貝萊德 (BLK) 2020 Q4 法說會逐字稿

Good morning. My name is Jerome, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock, Inc. Fourth Quarter and Full Year 2020 Earnings Teleconference.

Our hosts for today's call will be Chairman and Chief Executive Officer; Laurence D. Fink; Chief Financial Officer, Gary S. Shedlin; President, Robert S. Kapito; and General Counsel, Christopher J. Meade. (Operator Instructions)

Mr. Meade, you may begin your conference.

Thank you. 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.

Thanks, Chris. Good morning, and Happy New Year. I hope everyone and their families remain safe and healthy through the holidays. And it's my pleasure to present results for the fourth quarter and full year 2020.

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 will be focusing primarily on our as-adjusted results.

Throughout BlackRock's history, we have consistently and systematically invested in our business with a commitment to serving clients, employees, shareholders and the communities in which we live and operate. As a result, while the world faced unprecedented challenges in 2020, we were well prepared to provide clients with thought leadership, investment insights and risk management tools to ensure the physical and emotional well-being of our employees and to give back to our communities.

BlackRock's strong performance during this challenging year is a testament to our diverse and resilient business model, our steadfast focus on helping clients achieve their long-term goals and the dedication of our incredible people.

We generated net inflows of $391 billion in 2020, representing 5% organic asset growth and 7% organic base fee growth, meeting our organic growth target for the sixth time in the last 8 years. Importantly, we finished the year with increased momentum, generating $127 billion of total net inflows in the fourth quarter, reflecting record quarterly organic base fee growth of 13%.

Strong performance from our entire active franchise, along with near-record iShares flows, which benefited from client rerisking and year-end tax planning, contributed to this quarter's robust organic base fee growth. We continue to play offense in 2020 as the strength and stability of our operating model allowed us to invest through volatile markets, both organically and inorganically, expand our full year operating margin and return approximately $3.8 billion of capital to our shareholders.

Each of our critical growth priorities, including iShares, Aladdin, private markets, alpha generation, whole portfolio solutions and sustainable investing drove significant growth during the year. Full year revenue of $16.2 billion was up 11%. Operating income of $6.3 billion rose 13%, and earnings per share of $33.82 was up 19% versus 2019.

For the fourth quarter, BlackRock generated revenue of $4.5 billion and operating income of $1.8 billion, up 13% and 20%, respectively, from a year ago. Quarterly earnings per share of $10.18 was up 22% versus 2019 driven by higher nonoperating income and a reduced diluted share count versus a year ago, partially offset by a higher effective tax rate in the current quarter.

Nonoperating results for the quarter included $153 million of net investment income primarily driven by mark-to-market gains on our unhedged seed and co-investment capital. Our as-adjusted tax rate for the fourth quarter was approximately 20%, reflecting $61 million of net discrete tax benefits. We currently estimate that 23% is a reasonable projected tax run rate for 2021, though the actual effective tax rate may differ as a consequence of nonrecurring or discrete items or potential changes in tax legislation during the year.

Fourth quarter base fees of $3.4 billion were up 10% year-over-year, primarily driven by 7% organic growth and the positive impact of market beta and foreign exchange movements on average AUM, but partially offset by lower securities lending revenue and higher discretionary money market fees in the current quarter and strategic pricing investments over the last year.

In addition, while fourth quarter base fees were up 5% sequentially, the impact of lower securities lending revenue during the quarter driven by a continued tightening of cash spreads was the primary reason we saw a sequential decline of 0.2 basis points in our annualized effective fee rate, despite the positive impact of strong organic base fee growth.

As we look into 2021, based on current market conditions and interest rates, we are planning for the possibility of lower securities lending revenue and higher discretionary money market fee waivers as compared to 2020. In isolation, this could have an additional 0.3 basis point negative impact on our fee rate this year as compared to our fourth quarter annualized base fee rate.

Bear in mind that a higher interest rate environment and continued strong organic base fee growth could mitigate these headwinds, especially with continued momentum in our higher fee active equity and alternative businesses, and then nearly roughly -- and that nearly 40% of gross money market fee waivers are generally shared with distributors, reducing the impact on operating income.

Fourth quarter performance fees of $419 million were up 75% year-over-year, capping a record year for performance fees that totaled $1.1 billion, more than double 2019 levels. While this year's performance fees reflected strong alpha generation across the entirety of our alternative and long-only investment platforms, approximately 60% of the full year increase was attributable to a single hedge fund strategy that delivered exceptional performance during the year.

Quarterly technology services revenue was up 11% year-over-year, and full year revenue of $1.1 billion increased 17%, in part reflecting the impact of the eFront acquisition. While demand for integrated and resilient investment management technology to support effective risk management and operational efficiency remain strong, growth in 2020 technology services revenue was impacted by extended sales and contracting cycles associated with the pandemic.

In addition, year-over-year revenue growth also reflected certain eFront clients shifting from an on-premises license model, in which revenue is generally recognized upfront, to a hosted model, which is more consistent with how we service our broader Aladdin community and where revenue is recognized over the life of a contract. As we anticipate more clients embracing eFront's hosted model, which will impact year-over-year revenue comparisons and in an effort to provide greater transparency into Aladdin's business momentum, we intend to begin disclosing growth in ACV, or annual contract value.

ACV growth represents a point in time year-over-year comparison of our technology services revenue run rate and is more representative of how leading technology companies measure their top line growth. Technology services ACV at year-end 2020 increased 12% versus a year ago, and we remain committed to low to mid-teens growth in ACV over the long term.

Fourth quarter and full year advisory and other revenue decreased year-over-year, primarily reflecting the absence of PennyMac equity method earnings following the charitable contribution of our remaining equity stake in the first quarter of 2020 and lower advisory and transition management revenue during the year. Total expense increased 10% in 2020 driven primarily by higher compensation and noncore G&A expense.

For the full year, compensation expense increased $571 million or 13%, primarily reflecting higher base and incentive compensation driven by higher performance fees and operating income. Recall that year-over-year comparisons of fourth quarter compensation expense are less relevant because we determine compensation on a full year basis.

Overall G&A expense increased 7% year-over-year, reflecting higher levels of noncore items primarily related to the net impact of higher product launch costs, legal fees, COVID-19-related costs and fixed asset impairments, offset by lower contingent fair value adjustments, FX remeasurement expense and deal-related costs during the year. Excluding approximately $280 million of noncore G&A expense incurred in 2020, which included $166 million of aggregate fund launch costs, core G&A expense for the year remained essentially flat compared to 2019 as higher technology and portfolio services fees were offset by lower T&D expense. Recall that we exclude the impact of fund launch costs when reporting our as-adjusted operating margin.

Our full year as-adjusted operating margin of 44.9% was up 120 basis points versus 2019 and benefited from record performance fees and securities lending revenue during the year and a lower level of core G&A expense than anticipated.

As we have previously stated, our business has never been better positioned to take advantage of the opportunities before us, especially amid industry consolidation and disruption to deliver differentiated organic growth. And we remain deeply committed to investing responsibly and aggressively through market cycles and for the long term in order to optimize organic growth in the most efficient way possible.

Consequently, our 2021 investment plan currently includes the repurposing of lower T&D expense back into our business to fund incremental investments in technology and market data in support of our sustainability and other growth initiatives. At present, excluding the impact of market beta, taking into account our anticipated level of expense growth and more normalized level of performance fees and the current rate environment, which may impact year-over-year comparisons of set lending revenue and money market fee waivers, we would anticipate a 2021 as-adjusted operating margin generally in line with our 2020 result.

We're also investing through prudent use of our balance sheet to best position BlackRock for continued success. During 2020, we allocated over $1 billion of new seed and co-investment capital to support our growth, and our year-end portfolio now approximately is $3.5 billion.

We also continue to make strategic minority investments. And as you will hear from Larry shortly, we will announce later today an investment in Clarity AI, a sustainability analytics and data science platform.

And in the fourth quarter, we announced the acquisition of Aperio, a pioneering customizing tax-optimized index equity SMAs to enhance our wealth platform and provide whole portfolio solutions to ultra-high net worth advisers. Following the close of the Aperio transaction in early February, we will incur additional intangible amortization expense relative to 2020.

We also remain committed to systematically returning excess cash to shareholders through a combination of dividends and share repurchases, and returned an aggregate of $3.8 billion to shareholders in 2020. We repurchased approximately $1.5 billion worth of shares in 2020 at an average share price of $439 per share, taking advantage of PNC's decision to exit their ownership position in May.

Since inception of our current capital management strategy in 2013, we have now repurchased over $10 billion of BlackRock stock, reducing our outstanding total shares by 11% and generating an unlevered compound annual return of 19% for our shareholders. At present, based on capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price, we are targeting the repurchase of $1.2 billion of shares during 2021, consistent with our guidance a year ago.

In addition and also subject to market conditions, we expect to seek Board approval later this month for an increase to our first quarter 2021 dividend. As you will hear more from Larry, BlackRock has never been better positioned to deliver for clients as we leverage our unique insights, guidance and solutions to help them meet their long-term investment needs.

Fourth quarter total net inflows of $127 billion, representing 7% annualized organic AUM growth and 13% annualized organic base fee growth, were led by flows into iShares and our top-performing active franchise. Full year net inflows of $391 billion were positive across active and index, all asset classes, client types and regions and reflected broad-based strength across iShares and active and cash strategies. Global iShares ETF generated $185 billion of net inflows in 2020, representing 8% organic asset growth and 7% organic base fee growth.

We saw strong growth in core, in each of our strategic product areas and our precision exposures, which benefited from risk on sentiment during the fourth quarter. Within our strategic products segment, flows were led by fixed income and sustainable, and we also saw inflows into factors, despite the industry category seeing outflows.

The fourth quarter is typically our strongest quarter for iShares due to year-end rebalancing and tax planning, but this quarter was especially strong with net inflows of $79 billion, representing 14% annualized organic asset growth and a record 17% annualized organic base fee growth, reflecting the breadth of our product and client segments.

BlackRock generated full year retail net inflows of $70 billion, representing 10% annualized organic asset growth and 8% annualized organic base fee growth, significantly outperforming the broader mutual fund industry. Retail flows were positive in both the U.S. and internationally and reflected broad-based strength in active fixed income, equity and liquid alternatives. Fourth quarter retail net inflows of $35 billion reflected similar trends, but also included the seasonal impact of capital gains and dividend reinvestment.

Institutional index net outflows of $29 billion in 2020 reflected equity net outflows, partially offset by fixed income net inflows as several large clients rebalanced portfolios after significant equity market gains or tactically shifted assets to fixed income and cash.

In addition, a large U.S. public pension client recently announced a diversification of their plan to meet revised guidelines. BlackRock will maintain management of a significant majority of the planned assets, but we do expect to transition approximately $55 billion of low-fee index assets to another investment manager during the first half of 2021. While this transition will result in a significant net asset outflow, it will have a de minimis impact on our organic base fee growth for the year.

BlackRock's institutional active franchise generated $32 billion of net inflows in 2020, reflecting broad-based strength across all product categories. Active net inflows were led by $14 billion of multi-asset net inflows, reflecting continued growth in our LifePath target date franchise and significant momentum in our OCIO business. We also generated $7 billion of net inflows in active fixed income, primarily from activity among our insurance clients.

Across retail and institutional client types, we generated a record $30 billion of active net equity net inflows for the year and have now delivered 7 consecutive quarters of positive flows in this category. Flows were led by top-performing franchises in technology, health sciences and U.S. growth equities as well as quantitative strategies.

We remain well positioned for future growth in our active businesses with over 85% of fundamental active equity, systematic active equity and taxable fixed income assets performing above their respective benchmark's work peer medians for the trailing 5-year period.

Overall demand for alternatives also continued, with $17 billion of net inflows into our illiquid and liquid alternative strategies during the year driven by infrastructure, private equity solutions, credit and our multi-strat and global event-driven hedge funds. Momentum in fundraising remains strong, and we have approximately $24 billion of committed capital to deploy for institutional clients in a variety of strategies, representing a significant source of future base and performance fees.

BlackRock's cash management platform generated another $9 billion of net inflows in the fourth quarter, even as the broader industry saw outflows and a record $113 billion of net inflows in 2020. During the fourth quarter, we incurred approximately $30 million of discretionary yield support waivers and, as previously discussed, expect such fee waivers to increase in 2021.

Finally, full year advisory net inflows of $20 billion were primarily linked to asset purchases managed by our Financial Markets Advisory group. Recall that revenue linked to these assignments is primarily reflected in the advisory and other revenue line of our income statement.

This time last year, none of us could have predicted the unprecedented challenges that we and our clients around the world would face during 2020. By remaining true to our purpose, investing ahead of our clients' needs and respecting our One BlackRock culture, we look back on 2020 as a year that included some of the strongest and proudest moments of our 32-year history.

Our relationship with clients have never been deeper. And we believe in our platform -- we believe our platform is as well positioned as it's ever been to meet the needs of all stakeholders over the coming years.

With that, I'll turn it over to Larry.

Thank you, Gary. Good morning, everyone, and thank you for joining the call. I hope you and all your loved ones are staying healthy and safe.

For decades, BlackRock has built our strategy, platform and culture around staying in front of our client needs. We've deliberately invested in our business, so that we are prepared to help clients navigate the most complex challenges of the investment landscape and the world changes all around them, and that is showing up in the results today.

The hardships experienced by people globally in 2020 and inequalities further exasperated by the pandemic have only strengthened BlackRock's sense of responsibility to help millions of people build savings, to make savings easier and more affordable, advance sustainable investing and contribute to a more resilient global economy.

The pandemic has taken a dramatic toll on our lives, disrupting the way we work, the way we live. At the same time, it has led to a profound shift in how economies and how societies even operate, creating opportunities to redesign our society for the future.

Investors around the world, most of whom are saving for long-term goals like retirement, are experiencing the economic impact of the pandemic, which is leading to rising inequalities within and across nations, continued low interest rates even in the face of rising inflation expectations and a tectonic shift towards sustainable business practices. These trends will require investors to rethink portfolio allocation, and they are increasingly turning to BlackRock for insights and solutions, so they can fulfill their purpose on behalf of their stakeholders.

Our diverse global investment platform with active and index strategies across all asset classes, integrated technology, data and risk management and global scale and connectivity enables us to deliver strong and consistent investment performance and for more stable outcomes for our clients.

Our voice developed over years of managing assets for a diverse set of clients globally has helped BlackRock partner with our clients and has helped us to advocate on their behalf. We encourage the companies our clients are invested in to operate with a long-term mindset, increased transparency and important sustainability factors and focus on all of their stakeholders, and this is driving BlackRock's performance.

BlackRock's differentiated approach is resonating with our clients worldwide, leading to deeper partnerships with them and, as you could see, driving incredible momentum across our businesses. BlackRock generated $391 billion of total net inflows in 2020, representing 5% organic asset and 7% organic base fee growth.

We delivered 11% revenue growth, 13% operating income growth and 19% earnings per share growth. And on top of that, we were able to expand our margins by 120 basis points over a year-over-year basis.

These results reflect the benefits of our consistent investments and the diversity of our platform. Flows were positive across all major client types, across all asset classes and all geographic regions, including more than $1 billion of net inflows in each of the 19 countries and into 104 different products.

In strategic growth areas, we saw record client demand for active equities, sustainability, our cash products and our alternative investment strategies. We also generated $185 billion of net inflows into iShares ETFs, and we also delivered a record $1.1 billion in technology services revenues.

By supporting clients with solutions, no matter their objective or risk preference, BlackRock is positioned to generate differentiating growth and invest for the future. Our long-term strategy remains to focus on accelerating growth in iShares, accelerating our growth in illiquid alternatives, accelerating our growth in technology and making sure that performance and generating alpha is at the heart of BlackRock.

We're doing this through delivering whole portfolio solutions and becoming the global leader in sustainable investing. These investments will benefit, of course, our shareholders, but are benefiting all our stakeholders.

Sustainable -- sustainability reached an inflection point this past year driven by the convergence of business practices, regulation, technology advancements, and we're seeing it across client preferences. BlackRock generated $68 billion of net inflows in sustainable strategies in 2020, representing over 60% organic growth. And we launched over 100 new products in 2020 to expand investor choice.

We are seeing strong demand across client segments. Institutional clients are increasingly seeking sustainable strategies to mitigate exposures and to capture opportunities, while clients are using ETF building block, especially our sustainable iShares ETFs in both sustainable and traditional model portfolios.

We recently surveyed investors representing $25 trillion in assets, who said they plan to double, I will underscore double, their allocations to sustainable products over the next 5 years to nearly 40% average from a level of approximately 18%. BlackRock's sustainable investment platform is well positioned to meet this demand, and we will continue to believe the $200 billion we manage today will go to $1 trillion in sustainable investments by the end of this decade.

Clients worldwide are continuing to adopt ETFs throughout the year, and iShares drove $185 billion of inflows in 2020. In the U.S., iShares ETFs crossed $2 trillion last week, doubling our size in just 4 years. Our European iShares generated nearly $60 billion in net inflows, becoming increasingly important to our global growth. Overall, iShares ETFs, particularly in the first quarter, has unlocked new sources of client demand with active managers, insurers and asset owners globally.

BlackRock's scale, engineering, technology and ecosystem partnerships have enabled us to maintain robust liquidity across iShares ETFs and execute some of the largest rebalances in history, all with tight tracking error and while operating our platform fully remotely in this environment.

We win these 4 defining moments in our ETF business in 2020. One, iShares outperformed in the face of the most severe market stress test in ETF history. Two, fixed income ETFs shined as a modernization force for the $100 trillion bond market. Three, sustainable ETFs are making sustainable investing more accessible to investors. And four, we are seeing an increased adaptation of ETFs in wealth portfolios as more wealth management industry shifts towards a more fiduciary commission-free model.

We believe that these moments and BlackRock's performance in them will continue to support and accelerate the long-term growth of iShares and the broader ETF industry. More than 70% of our annual iShares flows were from strategic product segments led by fixed income and sustainable product categories.

2020 was a turning point for global client adoption of fixed income ETFs and fixed income iShares, generating $89 billion of inflows. We estimate that over 100 asset managers and asset owners globally were first-time adopters in 2020 in fixed income ETFs, and 80% of our top active managers are now using our fixed income ETFs.

Fixed income iShares is now a $690 billion business, and we continue to believe it will grow to $1 trillion over the next 2 to 3 years. Sustainable iShares ETF saw a record $47 billion of net inflows in 2020, and AUM has tripled year-over-year to $82 billion.

We're rapidly expanding our product suite, partnering with index and data providers to expand product choice in this category. With more than 140 iShare ETFs and index funds globally, we have the broadest choice of any firm, and our goal is to continue innovating so that more investors, more people, more savers have greater access to sustainable strategies.

Shift in the wealth management landscape towards digitization, centralization and outsourcing in both the United States and Europe are increasing ETF usage among these clients. Growth in model portfolios across all platforms is an example of how technology and the transparency of fee-based wealth management are tailwinds for the ETF market. Model portfolios are driving approximately 1/4 of iShares globally -- growth globally, and we expect growth in models, especially customized models developed in partnership with clients, to account for more than half of iShares flows in the coming years.

BlackRock is deepening partnerships with wealth managers and financial advisers globally by offering high-quality insights and solutions across both index and active strategies, and no other firm can link those 2 strategies together. We are seeing strong demand from our top-performing active mutual fund franchise, even as the broader U.S. active mutual fund industry saw more than $250 billion of outflows in 2020.

In November, we announced the acquisition of Aperio, which will accelerate our leadership in the fast-growing U.S. separately managed account space. Wealth managers are increasingly looking for partners who can provide personalization and whole portfolio solutions. And now BlackRock is well positioned to be the partner of choice for the full spectrum of wealth clients.

We want to make it easy for wealth managers to access our investment strategies across funds, ETFs, SMAs and models and construct a more resilient risk-aware portfolio using our technology. Active strategies and strong performance after fees are critical in building efficient, resilient portfolios. And as public markets, both equities and fixed income, become more efficient, clients are increasingly looking for a differentiated manager who can find differentiating sources of alpha.

It's not just about beating a benchmark or peer medium, but delivering incremental, tangible dollar returns for clients. BlackRock's investments over time in integrated technology, data, risk management, scale, global reach and the interconnectivity is enabling us to generate strong investment performance at a time when clients need this performance the most.

Our active business generated over $30 billion of alpha returns for clients in 2020, which is leading to more client demand than ever before. BlackRock generated $88 billion of total active inflows for the year, including a record for BlackRock, $30 billion of active inflows in active equities.

Private markets are also increasingly an important component for alpha in investor portfolios, as both growth assets and diversification. BlackRock has built a broad platform across infrastructure, private credit, real estate and private equity to meet client demands.

We more than doubled our illiquid alternative platform over the last 5 years, and today, we manage $86 billion on behalf of clients. We raised a record $25 billion of client capital in 2020 led by infrastructure, private equity solutions, private credit and the final close of our direct private equity Long Term Private Capital strategy.

LTPC is one of the largest first-time funds raised to date with a total of $3.4 billion and a great example of BlackRock's ability to innovate and organically develop private market solutions to meet our clients' evolving needs. And in an increasingly competitive environment for deploying capital, we are leveraging the benefits of BlackRock's scale and size to deploy capital on behalf of clients.

Our capital markets team gives us a differentiated access to unique deal flow for clients in 2020, and this team alone helped us source 2,100 such opportunities.

20 years ago, we recognized the important value proposition Aladdin can provide for our clients. Today, our technology is a $1.1 billion revenue business, as more clients than ever before are looking for a unified technology platform, like Aladdin, that can support their whole portfolio across both public and private assets. And we are committed and remain focused on continuously evolving Aladdin for the next 20 years to come.

As sustainability becomes a critical building block in all portfolios, our ambition is to put Aladdin at the center of sustainable investing and address the challenges that investors are facing and in the future. We launched Aladdin Climate to help clients better access both the physical risk climate change and the transition risk to a low-carbon economy on their portfolios. And we're committed to be providing clients with everything they need for sustainable investing in Aladdin: access to sustainability data and its analytics and tools to seamlessly implement sustainable portfolios.

And in line with this commitment, we made a minority investment in Clarity AI, which provides tools to access environmental and social impact, and we'll be connecting with the capabilities throughout Aladdin.

Our ability to address client challenges enables us to fulfill our purpose and drive strong long-term performance. Over the last 5 years, clients entrusted us with $1.5 trillion of net new assets, which, in turn, has enabled us to create over 3,500 jobs globally. And on top of all that, we delivered 141% total return for our shareholders.

I am deeply humbled by how BlackRock's 16,500 employees have supported each other and our clients throughout this challenging year, which is critical to our success in 2020. More than 90% of our employees and our annual employee opinion survey said they are proud to work at BlackRock; and we remain committed to upholding our culture and every day living our purpose.

We built BlackRock because we believe in the long-term growth of the capital markets and the importance of being invested in the capital markets. Even today, BlackRock only is 2% of the global financial assets, and we see tremendous opportunities ahead to continue supporting the growth of global capital markets and helping more people invest and save.

Everything we do is rooted in our culture of focusing on the long term, and we will be continuing to innovate using our scale and contributing to more equitable, resilient future to benefit our clients, to benefit our employees, to benefit our shareholders and the people in the communities where we live, where we work, where we operate. I firmly believe that the efforts of 2020 will position BlackRock to deliver value over the long term for all of our stakeholders.

With that, let's open it up for questions.

(Operator Instructions) Your first question comes from Alex Blostein with Goldman Sachs.

First question, I wanted to ask you guys around scale at BlackRock in relation to the margin guidance that you guys provided for 2021. I guess given the strong exit on the revenue front, this implies a pretty healthy pickup in spending.

I know you talked about some specific areas, like technology and market data, but can we maybe get a little more specificity on kind of what are the key areas where you expect to add into '21? And I guess beyond that, how should we think about the ability of BlackRock to deliver positive operating leverage beyond '21?

Thanks, Alex. It's Gary. Happy New Year. I'll take the first swipe at that and then let others chime in.

So look, our performance in 2020 clearly reflects, as we've talked about at length, a strategic commitment to investing responsibly in our business across market cycles. And our margin of the year, up 120 basis points improvement over last year benefited from a number of, what I would call, items that we saw in 2020 that will be potentially a little different next year.

And of course, we're trying to stare into a crystal ball like everybody else, but margin last year benefited from record performance fees. We had securities lending revenue that was also a record. And I think as we've talked about, we did have a lower level of core G&A expense than anticipated. So if you think about it, from my perspective, the margin pop we saw this year was probably a little bit higher than we would normally have expected.

And as we stated previously, we've never been better positioned to take advantage of the opportunities in front of us. And we are passionate, as you know, about investing responsibly and aggressively.

So many have asked, in fact, we were asked at your conference about our plans for next year and whether we would drop some of those reduced core spending levels to the bottom line. In our view at this point is when we look out at the opportunities in front of us and what's happening in the industry that we see a very unique opportunity to continue playing offense maybe even a little harder and to invest that money back into the business to support incremental investments in technology, market data and a variety of other areas to support those growth initiatives.

So when you say like what those are, I think it's very consistent with what we've talked about. I think we look to invest meaningfully higher next year, again, in terms of repurposing some of those. Remember, we didn't really complete our -- all of our investment plans during the year. We put a hiring freeze on -- in 2020 in March and didn't really start rehiring until late in the third quarter.

So we're a little bit behind, so there's a little bit of catch-up, and there's a little bit of incremental that's going to happen. And the -- strategically, think private markets, iShares, Aladdin, sustainability, whole portfolios, stewardship, China, which is obviously starting to ramp up as we're going to get operational there.

In terms of technology, we are in the midst of our cloud migration. We are seeing opportunities in terms of tech infrastructure as well as health and safety improvements throughout the organization. So I think with that in mind, we feel that this is the right time for us to kind of ramp it up. And given that we saw a little bit of a higher margin this year than we would have anticipated, it results in a little bit of a more moderated margin story for 2021.

Your next question comes from Glenn Schorr with Evercore.

Okay. So if I look back on 2020, it's interesting, right, because rates go to 0, and there's a lot of things at play. But you had really good fixed income flows, both active and passive, and that's continuing.

I'm sure it's big picture that goes into Larry's opening remarks. As people start thinking about higher rates and potential inflation on the outlook, how do you think asset allocations are going to change, particularly on the fixed income front?

Well, I don't have a crystal ball. So right now, the forward curve does show interest rates going up quite significantly, as high as 1 80, last time I looked for the 10-year.

I -- we are seeing -- we believe that because, even at that rate, that is not going to change the allocation that remarkably because I do believe that, that rate -- liability rates are still going to be longer. And as a result, the demand for equities will persist.

But in terms of fixed income, we have not really seen much change in client preferences. They are consistently looking at products like SIO, which is a specialized fixed income product that is not targeted to -- is not targeted normally to duration.

We expect to see more global demand in global bonds as a mechanism away from the potential lowering of the U.S. dollar. We will -- we are continuing to see emerging markets beginning to show interest as a macro trade. And we're -- we continue to see more and more interest in private markets and private credit. So I -- and which we are strong in all of these.

So I don't think you're going to see a persistent large-scale rebalancing out of core fixed income assets. The positive side, I would say, if rates go up for the yield curve, it's going to make, obviously, the banking system to be much stronger. It's going to make lending even easier to be had. I think a rising yield curve is a positive sign for the economy. And so all of that, in my mind, leads to probably better equity valuations.

Rob, do you have anything you wanted to add to that?

Yes, I think that demand is still going to outstrip supply. But I think, Glenn, the way we look at it is as people allocate to fixed income, they're going to allocate differently. And the fixed income iShares flows are going to benefit from the low rate environment, as we've already started to see.

And as people start to do this reallocation, this is why we've seen, as Larry mentioned in his opening remarks, over 100 new asset managers and asset owner clients come into fixed income, but come in through iShares. And a good statistic is 80% of the top asset managers are now using fixed income ETFs.

So we think there's still demand, but the demand is going to be shown differently as they come in. And we're very well positioned in our iShare business to take that money in fixed income.

Your next question comes from Craig Siegenthaler with Crédit Suisse.

(inaudible) distribution scale. We've all witnessed the pickup in M&A activity in the asset management industry, and many CEOs have discussed the need for distribution scale.

And since BlackRock is the largest asset manager in the world with the largest distribution platform globally, I just wanted to hear your perspective on BlackRock's unique distribution scale advantage.

And also do you think firms who have $1 trillion or $500 billion of AUM really need to buy their firms to improve their scale? And also hoping Gary can shine into just given his deep background in M&A.

Gary, why don't you just start on that one part, and I'll finish the last part?

Okay. Sorry, I'm not on. So as we think about -- I guess it was a 2-part question. Your first question was on scale and how do we think about that in the context of M&A, Craig. Or is it what are the unique scale...

First question is talk about BlackRock's unique distribution scale advantage. And then as you look at the industry, do you think other firms that are fairly large but not the same size of BlackRock, do they really need to buy their firms to improve their scale? And is that a real advantage for them?

Okay. Well, I'm going to try to avoid commenting on what other firms should do. But obviously, as you know, our competitive advantage in terms of what we believe drives a lot of our value proposition is global reach, is best-in-class technology, risk management, diverse investment capabilities across the spectrum of active and passive and then, obviously, to be able to bring all of that together.

We've been at that now for well over a decade in terms of not only trying to identify the pieces that we need, but also integrating those pieces into a distinct and unique One BlackRock culture. And we think that's really critical to our success today, both in terms of being able to reach clients with boots on the ground, as Larry mentioned, 16,000-plus people, over half of those people are outside of the Americas these days, having capabilities to have thoughtful investment discussions by virtue of the fact that we are local in our local markets, and Larry talked about that a lot. And obviously, I don't think that there's really a great opportunity for a number of our competitors to just recreate Aladdin overnight in terms of those capabilities.

So I think, again, breadth of product, breadth of reach, breadth of insight, all brought together with technology and risk managing creates this unique franchise that, frankly, seems to be humming on multiple cylinders today.

And I think we -- do we view that as unique? Yes. Do we view it as something that other people could create? Potentially, but I'll leave that to the challenge. But as I said, we've been doing this for a decade, and it's going to take quite a long time for people to try to replicate, I think, what we have right now.

Let me try to respond to the first part of the question. I believe our distribution platform has been buttressed quite a bit over the last 5 years. It's been a long-term commitment.

We are providing a uniqueness, as Gary suggested, across the world in terms of providing that conversation that intersects both active and passive and the risk analytics. No firm can do this at this moment.

I believe the elevation of content by the wealth manager has been one of the giant changes, too. As the wealth management industry has moved away from fee-based to advisory-based, they've really elevated their ability to have deeper, broader conversations. And they're looking for a few partners who could work with them and build that out, and we are certainly one of the go-to firms who are helping that.

And we're able to help them deliver that global insight, that advice and, more importantly, the solutions that are helping them. So it is the combinations of having iShares and our active strategy, but now with the overlaying of technology to customize portfolios. And today, the customization of portfolios and personalizing a portfolio is becoming more and more in need in the wealth management space.

It is not about selling a bond fund or a stock fund anymore. It is not about buying a stock or a bond. It is about a holistic whole solution portfolio, and so our uniqueness is about that and how we deliver it.

Just as a response to the industry, the industry has been always designed around a specific product, a specific fund. And for the firms who only have a product or in one asset category, they have a difficult time to really respond to whole portfolio solutions.

And I believe this customization, the personalization of whole portfolio solutions is becoming the driver, the driver in terms of most of the wealth management conversations. Do we need to do more acquisitions for distribution? Not in the United States and not in Europe. Could we do somewhere in another part of the world where we don't have a strong footprint? Sure. That is consistent what I've said over the last 3 to 5 years.

And importantly, what we are going to do, like we announced today, the Clarity AI minority interest, what we are trying to do is provide in this portfolio customization also uniqueness in data and analytics to drive better decision-making, which will ultimately drive better performance. And I think that is also the uniqueness of BlackRock and why we are so constructive on the opportunities we have working with wealth managers worldwide.

Your next question comes from Robert Lee with KBW.

Larry, I guess, a regulatory question. It does feel like after being pretty quiet and dormant for a bunch of years, we're starting to see more talk about relooking at asset managers for their systemic risk and everything.

So just kind of maybe your take on where you see -- if you see, where you see that kind of chatter picking up? Is it more in Europe or here? I mean your perspective, I think, would be helpful.

Great question. We built BlackRock around the whole foundation of strong global capital markets. I think we have been a big beneficiary over the years by we've believed in global capital markets and the expansion of global capital markets over the last 20 years. And I think the size of our footprint and the size of the AUM that we manage is because of our commitment to building broad-scale capital markets.

One of the interesting points, I said this at the end of the -- my speech today, our size relative to the global common markets is almost virtually unchanged to what it was in 2009. So in 2009, we were under 2% of the global capital markets. And today, we're a little bit over 2% of the global capital market.

So as much as we've grown, the world capital markets have grown. The use of government debt as a mechanism, finance deficits have grown. The use of the equity markets for IPOs and new companies and the expansion of other countries expanding their capital markets, whether the capital markets expansion in the Middle East or parts of Asia have been really quite extraordinary. So we are benefiting from that.

What we need in our -- in that, and we've always welcomed that, we need to make sure that regulators focus on a well-functioning capital markets to build a more resilient economy. So we have encouraged regulation worldwide to ensure well-functioning capital markets, and that is the key criteria how we look at it.

I would say the one myth about asset managers, the asset manager industry is highly regulated already. At BlackRock, we are regulated by the SEC. Because we have a trust bank, we're regulated by the OCC. We're regulated by the CFTC, by FINRA. Overseas, we're regulated across the board. We are not a bank, and that's why we are not regulated by one regulator, the Federal Reserve. But we're regulated by almost any other organization and regulator.

The asset management industry is still highly fragmented, and so I believe we welcome the conversation. And we are encouraged about how regulators are focusing on the need of a well-functioning capital market. But the concept of that asset management history is not regulated, that must be coming from bankers.

We're not a bank. We don't -- all $8.7 trillion of our assets are other people's hard-earned savings and money. We have a contract with every one of our clients.

In most of our short-term funds, mutual funds, ETFs, they could sell those assets in a day. And our institutional liquid portfolios, they could do it over 30 days. And depending on some of the long-term private assets, that depends on the contract that we have with each individual client.

But the notion that asset managers are not regulator, it's just a myth. It is not true. But as the largest asset manager in the world, as a fiduciary to all our client savings, we want a highly functioning markets. And at the time when markets need more supervision, in almost all cases, we have been systematically in favor of ensuring market safety and soundness, and we will encourage that going forward.

Your next question comes from Ken Worthington with JPMorgan.

I'm curious your views on the outlook for tax-managed investing in the aftermath of COVID and the outlook for higher personal income and investment taxes in the U.S. and abroad. To what extent might demand here provide another catalyst for ETFs in direct indexing growth inside and outside the U.S.? And did the outlook for tax-managed investing contribute to your interest in Aperio?

Well, the answer is yes, but it comes under a broader picture, and that is we're seeing increased demand for what is called personalization and customization, and that includes tax managed. It also includes ESG and includes factor preferences.

And as mentioned before, wealth managers are looking to do more with fewer partners. So they want partners who can offer whole portfolio solutions, and that's why we are positioning ourselves to be the partner of choice.

With our acquisition of Aperio, we are further enhancing our value proposition for whole portfolio SMAs across equity, fixed income, alpha factors and index solutions because, ultimately, we want to make it easy for wealth managers to access our investment strategies across funds, ETFs, SMAs, even models and be able to construct more resilient, risk-aware portfolios using our technology.

So we're seeing -- as a result of our investment in serving more and more wealth managers, we saw $185 billion of iShare flows. We're seeing strong active flows, including inflows across active mutual funds, even as the industry saw outflows. And we're reaching out to more advisers with our adviser center and our partnership with Envestnet.

Now on the self-indexing part of your question, look, self-indexing certainly has some advantages, and the advantages are cost and flexibility. So we're exploring constantly self-indexing in areas where there aren't well-defined indices, and that would be in smart beta, in fixed income, factors, in ESG. And currently, we have 6 self-indexed ETFs.

So we also continue to have great relationships with our index providers, and we believe there's often significant value in having a third-party provider. And clients, especially institutions, often value the brands and are benchmarked to those particular indices.

As well, the major index providers, they provide services more than just the brand. They provide research, IP, tracking, corporate events. So we're also seeing better price competition among the index providers and the sharing of IP. And I think you've also seen our recently announced collaboration with Morningstar focused on enhancing style investing for clients to better represent the size and style mandates in the U.S. equity market.

So a lot said, but a lot of that has to do with this customization, this personalization. And as you rightfully say, a lot of that is going to be focused on tax going forward, and we want to be positioned well for that.

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

Thank you, operator. Thank you all for joining this morning for your continued interest in BlackRock.

BlackRock's 2020 results are a direct result of our steadfast commitment to serve our clients and putting their needs at the center of everything we do. We will continue to invest and innovate in the years to come, so we could be better helping millions of people to build up savings, to make investments easier, more affordable. We're going to continue to advance sustainability investment and contribute to a more resilient economy. All of that, in my mind, will be continuing to drive the success of BlackRock in 2021 and beyond.

Everyone, have a good start. Everyone, please feel safe. Everyone, please stay healthy. And everyone, please get a vaccination. Thank you. Bye-bye now.