lot to talk about these days, but I wanted to come back to some comments that you made in your annual letter around private markets entering the retail channel. So given that BlackRock is one of the largest foreign K managers and is the largest DCIO manager, where are you in the build-out of adding private into either existing target date funds or launching new target date funds that have a significant allocation of privates? And are you really just waiting on guidance or actual rulemaking from the Department of Labor before you move forward?
Laurence Fink, CEO
Let me just talk about one thing. This is one of the main reasons why we bought Preqin, and why I believe Preqin will become a major component for the whole ecosystem, I said that in my prepared remarks. To properly add, especially in retirement products, more private investment, I believe better data analytics that will create better transparency, better price discovery is going to be necessary. And this is why we believe in what we are doing in the Aladdin space with eFront, Preqin is going to be a major component of the changing ecosystem in retirement, and I'll let Martin get into the specifics of what we're doing at BlackRock related to those type of products.
Martin Small, CFO
Yeah. Thanks. So Craig, you've got it. BlackRock is the number one DC investment-only firm, the number one DCIO firm, and we're a top five private markets and alts manager following our recent acquisitions. So we have the investment content. We have the franchise. We have a $500 billion AUM target date business. And Larry talked about it in his letter, but we see real potential benefits to retirees in greater diversification and better retirement outcomes through the blending of public and private markets. We have a strong presence in both retirement channels and private markets, relationships, distribution, investment opportunities. So a couple of things. One, we have developed the glide path technology to create a target date style product in terms of allocations and moving allocations across public and private markets to think about growth potential and liquidity in target date style. So we have the glide path technology in order to implement those portfolios. We are launching and have plans to launch in the middle of the year, a target date style offering with private markets, on a retirement platform, one of the larger trust companies in the United States. So we look forward to being able to update you about that later in the year. So we see a target date as the most efficient way to deliver private markets into retirement accounts, particularly defined contribution, because this approach would embed these exposures in allocations already made by target funds. So it's got to be target funds, balanced funds, or managed accounts. We see that as the most efficient way of doing it. Those are the types of vehicles that serve as the qualified default investment alternative for the QDIA, and they capture the bulk of 401(k) flows and participant-directed individual accounts. We do think for the opportunity to be really broad, really scalable, and the most tangible, we’d likely need to see litigation reform or at least some advice reform in the U.S. to add private markets disclosure into DC plans. We have innovated, and we’ve advocated on behalf of workers for improved retirement solutions and national initiatives to modernize retirement. Just this past quarter, we hosted a large group of policymakers and members of Congress to discuss retirement at a BlackRock Retirement Summit in Washington, D.C., that was very successful. This was one of the topics that we discussed. So if there is an opportunity to make private markets more accessible in the retirement channel, our plan is to be at the forefront.
Operator, Operator
Thank you. We'll take our next question from Alex Blostein with Goldman Sachs.
Laurence Fink, CEO
Good morning, Alex.
Alex Blostein, Analyst
Hey, Larry. Good morning, everybody. Question for you guys a little bit more strategically. When I sort of think about periods of prior major market dislocations, BlackRock made some real kind of monumental changes to the business. GFC obviously comes to mind with iShares acquisition. And while I know you made a big bet on private markets today, as I sort of think about ahead and any other major changes that are yet to come from markets and it sounds like U.S. decoupling from the rest of the world in terms of cap markets is top of mind for you guys. Does that mean BlackRock might need to get even larger outside the U.S.? Does that mean that BlackRock might need to pursue larger acquisitions outside the U.S., or how are you thinking about the sort of period disruption relative to your longer-term strategy versus other periods?
Laurence Fink, CEO
Great question, Alex. The answer is no regarding any acquisitions outside the U.S. Our relationships with governments around the world are providing us with significant opportunities. I mentioned our initiatives in India and our excitement about developing that market. We are also working on partnerships with organizations in Latin America, strategically collaborating with our long-term clients. In Europe, we hold 40% market share in iShares ETFs, and during my recent visit to Europe, I had discussions in the Netherlands about transitioning from defined benefit to defined contribution plans, which presents us with opportunities with various plan sponsors and major pension plans. Furthermore, our involvement with Viridium offers us unique prospects in the insurance sector and managing assets in Germany and other European regions. In Australia, where I visited earlier this year, we have opportunities with GIP and in infrastructure, including GIP's acquisition of all airports in Malaysia. Our footprint is expanding; we currently have offices in 30 countries and expect to grow to 34 or 35 by year-end, with three new countries soon to be announced. We manage funds for clients in 100 countries globally. By assisting countries in navigating changes to their retirement systems, like transitioning from defined benefit to defined contribution plans in places like India, and developing new financial systems like mortgage-backed securities in Saudi Arabia, we continue to maintain a significant global presence. No other firm possesses this extensive international business footprint. This has been a notable strength, often underappreciated, reflecting our deep local engagement in numerous countries. As one of the largest shareholders in companies worldwide, our relationships are not merely transactional. We collaborate with pension fund communities and major corporations across different nations, which positions us uniquely. This is a key reason I highlighted our long-standing relationship with CK Hutchison in the prepared remarks, which enhances our understanding of client needs. In light of the current uncertainty, volatility, and chaos, BlackRock's consistent approach enables us to have more meaningful discussions with our clients. Martin, would you like to add anything?
Martin Small, CFO
No. I guess that was it.
Operator, Operator
Thank you. We'll go next to Mike Brown with Wells Fargo Securities.
Laurence Fink, CEO
Good morning, Mike.
Michael Brown, Analyst
Hi. Good morning. Thanks for taking my question. Lots of good color here on the international footprint and key strengths of the franchise there. But I just wanted to ask about the growing frictions between the U.S. and other countries. Are you worried about the risk of some assets potentially moving away from the U.S. in general? And is there any risk you think of any backlash to BlackRock specifically as a U.S. headquartered manager?
Laurence Fink, CEO
Great question. As I mentioned earlier, we operate as locals in each of our markets: Mexican in Mexico, Canadian in Canada, Dutch in the Netherlands, British in the U.K., Irish in Ireland, and Japanese in Japan. This approach is not new; it has been foundational to BlackRock for 37 years. Our initial client was from Japan, not the U.S. We have consistently ensured that we are locally engaged and actively part of each economy. This is why we plan to open a few more offices soon to strengthen our local presence in areas with large client relationships. Regarding the growth of the U.S. capital markets, which now represent 75% of the global total compared to around 50-55% in the past, we need to consider whether it's time for investors to reallocate resources back to Europe, where many clients remain under-invested. This could apply to several other regions as well. Our focus is to work with every client individually, taking relative evaluation into account. Just 80 days ago, discussions centered around U.S. supremacy and vitality, especially at events like Davos. These conversations have shifted, but the macro forces driving AI and infrastructure remain strong. I believe that initiatives from the Trump administration, including deregulation and permit simplification, will unlock significant private capital. We have emphasized infrastructure and private credit for this reason, preparing for opportunities in data centers, airports, grids, and power investments. While current discussions are clouded by tariffs and other issues, the major macro trends have not changed. If Europe is prioritizing growth, that's an opportunity we didn't foresee 80 days ago. We can expect fine outcomes if other regions also focus on growth alongside the continued expansion in the United States. In the short run, we face inflationary pressures and an economy at risk. However, my long-term outlook remains unchanged despite current short-term concerns.
Christopher Meade, General Counsel
I want to expand on just one point that Larry has made that I think, Mike goes to your question, but also maybe a little bit to Alex's prior question, which is, if you were to take page five of our supplement and look at the revenue weighted composite indexes for BlackRock AUM, you'd see BlackRock has a lot of positive leverage to growing stock markets outside of the United States, that generally tends to be good for our business. It tends to be fee rate accretive to our business. And so, we believe in helping countries grow their capital markets, and we see those opportunities of improved capital markets performance outside of the United States as being very much aligned with our financial growth.
Operator, Operator
We'll take our next question from Patrick Davitt with Autonomous Research.
Laurence Fink, CEO
Hi, Patrick.
Patrick Davitt, Analyst
Hi. Good morning, everyone. Just a follow-up on the alts and 401(k) discussion on the demand side of things. Could you expand on what you're actually hearing from the plans in terms of demand for these products? So if we do get that legal safe harbor, could there be a quick uptake or do you think it will be a slower build once you get that green light? Thank you.
Martin Small, CFO
Thanks, Patrick for the question. So I would segment the market basically into, I'll say, three main categories. The first of which would be large, large plan sponsors. Large plan sponsors move very slowly. They have consultants. They're very prudent and take time, that's not where we're seeing rapid growth or rapid interest at this point. I would say mid-tier plan sponsors are more interested, and the smaller plan sponsors are most interested in building these types of portfolios. In addition, what I'd say is platforms, right? The platforms that are trust companies, retirement platforms, registered investment advisers that do adviser-sold 401(k) business, they all have high degrees of interest in being able to offer these types of products to their clients. So I would expect, among the largest 401(k) plan sponsors that are consultant intermediated that carry heavy amounts of fiduciary scrutiny, they're going to be the slowest to move. And as you move down into adviser sold, they'll be the fastest to move. So we’re seeing a great amount of velocity down in that bottom part, and I mentioned earlier that the trust company that we’d be working with, this would be one of the places we’d see as a first mover. Of course, you’ll still need to see how pricing comes through, how operations come through. But I think those things can be done in a shorter period than we did LifePath Paycheck, which took multiple years. This, I think, can be done faster than that because it can be done largely through allocations to funds inside of target date funds that are already themselves asset allocation vehicles.
Operator, Operator
Our next question comes from Dan Fannon with Jefferies.
Laurence Fink, CEO
Good morning, Dan.
Dan Fannon, Analyst
Thank you. Good morning. Yeah. Good morning. So Martin, several moving parts on the exit fee rates. I was hoping you could discuss the outlook for your fee rate based on client demand trends and some of the growth. And also this quarter, Vanguard made some splashy news with cutting of fees. Can you talk about the competitive backdrop within the ETF market today and how you may or may not respond to those changes?
Martin Small, CFO
So thanks, Dan. On the fee rate, I'd start by saying we generated 6% annualized base fee growth in the quarter, and organic base fee growth is above target over the last 12 months. This is our third consecutive quarter at or above our through-the-cycle organic base fee target of 6%. So we are continuing a very solid trend of growing revenues and operating income and expanding margin. As I mentioned in my remarks, on a day count equivalent basis, the annualized effective fee rate was approximately one-tenth of a basis point higher sequentially, that's due to continued growth in fundraising within private markets. We had about $84 million in catch-up fees in Q1, which increased by $60 million kind of quarter-on-quarter. We've now seen two successive quarters with sequential fee rate increases and our fee rate is 5% higher than it was six months ago, and that's even against market and FX headwinds. And later in 2025, we expect to add the fee rate accretive assets of HPS. So I expect you'll see much of the same effect you saw post the GIP transaction. Excluding the catch-up fees, and including the impact of markets and FX towards the second half of the year, you'll note we ended with spot assets lower than average assets. We entered the second quarter with base fees approximately 1% lower than the first quarter. As I've always said, BlackRock's AUM base, the fee rate, it's a backward-looking output of the mix of the stock of assets on the platform, and the net new flows. It's primarily affected by beta and FX but also by organic growth. As I mentioned, we'd expect to see positive leverage to base fee revenue, average fee rates on organic growth over time as we grow our private markets business and we see really excellent velocity in private markets fundraising. And again, we expect to add HPS in the latter half of the year. Just on iShares pricing, our pricing strategy is the same and hasn't changed. We made targeted price investments in high growth categories where clients are price sensitive, and we can expect to earn back foregone revenue through volumes. Our historical levels of pricing investment have been about 1.5% to 2.5% of global iShares revenue. We've definitely been well below that in recent years. We made no ETF price changes in the first quarter. We’ve always discussed the ETF business as having multiple different segments where clients evaluate price relative to many different objectives and see a different value proposition in superior indexes or liquidity, and capital markets expertise. And again, in the first quarter, we had $107 billion of ETF flows—that’s running—that’s following a $390 billion flow year, which was a record in ‘24. So we’re annualizing at a 10% higher rate already on ETFs. So we feel very comfortable with our positioning there.
Operator, Operator
Thank you. Ladies and gentlemen, we have reached the allotted time for our questions. Mr. Fink, do you have any closing remarks?
Laurence Fink, CEO
Yes. Thank you, operator. I want to thank everybody for joining us this morning and your continued interest in BlackRock. Our first quarter results are possible thanks to the growth of our strategic investments that we made over the coming last years, powering through our integrated asset management and technology platform. We welcome our new colleagues from Preqin this quarter, and we look forward to our planned closing HPS later this year. More than ever, we're seeing closer to our clients than ever before at each and every client and wherever they are located. And we believe BlackRock today has a strong upside for our shareholders at any other time. I want to just thank everybody and have a calm second quarter. Thanks.
Operator, Operator
That concludes today's teleconference. You may now disconnect.