BlackRock: Largest AUM, Backed by iShares Platform

Business Strategy and Outlook

BlackRock is at its core a passive investment shop. Through its iShares exchange-traded fund platform and institutional index fund offerings, the wide-moat firm sources two thirds of its managed assets (and close to half of annual revenue) from passive products. In an environment where retail-advised and institutional clients are expected to seek out providers of passive products, as well as active asset managers that have greater scale, established brands, solid long-term performance, and reasonable fees, it is apprehended that BlackRock is well-positioned. The biggest differentiators for the firm are its scale, ability to offer both passive and active products, greater focus on institutional investors, strong brands, and reasonable fees. It is alleged that the iShares ETF platform as well as technology that provides risk management and product/portfolio construction tools directly to end users, which makes them stickier in the long run, should allow BlackRock to generate higher and more stable levels of organic growth than its publicly traded peers the next five years.

With $10.010 trillion in total assets under management, or AUM, at the end of 2021, BlackRock is the largest asset managers in the world. Unlike many of its competitors, the firm is currently generating solid organic growth with its operations, with its iShares platform, which is the leading domestic and global provider of ETFs, riding a secular trend toward passively managed products that began more than two decades ago. This has helped the company maintain above average levels of annual organic growth despite the increased size and scale of its operations. Although it is held the secular and cyclical headwinds to make AUM growth difficult for the U.S.-based asset managers over the next five to 10 years, it is still perceived BlackRock generating at least 3%-5% average annual organic AUM growth, driven by its commitment to passive investing, ESG strategies, and geographic expansion, with slightly higher levels of revenue growth on average and stable adjusted operating margins (range-bound between 46% and 48% of revenue) during 2022-26.

Financial Strength

BlackRock has been prudent with its use of debt, with debt/total capital averaging just over 15% annually the past 10 calendar years. The company entered 2022 with $6.6 billion in long-term debt, composed of $750 million of 3.375% notes due May 2022, $1 billion of 3.5% notes due March 2024, EUR 700 million of 1.25% notes due May 2025, and $700 million of 3.2% notes due March 2027, $1 billion of 3.25% notes due April 2029, $1 billion of 2.4% notes due April 2030, and $1.25 billion of 1.9% notes due May 2031. The company also has a $4.4 billion revolving credit facility (which expires in March 2026) but had no outstanding balances at the end of September 2021. Expecting the firm to fully repay the notes due this year, and assuming that BlackRock matches analyst’s earnings projections for 2022, the firm should enter next year with a debt/total capital ratio of less than 15%, debt/EBITDA (by our calculations) at 0.8 times, and interest coverage of more than 30 times. BlackRock has historically returned the bulk of its free cash flow to shareholders via share repurchases and dividends. That said, the firm did spend $693 million on two acquisitions in 2018, $1.3 billion on eFront in 2020, and $1.1 billion for Aperio Group in early 2021, so bolt-on deals look to be part of the mix in the near term. As for share repurchases, BlackRock expects to spend $375 million per quarter on share repurchases during 2022 but will increase its allocation to buybacks if shares trade at a significant discount to intrinsic value. The company spent $1.2 billion on share repurchases during 2021. BlackRock increased its quarterly dividend 18% to $4.88 per share early in 2022.

Bulls Say’s

BlackRock is the largest asset manager in the world, with $10.010 trillion in AUM at the end of 2021 and clients in more than 100 countries.
Product diversity and a heavier concentration in the institutional channel have traditionally provided BlackRock with a much more stable set of assets than its peers.
BlackRock’s well-diversified product mix makes it fairly agnostic to shifts among asset classes and investment strategies, limiting the impact that market swings or withdrawals from individual asset classes or investment styles can have on its AUM.

Company Profile

BlackRock is the largest asset managers in the world, with $10.010 trillion in AUM at the end of 2021. Product mix is fairly diverse, with 53% of the firm’s managed assets in equity strategies, 28% in fixed income, 8% in multi-asset class, 8% in money market funds, and 3% in alternatives. Passive strategies account for around two thirds of long-term AUM, with the company’s iShares ETF platform maintaining a leading market share domestically and on a global basis. Product distribution is weighted more toward institutional clients, which by our calculations account for around 80% of AUM. BlackRock is also geographically diverse, with clients in more than 100 countries and more than one third of managed assets coming from investors domiciled outside the U.S. and Canada.

(Source: MorningStar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.