Earnings Call Transcript
BlackRock, Inc. (BLK)
Earnings Call Transcript - BLK Q1 2022
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 list some of the factors that may cause the results of BlackRock to differ materially from what we say today. BlackRock assumes no duty and does not undertake to update any forward-looking statements. So with that, I’ll turn it over to Gary.
Gary Shedlin, CFO
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 reflecting 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 rose 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 consistent 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 turned 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 existing managers 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.
Laurence Fink, CEO
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 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, and 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 enable 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 geopolitical shift 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, Canada, and the United Kingdom, across the 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 adopt a more aggressive policy stance if inflation expectations become unanchored. 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, have 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 to 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 comprised of 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's efforts 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 manage 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 that more than offset risk-off sentiments in areas like high yield and emerging markets. Our growth in fixed income ETFs highlights 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 and 83% of our fundamental active equity AUM is above benchmark or peer medium. In the US, 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 US active mutual fund franchise in the first quarter. In alternatives, $6 billion of net inflows occurred across liquid and illiquid strategies led by private credit and infrastructure. 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 worldwide are reevaluating their energy dependencies and looking for new sources of energy. This may mean increasing the 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 tremendous changes in the energy transition. This presents a significant long-term opportunity for investments in infrastructure, renewable, and 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 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 move from more carbon-intensive energy sources to cleaner alternatives. Client demand for sustainable investments, more broadly, also continues to be strong. We saw $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 their 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 portfolios, 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 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 have historically seen industry-leading contract renewal 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 Aladdin Wealth clients and expect further growth to come from expansion into different wealth segments and in markets around the world. We are increasingly seeing interest from our clients that BlackRock is also studying digital assets and their associated ecosystem, including crypto assets, stable coins, 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 stable coin, 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 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 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 long-term issues that are impacting the communities where we work every day. With that, let’s open it up for questions.
Operator, Operator
Thank you. Your first question comes from Craig Siegenthaler from Bank of America. Please go ahead.
Laurence Fink, CEO
Hey, Craig.
Craig Siegenthaler, Analyst
Hey, good morning, Larry. Hope you and the team are doing well.
Laurence Fink, CEO
We are healthy and safe. Thank you. I hope you too are feeling well.
Craig Siegenthaler, Analyst
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.
Laurence Fink, CEO
I believe we will experience an inverted yield curve for a while, but let me address your specific question. Fixed income encompasses a wide range of products with various maturities. During periods of market volatility, we typically see retail investors moving their funds into different products, such as cash or equities. However, in the institutional fixed income space, we’ve seen stability. If 10-year and 30-year rates rise, there will be a significant shift in how pension fund liabilities are managed, leading to increased demand. This is why I maintain that an inverted yield curve is likely, as I've mentioned in previous quarters. On a tactical level, investors might shift from longer durations to shorter ones. If cash and money market funds start yielding around 2% to 2.5%, we could see a move from longer-dated funds to shorter-dated ones. It’s important to note that there is considerable movement within fixed income. Our fixed income ETFs have seen a turnover of over 40%, which reflects portfolio repositioning. This illustrates the resilience of fixed income ETFs, providing liquidity to investors globally. Clients worldwide will be navigating this situation. You mentioned SIO, which, with its unconstrained duration, allows for flexibility based on how investors wish to position themselves. This product showcases innovation in fixed income, enabling our investment team under Rick Rieder to adjust based on duration needs, rather than being bound by the aggregate index. We have observed positive flows here and anticipate ongoing opportunities with this approach. Overall, we are seeing clients reevaluating their strategies across the yield curve, and there remains strong demand for municipals in this country. Despite experiencing the worst fixed income performance in over 30 years in one quarter, there’s no real panic in the fixed income market. Rising rates present an opportunity rather than a challenge. Our conversations and partnerships with clients are crucial in helping them navigate their duration strategy, address inflation, and achieve returns above long-term inflation rates. We are engaging in discussions on these issues and are well-equipped to assist our clients in this rising rate environment. Now, I'll turn it over to Rob for more tactical insights.
Robert Kapito, President
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 about how to position in a rising rate environment.
Operator, Operator
Your next question comes from the line of Dan Fannon from Jefferies. Please go ahead.
Dan Fannon, Analyst
Thanks. Good morning.
Laurence Fink, CEO
Hi Dan.
Dan Fannon, Analyst
I was hoping you could talk about the outsourced CIO opportunity. You guys have had several large wins. Maybe discuss the dialogue that you’re having with prospective clients and how you see, I don’t know the size or opportunity of that over time?
Laurence Fink, CEO
So, we are having dialogue with pension funds worldwide on this, with insurance companies worldwide. Because of the 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 how BlackRock can help them achieve their long-term goals and aspirations. We’re working with many insurance companies and seeing 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 are probably more opportunities across pension funds and insurance companies 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?
Robert Kapito, President
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 source with the scale and size that 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 operations and technology as well.
Operator, Operator
Your next question comes from the line of Bill Katz from Citigroup. Please go ahead.
Bill Katz, Analyst
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.
Gary Shedlin, CFO
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, and 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 in the 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 typically towards the rest of the year as it relates to our G&A spend.
Operator, Operator
Your next question comes from the line of Michael Cyprys from Morgan Stanley. Your line is open.
Michael Cyprys, Analyst
Great. Thanks.
Laurence Fink, CEO
Hey, Mike.
Michael Cyprys, Analyst
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 are these evolving trends influencing your strategy within the private market space? And where do you see the biggest opportunity for BlackRock?
Robert Kapito, President
Huge demand, Mike, 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 from 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. Traditionally, real assets like commodities, infrastructure, and 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.
Laurence Fink, CEO
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.
Operator, Operator
Your next question comes from Brian Bedell from Deutsche Bank. Please go ahead.
Brian Bedell, Analyst
Great. Thanks. Good morning, folks.
Laurence Fink, CEO
Hi, Brian.
Brian Bedell, Analyst
Hi, good morning. To follow up on the previous question, I’d like to expand and ask if you believe that the increasing demand for energy transition, which you've mentioned on several conference calls, will be accelerated by the geopolitical situation even if conditions improve. Additionally, can you discuss your confidence in continuing to achieve faster organic base fee growth compared to assets under management, while setting aside the impact of large mandates that might significantly affect this?
Laurence Fink, CEO
We are currently engaged in extensive discussions with traditional energy companies about their future strategies. We have talked with leaders from every major energy firm worldwide regarding their plans moving ahead. The geopolitical challenges you mentioned are likely to drive significant investments in oil exploration and development. At the same time, rising energy prices will accelerate advancements in decarbonization technology. The $1 trillion infrastructure investment approved by the United States last year, along with Europe’s commitment to developing LNG plants to reduce reliance on Russian gas, highlights the urgency of this issue. Our conversations, including those with various countries, focus on establishing multiple energy supply chains, blending decarbonization technology with reliable energy supply to meet societal needs. This endeavor will be a long-term project, not a straightforward process. As highlighted in my previous letters, any energy transition must be fair and just to succeed. We are currently experiencing supply shocks and increased demand, which will contribute to an investment boom fueled by fiscal spending in both the U.S. and Europe. We have been discussing decarbonization and hydrogen utilization in various countries, including Japan, where recent conversations have focused on hydrogen's potential. During my trips to the Middle East, discussions revolved around transitioning from oil to renewables, particularly using solar energy, as countries like Saudi Arabia move from heavy oil use for power generation to natural gas. This transition will create considerable demand for energy products. In our growth forecast, we anticipate the establishment of three large infrastructure funds to address these emerging needs.
Operator, Operator
Your next question comes from the line of Brennan Hawken from UBS. Please go ahead.
Brennan Hawken, Analyst
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.
Laurence Fink, CEO
Thank you for the important question, especially given the current rise in energy prices and supply issues related to hydrocarbons. I've mentioned in all my communications that the energy transition is a long-term process, taking 30 to 50 years. It won't happen overnight. It's crucial that this transition addresses the needs of all societies, as higher energy costs significantly impact emerging markets and adversely affect the poor, many of whom spend a larger share of their disposable income on energy. Coupling this with food inflation can be very detrimental. Regarding the long-term nature of ESG and sustainability, I believe it remains unchanged. We need to invest in new technologies to lower the green premium. While higher energy costs currently reduce the green premium, many technologies still carry that premium and will require time to evolve. In our first quarter, we saw approximately $19 billion in sustainable investment flows, which, while lower than in previous quarters, is still an increase compared to two years ago and primarily in active strategies. In the alternative investments space, $8 billion was allocated to ETFs. I won’t comment on specific quarterly valuations because, historically, higher energy prices benefit energy companies, which were previously undervalued and are now gaining market recognition. I've always emphasized that divesting is not our strategy; BlackRock has over $180 billion invested in this sector, and we are collaborating with companies on future developments. Most investors are thinking long-term and are focused on a decarbonized future, which won't be affected by current short-term energy price shocks. These price increases are harmful to society, and governments are reacting, as seen in Europe with measures to cap energy prices for their citizens. This remains a complex issue, but I believe it does not alter our long-term outlook. BlackRock is the leading investor for pension funds and retirees, and we hold a long-term responsibility to help our beneficiaries achieve their goals. This energy transition is indeed happening, albeit not in a straightforward manner.
Operator, Operator
Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?
Laurence Fink, CEO
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 result of our commitment and our deep commitment to our clients, as I said just a minute ago, and our desire to invest for them over the long-term ahead of their needs. We see tremendous opportunities ahead of us, and BlackRock has focused to remain 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.
Operator, Operator
This concludes today’s teleconference. You may now disconnect.