BlackRock, Inc. Q3 FY2026 earnings call

• Strategic Execution: BlackRock is delivering on its 2030 plan, achieving high single-digit organic base fee growth (11%) for nine consecutive quarters. The integrated platform (GIP, HPS, PreQIN) is driving durable, all-weather growth across public and private markets.
• AI Infrastructure Financing: Management identified a structural capital shortage, particularly for AI data centers. BlackRock is leveraging its scale to finance hyperscalers (e.g., Meta’s $14B Texas facility) and aims to securitize compute capacity into tradable assets, similar to the MBS market evolution.
• Private Markets Momentum: Raised $68 billion in private markets over the last 12 months. Strong traction in private credit ($25 billion raised in first full year with HPS) and infrastructure. Expectations for evergreen fund flows to turn positive in Q4 2026/early 2027.
• Fixed Income & Income Investing: Record demand for fixed income as investors seek yield in a higher-rate environment. Fixed income generated $78 billion in net inflows in Q3. Active fixed income and systematic equity strategies are performing well above benchmarks.
• Technology & Aladdin: Technology services ACV grew 12%. Aladdin serves as the operating system for client portfolios, integrating public and private market analytics. Digital assets ETPs raised $8 billion.
• International Growth: International clients contributed one-third of long-term net inflows. Europe, Asia, and the Middle East showed double-digit or higher base fee growth. Notable win: $80 billion outsourced fiduciary mandate from Dutch construction pension fund.

Total revenue reached $7.8 billion, a 19% year-over-year increase. Operating income was $3.3 billion (up 27%), and EPS was $15.93 (up 38%). The operating margin expanded to 47.8%, while the adjusted operating margin (excluding performance fees) was 48.6%. Revenue drivers included organic base fee growth of 11%, higher average AUM due to market beta, increased performance fees ($630 million, up 22%), and technology services revenue growth of 14%. Base fee and securities lending revenue totaled $6 billion (up 20%). Total expenses rose 14%, driven by compensation (+12%) and distribution costs (+22%). Net inflows were $205 billion, with ETFs contributing $135 billion, cash management $31 billion, institutional active $44 billion, and private markets $15 billion.

• Tax Rate: Management estimates the effective tax rate for Q4 2026 to be approximately 25%, consistent with previous guidance.
• Capital Returns: Anticipates repurchasing at least $550 million worth of shares in Q4 2026, consistent with July guidance. Full-year G&A expense expected to increase in the mid-single-digit percentage range after annualizing for HPS and PreQIN impacts.
• ACV Growth: Long-term commitment to low-to-mid-teens Annual Contract Value (ACV) growth for technology services.
• Organic Base Fee Growth: Confident in sustaining 6-8% long-term target, with recent quarters showing ability to exceed this during periods of elevated client activity and strong market conditions.

• Interest Rate Volatility: Structural deficits and capital demand imbalances may keep interest rates structurally higher for longer, impacting financing costs and market dynamics.
• Execution Risk in New Asset Classes: Securitizing compute/AI infrastructure requires developing new data standards, rating agency frameworks, and risk analytics; delays could impact timeline.
• Custodian Constraints: Capacity constraints at major custodians for long-short and tax-aware strategies require ongoing management of financing counterparties and distribution channels.
• Market Sensitivity: While structural growers dampen volatility, margins remain sensitive to performance fee mix and market beta fluctuations.

Q: Michael Cho (JP Morgan) asked about the sustainability of the 11% organic base fee growth and which business segments are driving the acceleration beyond the long-term 5-8% target.

A: CFO Martin Small explained that growth is broad-based, driven by high-value categories like systematic equity, active ETFs, private markets, and tax-aware solutions. He highlighted that flows are concentrated in higher-fee buckets (10-60 bps for active/tactical, >60 bps for private markets). He emphasized that structural growers (ETFs, private markets, SMAs) and industry consolidation trends support sustained high-single-digit growth, with several scaled outsourcing mandates expected to close in late 2026/2027.

Q: Michael Cypress (Morgan Stanley) queried how rising long-term interest rates affect client allocation preferences and the economics/pace of AI infrastructure projects.

A: President Rob Kapito stated that fixed income demand is in its "early innings" as yields (>5% for 10Y Treasuries) offer attractive income without excessive duration risk. CEO Larry Fink added that record federal deficits and private capital demand create competition for funds, implying structurally higher rates for longer. However, he argued that unlocking private capital for AI/data centers is imperative for US growth, necessitating innovative financing structures (like asset-backed chip financing) to democratize access beyond just large hyperscalers.

Q: Craig Siegenthaler (Bank of America) sought details on demand for tax-aware strategies (Appirio/SpiderRock), specific Q3 flows, and how BlackRock manages custodian capacity constraints for long-short strategies.

A: CFO Small reported Appirio had $5 billion in Q3 net inflows ($4B long-short, $1B long-only), with YTD flows up 70% YoY. SpiderRock saw $2 billion in Q3. Regarding custodian constraints, Small noted that while some custodians are tightening, the industry is adjusting. BlackRock is diversifying financing partners and distribution channels, working closely with wealth managers to expand access through alternative structures and ensuring robust operational support for these complex strategies.

Q: Alex Blostein (Goldman Sachs) asked about BlackRock's role in the AI compute financing ecosystem, specifically the bridge period before securitization is possible, and potential revenue from syndication.

A: CEO Fink confirmed BlackRock is deeply engaged with every major hyperscaler, participating in senior debt, mezzanine, and equity layers via HPS/GIP. He views securitizing compute as a multi-year development requiring new data/rating frameworks. CFO Small clarified that BlackRock’s primary model is fiduciary—placing assets into long-term client accounts to generate recurring fees. Syndication/distribution revenues are viewed as incremental, not the primary value driver, focusing instead on growing fee-paying AUM across their vast institutional and insurance client base.