Chantal Marx
BlackRock - (Black)Rock solid
BlackRock began in 1988 as a fixed income institutional asset manager with expertise in enterprise risk management. The company began operating with eight people in a single room. BlackRock has since meaningfully diversified its product set and is now the largest asset manager in the world with $11.6 trillion in assets under management as of the end of 4Q24. The company is headquartered in New York City and has a presence in 42 countries with clients in over 100 countries. BlackRock has grown both organically and acquisitively and has an impressive record of bedding down acquisitions of varying size. The company is led by Co-founder, Chairman and CEO, Larry Fink.
BlackRock is best known as the manager of the iShares group of exchange-traded funds (ETFs). Its Aladdin software, short for Asset, Liability, Debt and Derivative Network, keeps track of investment portfolios for many major financial institutions and its BlackRock Solutions division provides financial risk management services. The company also runs several active management strategies and has a growing alternatives business that provides access to investments like hedge funds, private debt, infrastructure, private equity and real estate.
The base fee revenue (79%), in turn, is mainly exposed to equity strategies (40%), followed by fixed income (18%), alternatives (10%), multi-asset (6%) and cash (5%).
Unmatched scale
BlackRock is comfortably the largest asset manager in the world, showcasing an extensive platform of products, coupled with very strong brand power. The company is expanding its breadth of capabilities (both in technology and product set - mainly alternatives), which we expect to gain quick and solid traction given the business's strong distribution capability and high trust from the broader industry and consumers alike.
Private markets entry offers a new avenue of growth
BlackRock's recent acquisitions of Global Infrastructure Partners (GIP), an investor in private infrastructure, alternatives data provider Preqin, and private credit specialist HPS, are set to unlock new growth vectors across private markets and associated data and technology. This will support a positive mix shift - being that alternatives generally attract higher fees than BlackRock's broader product set - specifically passives.
There is also a more broad-based move towards alternative investments with many investors, asset managers, and wealth managers demanding greater allocations to areas that are less correlated with traditional asset classes being equities, bonds and cash.
Indeed, analysts are currently expecting alternatives to make up over 20% of BlackRock's base fees by FY26. This is up from about 12.5% last year.
Pricing has been under pressure for years
Investment management fees have been under pressure over the last 20 years, and while the pace of fee declines have softened - the trend continues lower. Expense ratios are now at the lowest levels on record and are less than half of what they were in 2004. Fee declines have been a function of competition and a growing preference for lower-cost funds by investors who are now more attuned to the fact that high fees diminish longer-term returns.
The trend toward lower fees has been more pronounced for passive funds than for active strategies - this is because a lot of passive ETF providers essentially offer the same exposure - with price being the only real differentiator. For BlackRock - it's foray into alternatives could help improve the average fee earned over time which, combined with a slowing in passive fee declines, could help support the top line medium term.
Financial performance
Over the last ten years, the company has grown revenue by 6.3% CAGR with operating profit growing by 6.4%. Over the last five years, revenue has grown by 7% CAGR with operating profit growth of 7.1%. Margins have recovered from a cyclical low of 36% in FY22 and is expected to expand further due to an increased focus on alternative investments (that carry much higher management base fees than passive ETFs) as well as synergy gains from recent acquisitions and continued scale effects.
The last results report (4Q24) was strong, with the company showing record client cash inflows, and consensus beating growth on the top (+22.6% y/y) and bottom line (+23.5% y/y).
Gearing is very low, and the recent uptick in debt is mainly a function of new acquisitions made. Free cash flow generation has been very strong.
Summary investment case
Risks
Consensus considerations
Valuation
