Could BlackRock be on the verge of an earnings acceleration and a move to $1,700/share by 2030? Platform as a Service The NYCERS Insight More Legs to the ETF Story YWR EPS Estimates and Earnings Model Risks Platform as a Service The thing about great entrepreneurs like Larry Fink, and why you want to invest in them, is they never stop thinking about the next thing. They are always moving the goal posts. So while the rest of the asset manager community is finally getting around to launching their own ETF’s, Larry is turning BlackRock into a platform which they call 1BLK. BlackRock is integrating their technology tools like Aladdin and eFront into all levels of their client’s investment process. This means BlackRock technology will help you build your ideal portfolio and then also provide the lego blocks you need to implement it. Across all asset classes. And I think it could be under appreciated the market share gains BlackRock will make across these other asset classes.
1BLK PlatformThe NYCERS Insight The NYC Employee Retirement System manages $319 billion and like all public pension funds provides useful insights into exactly where all their money is allocated. They even have a public dashboard you can access. And when you analyse the fund allocations by asset class you come across an interesting insight. In US public equity, BlackRock funds have 68% market share of the 82$ billion. When you include the international allocation BlackRock has 42% market share. Think about that.
NYCERS has $138bn invested in public equities and they given 48% of it to one company. And why not? Does it matter which index fund you own? It’s a game of scale and cost. So they gave it all to BlackRock. Probably for less than 10bps. Then look at the rest of the buckets. In Fixed Income Black Rock is a lot less dominant with only 11% market share. State Street funds are much more dominant in the NYCERS fixed income portfolio. Then in private equity and private real estate Black Rock has 0% market share. In the $28 billion PE allocation it’s lots of KKR funds. But the BlackRock Global Infrastructure fund does have 3% market share in the infrastructure bucket. This is the opportunity BlackRock sees. If they already have strong relationships with big pension funds like NYCERS, already own the public equity allocation, already have their risk management software (Aladdin) wired into the back office, then why can’t they massively increase their share in the other buckets? This is why you see BlackRock making acquisitions in infrastructure and private credit. To them it’s plug and play. They just need to make sure they have good products. Next time the BlackRocks saleswoman visits NYCERS she will wiggle their funds into more buckets. And private equity, infrastructure and private credit are much higher fees than index funds. Which makes me think BlackRock could be on the verge of taking a lot more market share. Apparently, BlackRock thinks so too. The big pension funds are consolidating their allocations around fewer players, and BlackRock is well positioned to be the winner from this trend.
More legs to the ETF Story. But the push back might be that the big story behind BlackRock has been ETF’s and isn’t that kind of done? We saw in the BofA private client data that ETF’s are still less than 20% of advisor portfolios. That can grow further, especially with the rise of active ETF’s. Second, Europe and the rest of the world still has a lot to go with ETF’s. There are only $2 trillion in European ETF’s compared with $10 trillion in the US.
Finally, there is a lot of room still for the ETF’ication of fixed income. There are only $2.5 trillion in fixed income ETF’s, which is just 2% of the market. Couldn’t it easily be $6 trillion?
Could BlackRock trade at $1,700/share by 2030? When you put it all together it doesn’t seem unreasonable that by 2030 BlackRock could be earning close to $1,700/share: Underlying natural growth in AUM from market growth. Growth in allocation to ETF’s both in the US and Europe. I am assuming AUM growth of 11%/year from both market appreciation and inflows. This is in line with BlackRock’s AUM growth CAGR from 2017-2025 (10.5%). Increased market share in fixed income, infrastructure and private equity Slight increase in fees/average AUM as the mix includes more high margin private equity funds. I assume the average fee rises from 15bps to 16bps. The push/pull here is that while private equity fees are higher, fixed income fees will be lower. So I modelled in 1bp of fee expansion. Operating leverage from selling same products on existing global network of funds and offices. The operating margin expands from 35% to 41% by 2030. BlackRock is targeting a 45% operating margin.
If BlackRock can earn $85/share in 2030 and trade at 20x the share price could be over $1,700. You would also pick up dividends along the way for a total return of 75%. This is in line with BlackRock’s strategy to get to a market cap of $280 billion by 2030, which would be $1,740/share.
Risks: We get a nasty market sell-off along the way and the AUM doesn’t compound at 11%. BlackRock can get hit from both a decline in AUM, plus outflows. The AUM is diversified across asset classes, but equities are still 48% of fees. Another possibility is that equities move to tokenisation instead of ETF’s and BlackRock misses out, although this is unlikely because BlackRock is already leading in tokenised funds. We could get a shift away from ETF’s and indices back to active management. I can see this happening to a small degree, but not much more than that. EPS growth is less than we expect, and the share price P/E derates to 15x. Other no-growth asset managers are trading on P/E’s of 10x. The risk could be that BlackRock grows earnings, but it was all priced in and the share price doesn’t make much headway for years and the dividend yield is only 2%.