Good morning. My name is Terran, and I will be your conference facilitator today. Today's call is being recorded. At this time, I would like to welcome everyone to the BlackRock Incorporated Fourth Quarter 2022 Earnings Teleconference. Our host 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] Thank you.

Mr. Meade, you may begin your conference.

Christopher Meade - General Counsel

Good morning, everyone. I am 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 see today. BlackRock assumes no duty and does not undertake to update any forward-looking statements.

So with that, I will turn it over to Gary.

Gary Shedlin - Chief Financial Officer

Thanks, Chris. Good morning and Happy New Year to everyone. It's my pleasure to present results for the fourth quarter and full-year 2022.

Before I turn it over to Larry, I will 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. As a reminder, beginning in the first quarter of 2022, we updated our definitions of as-adjusted operating income, operating margin and net income. Year-over-year financial comparisons referenced on this call will relate current quarter results to these recast financials.

Throughout BlackRock's history, we have consistently invested in our business with a long-term focus and commitment to serving clients across market environments. We have established leadership positions in high-growth areas such as ETFs, private markets, outsourced solutions and technology. And we have integrated these industry-leading capabilities into our one BlackRock business model and culture to create a distinct and differentiated value proposition for clients.

As a result of these investments, we grew organically at our fastest rate ever in 2021, and while 2022 was one of the most challenging market environments in over 50 years, clients around the world once again turned to BlackRock for advice and assistance to construct more resilient portfolios. In good times and bad times, whether adding or reducing risk, our continued industry-leading organic growth demonstrates the clients are increasingly consolidating more of their portfolios with BlackRock for long-term solutions that solve their most challenging investment needs and address their unique risk preferences and priorities.

During 2022, BlackRock generated industry-leading total net inflows of over $300 billion and delivered positive organic base fee growth.

Importantly, we ended the year with strong momentum, generating approximately $114 billion of total net inflows in the fourth quarter, representing 3% annualized organic base fee growth, and reflecting continued momentum in iShares and significant outsourcing mandates. Full-year revenue of $17.9 billion was down 8%, operating income of $6.7 billion and earnings per share of $35.36, both declined 13% compared to 2021.

For the fourth quarter, revenue of $4.3 billion was 15% lower year-over-year, primarily driven by the impact of lower markets and dollar appreciation on average AUM, and lower performance fees. Quarterly operating income of $1.6 billion was down 25%, while earnings per share of $8.93 was 16% lower versus a year-ago, also reflecting higher non-operating income and a lower effective - effective tax rate in the current quarter.

Non-operating results for the quarter include $159 million of net investment income, driven primarily by mark-to-market gains in our private equity co-investment and seed investment portfolios and our strategic minority investment in investments. Our as-adjusted tax rate for the fourth quarter was approximately 23%, driven in-part by discrete items. We currently estimate that 25% is a reasonable projected tax run rate for 2023, primarily due to an increase in UK tax rates - the actual effective tax-rate may differ because of non-recurring or discrete items or potential changes in tax legislation.

Fourth quarter base fee and securities lending revenue of $3.4 billion, was down 14% year-over-year, in line with the corresponding decline in average AUM, primarily reflecting the negative revenue impact of approximately $1.7 trillion of market beta and foreign exchange movements on AUM over the last 12 months. Sequentially, fourth quarter base fee and securities lending revenue was down 4%, despite positive organic base fee growth in the quarter. Our fourth-quarter annualized effective fee rate decreased by approximately 0.5 basis points from the third quarter reflecting the previously discussed impact on our fourth-quarter entry rate, continued mix change favoring lower fee mandates and lower securities lending revenue. Fourth quarter and full-year performance fees of $228 million and $514 million respectively decreased from a year-ago. The declines primarily reflected lower revenue from liquid alternative and long-only mandates, partially offset by higher fees from illiquid alternatives.

Notably, as our private markets business continues to scale, full-year performance fees from liquid alternatives increased 42% year-over-year and our unrecognized deferred carried balance, which represents a portion of our potential future tariffs fee revenue, exceeds $1.4 billion. Our Aladdin business delivered record net new sales in 2022, and demand for our technology solutions has never been stronger. Quarterly technology services revenue increased 4% year-over-year, and full-year revenue of $1.4 billion increased 7%. Both periods reflected significant revenue headwinds associated with the FX impact on Aladdin's non-dollar revenue, end-market declines on Aladdin's fixed-income platform assets. Annual Contract Value or ACV increased 8% year-over-year. On a constant currency basis, we estimate ACV would have increased 10% from a year ago.

Total expense decreased 4% in 2022, reflecting lower compensation direct fund expense and G&A expense. For the full-year, employee compensation and benefit expense was down 5%, primarily reflecting lower incentive compensation due to lower operating income and performance fees and lower mark-to-market impact of certain deferred compensation programs, partially offset by higher base compensation. Recall the year-over-year comparisons of fourth quarter compensation expense are less relevant because we finalized full-year compensation in the fourth quarter.

2022 direct fund expense decreased 7% year-over-year, primarily reflecting lower average index AUM. The sequential decline in quarterly direct fund expense also includes the impact of higher rebates that seasonally occur in the fourth quarter. Excluding product launch costs, fourth quarter G&A expense increased 2% year-over-year, reflecting ongoing strategic investments in technology and the impact of higher foreign-exchange re-measurement expense, partially offset by lower occupancy and sub-advisory expense. For the full year, we estimate the core G&A expense was up 11% compared to 2021, primarily driven by higher technology spend associated with our Aladdin cloud migration and a return to more normalized levels of T&E expense.

Our full-year as-adjusted operating margin of 42.8% was down 400 basis points from a year ago, primarily reflecting the negative impact of markets and foreign exchange movements on revenue and the ongoing longer-term strategic investments we have been making in technology and our people. BlackRock's industry-leading organic growth is a direct result of the disciplined investments, we have consistently made through market cycles. As we've shown throughout our history, it's often in times of greatest uncertainty, but BlackRock's differentiated model enables us to continue playing offense and we emerge even stronger. Since July, we've been aggressively managing the pace of our discretionary spend so we would be better prepared for 2023, a year in which we will need to increasingly focus our resources on areas of greatest opportunity.

In order to continue investing in our people and critical strategic priorities during the year, we recently restructured the size and shape of our workforce to free up investment capacity for our most important growth initiatives. By taking a targeted and disciplined approach to how we shape our teams, we not only increased investment capacity for these initiatives, but also created opportunities for our incredible talent. This resulted in a fourth quarter restructuring charge of $91 million, primarily comprised of severance and accelerated amortization of previously granted deferred compensation awards for approximately 500 impacted employees or 2.5% of our global workforce. This charge appears as a single-line expense item on our 2022 GAAP income statement, and has been excluded from our as-adjusted results to enhance comparison to prior periods.

Our business is incredibly well-positioned to take advantage of the opportunities before us and we remain deeply committed to optimizing organic growth in the most efficient way possible. At present, we would expect our headcount to be broadly flat in 2023. Optimizing the shape of our talent pyramid and growing our footprint in iHub innovation centers will continue to be central to our talent, strategy, allowing us to continue to support growth at scale. In addition, we would also expect a mid-to-high single-digit increase in 2023 core G&A expense, driven by the upcoming move to our new Hudson Yards headquarters, continued investment in technology to scale our operations and support future growth, and the annualized impact of migrating Aladdin clients to the cloud, which is now substantially complete.

We are also investing through prudent use of our balance sheet to best position BlackRock with continued success. During 2022, we allocated $1.2 billion of new seed and co-investment capital to support our growth and our year-end portfolio now approximates $3.9 billion. Our strategic minority investments are reinforcing various elements of our strategy and simultaneously generating very attractive returns for our shareholders. During the year, we invested in Circle and became the primary manager of the USDC cash reserves. And we recently made a minority investment in Human Interest, a tech-enabled end-to-end retirement plan solutions provider, which is helping Americans employed by smaller businesses access easier ways to save for their retirement. We also remain committed to systematically returning excess cash to shareholders through a combination of dividends and share repurchases and returned a record $4.9 billion to shareholders in 2022, including $1.9 billion of share repurchases, an increase of over 30% from 2021.

Since inception of our current capital management strategy in 2013, we have now repurchased over $13 billion of BlackRock stock reducing our total outstanding total shares by 13% and generating an unlevered compound annual return of approximately 15% 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 at least $1.5 billion of shares during 2023.

As you will hear more from Larry, BlackRock's strategy has always been guided by our clients needs. We are relentlessly focused on providing choice, delivering strong investment performance and executing our fiduciary duties with excellence. This enables us to build deeper and broader relationships with more clients and drive differentiated growth across our platform.

Fourth quarter long-term net inflows of $146 billion, representing 8% annualized organic asset growth, were led by flows into strategic growth areas including ETFs, outsourced solutions and illiquid alternatives. Full-year long-term net inflows of $393 billion were positive across all regions, led by net inflows of $230 billion from clients in the United States. BlackRock generated industry-leading ETF net inflows of $220 billion in 2022, representing 7% organic asset growth and 3% organic base fee growth, including a record $123 billion into bond ETFs. Fourth quarter ETF net inflows of $90 billion, reflecting some seasonality, but also reflected the diversity of our product and client segments. Surging demand for our bond ETFs, which saw $47 billion of net inflows, represented the second best quarter in our history. We also saw continued strength in core equity ETFs as well as precision exposures as clients reassessed crypt tactical asset allocation changes during the quarter.

Full-year retail net outflows of $20 billion reflected ongoing industry pressures in active fixed-income and world allocation strategies, partially offset by strength in index SMAs and our Systematic Equity Income and Multi Strategy Alternatives funds. Fourth quarter retail net outflows of $15 billion, reflected similar trends. BlackRock's institutional business generated record net inflows of $192 billion in 2022, representing 4% organic asset and 3% organic base fee growth paced by approximately $170 billion of active net inflows, reflecting broad-based strength across all product types and the funding of several significant outsourcing mandates. Fourth-quarter institutional active net inflows of $76 billion were also positive across all product types and included the funding of the substantial remainder of the AIG and Corebridge fixed-income mandate.

We remain well-positioned to meet investor demand for risk-adjusted alpha and yield, and our diversified active fixed-income platform with strong three- and five-year performance records across total return unconstrained high-yield and credit is especially well-positioned for growth as interest rates stabilize in the latter part of the year. Demand for private markets also continued with $16 billion of net inflows into illiquid strategies during the year, driven by private credit and infrastructure. In addition, as our private markets business continues to grow, we also raised significant new client commitments in 2022. We now have approximately $34 billion of committed capital to deploy for institutional clients and a variety of strategies, representing approximately $260 million of future annual base fees and significant potential performance fees.

Finally, BlackRock's cash management platform experienced $32 billion of net outflows in the fourth quarter and $77 billion of net outflows for the year. Despite a particularly challenging year for the broader institutional liquidity industry, BlackRock became the number one international money market provider and as rates stabilize, we are well positioned to grow market-share by leveraging our scale, product breadth, technology and risk management capabilities.

Before I hand it over to Larry, one last time, I'd like to take this moment to thank him for giving me the opportunity to be CFO of this amazing organization for the last 10 years. It's truly been a highlight of my career, and I'm deeply grateful for the feedback, advice and wisdom I have garnered from our shareholders, our sell-side analysts, our Board, my BlackRock colleagues and most of all the amazing finance team, I've had the privilege to work alongside.

BlackRock is incredibly well positioned to continue generating differentiated growth and delivering for clients, employees and shareholders, and I look forward to continuing the journey in my new role. I'm even more excited what lies ahead with Martin Small as our next CFO. I know we will be in great hands.

With that, over to you, Larry.

Larry Fink - Chief Executive Officer

Gary, a big hug. Thank you. Excellent job. Good morning, everyone, and Happy New Year. Thanks everyone for joining this call. Today and throughout BlackRock's history, we have focused on delivering the best financial returns for each and every client. In line with our objectives and goals, we remain relentless about staying ahead of their needs of all our clients needs, providing them with more choice, innovating to help them achieve financial well being.

We serve clients of all types, large, small, individuals and institutions in all parts of the world. So, providing them choice is critical and helping each of them achieve their unique financial goals. We have built the industry's most comprehensive and integrated investment and technology platform to provide them with solutions that fit their unique objectives. Our job is to then to deliver the best financial returns based on their individual preferences. It is this differentiating platform that drives our differentiating results.

BlackRock generated $307 billion in net new assets and positive organic base fees in 2022. These industry-leading results reflect by the decision by thousands of organizations and investors that continually place their trust in BlackRock. The consistency of our results across both good and bad markets, markets up and down, comes from our clients confidence in BlackRock's performance, our guidance and our fiduciary standard. In the United States, we generated $230 billion of long-term net inflows and flows were positive across all regions throughout the world. We generated organic growth across index and active and across all long-term asset classes from fixed income to equities to multi-asset to alternatives as clients turned to BlackRock for more solutions across their entire whole portfolio.

We ended the year with very strong momentum with $114 billion of fourth quarter net inflows, representing 3% annualized organic growth base fees. We estimate that BlackRock captured over one-third of the long-term industry flows in 2022, leading the industry and delivering positive organic base fees for the year. Over the past five years alone, BlackRock has delivered an aggregate $1.8 trillion in net inflows or 5% average organic asset growth compared to flat or negative industry flows. Over this five-year period of time have been both rallies and contractions, but BlackRock has always delivered growth reflecting the power of our connectivity to our clients, our fiduciary standards and our diversified platform.

2022 was a year of transition and a complex market environment for every one of our clients. We witnessed transformation in the geopolitical world order that rewired globalization and supply chains up ending assumptions about inflation and drove the normalization and eventually tightening of monetary policy. Production constraints, labor shortages, and energy and food price disruptions and price increases followed the Russian invasion in Ukraine, causing inflation to hit our 40-year high sparking a cycle of rate hikes by central banks. Inflation continues to be a top concern, despite recent cooling we saw at the end of this year and the beginning of this year. Global growth continues to slow. The challenge - the challenges society has experienced not just in the past year but since the pandemic has eroded hope, and reinforced pessimism in many parts of the world. We've seen a decline in birth rates, an increase in aging populations, a rise of nationalism and populism, and I fear that we are entering a period of economic malaise.

To correct this, the role of business becomes even more critical than ever. Leaders must continue to invest in technology and research and development to improve long-term prospects and to provide a vision that offers hope about the future. Fundamentally investing is also an active hope, hope that the future will be better than the present. If people do not have hope, they will not take money out of the bank account and invest it in a 30-year retirement outcome. Today, the financial narrative is so often about the near-term market moves, the topic of the day, like the latest means stock or media headlines about political polarization. Throughout our history, BlackRock has taken a long-term approach to investing. It is BlackRock's role to show people the benefits of investing for the long-term to give them hope that over time the returns with a balanced portfolio can deliver long-term financial security.

Against the current backdrop, BlackRock has an even greater obligation to help our clients wade through the uncertainty and give them the confidence to invest in the long-term. We see many opportunities for clients to capitalize on market disruption, to rethink portfolio construction, to consider the renewed income generation potential of bonds, or to reallocate the sectors that may be more resilient in the face of elevated inflation. BlackRock is uniquely positioned to help clients navigate opportunities in this environment because of our diversified platform and integrated investment management technology advisory expertise.

Our whole portfolio approach is resonating more than ever before and underpins the record of $192 billion of long-term net inflows from institutional clients in 2022. Institutional clients are choosing BlackRock, because of our scale, our resources and the expertise to take on the challenges of each and every market. Clients select us because we take and invest for them in the long-term. And in alignment with their beneficiaries whose time horizon span decades. In an increasingly complex investment environment, we're seeing strong demand from clients looking to partner with BlackRock for outsourced solutions and expect this to continue in 2023. Just the last two years, BlackRock has been entrusted to lead several significant outsourced mandate totaling over $300 billion in AUM spanning, existing and new clients. And I'm proud to say, our pipeline remains very strong.

In 2022, BlackRock's helped millions of investors plan for their financial futures as they continue to turn their ETFs for long-term investments. iShares has led the industry with $220 billion in net inflows. We are proud that iShares offers the most choice in our industry. In 2022 alone, we launched over 85 new ETFs globally. And as a testament to our scale, the demand from our clients and our diversification, we had over 70 different iShares ETFs, with annual net inflows surpassing $1 billion.

Our global as well, well - was well-diversified across our core equity, our fixed-income factors, sustainable and thematic ETF product categories and we have seen repeatedly in periods of market uncertainty investors turn to iShares precision exposure ETFs to make those tactical asset allocation decisions into year end. iShares' bond ETFs generated a record $123 billion of net inflows. We again led the industry and six of the top 10 asset gathering bond ETFs in 2022 were iShares.

When I started my career a long-time ago as a bond trader, it was much more difficult for individuals to assess the bond market. Their options were high-cost mutual funds or paying large markups to brokers to buy bond directly. 20 years ago, iShares launched the first four US-listed bond ETFs, and today we provide over 450 ETF choices across our $760 billion iShare fixed-income platform.

In an uncertain rate and credit environment this year's iShares bond ETF benefit for having the most diverse product offerings in the industry spanning governments, investment-grade, high-yield, emerging markets, municipals, innovations like buy rights and iBonds. The diversification means we can meet our clients' demands as it evolves. Earlier this year, investors used iShares bond ETFs to express preference for short-duration treasuries and more recently, our high-yield, our corporates, long-duration ETFs had been leading the flows. The role of bonds in the portfolio is increasingly relevant for the first time in years. Investors can actually earn very attractive yield without taking much duration or credit risk.

Just a year ago, the US two-year treasury note was yielding approximately 90 basis points. And today they're earning over 4% with corporate bonds earning over 5% and high-yield earning 8%. Clients are coming to BlackRock to help them pursue generational opportunities in the bond market and our leading $3.2 trillion fixed-income and cash platform is well-positioned to capture accelerating demand. In addition to our industry-leading bond ETF flows, clients turned to BlackRock's high-performing active platform, where over 80% of taxable and - fixed-income assets are performing above benchmark at a bare medium for the three and five-year period. There'll be more money moving around as investors recalibrate, we believe we will benefit as clients build portfolio - with high-performing active investments alongside ETFs and of course, private market strategies.

The need for income and uncorrelated returns against the backdrop of higher inflation and a more challenged market for public equities will continue to drive demand for private markets. We raised $35 billion in client capital in 2022, led by private credit and infrastructure. We're successfully scaling successive funds delivering larger funds through - raises subsequently fund vintages. In 2020, our third Global Energy and Power Fund raised a total of $5 billion surpassing the total assets of Vintage 1 and 2 combined, in 2022, the fourth fund-raise $4.5 billion in investor - in initial investor commitments at first close achieving over half of our targeted $7.5 billion raise.

Our diversified infrastructure funds are providing social and economic benefits to communities in the United States, and around the world. We recently announced an agreement to form Gigapower, a joint venture with one of our diversified infrastructure funds and AT&T, which upon closing will provide fiber networks to customers and communities outside AT&T's traditional service area. The network will advance efforts to bridge the digital divide and ultimately help spur local economies and the communities in which Gigapower operates.

One of the largest opportunities in infrastructure investing over the coming years will be the renewable infrastructure. In the United States, the Inflation Reduction Act contains a range of measures to spur greater investment in demand for renewable energy, infrastructure and technology. In Europe, the energy supply shocks in 2022 have only sharpened the focus on energy security and given rise to the European Commission's REPowerEU plan for renewal energy investments.

Client demand for income and uncorrelated returns also resonated in our multi-asset and Fundamental Active Equity platforms, where we saw in our tactical asset allocation and equity dividend franchises, we see great opportunities for clients in our income and dividend growth equity offering, which can be tools to help thread the needle between generation income and growth that could potentially outrun inflation. Aladdin is foundational to how we serve clients across our platform. It helps us to deliver a precise tracking for our iShares ETFs, it allows us to on-board and service increasingly large complex mandates, and it has consistently demonstrated its value in preceding - and processing high trading volumes and providing transparency into portfolios - in volatile markets.

Our multi-decade investment in Aladdin continues to differentiate BlackRock and continues to differentiate Aladdin, both as an asset manager and as a leading fintech provider. Periods of market volatility have historically underscored the importance of Aladdin. And in 2022, we saw record net sales of Aladdin, contributing to 10% growth in our annual contract value on constant currency basis. We see clients doubling down on technology and leveraging fewer providers to do more with less. This is evident by our mandates this year, about half spanning multiple Aladdin products.

We continue to evolve and enable clients to further simplify their operating infrastructure with Aladdin. Clients increasingly want to tailor how they use Aladdin to meet their own unique and specific needs, and we're providing them with choice and flexibility. We are creating deep integration with ecosystem providers and third-party technology solutions. Our partners include asset servicers, cloud providers, digital asset platforms, trading systems and others who can work with clients and their Aladdin environment to provide a more customized and seamless end-to-end experience.

We continue to innovate in a variety of areas, expanded choice we offer clients, we're transforming on how clients can engage with companies, they are invested in through our voting choice technology. BlackRock was the first organization to build and launch technology empowering institution clients in BlackRock's separate accounts and nearly 650 pooled vehicles to choose how to vote the shares of the company's they own through our own index capabilities. Nearly half of our clients index, equity assets under management are now eligible. This includes all public and private pension plans we manage in the United States as well as retirement plan serving more than 60 million people around the world. And in just the last six months, the number of index equity clients nearly committed to voting choice has more than doubled. We are also working to expand this capability to individual investors in markets like the United Kingdom and in funds where it's possible. The majority of BlackRock's clients are investing to finance retirement. BlackRock has been in the forefront of innovation and advocacy for retirement solutions throughout our entire history.

We recently made a minority investment in the Human Interest which is helping small and medium-sized businesses provide affordable, accessible retirement plans to their employees. So, more Americans can serve and save for a secured financial future. We believe Human Interest visions aligns closely with BlackRock's mission of helping more people experience financial well being by making them - by making retirement plans accessible to more Americans.

We have always believed in being agile in how we manage BlackRock, that is how we built our industry-leading position and generated value for shareholders over the long run. The uncertainty and the opportunity around us makes us even more important that we stay in front of the changes in the market and focus on delivering for each and every client. To extend our market leadership, we must invest in our people, invest in our platform for the long-term by allocating resources where they are needed most, in ways that are cost-effective and support our ability to scale.

As Gary mentioned, our restructuring effort resulted in a number of valued colleagues and friends, leaving the firm. We greatly appreciate the contributions they have made to BlackRock and wishing the best for them. BlackRock remains a growth company, even with this restructuring, our headcount will still be 6% higher than a year-ago. Looking ahead, we have deep conviction in our strategy and ability to execute with scale and with expense discipline. We are honored that our clients have entrusted us with over $300 billion of net assets in 2022. We see similar clients needs reshaping and shaping the opportunity set for 2023, be it a large insurance companies seeking outsourced partnership with scale and expertise, pension funds looking for attractive yields and less duration and credit risks, or financial advisors using our models and iShares to build better portfolios to meet the challenges - the long-term challenges of our clients.

The investments we have made over the years have also positioned us to capture emerging opportunities in bond ETFs, huge opportunities in the rebuild out of infrastructure in the United States in the world and opportunities in transition finance. Our momentum in Aladdin has never been stronger and our advisory capabilities continue to play a critical role in our dialog with clients. I've spoken frequently over the years about the need for CEOs to effectively articulate the values their companies deliver to shareholders, clients, employees and other stakeholders. Similarly, as CEO of BlackRock, I have a responsibility to articulate the BlackRock story, and it has never been more critical to do that than now.

Over the past year, BlackRock has been the subject of a great deal of political and media discourse. It is my duty to address the questions being asked of us, a responsibility that I take very seriously. Some of these people have suggested, we are either too progressive, some of them suggested we're too conservative and how we manage our clients' money. I wanted to just tell everybody we're neither. We're a fiduciary. We put our clients returns first. We offer every client investment choices, and then pursue their objectives that they choose and the performance they seek.

I want to make it clear to our clients, our shareholders and all our stakeholders that we will be deterred and pursuing the outcomes that our clients desire. This steadfast focus has not only enabled us to deliver for clients, but also to drive growth for each and every one of our shareholders. Since our IPO in 1999, BlackRock has delivered a 7,700% total return to our shareholders. And this is the strongest return of any financial services company in the S&P 500 over that period.

I thank BlackRock employees for their commitment to upholding our culture and living every day our purpose. They're always striving to better serve each other and each of our clients and finding new and innovative ways to be helping our stakeholders achieve a financial well-being. I really do want to call-out and thank Gary once more for his last earnings call. He's been a friend way beyond his term at BlackRock. He's been an advisor. Sometimes, he's been tough, sometimes, he's been lovely. But Gary has been an important part of driving our growth over these last 10 years and driving the success of our share price for our shareholders. I am thrilled personally and professionally, he will continue to be with us for BlackRock as Vice-Chairman and I look forward to having Martin Small join us as the CFO for our next call in April.

Thank you, everyone. And let's open the call up for questions.

Question & Answers

Operator

[Operator Instructions] We'll take our first question from Daniel Fannon with Jefferies. Please go ahead.

Daniel Fannon - Jefferies - Analyst

Thanks, good morning and Happy New Year. So, Larry -

Larry Fink - Chief Executive Officer

Hi. Dan, how are you? Happy New Year.

Daniel Fannon - Jefferies - Analyst

Good, thank you. I wanted to follow up on your comments around asset allocation. And thinking about conversations you're having with clients here into 2023, clearly, fixed income is an area that you've talked about. Can you talk about you need to see rates peak before you start to see that demand. Are you seeing it now? And then also what other kind of assets outside of fixed income or products that you see really incremental demand as we think about this year?

Larry Fink - Chief Executive Officer

Rob?

Robert Kapito - President

I'll take that one, Dan. Rob Kapito here. Clients have, as you know, experienced a very difficult market in 2022. There were joint double-digit declines across both global equities and bonds. I don't think we have to wait to actually call rates where they are going to top or not to know that the traditional 60-40 portfolio has been challenged. And right now, they need a partner to help them rethink their allocations which are going to have to be much more nimble, because of the change in-market structure. And specifically how each asset class, it's going be managed.

We find that they're turning to BlackRock more and more for both insights and solutions. And the three areas that are more common are inflation, protection, because of the uncertainty of where rates are going to go. They are looking for income both from the products they have and from cash. And they're looking at how to navigate the private markets, which continue to grow in size. We have built over the years, a platform that is allowing us to address these client needs, both in good markets and in bad ones. And I think the results that Larry described in 2022 demonstrate how we have been able to participate significantly for our clients.

But now, to answer your question even more directly, we see a lot of tailwinds that I think is going to support our growth trajectory into 2023. The first one is certainly fixed income because for the first time in years, insurers and pension funds can actually earn very attractive yields without taking much duration or credit risk, and our $2.5 trillion fixed-income platform is strong. The performance across our flagship franchises are excellent, and we are well positioned to help clients add back to their allocations as the rate environment stabilizes. So, our fixed income teams both in active and in passive are ready. A lot of that will come through ETFs. And we expect that the industry is going to reach $15 trillion in the next few years, with iShares leading the growth as it did in 2022, whether it's through fixed-income, core or precision, we have the most diversified line-up of ETFs. And as you know, in the U.S., ETFs only represent 2.3% of the bond market. So, we have a lot of runway here.

On the private market side, I would emphasize infrastructure and private credit. And one of the largest opportunities will be in renewable infrastructure and that will benefit even more from the Infrastructure Reduction Act that has been passed in the U.S. And an example Larry gave in his remarks was the recently announced infrastructure in JV with AT&T called Gigapower, which is an example of this momentum, which we think there'll be many other JVs available to us with other companies in renewable infrastructure.

And private credit continues to expand as public financing retreats and more companies see capital. And there are a couple of others that I think it should be highlighted, especially as growth areas for BlackRock. One is outsourcing. And we have seen this trend over the last several years. Our recent success is with significant size mandates are going to position us well to execute on a strong 2023 pipeline. One that has been overlooked is models. There is a shift in wealth management from individual stock funds selection to a whole portfolio based approach, and that is accelerating demand for models. More importantly, BlackRock managed models are only a fraction of the opportunity, the biggest growth potential comes from other model managers using iShares and other index products as building blocks in very large size and their asset allocation.

And then of course lastly as Aladdin, because you know that in periods of market volatility, it has historically increased the importance of Aladdin to our clients as we saw in our record net sales in 2022. So, all of these position us for continued growth in the years ahead.

Operator

Our next question comes from Alex Blostein with Goldman Sachs. Please go ahead.

Larry Fink - Chief Executive Officer

Hi, Alex. Happy New Year.

Alex Blostein - Goldman Sachs - Analyst

Hey, good morning, everybody. Hello. Happy New Year as well. Gary, congrats again on your next move. And maybe in the spirit of this being your last CFO earnings call, we'll get an expense question in there. So, heard you on the core G&A guide mid to high single-digits for 2023. Maybe help us frame sort of the market conditions that this guide contemplates. And I guess how are you thinking about the expense base more broadly, including compensation - compensation rate, things like that for the year?

Gary Shedlin - Chief Financial Officer

Thanks, Alex. So maybe just some context, right. And, I think we've spent the last couple of calls talking about our philosophy of really trying to drive organic growth, because we know that, that is obviously a critical driver of our PE multiple. And I think we are - we're also mindful that we come through these periods of volatility generally better position than our competitors because of our diversified model that gives us the ability to continue to invest going forward when others simply can't do it.

And I think as we've talked about this, there's conundrum, right, which is on the one hand, we know that our PE multiple is driven by growth and on the other hand just understandings that in the context of the overall market, our revenue run rate is down, and there is a little bit of a misalignment between our expense base and our revenue capture rate versus where it was a couple of years ago. But I think as we saw, coming out of the pandemic, we continued to invest in our business and that resulted ultimately in the two best years in BlackRock's history in 2021 and in 2022 we've once again delivered by generating over $300 billion of net inflows, while most of the industry has been an outflow.

So our challenge today really remains to ensure that we can continue to invest in our highest-growth opportunities. And we're obviously committed to doing that by trying to relentlessly reallocate resources across the organization. We obviously don't go - we don't go into a year predicated on any beta assumptions. We try to take data out of it. I think, Rob Kapito, did amazing job of explaining where we think most of the growth potential are on the revenue side.

And so it's with that in mind, than in July and then we really began to more aggressively manage the pace of our hiring and our discretionary spend. And more recently determined to effect broader restructuring of the size, and the shape of the workforce to really free-up our investment capacity to ensure that we can continue to basically drive our most important growth initiatives and obviously create opportunities for our talent to develop and prosper. So, I think you've seen that. We talked about that.

For next year, we expect our headcount will be broadly flat. We are going to continue to optimize our talent pyramid and growth footprint in iHub innovation centers globally in the U.S., EMEA and APAC. And as I mentioned, we would expect a mid-to-high single-digit increase in our core G&A expense that's coming off a lower base. Because as you know, we initially had given you guys 13% to 15% increase. We actually came in close to 11%. So, we'll be grown off a lower base and that will continue to be driven by the variety of things that I mentioned on the call. Hudson Yards technology to scale-up and obviously the annualization of a number of expenses, including our Aladdin cloud migration costs.

But I - I really want to remind everyone that our highest-margin business is beta. And obviously we've seen that both on the way up, and we also see it on the way down. And as markets hopefully recover, we are very confident to see - to say that our revenue growth over the long-term, should meaningfully outpace our growth in any of these discretionary expense items and ultimately be accretive to our operating margin.

Operator

We'll take our next question from Michael Cyprys with Morgan Stanley. Please go ahead.

Larry Fink - Chief Executive Officer

Hi, Michael. Happy New Year.

Michael Cyprys - Morgan Stanley - Analyst

Great, thanks. Hey, good morning. Happy New Year. And Gary, congratulations on an amazing 10-year run as CFO. I wish you all the best to you in your new role. Just a question on Aladdin, hoping you could unpack a bit of the strength that you're seeing in Aladdin with the record wins. And how you think about extending the platform to other use cases and the verticals. And how you're thinking about the drivers of growth over the next several years?

Larry Fink - Chief Executive Officer

We have been incredibly focused in broadening the capabilities, Aladdin, as you know, over the last 10-years, whether it's Aladdin provider, the work we are doing related to the trading platforms. So on top of that, Aladdin accounting using Aladdin for private markets to e-Front. And then, I would say probably one more interesting directions is using Aladdin for whole portfolio reviews and views. All of this is just leading to more and more conversations. On-top of that, as we've built-up deeper and deeper expertise in different products, the clients who historically hired us years ago who are only, let's say, in a fixed-income platform are now looking at - Aladdin across private, across equities, across other areas.

So let's be clear. Lot of the growth is with existing clients, but also a lot of - a lot of growth is now with the new clients. So, we're not only just seeing clients in the old geographic footprint, we're seeing new clients expanding geographically, more and more clients flows now in Europe. Much more in the Middle East. We won our first client in Africa. Over the years, we've become one of the leading technology platform for the pension fund community in South America and Mexico. So, Aladdin is becoming one of the key at a price components of the ecosystem in various parts of the world. And I do believe when you have market shocks, when you have dislocations and volatility, it truly underscores the need for a more fulsome connected enterprise operation. Historically, people thought of Aladdin as risk management. Most people are now hiring Aladdin for risk management as much as its flow-through enterprise operating system, having that connection with custodial banks, having the ability to have accounting, having a whole portfolio analysis and helping them truly drive a whole portfolio analytical understanding. And so all of this is just leading to more and more opportunities, whether it's a - a focus on sustainability or a focus on operations or focusing on again risk management, Aladdin is very well-positioned to meet the needs of the clients and we're more focused than ever on enhancing the Aladdin value proposition.

Let's be clear, in declining markets, clients are worried about their expenses and yet what we proved in '22, with declining expenses Aladdin enterprise system could actually lower expenses in a holistic way. And so what we're trying to do is show the true ability to clients worldwide about how can Aladdin be a component to drive greater and greater success in terms of operational success, investment success. But over time, Aladdin can drive down expenses too for any operation.

Operator

We'll move to our next question with Craig Siegenthaler with Bank of America. Please go ahead.

Larry Fink - Chief Executive Officer

Hey, Craig, Happy New Year.

Craig Siegenthaler - Bank of America - Analyst

Hey, good morning, Larry. Happy New Year. And Gary, thanks for your help over the last nine years. I'm sure you're going to really miss these quarterly earnings calls.

Larry Fink - Chief Executive Officer

I can tell you he's going to - he's going to be in - he's going to be sulking.

Gary Shedlin - Chief Financial Officer

I'll miss you, Craig.

Craig Siegenthaler - Bank of America - Analyst

So, just a follow-up to Rob's comments on the first question for the potential for fixed-income re-balancing. Do you think passive will win the majority of inflows, like we've seen in equities for the last decade. Or do you think active will grab a healthy split of share as we've seen in fixed income, really up until just as last year?

Larry Fink - Chief Executive Officer

Great question. So, the majority of investors and fixed income ETFs are not passive. They're active. We've been talking about this - actually we began talking about this in 2012, where we believe the simplicity, the liquidity, the operational abilities to use fixed-income ETFs to get your factor exposures, the duration, the convexity, the credit exposures, looking for, you could do that through investing in these index instruments. But you're certainly not passively navigating or managing them. And I truly believe what we saw in 2022 movements out of mutual fund into ETFs provides much greater precision expertise to manage your fixed-income exposures through ETFs.

And I believe this is going to become one of the most important transformations in the entire capital markets, that more and more bond exposures are going to be utilized through ETF purchases and it's not - it is not passive. It is highly active and that's where people get confused because they think about ETF as a passive instrument both bonds and stock. And what we have been trying to identify over the years and now, well, certainly we saw that in 2022 in bonds that it's far from a passive instrument, it is an index liquid investment to allow you to get your exposures that you're seeking. And you were able to navigate those exposures.

Look, I believe in, how investor is going to use it, they're going to use it side-by-side with their true active bond investing. So, I'm not trying to suggest bond active investing buying individual bonds is going away, it's not. But for the bulk of most fixed-income portfolios, you do not need to have all individual bonds, you can express a large component of that through ETF. And then if you have the great credit expertise, mortgage expertise where you can really find true value in individual bonds. You're going to do that, but let's be clear, most organizations can't do that in totality in their entire fixed-income universe. And so, I believe ETFs are going to continue to grow, especially in fixed-income.

Rob talks about how we believe this is the beginning of a major expansion, a bond ETF as a component of the entire bond market. And we believe this is going to simplify investing. It's going to make investing in bonds easier, with more liquidity, as to be cheaper. And I believe this is only the beginning. Using index like instruments like bond ETFs to actively invest, to actively express your exposures that you're seeking alongside side-by-side in individual bond selections. And we are seeing that with every if not all, but I'm going to say, every active bond investor is now using ETFs as a component of their action - active expression of exposures.

Robert Kapito - President

Got you, sir. I would just add Craig, one thing is, I believe we are going into a period of time in fixed-income, where you can add alpha. And your individual bond selection or where you are on the curve, and you can do it through both active and passive as Larry is saying, but it will all come down to the ability to alpha. I can give you an example now and in the short-end of the curve, which a year-ago was very low-yielding. Today, we can find opportunities to earn a 5.5%, 6% in a very short-duration that is going to be active. So, it is a combination of both, but it will depend on where our clients can find the most alpha to determine the split between both ETFs index and active as you call active.

Operator

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

Larry Fink - Chief Executive Officer

I do, operator. I want to thank everybody for joining this morning and for your continued interest in BlackRock. Our fourth-quarter and full-year performance is a direct result of our commitment in serving our clients each and every one individually, providing them choice and helping them to guidance with our fiduciary standards that help them evolve and build their needs for long - for the long-term. I'm incredibly excited about 2023, and the opportunities ahead of us, and I believe BlackRock is in a position, unlike any other time in our history. I want to thank all of you and everyone please have a great start to our new year.

Operator

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Q4 2022

Earnings Transcript

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