BLK - BlackRock, Inc.

Operator: Good morning. My name is Jen, and I will be your conference facilitator today. At this time, I'd like to Welcome everyone to the BlackRock Incorporated third quarter 2026 earnings teleconference. Our host for today's call will be 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 speaker's remarks, there will be a question and answer period. If you'd like to ask a question during this time, simply press star then the number one on your telephone keypad. If you'd like to withdraw your question, please press star two. Thank you. Mr. Meade, you may begin your conference.
Christopher J. Meade: 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. With that, I'll turn it over to Martin.
Martin S. Small: Thanks, Chris, and good morning, everyone. It's my pleasure to present results for the third quarter of 2026. 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. A reconciliation between GAAP and our as adjusted results has been included in the tables attached to today's press release. I'll be focusing primarily on our as adjusted results. A year ago, our clients were focused on managing uncertainty around inflation rates and growth. Today, they're focused on capturing the opportunities created by technology and artificial intelligence. They're focused on infrastructure investment and a renaissance for income investing. They're aiming to secure returns, fueled from a new wave of productivity and innovation. There's more money in motion across global capital markets, and there's expanding opportunities for BlackRock and our clients. They're powered by earnings-driven returns, higher yields, and broader opportunities to diversify and manage risk through our whole portfolio approach. The breadth of our platform is deepening our relationships with clients across all channels, retail and institutional, and all over the world. Capital is flowing into the infrastructure required to power AI and digital transformation. Wealth portfolios are broadening beyond traditional allocations into personalized solutions delivered at scale, and retirement is being reshaped by growing demand for income and broader investment access. When clients need advice on capital markets, portfolio construction, or a partner to deploy capital at scale across public and private markets, they're coming to BlackRock. We've methodically invested through cycles to build a scaled platform, one that can connect clients across public and private markets with technology. It's paying off now in our results and in the accelerating pipeline ahead. Clients entrusted us with nearly $870 billion of net inflows over the last 12 months, driving 10% organic base fee growth. That is not one product or one region carrying the firm. It is broad-based across client channels, asset classes, and geographies. As we set out in our 2030 plan at last year's Investor Day, we are driving growth in higher value, higher base fee rate categories, and our business mix across public, private, and technology is creating more durable and all-weather growth in revenue and earnings. Shareholders are benefiting from that growth. In our first comparable quarter since the HPS close, year-on-year EPS growth accelerated to over 35%. High momentum across our business is translating into stronger financial outcomes. We again delivered double-digit growth in revenue, operating income, and earnings per share, with all three measures reaching new records. Our scaled and disciplined financial rubric are helping translate growth into the bottom line. Our operating margin reached 47.8%, up 320 basis points year over year. In the third quarter, BlackRock generated $205 billion of net inflows. Organic base fee growth of 11% marks our ninth consecutive quarter at or above 5%. Our growth continues to broaden across active ETFs, private markets, systematic, SMAs, digital assets, and technology. These capabilities are scaling simultaneously, demonstrating the power of BlackRock's platform breadth and the durability of our growth model. Third quarter revenue of $7.8 billion was 19% higher year over year, driven by organic base fee growth, the impact of higher markets on average AUM, higher performance fees, and higher technology services and subscription revenue. Operating income of $3.3 billion was up 27% year over year. Earnings per share of $15.93 increased 38% versus a year ago, also reflecting higher non-operating income and a lower diluted share count in the current quarter. Non-operating results for the quarter included $164 million of net investment gains, primarily due to mark-to-market non-cash gains linked to our minority investments in Securitize and Circle. Our as adjusted tax rate for the third quarter was approximately 24%. We continue to estimate that 25% is a reasonable projected tax run rate for the fourth quarter of 2026. The actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. Third quarter base fee and securities lending revenue of $6 billion increased 20% year over year, reflecting the positive impact of market beta on average AUM, organic base fee growth, and higher securities lending revenue. On an equivalent day count basis, our annualized effective fee rate was approximately flat compared to the second quarter. Sustained client demand for high-value categories, including private markets, active ETFs, and systematic, continues to support fee rates on net inflows that are well above the firm's blended effective fee rate. Performance fees of $630 million increased 22% from a year ago, primarily reflecting higher revenue from alternatives, including $110 million of performance fees from HPS. Quarterly technology services and subscription revenue was up 14% compared to a year ago, reflecting sustained demand for our full range of technology offerings. Annual contract value, or ACV, increased 12% year over year. On a constant currency basis, we estimate ACV would have increased 13% from a year ago. We remain committed to low- to mid-teens ACV growth over the long term. Total expense increased 14% year-over-year, primarily driven by higher compensation, sales asset and account, and G&A expense. Employee compensation and benefit expense was up 12% year-over-year, reflecting higher incentive compensation linked to higher operating income and higher performance-related compensation versus the prior year period. Sales asset and account expense increased 22% compared to a year ago, driven by higher distribution and servicing costs and direct fund expense. G&A expense was up 6% year-over-year, primarily due to higher technology investment spend. Consistent with our G&A outlook provided in January, after annualizing for the impact of HPS and Preqin, we continue to expect a mid-single-digit percentage increase in full-year G&A. We continued to deliver margin expansion on recurring fee-related earnings. Excluding the impact of all performance fees and related compensation, our adjusted operating margin for the third quarter would have been 48.6%, up 230 basis points year-over-year. Our capital management strategy remains consistent. We invest first in the business and then return excess cash to shareholders through a combination of dividends and share repurchases. In the third quarter, we repurchased $550 million worth of shares. At present, based on our capital spending plans for the year and subject to market and other conditions, we anticipate repurchasing at least $550 million worth of shares in the fourth quarter. That is consistent with our previous guidance communicated in July. Turning to flows. BlackRock's third quarter net inflows of $205 billion were diversified across product types, client channels, regions, and active and index strategies. ETFs generated $135 billion of net inflows in the third quarter. Index bond ETFs and precision ETFs led the way, generating $61 billion and $41 billion of net inflows respectively. Continued demand for our growing lineup of active ETFs added $22 billion of net inflows. Our digital assets ETPs raised $8 billion in the quarter. Our ETFs have now delivered a sixth consecutive quarter of double-digit organic base fee growth, powered by higher value ETF categories such as active and precision. Retail net inflows of $23 billion were driven by sustained momentum in liquid alternatives, broad-based demand for our U.S. active fixed income offerings, and continued inflows across Aperio and SpiderRock. Institutional active net inflows of $44 billion were positive across all product types and were led by strength in private markets, fixed income, systematic equities, and liquid alternatives. Institutional index net outflows of $27 billion were concentrated in low-fee index equities. In private markets, we saw $15 billion of net inflows, mainly from deployment across infrastructure and private credit and the onboarding of a real estate mandate. This quarter, we updated our earnings supplement to provide greater transparency into our private markets activity and drivers of fee-paying AUM. These include metrics such as fundraising, deployment, total AUM, and dry powder, which can be found on pages 9 through 11 of our earnings supplement. Finally, our cash management platform generated $31 billion of net inflows in the third quarter. These results include fundings into customized liquidity solutions, demand for government funds, and continued growth from Circle. At our Investor Day in June 2025, we set out a vision and a business plan for BlackRock in 2030. Five quarters into the plan, we're delivering at or well above its targets, higher and more consistent organic base fee growth, a more all-weather, durable mix of asset management and technology capabilities across public and private markets, consistent operating margin expansion, and higher earnings per share. This third quarter notched another strong step on our way to 2030. In more uneven markets, we generated record revenue, operating income, and EPS, a more than 47% operating margin, and 11% organic base fee growth. The opportunities ahead for BlackRock continue to expand. Clients are looking for a partner that can connect the whole portfolio to navigate a new environment of capital scarcity, higher long-term yields, and a redesign of diversification. I don't believe we can evaluate the investment environment as risk on or risk off any longer. This new environment is about capital allocation acumen. It's about financing advantages through scale, access, and breadth of opportunities. It's about redesigning diversification across the client portfolio. Our industry is being reshaped by the blending of public and private markets and growing demand for technology and data to secure success in client portfolios. These conditions play directly to BlackRock's strengths. Client engagement is higher than ever, and we enter our seasonally strongest fourth quarter with significant momentum across the firm and a long runway for growth ahead. With that, I'll turn it over to Larry.
Laurence D. Fink: Thank you, Martin. Good morning, everyone, and thank you for joining the call. We built BlackRock to be a partner to clients everywhere capital markets are moving. We advise clients holistically across public markets, private markets, and technology. We do it with a global perspective, but with a local lens. That reach, that ability to cover every corner of a client's whole portfolio, puts BlackRock at the center of how capital is moving in the world today. It's showing up in our results. Third quarter earnings per share rose 38%. Our operating margins reached 47.8%. Organic base fee growth of 11% growth, reflecting net inflows of $205 billion. Year to date, net inflows and organic base fee growth are both more than 45% higher than this time last year. Our results reflect the scale of BlackRock today. We generated net inflows across every asset class, every client type, every region, and across both active and index. AUM is up over $2 trillion in the last year, and it has now reached $15.5 trillion. We've now operated for a full year with GIP, HPS, and Preqin as part of BlackRock. This quarter is the clearest view yet of the earnings power of our integrated platform. It's helping us serve more clients' needs and create more value for shareholders. For the first time in my career, and that's 50 years of a career, I'm seeing genuine shortages of capital. Governments are running historically large deficits, while at the same time, demand for private capital is rising across the economy. Governments need financing for infrastructure. Companies need to fund a generational AI build-out. Individuals need better ways to invest and retire. Everyone is rethinking how they deploy capital, and BlackRock is at the center of many of these conversations. We're both a trusted advisor and a destination for global client capital. That's driving meaningful activity across the firm and a growing pipeline for the future. This is especially visible through our work with the leading companies at the center of the AI build-out. We have longstanding relationships with these hyperscalers and sovereign wealth funds and pension funds and corporate clients around the world. These long-term relationships are now underpinning some of the largest financing engagements in the market. We partnered with Meta on the financing of its planned $14 billion data center in Texas, bringing together infrastructure investments from GIP, private financing capabilities from HPS. We're also working alongside leading technology companies to create dedicated pools of financing for the customers to expand compute capabilities and capacity. In the near term, these can supply private placements into high-grade insurance mandates, but over time, there's even a larger opportunity to securitize them into tradable structures for a much broader set of clients. Rob Kapito and I have lived through this playbook before. In the early 1980s, mortgages were loans sitting on banks' balance sheets, illiquid and hard to price. Fannie Mae and Freddie Mac began pooling them, but that alone didn't make them tradable. What made them tradable was data, years of performance history, and an understanding in how the performance would move with interest rates and with the changes of the broader economy. Once investors had a trusted time series of data, issuers had a standard to build against, and the market opened up for a much bigger group of investors. That combination took the MBS market from a few billion dollars when I started to the trillions of dollars it is today. Compute capacity is now following a similar path, and we intend at BlackRock to be the center of it, as we were then in the beginnings of the mortgage-backed securities market. BlackRock is particularly well-positioned to help develop this market because we combine capital formation, but most importantly, technology and data and scale. Thousands of investment professionals just participated in the Aladdin community using our analytics and risk framework to make investment decisions. AI is amplifying the value of Aladdin as we accelerate innovation and create better analytics. As compute capacity emerges as an asset class, the markets will need trusted data, standardized performance metrics, and a common framework for risk analytics. These are the capabilities we've spent decades building. They now differentiate BlackRock in working alongside technology companies and investors to establish the infrastructure this potential new market will need and require. These opportunities underscore the strategic logic behind our private markets acquisitions. We're already mobilizing capital at a greater scale than ever before. Our AI Infrastructure Partnership recently made its first deployment with the closing of the Aligned Data Centers transaction, which had an approximately $40 billion enterprise value. We raised $68 billion in private markets over the last 12 months in private credit. Higher base rates are supporting stronger income for investors, making private credit an increasingly attractive source of yield and portfolio diversification. We raised $25 billion in private credit in our first full year with HPS. We're seeing especially strong traction with insurance companies rotating or adding to high-grade solutions. We expect that to accelerate into year-end and into 2027. Across private markets, we have a strong pipeline of future capital raises and deployment opportunities. Clients want scaled capital markets access across their entire portfolio. That is how iShares has led the growth of the ETF industry. iShares flows were again led by our index bond ETFs with $61 billion in net inflows as investors shifted into long and short end of the curve. We also saw strong demand for our AI-linked exposures. Our semiconductor and South Korea ETFs were among the highest inflow in products. What sets iShares apart is the breadth and the precision of what we offer. Whatever view an investor holds, they can express it through iShares. The ETF wrapper is also evolving how investors access actively managed strategies, and iShares is leading the industry with $60 billion of active inflows in 2026, including a record $22 billion of inflows this quarter. iShares active AUM has doubled in the last year to more than $160 billion. We are already tracking ahead of the $500 million revenue ambition that we laid out last summer. Investment performance is what ultimately drives active net returns and flows. Performance and scale reinforces each other. BlackRock's technological-driven process delivered investment insights across vast sets of securities, and that scale is what powers consistent performance. Over 90% of our systematic equity AUM is above benchmark or peer median. That performance powered a second straight record quarter across our broader systematic active equity business. Systematic equity generated nearly $30 billion of net inflows in the third quarter and more than $60 billion of net inflows in 2026. Our systematic equity flows are up 50% compared to last year, and the total AUM is now approaching $500 billion of active investments. We are seeing the same dynamic in fixed income. Approximately 85% of our taxable fixed income assets are above benchmark or peer median over three and five years. That consistency is why clients keep bringing us more of their portfolio. Active fixed income net inflows of $14 billion reflected strength across both institutional and retail channels. Clients turned to strategy like Strategic Income Opportunities and Total Return to capture income in a higher rate environment. Rick and his team have built this performance over decades, and we are porting it across new wrappers, including our lineup of fixed income ETFs. Clients are also capturing income opportunities at the short end of the curve. Cash net inflows of $31 billion included several scaled mandates from clients consolidating fragmented liquidity programs into more customized solutions with BlackRock. Income is especially critical in retirement. In recent years, we innovated to deliver an option for guaranteed income in retirement through LifePath Paycheck. Last month, we introduced our LifePath Solutions framework. It is designed to bring capabilities historically reserved for the largest retirement plans to a broader set of plan sponsors. Our $700 billion global LifePath platform reflects more than 30 years of expertise and gives us a distinctive ability to meet the challenging client needs. Our brand and reputation are furthering strengthening through initiatives like BlackRock Future Builders. As part of the program, BlackRock Foundation is deploying capital to connect workers to skilled trade training. It is also embedding financial education and digital savings tools to help workers build a more durable economic security from their first paycheck all the way through to their retirement. Many of our international pension and corporate clients are navigating structural shifts in retirement savings plans as defined contribution models continue to grow worldwide. For example, plan sponsors in the Netherlands need a partner who can help them manage the shift from defined benefits to defined contribution at scale. We have already onboarded multiple pension mandates in connection with this transaction. Last month, the pension fund for the Dutch construction industry named BlackRock as its preferred candidate for an $80 billion outsourced fiduciary mandate, citing our global scale, our execution capabilities, and our technology. We are advising clients and government around the world on building durable retirement systems and deepening their local capital markets. When capital is moving across borders, much of it moves through platforms like ours. Foreign investment is moving into the U.S. equities and funds in record amounts. That activity is benefiting BlackRock with a third of our long-term net inflows coming from clients outside the United States. It is even more pronounced in systematic equity, with more than 70% of the net inflows coming from international clients. Europe and Asia each saw double-digit organic base fee growth, and the Middle East delivered over 20% global base fee growth. We have a long-term local presence and years of expertise in executing in these regions. It is showing up in strong engagement in some of our highest value growth engines, including systematic equity, private markets, retirement, and technology. Aladdin underpins everything we deliver to clients. Our ACV grew at 12% in the third quarter, reflecting both new onboardings and existing client expanding the relationship across our technology stack. We have a comprehensive public and private market workflow and data offerings through Aladdin, eFront, and Preqin. As private markets become a larger part of client portfolios, the need for transparency, the need for risk management, the need for portfolio analytics can only increase. That is a natural extension of Aladdin's role as an operating system for entire portfolio for investors worldwide. Our results prove the power and potential of our integrated firm. Our shareholders are participating in that growth through a 38% increase in the earnings per share and more than 47% operating margin and double-digit organic base fee growth. BlackRock brings together issuer relationships built over decades through public market platforms, financing expertise, investment performance, and the technology and data that connects it all. That combination is differentiating BlackRock in every category where we compete and in every region in which we operate. It is why BlackRock has winning mandates at the cutting edge of the capital markets, from hyperscalers to compute financing, to pension outsourcing, to Aladdin and Preqin partnerships. We are having accelerated momentum and a broad pipeline spanning whole portfolios, private markets, retirement, and throughout our international platforms. More clients are turning to BlackRock as a destination for capital and for a partner for their growth. I am confident in the opportunities and growth ahead for BlackRock, for our clients and importantly, for our shareholders. Operator, let us open it up for questions.
Operator: At this time, I'd like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. If you do ask a question, please take your phone off its speaker setting and use your handset to avoid any potential feedback. Please limit yourself to one question. If you have a follow-up, please re-enter the queue. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Michael Cho of JPMorgan.
Michael Cho: Hi. Good morning. Thanks for taking my question. I just wanted to touch on organic base fee growth during the quarter. It saw some nice acceleration, and we can see from the different contributors the flows that helped drive that. Martin, I think you called out a few drivers as well, but wondering if you can unpack maybe where you're seeing increasing and maybe increasingly sustained contribution inside some of the various businesses that you highlighted. Thanks.
Laurence D. Fink: Well, let's get Martin. Why don't you take that?
Martin S. Small: Great. Thanks, Mike. I'd start by saying we're continuing to execute on the 2030 plan. That's to deliver that durable premium organic base fee growth. Third quarter organic base fee growth was 11%. That's nine consecutive quarters at or above our 5% long-term target, and it's also the fifth consecutive quarter at or above 8%. I think we've demonstrated that BlackRock can sustainably deliver in that 6%-8% range, and there's clearly the ability to move above it to high single digits, low double digits in periods of elevated client activity. You see that in high value category and strong markets. That can be driven by client preferences, can be driven by increased exposure to international markets, precision semiconductors, the onboarding of large mandates, and the timing also, I think, of private markets fundraising and deployment. Organic base fee growth this quarter, I think as Larry and I referenced, it was very well diversified across the platform. We had strong contributions from the systematic businesses, active management broadly, deployment from our AI Infrastructure Partnership, fundraising and fee paying on day one in our infrastructure mid-market strategies, precision ETFs, Aperio and SpiderRock, tax aware, as well as cash. Just a few financial highlights I think might be helpful to unpack just the breadth that we're delivering in sort of core asset allocation, portfolio diversifiers, tax aware strategies, and private markets. If you were to take the $524 billion of year to date flows, about $220 billion are in the 5-10 basis points range. Let's call that broad asset allocation models, core exposures that clients use for long-term holdings. About $270 billion was in the 10-60 basis point range, and that's where you're going to find kind of active ETFs. You're going to find country funds. You're going to find exposures that are about managing diversification, and also tactical opportunities. The balance of the flows above 60 basis points are going to be in private markets. They're going to be in liquid alternatives where we had $25 billion of flows in the quarter, with $15 billion in private markets, $9 billion in hedge fund strategies and liquid alternatives. We see that mix as being strong and durable, and we think that durability really comes from two places. It's from what we've talked about consistently as being structural growers. These are just categories that when markets are strong, they're going to grow faster, and when markets are weak, they'll still grow. That's ETFs, that's active management, private markets, systematic SMA solutions. That's showing up in our pipeline. We've got several scaled outsourcing relationships that we expect to fund towards the end of the year and in 2027, and we've won a number of these high-grade insurance mandates that are going to drive growth as they're deployed over the coming months and days. So that future organic base fee growth, I think, is strong on the come, and we have line of sight to it. In private markets, our fundraising plan remains diversified across infrastructure, private credit, multi-alternatives. We have a mix of strategies that are fee paying on raise, and others that scale with deployment, and that's going to also support near-term revenue, longer-term growth, and this sustained ability to deliver, at least in that 6%-8% range. Second, we're a consolidator. If you look at flows in the industry over the last several years, the top five asset managers are consolidating around 80% of the flows. But there's still just this extraordinary amount of industry fragmentation by assets and revenue. So the opportunity to consolidate share in a very, very big fragmented market where every investor wants to consolidate its relationships to get the most out of its partner, that consolidation of share for us is an avenue of sustained organic growth. Clients really want to do more with BlackRock. You see it in the flows. We've seen it in the momentum in this quarter and this last year. I think it gives the management team here a lot of confidence that we're on the right track and a lot of optimism about our ability to deliver this sustained organic growth that's above target.
Operator: Your next question comes from Michael Cyprys of Morgan Stanley.
Martin S. Small: Hi, Michael.
Michael Cyprys: Hey, good morning. Hey, thanks for taking the question. Wanted to ask about what you are seeing and hearing from asset owner clients, given the recent move that we have seen higher in terms of long-term interest rates. To what extent are you seeing client changing how they are thinking about relative value, where they are allocating incremental capital? If you could maybe tie this into the significant AI infrastructure build-out that is underway, how sensitive do you think that investment opportunity is to higher financing costs? Are you seeing any sort of changes in the pace or the economics of those AI projects?
Martin S. Small: Let me turn it to Rob, and I will finish up.
Robert S. Kapito: I remember the last time you asked that question, Michael, many years ago, and the answer was, bonds are back. I would say right now, clearly interest rates are going to be impacted by all of the obvious things: inflation, energy prices, capital supply and demand imbalances, and worldwide deficits, geopolitics. We are expecting more volatility until we can find a balance that right now suggests slightly higher rates, especially in the longer end of the curve. Let me say that we think fixed income demand remains at the early innings. As you know, for years, investors were forced to take equity risk to generate meaningful income, and today that has changed dramatically. The 10-year Treasury yields more than 5%, real rates are close to 3%, and in strategies that you know that we have, like BINC and SIO, we are able to generate yields around 7% in a diversified high-quality portfolio. These are bellwether returns for creating what Larry mentioned, our goal of resiliency and durability in portfolios. What is particularly compelling is that historically for intermediate term bond portfolios, future returns usually tend to track starting yields quite closely. In other words, investors don't need a heroic market outcome. Much of the return opportunity is already embedded in today's income levels. We're seeing clients recognize that opportunity. Fixed income generated $78 billion of net inflows in the third quarter and $205 billion year to date, reflecting demand for high-quality income and more resilient portfolio construction. That environment plays directly to BlackRock's strengths. Investors can earn attractive levels of income without taking significant duration, volatility, and drawdown risk. If rates stabilize slightly from here, we think there is substantial room for fixed income allocations continue to grow. Our clients now can use the better wrappers that we have for fixed income, especially in bond ETFs, and they are looking to lock in these yields going forward.
Laurence D. Fink: Related to data centers and financing, let's put it in the context of the overall federal deficits. Federal deficits after 232 years was $8 trillion. 26 years later, that's $40 trillion. The demand, the need to financing the deficits are at obviously record levels. I've been talking about the need for unlocking private capital. We are seeing that unlock, which is fantastic for the U.S. and fantastic for our potential growth. But unlocking private capital means a lot of financing, whether it is financing for AI and data centers or financing for companies like Humana, where we announced a big financing yesterday, or last week when we announced the financing for AT&T. That is one of the special ingredients for growth in the U.S., that the role of the capital markets is playing a larger component in that. The competition for capital is growing between the federal deficits, which are at our record levels, and now we are unlocking private capital and demand for capital in the private sector is growing. All that means is, at this moment, it means we are going to have structurally higher interest rates for longer, and especially out the curve, and I think that is going to be with us. Obviously, as I spoke in my prepared remarks, I do not see us having the ability to raise trillions and trillions of dollars of bespoke transactions related to data centers. The need to create a new financing vehicle for compute, for chips is imperative for the U.S. to continue to build out to the scale that is necessary. Once we build this out, the entire world is going to be needing to build this out. If you think about it, a 1 GW data center in the U.S. is about a $50 billion enterprise cost. 40% of that is the cost of GPUs and chips. The other 60% is power, grid, core and shell. All of that comes together. We are now seeing financing for the data centers that are based on the lease of the credit. Now what we are also witnessing the need to build out the scale of chips and compute. If we are going to democratize AI, the faster we could do this, the better we will be in broadening economic success. This is an imperative. We cannot have just five companies or seven companies entirely buying out every chip production that is being produced right now. We need the ability to finance startup AI companies, startup companies, but each one of these companies are going to need the ability to buy these new innovative compute chips. They do not have a credit rating, obviously, and so we have to come up with innovative ways. The best way is if we could do an asset-based financing related to the chips through data, through analytics. Then we could help finance startup companies, the growth of new and young companies, and it could transform America to grow at 3% or greater. Then the debt that I just talked about will not be as consequential because if we can continue to grow our economy at 3%+ , our debt to GDP should fall.
Operator: Your next question comes from Craig Siegenthaler with Bank of America.
Laurence D. Fink: Hey, Craig. My team is making fun of me for that last comment.
Craig Siegenthaler: Good morning, Larry.
Laurence D. Fink: Craig.
Craig Siegenthaler: Hope everyone's doing well.
Laurence D. Fink: Sounds very good.
Craig Siegenthaler: We wanted to dive a little deep into your tax-aware suite, both inside and outside the $200 billion plus that sits in Aperio. Where are you seeing the most demand? Can you quantify the 3Q flow? You gave us $7 billion of Aperio flows last quarter. On the long-short tax aware specifically, how are you handling the capacity constraints at the two largest RIA custodians? They have actually been tightening inflows recently. Does it even matter because these products are going on so many other wealth management platforms, banks, online brokers in parallel?
Laurence D. Fink: Martin, why don't you take that?
Martin S. Small: Hi, Craig. Thanks so much for the question. I heard basically three things is sort of demand overview flows, a little bit of a breakdown and some color on the tax-aware strategies and the like. Second, kind of the growth of long-short strategies and the financing of them in and around the custodian. Let me start by saying, philosophically, we put the clients at the center of these strategies, and for taxable clients, maximizing returns means managing markets and taxes. We are seeing strong demand for tax-aware solutions. That is direct indexing, it is long-short, and it is SpiderRock's options-based strategy that help with concentrated stock positions and liquidity events. The Aperio platform has grown from about $40 billion of assets on acquisition to nearly $200 billion in five years. It is continuing to see double-digit organic growth. Our direct indexing sort of traditional long only AUM is $175 billion, with about $13 billion of net inflows year to date in 2026. Long short AUM is $19 billion, with about $12 billion of net inflows year to date 2026. Aperio had $5 billion of net inflows in the third quarter, including $4 billion into long-short and $1 billion into long only. Our 2026 flows in these tax-aware strategies of $25 billion are 70% higher than they were in 2025, where we had a record $15 billion, and that is our fifth straight record year in these strategies. Through SpiderRock, we also offer options-based overlay capabilities that complement direct indexing and tax-aware long-short strategies as part of a broader whole portfolio solution. SpiderRock generated $3 billion of net inflows in 2025. It has now had three back-to-back record quarters in 2026, including $2 billion in the third quarter. Congratulations to Eric Metz and team. I would say BlackRock is really differentiating in this space based on service, the breadth of the platform, and obviously delivering the outcomes. We are really working with clients, not just in the SMAs, but across ETFs, SMAs, direct indexing, long-short, public-private models, whole portfolio orientation. That continues to grow well, and we have a really strong pipeline ahead. In terms of the growth of long-short strategies and some of the dynamics happening with the custodians, I would again start by saying we have a broad value proposition across a whole array of tax-advantaged strategies. Long-short is a category that has seen rapid expansion, and I would say the industry custodial model and financing models, they are adjusting. There are really compelling return in financing economics, Craig, for banks, for broker-dealers, the custodians, and we see additional parties entering the market to finance that growth. Long-short industry assets reached $170 billion, I think. That is three times year over year. As I mentioned, our AUM is sort of closing in on $20 billion. Client demand for these strategies is very strong. As I mentioned, $4 billion of inflows into long-short. Our focus is really on doing everything we did in long only. In long only, we maximize the number of custodial attachment points we had all around the industry. Our aim is to do the same thing and increase the number of financing counterparties for these strategies for the benefit of our clients. We are broadening our platform relationships, and we would expect additional access points through distributors and custody partners. There has been, I think, understandable and appropriate focus on many of these custodial changes, but we have got a diversified group of financing partners and distribution partners and several other providers that are ramping up their capacity. We are working very closely with our clients who are sophisticated private wealth managers on expanding access at the custodial platforms, on broadening the delivery options through new structures or alternative SMA options like SpiderRock and direct indexing, and then also just providing a lot of clear guidance, education, interfacing with all the partners and financing counterparties to make sure everybody manages the onboarding, the reporting, the operations, the financing with all the high-quality fiduciary care that our clients would expect. But I think a lot more to come in this space. It serves a valuable place in a client's portfolio.
Operator: Your next question comes from Michael Brown with UBS.
Michael Brown: Good morning.
Martin S. Small: Good morning, Michael.
Michael Brown: Thanks for taking my question. Good morning. Clearly very impressive margin expansion this quarter. Maybe just if you could spend a little bit of time unpacking some of the biggest drivers there and maybe how we should think about the puts and takes into Q4. Is that flattest margins quarter-over-quarter a reasonable assumption? Then more broadly, you are on track for roughly 200 basis points of expansion this year. Appreciating you do not like to bake in beta into your outlook, but what does the margin expansion opportunity look like in 2027, assuming a typical market backdrop?
Laurence D. Fink: Martin.
Martin S. Small: Thanks. We continue to deliver industry-leading margins. That has been part of our 2030 strategy. Our operating and recurring fee margins each expanded, as you mentioned, by 200-300 basis points year-over-year. Operating margin for the quarter was 47.8%. That is up 320 basis points. And our margin ex performance fees and related comp was 48.6%, up 230 basis points. In terms of unpacking some of the puts and takes, our reported operating margin, I think you guys understand well, can vary quarter to quarter depending on the composition of performance fees, which have varied payout ranges depending on the strategy. Our operating margin was higher this quarter, partially due to the performance fee mix, but excluding performance fees and related comp, we still saw 230 basis points of expansion in our recurring fee margin. We have talked about building BlackRock around this whole portfolio, around the structural growth categories of investment solutions. Those structural growers are private markets, ETFs, SMAs, models, target date technology. And flows and base fee growth in these categories, they are all weather. They are less market sensitive. We see them as playing a key part in driving structurally higher adjusted operating margins. The markets continue to have an impact on BlackRock's margins, both up and down, as you mentioned. But our 2030 goal of reaching over 30% of revenue from private markets and technology, that is aimed to dampen that effect and power more steady double-digit EPS growth and margin expansion, and also provide more resiliency in client portfolios. The difference today is that we have the engines in the private markets of Global Infrastructure Partners and HPS, both of which came to BlackRock and operate at FRE margins of north of 50%. Building on that and our other franchises, we think the outlook for margin growth is that we can propel two things. First, we can see the margin on fee recurring earnings driving upwards towards the trajectories of all the best-in-class private markets names, so north of 50%. We can do that through the acquired businesses, but we can also do it through highly scaled franchises that we have in ETFs, digital assets, and systematic equities, which have high operating leverage and the ability to grow and create more expansion and profitability. With constructive markets, higher fee rates on flows, strong organic growth, we think we can lift the fully burdened, adjusted operating margin of the company up even further as well. We operate today at leading margins, and we still see room to scale them going forward.
Operator: Your next question comes from Alex Blostein of Goldman Sachs.
Alex Blostein: Hi, good morning.
Laurence D. Fink: How are you?
Alex Blostein: Hey, good morning, Larry. I was hoping to pull on that string of questions around AI for maybe a couple more minutes. So obviously, lots of discussion around the need for capital. I think it's quite well understood, and you obviously articulated that well as well. As you think about which part of the ecosystem BlackRock feels most comfortable participating in today, whether it's compute or the data center, which part of the capital structure? It feels like building a fully securitized, traded market around this could take some time. How much of a bridge you guys are likely to provide within this over the next couple of years? How it could translate into revenue opportunities for BlackRock? And ultimately, is there room to build out a capital markets syndication business around that as well, like we've seen with some of your alternative peers?
Laurence D. Fink: Let me start and Martin will follow up. Good question. You are right. It is going to take time to get the data and analytics. It will take time to get the rating agencies to opine on this new market and come up with metrics. It is going to take time for Aladdin and Preqin to have the data set so we could do the proper analytics. But it is a huge priority, and we are focused on it now. That being said, we are in the mix of almost every conversation. In the past week, I have had conversations with every major hyperscaler. It is a large opportunity both in the financing of GPUs. It is a large opportunity for GPU financing for our HPS team. It is a large opportunity for our GIP team in terms of the build-out, and working alongside hyperscalers, alongside for data centers. As I announced, we did close on the Aligned Data Center platform. We are actually looking at two more platforms throughout the world where we could play a larger role. But what I said in my prepared remarks does really resonate. As one of the largest shareholders of every major public hyperscaler and technology platform, we are having broad-based conversations with all of them. Obviously, many of them are looking not just to be building out in the U.S., but building out in other parts of the world as compute is going to be necessary throughout the world. We are engaged in that. We are going to be a part of that, and I do believe it is going to be a major source of opportunity. That being said, the clients worldwide are hearing from some of our competitors at the same time. They are all looking to do the same type of financing. It really requires having the unique structuring capabilities, working with the hyperscalers, but then working with our clients in terms of what are they looking for, what type of structure are they looking for, what type of guarantees do they need in the back end if it is compute. All of this is something that we are front and center and we are working on, and I do believe, as indicated in our private markets growth, in our announced numbers, we are involved, we are getting more involved. And I see this as a major platform for us to grow on. We are presently in the market with a very large transaction now, and that we will know in the next number of months how that plays out. But we are having conversations literally daily on opportunities that we could help out. If you think about the need in the U.S. alone, between the need of building out our power grid, the need for securing power, and the need for the build-out of core and shell, we are talking $7 trillion-$9 trillion over the course of a number of years. Obviously, that is a lot of financing. Not just in the U.S. You have other places in the world are looking for the same type of financing capabilities, too. It is going to be broad. It is a role that the U.S. capital markets can play, and it is a big opportunity for BlackRock to be a part of this large opportunity. Martin, do you want to go on and talk about more of that?
Martin S. Small: Yeah. I just want to amplify, Alex, one thing that Larry said, sort of the CFO's perspective on these things. The future of Western capital markets, it's here. It's happening right now. When we talk about the blending of public and private in portfolios, we're not just talking about the client portfolio, we're also talking about how companies finance themselves. The options, the flexibility, the fluidity across public and private markets, in financing businesses directly off balance sheet, through public-private structures, there's going to be so much more of that, and it's imperative that it happens well in order to finance this incredible opportunity we have for productivity and innovation through AI. I think for BlackRock, you're going to see more of the transactions that you've seen already, where we participate in the senior investment grade public debt markets or 144A, that we're participating in kind of holdco notes, and mezzanine financing through insurance accounts, and we're participating in equity and junior securities, especially through the HPS and GIP platforms. But the ability to deliver that whole cap stack financing, and do it at great breadth across geographies, client types, we think that's integral in providing financing solutions for the issuers, who we also think of very much as being our clients. There's just much more to come. I think that's why Larry's passion is so evident on these calls, which is these pockets are still specialist capital. If we're going to see a much broader participation, we need to see some weighting basically in the aggregate that becomes GPUs, data centers, compute, et cetera. That's going to require a tremendous amount of analytics, but it's also going to require opening up pension plans and traditional fixed income allocations to these exposures. To your second question, just on syndication, we're first and foremost a fiduciary business, and our objective is to source attractive investments and then place them in long-term client accounts that generate long-term recurring management fees. When we originate, the focus is on where that investment can create the most value across our institutional wealth and insurance client portfolios. Again, our advantage is the breadth of our client base. We have substantial demand across private credit funds, insurance mandates, customized client accounts, pension funds, OCIO mandates. That gives us significant flexibility in matching assets against long-term capital. Our focus is really on growing fee-paying AUM, placing assets as a fiduciary into long-term client portfolios. If and when there's appropriate syndication and distribution revenues to secure, we will do so. But any syndication and distribution revenues, I think you all should think of as incremental to our model, not the primary driver of value creation. We think there's a much larger opportunity that's more durable in delivering private high-grade private credit in for debt across our platform and just deepening our client relationships over time.
Operator: Your next question comes from Dan Fannon of Jefferies.
Dan Fannon: Thanks. Good morning.
Martin S. Small: Good morning, Dan.
Dan Fannon: Good morning. Martin, wanted to unpack some of your earlier comments around flows, and you mentioned an accelerating pipeline. Curious, as you look ahead, what you see as a bigger contributor or what might be changing in some of the mix or asset classes or products as what you've seen here thus far in the first nine months of the year.
Martin S. Small: Thanks for the question. The first thing I'd flag is we are heading into our seasonally strongest fourth quarter. We tend to see 30%-40% of iShares annual flows happening in the fourth quarter. I'd expect as we get out into the end of the year here, we'll see that typical seasonality in iShares flows. I think the difference will be that we'll continue to see this mix towards higher value, higher fee rate categories in ETFs, including precision exposures, active ETFs, digital assets, factors, and the like. Second is, third quarter tends to be the softest in around private markets fundraising, so we'd expect to close out the fourth quarter with stronger fundraising towards our annual goals, which includes fee-paying day one strategies. I'm more optimistic that we're going to start seeing evergreen funds in the private markets in the fourth quarter and into the first half of next year really turn a corner. We've got about $20 billion in evergreens. We've had about $1.2 billion basically in the quarter of flows, $800 million of gross subscriptions. I see a turning of the corner there. I'd flag that just, I think an increase in base rates is going to bring back constructive allocations to private credit and retail BDCs in the direct lending space. SOFR rates go up. Private credit performance has been resilient. I think you'll see, and we're having very constructive conversations with distributors around that. We still have redemptions in the queue. The industry rates are higher than they have been. But I think we're heading for a much more constructive environment in Q4 and into the first half when it comes to the returns and the cash on cash yields from Evergreen's structures.
Operator: Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?
Laurence D. Fink: Thank you, operator. I want to thank everybody for joining this call this morning and for your continued interest in BlackRock. Our quarter's result reflects the clearest view yet of the strength of our integrated platform. I think we can all see the investments we made are showing up in the growth well above our targets, and we are just getting started on what we can achieve in the years ahead. We have growing momentum heading into the end of the year, and I am confident in what is ahead for us, our clients, and you, our shareholders. Thank you, everyone, and have a very nice quarter.
Operator: This concludes today's teleconference. You may now disconnect.