BlackRock, Inc. (NYSE: BLK) Q4 2019 Earnings Conference Call
January 15, 2020
Corporate Participants:
Christopher Joseph Meade — General Counsel and Chief Legal Officer
Gary Stephen Shedlin — Senior Managing Director and Chief Financial Officer
Laurence Douglas Fink — Chairman and Chief Executive Officer
Robert S. Kapito — President
Analysts:
Dan Fannon — Jefferies & Company Inc. — Analyst
Robert Lee — KBW — Analyst
Kenneth Worthington — JP Morgan — Analyst
Patrick Davitt — Autonomous Research — Analyst
Alexander Blostein — Goldman Sachs — Analyst
Brian Bedell — Deutsche Bank — Analyst
Presentation:
Operator
Good morning. My name is Laurie, and I’ll be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock, Inc. Fourth Quarter and Full Year 2019 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]
After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions]
Thank you. Mr. Meade, you may begin your conference.
Christopher Joseph Meade — General Counsel and Chief Legal Officer
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 lists 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.
Gary Stephen Shedlin — Senior Managing Director and 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 2019. Before I turn it over to Larry to offer his comments, 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.
For many years, BlackRock’s differentiated globally integrated asset management and technology business, including our risk management and portfolio construction tools has proven its ability to deliver for clients and shareholders in different market environments. That continued in 2019. A difficult fourth quarter of 2018 created a challenging start to the year. But as we noted a year ago, volatile market environments create opportunities for growth at BlackRock as long as we remain disciplined to continue playing offense.
BlackRock achieved both revenue and earnings growth during 2019. Investment performance across our Active products was excellent with 86%, 76% and 84% of taxable fixed income, fundamental and systematic active equity assets respectively above benchmark or peer median for the trailing three-year period. We generated record net inflows of $429 billion, representing 7% organic asset growth and 5% organic base fee growth, enabling us to once again meet our aspirational organic growth target for the fifth time in the last seven years. And we finished the year with strong momentum, reporting over $129 billion in total flows in the fourth quarter.
The financial strength and stability of our operating model allows us to continuously invest through market cycles and capture growth in areas of highest client demand, by technology, illiquid alternatives and iShares, especially higher growth strategic ETF segments such as factors, fixed income, sustainable and megatrends. These investments position BlackRock to offer clients not simply products but comprehensive whole portfolio solutions and to generate consistent long-term growth for shareholders.
Full year revenue of $14.5 billion was up 2%, while operating income of $5.6 billion increased marginally. Earnings per share of $28.48 was up 6% versus 2018. For the fourth quarter, BlackRock generated revenue of $4 billion and operating income of $1.5 billion, up 16% and 17% respectively from a year ago, when results were impacted by significant market volatility. Quarterly earnings per share of $8.34 was up 37% versus 2018 also reflecting higher non-operating income, a lower effective tax rate and a reduced diluted share count in the current quarter.
Non-operating results for the quarter reflected $85 million of net investment income, primarily driven by the mark-to-market valuation of our minority stake in Envestnet, and higher marks on unhedged seed capital investments. Our as adjusted tax rate for the fourth quarter was approximately 18%, driven in part by discrete benefits linked to additional guidance on US tax reform. We currently estimate the 23% is a reasonable projected tax run rate for 2020. The actual effective tax rate may differ as a consequence of non-recurring or discrete items and issuance of additional guidance on recently enacted tax legislation.
Fourth quarter base fees of $3.1 billion were up $310 million year-over-year, primarily driven by the positive impact of market beta, organic growth and higher securities lending revenue, partially offset by certain strategic pricing investments. Year-over-year, quarterly base fee growth of 11% lagged growth in average AUM of 16% however, due to the ongoing impact of divergent equity beta and client preference for lower — lower-risk fixed income and cash assets in 2019.
In addition, while fourth quarter base fees were up 4% sequentially, our overall fee rate declined 0.1 basis points versus the third quarter. Full year base fees ended up 2%, notwithstanding the impact of a significant global equity market decline in last year’s fourth quarter. As a reminder, we entered 2019 with an annualized base fee run rate approximately 6% lower than 2018. Fourth quarter performance fees of $239 million more than doubled versus a year ago, reflecting strong alpha generation from liquid and illiquid alternative products. Full year performance fees of $450 million were up 9% compared to 2018, despite a significant number of liquid alternative products entering the year below their high watermarks.
Importantly, recognized performance fees from illiquid alternatives were up significantly in 2019 and represented approximately 30% of total performance fees for the year. Quarterly technology services revenue increased 35% year-over-year and full year revenue of $974 million increased 24%, reflecting the impact of the eFront acquisition and continued growth in Aladdin. Excluding eFront, technology services revenue grew 12% for the full year and we continue to target low to mid-teens growth going forward.
Demand remained strong for our full range of technology solutions and digital distribution tools, including Institutional Aladdin, eFront and Aladdin Wealth. Fourth quarter advisory and other revenue increased 30% year-over-year, reflecting higher transition management and advisory assignments. Total expense increased 4% in 2019, driven primarily by higher compensation and G&A expense and the acquisition of eFront. For the full year, compensation expense increased $164 million or 4%, primarily reflecting higher headcount, higher performance fees and higher deferred compensation expense.
Our full-year comp to revenue ratio of 34.8% was moderately higher than 2018 as a result of the mark-to-market impact of certain deferred compensation programs in 2019, and the full year impact of retention awards related to recent acquisition activity. Recall that year-over-year comparisons of fourth quarter compensation expense are less relevant because we determine compensation on a full year basis. Fourth quarter G&A expense was up $130 million sequentially due to seasonally higher levels of marketing and promotional spend, higher technology expense and the aggregate impact of $48 million of quarterly expense related to contingent consideration fair value adjustments and foreign exchange remeasurement.
Overall, G&A expense increased 7% in 2019, reflecting higher levels of technology spend, the impact of the eFront acquisition, and $59 million of fund launch costs related to the successful second quarter close of the $1.4 billion BlackRock Science and Technology Trust II. Excluding the impact of eFront and various non-core items such as contingent consideration fair value adjustments, product launch costs and FX remeasurement expense, we estimate that our full year core G&A spend increased 2% versus 2018.
While we continually focus on managing our entire discretionary expense base, we would currently expect 2020 core G&A expense to increase approximately 5% relative to comparable 2019 levels, driven by continued investment in technology and market data, including sustainability initiatives and the full year impact of the eFront acquisition. Our full year as adjusted operating margin of 43.7% was down 60 basis points versus 2018, reflecting our strategic decision to continue investing responsibly in 2019, despite the more challenging overall revenue capture environment created by last year’s fourth quarter market volatility.
We continue to see strong performance in our future drivers of differentiated growth, including ETFs, alternatives, technology and portfolio construction and remain deeply committed to investing responsibly for the long term and optimizing growth in the most efficient way possible. And we are prudently using our balance sheet to best position BlackRock to achieve this success. During 2019, we allocated over $750 million of new seed and co-investment capital to support our growth, with our investment portfolio now exceeding $3 billion for the first time.
We also closed the strategic acquisition of eFront, which in combination with Aladdin will provide clients with an ability to seamlessly manage portfolios and risk across public and private asset classes on a single platform. And we remain committed to systematically returning excess cash to shareholders through a combination of dividends and share repurchases, returning an aggregate of $3.8 billion to shareholders in 2019.
We repurchased approximately $1.7 billion worth of shares and an average share price of $414 per share, taking advantage of attractive relative valuation opportunities that arose during the year. Since inception of our current capital management strategy in 2013, we have now repurchased approximately $8.7 billion of BlackRock stock, reducing our outstanding total shares by 9% and generating an unlevered compound annual return of 14% for our shareholders.
At present, based on our capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price, we would anticipate repurchasing at least $1.2 billion of shares during 2020, 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 2020 dividend.
BlackRock’s globally diversified investment platform combined with industry leading risk management and portfolio construction technology enables us to bring together the entire firm to partner with clients in order to meet their evolving needs.
Fourth quarter total net inflows of $129 billion, representing 7% annualized organic AUM growth and 10% annualized organic base fee growth, were led by flows into strategic focus areas including iShares and illiquid alternatives. Full year flows of $429 billion were positive across active and index, all asset classes, client types and regions and reflected significant strength in fixed income and cash, which accounted for approximately 85% of organic growth.
Global iShares generated $183 billion of net inflows for the year, representing a 11% organic growth. Importantly, we saw momentum into year-end driven by a resurgence in equity ETFs. Fourth quarter iShares’ net inflows of $75 billion represented an annualized organic asset growth rate of 15%. Notably in 2019, over 80% of iShares flows were driven by strategic product segments, which is about 28% organic growth. We also saw continued strength in the core segment with 15% organic growth, partially offset by volatility driven outflows from precision exposure ETFs primarily in May and August.
Within the higher fee strategic segment, it was a record year for fixed income ETFs where iShares is the market leader. We generated $112 billion of net inflows into iShares’ fixed income ETFs representing 26% organic growth. Demand remains exceptionally strong as investors seek more efficient market access, portfolio construction evolves in wealth management and technology accelerates the modernization and electronification of the bond market.
We achieved the number one share of industry factor ETF flows with $34 billion across a diverse range of factor iShares. During 2019, US Min Vol or US MV was our largest and the industry’s fourth highest asset gathering ETF, capturing over $12 billion in net inflows. This is the first time a factor exposure outpaced every market cap weighted iShares ETF in terms of aggregate flows. Our iShares sustainable ETF liner represents the fastest-growing of our strategic segments, generating $12 billion in net inflows and ending the year with $22 billion of AUM, more than any other active or index firm.
During 2019, the iShares ESG Leaders fund raised over $1 billion representing the largest equity ETF launch in the past 15 years. BlackRock generated full-year retail net inflows of $16 billion, outperforming the broader active mutual fund industry. Inflows were led by our suite of active fixed income products and liquid alternatives, partially offset by outflows from multi-asset world allocation products. Fourth quarter retail net inflows of $8 billion reflected similar trends, but also included the seasonal impact of capital gains reinvestment.
BlackRock’s institutional franchise generated record long-term net inflows of $136 billion in 2019, representing 4% organic base fee growth. Institutional flows reflect strength in fixed income, illiquid alternatives and multi-asset solutions. Active net inflows of $2 billion were primarily into quantitative strategies where long-term performance remained strong. Momentum in our illiquid alternatives franchise accelerated and we saw $14 billion of net inflows into 2019.
We also have $24 billion of committed capital to deploy for institutional clients in a variety of alternative strategies, representing a significant source of future growth and performance fees. Finally, BlackRock’s cash management platform continue to increase share by leveraging scale for clients and delivering innovative digital distribution and risk management solutions. In 2019, we saw $93 billion of cash management net inflows across the platform including prime, sustainable, government and muni funds.
Our innovative Liquid Environmentally Aware Fund or LEAF continues to see strong momentum with $1 billion of net inflows since launch earlier this year. In summary, our 2019 results demonstrate the resilience of our platform, which allows us to invest through market cycles and drive consistent and differentiated growth in a variety of markets.
Our strategy is working. We will continue to invest responsibly during 2020, including in key growth areas like iShares, alternatives and technology to deliver the solutions our clients need to best position our employees for professional growth and to generate long-term returns for our shareholders.
With that, I’ll turn it over to Larry.
Laurence Douglas Fink — Chairman and Chief Executive Officer
Thank you, Gary. Good morning, everyone and Happy New Year, and welcome to a new decade. BlackRock has consistently and systematically invested for the future in preparation to meet clients changing needs by building a whole portfolio investment and technology platform providing thought leadership on the macro and geopolitical environment, and innovating in areas like factors and sustainable investing, we are adapting to and driving change in our industry and building deeper, more strategic partnerships with more clients than ever before.
The benefits of our investments are evident in our results this morning. We generated a record $429 billion of total net inflows for the year, representing 7% organic asset growth and 5% organic base fee growth. BlackRock’s result reflects the strength of our platform, which is diversified across now $2 trillion in active strategies, $5 trillion in iShares and index strategies, and now over $500 billion in cash strategies.
We generated $226 billion of net inflows in iShares and index. We generated a $110 billion of flows in active investing and we generated $93 billion in cash strategies. Flows were positive across all client channels, across all asset classes and across all regions, including more than $1 billion of net inflows in each of 16 countries and in more than 71 different products. The total net new assets our clients entrusted to us in the past year equates to the level of assets under management of a top 50 global asset manager.
After dramatic fourth quarter 2018 market decline, which lowered BlackRock’s AUM last year by $500 billion, we began 2019 at a challenging starting point. We ended the year with a base fee rate run rate that was about 6% lower than 2018 base fees. However, the successful execution of our 2019 strategy delivered revenue growth, operating income growth, earnings growth and alongside we are continuing to invest in future opportunities.
2019 was marked by heightened geopolitical and trade tensions, which created volatility in financial markets, uncertainty around the US and China trade negotiations, Brexit and other concerns about a slowdown in global growth, all impacted investor sentiment driving industry flows into safer fixed income and cash strategies, cash assets throughout the year. In a late cycle dovish turn by central banks globally, monetary policy proved again a powerful tool in offsetting so much of the geopolitical risk. We saw equity markets close 2019 at record highs, followed by decisive UK elections to move forward with Brexit and now we have a preliminary agreement on trade that will be signed today by the US and China. The S&P 500 finished the year up 29% and yet emerging markets only rose 15%.
2019 also marked a year of milestones and transformations for the asset and wealth management industries. The ETF industry crossed $6 trillion in assets and iShares crossed $2 trillion. We still believe iShares in the industry are at the early stages of growth. However, as clients are using iShares in many ways, including as liquidity management for hedging instruments but also market access vehicles for central banks and to tactically access markets for alpha managers.
Increasingly, we are hoping clients use iShares as an instrument of active returns in public markets that’s creating large and significant new market opportunities. Sustainability reached an inflection point with more and more clients focused on the impact on environmental, social and governance factors on their portfolios, some to better align their investments with their values and more because of the implications of financial risk and returns related to sustainability and climate change.
As I discussed in my Letter to CEOs, which came out yesterday, we’re entering a new era of finance. The investment risk presented by climate change are set to drive a significant reallocation of capital, and company’s investors and governance, we all need to be more prepared. Throughout the year, BlackRock continue to invest in further differentiated — that further differentiated our business model, we adapted to and drive change in our industry and ultimately enabled a deeper, a more comprehensive partnership with more clients than ever before. The benefits of our investments in strategic growth areas are clear. We saw strong flows in iShares, record flows and commitments in illiquid alternatives, record revenues in technology services in 2019, and active strategies where the industry faced muted flows, BlackRock generated $110 billion, our net inflows and our active AUM is at all time high.
Our Liquid Environmentally Aware Fund franchise is nearing $8 billion in size, less than a year after our launch. And we made significant progress to lead the industry in growth areas like OCIO, factor based and sustainable investing and our regions around the world, including most recently China. iShares is the ETF market leader and generated $183 billion of net inflows for the year. 57 iShares ETFs each generated more than $1 billion of net inflows and we saw a record flows in fixed income and we saw record flows in Europe.
We once again captured the number one market share of 2019 in industry flows globally. Also in the United States, in Europe and in high-growth segments such as fixed income ETFs, factor ETFs and sustainability ETFs. We are optimistic about continued double-digit growth in iShares because we see vast new markets opening up in how clients want to use these exposures. iShares is expanding its range as a modernizing force in financial markets.
Nowhere this is more true than in fixed income ETFs. Fixed income ETFs will be one of the largest drivers of BlackRock’s growth over the next decade. The combination of BlackRock’s history as a bond manager, our expertise in ETFs, and our industry-leading technology and data capabilities has created significant differentiation for iShares. After having pioneered the first fixed income ETF in 2002, iShares fixed income AUM surpassed $565 billion and generated a record $112 billion of net inflows in 2019, compared to the previous record of 2017 of $67 billion.
While some of this has been as a result of a strong year in fixed income markets overall, we see this as a secular shift. We see this as a technology shift. We expect to reach $1 trillion in fixed income iShares within the next five years and the growth path is going to be differentiated than equities. Growth in fixed income ETFs is coming from the modernization of the $100 trillion bond market itself and from conversations — conversations of bond securities from institutions, central banks and even other alpha managers into ETFs.
More investors than ever before used iShares factor ETFs to take active risk, tapping into factors as an additional source of potential return beyond strategic asset allocation. We generated $34 billion in factor flows in 2019, significantly outpacing all other index and all other active factor providers. At the same time, we are seeing secular shifts in the regulatory and distribution landscape that is propelling more and more investors to iShares.
For instance, in Europe, we believe the ETF industry could double to $2 trillion over the next five years. As MiFID II is driving change across a variety of business models and price transparency is focusing clients on value for money, which will drive more demand for ETFs. In this region, we are generating record iShares inflows of $60 billion and the industry crossed $1 trillion of AUM as ETF adoption accelerated. And in the United States, we see independent financial advisory and direct platforms shift their strategies to eliminating transaction costs to marketization access to investing through ETFs and enabling more people to invest to reach long-term financial objectives.
We think this will be beneficial for brands like iShares that can deliver client high quality exposures with transparency, with ease of access and for good value. While I’ve seen our monthly flows accelerated across this platform since the move to commission free trading in October, our expectation is for the benefit of these moves to play out in the coming months and years, especially for firms like us that can invest its scale and can invest for the long term.
We also had a record year in our illiquid alternative business and momentum is accelerating, evidenced by increased fundraising and fund vintages as more clients reassess their liabilities and their liquidity needs associated with them, we are taking a longer-term view on the assets in their portfolio and increasing allocation to illiquid alternatives.
BlackRock generated $14 billion of illiquid alternative net inflows in 2019, up from $8 billion in 2018 and just $1 billion of net flows in 2017. Growth was driven by our Infrastructure business, by real estate, by LTPC and private credit. Fourth quarter illiquid alternatives results included the $1 billion close of our third global renewable power fund as well as our second and third close of LTPC in which we secured an additional $1.1 billion of commitments. Growth in our illiquid alternative business will further enhance and supported by our acquisition and integration of eFront, as we leverage technology to enhance better solution we provide to our clients.
Technology remains a key differentiator for BlackRock and a strategic growth area. Technology is how we’ve been able to scale our business into a global multi-asset organization we are today and it enables us to have a deeper, more resilient conversation with more and more of our clients. Our long-term strategy is to provide technology for as much as — much of the asset management value chain as possible and make Aladdin the language of portfolios. Demand remained strong for Aladdin and our technology capabilities, and we expect growth will be driven by expanding Aladdin’s capabilities to existing clients, to attracting new clients, to inorganic growth including eFront and the growth of our clients’ businesses as they scale themselves.
Technology service revenues of $974 million increased 24% year-over-year and more than doubled since 2014. McKinsey Research shows that only 3% of technology startups reach $1 billion of revenues. And I’m proud that BlackRock will soon cross that milestone. Our Aladdin and eFront technology is used by more than 900 clients in 68 countries including 16 wealth managers that have 35,000 financial advisors serving millions of end investors.
The vast majority of our technology service revenues today come from our Institutional Aladdin capabilities, which set the standard in investment management technology and now with the integration of eFront this will reinforce. Our value proposition is the most comprehensive investment operating system for investors in the world.
One of the biggest future growth opportunities is Aladdin Wealth. Macro forces are impacting the wealth industry including a more challenging market environment, heightened customer expectations, more regulation, technology advancements and this is driving demand for a deeper portfolio analytical and risk transparency portfolio construction, product and scale. These are all core to the Aladdin Wealth value proposition. Additionally, we are seeing more and more clients using Aladdin Wealth as a business enabler, particularly in markets such as Europe and Asia where wealth managers are using Aladdin Wealth to move their business away from transaction commissions and retrocession based revenue model to more of an advice-driven model. BlackRock’s technology facilitates our ability to fulfill our purpose and helping more and more people experience financial well-being. By building best in class tools for ourselves and for our clients, we are able to construct better portfolios and then deliver better outcomes.
Tools alone, however are not sufficient. As I wrote about in my Letter to CEOs, BlackRock like all other investors need clear, uniform and useful data on not only financial disclosure, but increasingly more uniform and wide spread standard for sustainability disclosure, which will be vital to financial analysis and investment decisions making going forward.
As sustainability becomes increasingly material to investment outcomes, BlackRock is putting ESG data and analytics at the heart of Aladdin and our risk and quantitative analysis team. We are increasingly evaluating ESG risk with the same rigor as traditional measures such as credit or liquidity risk. Client demand for sustainable products and solutions continue to accelerate. As a global leader investment management our goal is to also be the global leader in sustainable investing by incorporating sustainability of the core and how we manage risk, how we construct portfolios, how we design products and most importantly, how we engage with companies.
As we wrote in letter to clients yesterday, we will be making sustainability of the standard core investing including making sustainable investing more accessible to more of our investors. We intend to double our ESG offerings to 150 funds over the next two years, including sustainable versions of our flagship iShares product so that clients have more choice for how they invest their money. Client demand is also increasing for Outsourced CIO solutions as many are being asked to do so more with less — they do more with less.
BlackRock generated $16 billion of OCIO net inflows in 2019, representing a 10% organic growth, including winning the largest OCIO mandate awarded in the UK in recent years. Outsourcing currently represents only $2 trillion of the $85 trillion of managed assets globally and we believe the market will increase by 50% over the next five years. I’ve talked many times on these phone calls in the past about BlackRock being one of the largest long-term growth opportunities for BlackRock. In line with our commitment to invest and operate where BlackRock entered into a memorial — a Memorandum of Understanding last month to explore establishing an asset management joint venture in China, which will enable us to provide more people with access to BlackRock investment capabilities.
As I said in the past purpose is the agent to long-term profitability. A company’s prospect for growth is inextricably from how it manages sustainability and serve its full set of stakeholders, and that is so true for BlackRock. One of our greatest opportunities is to fulfill our purpose lies in the responsibility as the largest manager retired assets in the world.
We estimate that two-thirds of the assets we manage are related to people’s retirement, including our $1 trillion defined contribution business. We are levering the full breadth of our capabilities and scale to benefit all our stakeholders, including clients, employees and stakeholders and shareholders. Everything we do is rooted in the culture of focusing on the long term, and we are aggressively embracing change and investing to stay in front of the industry changes, but most importantly, we’re investing to stay in front of our clients need, so we could have them better prepared for their future. The benefits of BlackRock’s investments are evident in our consistent growth. Over the last three years, we’ve generated nearly $1 trillion of net organic inflows, 30% of revenue growth, 19% operating income growth, and a 43% total return for our shareholders.
We entered 2020 better positioned than ever to serve our clients to deliver growth for our shareholders in the years to come. I want to thank BlackRock’s employees for their commitment to upholding our culture and living our purpose, which was critical to our success in 2019. We remain focus on making sure that all our people stay true to our culture and our purpose and that is what differentiates BlackRock in the asset management industry.
With that, let’s open it up for questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Your first question comes from the line of Dan Fannon of Jefferies.
Dan Fannon — Jefferies & Company Inc. — Analyst
Thank you. Good morning.
Laurence Douglas Fink — Chairman and Chief Executive Officer
Good morning, Dan.
Dan Fannon — Jefferies & Company Inc. — Analyst
As you think about 2020, can you talk about the outlook for fixed income? In 2019, I think at the start of the year you talked about re-risking within your client base, you saw big inflows and now on the active side in the second half of the year, we’ve seen modest outflows. Can you — can you just kind of level set kind of what clients are doing your outlook for growth and how you’re positioned?
Laurence Douglas Fink — Chairman and Chief Executive Officer
Well, I think probably the biggest macro change for fixed, beyond if interest rates go up or down is going to be the utilization of fixed and ETF corrective strategies. As I said in my prepared remarks and Gary mentioned and I’ll let Rob talk about it a little more. We believe this is going to be a fundamental shift in how people use fixed income as an exposure and they’re going to be using ETFs asset vehicle for active returns.
I believe this is going to be an overwhelming trend in the fixed income landscape as it’s easier to navigate, it’s cheaper to navigate and importantly you provide much greater flexibility with substantially less operational risk when you use ETFs versus the myriad of thousands of bonds. The specifics of the outflows in fixed income were very, it is chronic with one or two clients. We, you know, we are seeing some clients, as I said, replace the — what we define as an active strategy into more ETF strategies and so it’s hard to differentiate those two things as we build deeper broader dialogues about how to use ETFs in a portfolio setting. Rob, do you want to add more to that?
Robert S. Kapito — President
No, I would just add in general, I think there is a common belief now that rates are going to be longer — lower for longer, and with the amount of money that has been sitting on the sideline in cash, clients cannot afford that anymore at getting less than 1% returns. So, they are more than willing now to extend out of cash into fixed income and those are the flows that we are seeing and rather than come into individual bonds, the trend has been to use a more diversified portfolio that they can go into and ETFs have been the beneficiary and because of BlackRock’s position in fixed income, we have been the beneficiary of those particular flows, which we expect will continue into 2020.
Laurence Douglas Fink — Chairman and Chief Executive Officer
Let me just add, putting a whole year perspective because I can’t respond to one quarter versus another. For the full year, we had $75 billion of active inflows in fixed income. For the full year, we had $112 billion in ETFs and so when you put it all in perspective and then we had obviously even more an index and other types of LDI and other types of strategies. So we had a very strong year in fixed income. And but we are — one of the, one of the business propositions we provide to our clients is having a holistic conversation about how one could use ETFs in their fixed income strategy. And so the active ETF mix is kind of harder for you to decipher but we are having broader, deeper relationships with more clients in fixed income than ever before.
Operator
Your next question comes from the line of Robert Lee of KBW.
Robert Lee — KBW — Analyst
Great. Good morning. Happy New Year, everyone. I just want to maybe going back to eFront, I know it’s only been like seven months or eight months. But can you maybe just kind of give us a sense of how you’ve incorporated, may be — started to monetize that. And then maybe more broadly within Aladdin, you mean to an extent you want it to be kind of the language of portfolios. Do you think you now have kind of the full, the full set of capabilities that you need and it’s really just kind of execution or are there other aspects to the platform that you feel like you need to build out and add on to?
Gary Stephen Shedlin — Senior Managing Director and Chief Financial Officer
So, Rob, I think that early stages are suggesting that everything we anticipated about the eFront strategic fit with Aladdin was well thought through and ultimately is going to come true. Again remember Aladdin effectively began as more of the premier Risk Analytics and Portfolio Analytics system designed primarily to liquid, as you know, we spent a bunch of time thinking about attempting to build what we’ve done on the liquid side for illiquid as we thought about doing eFront. And the reality is doing eFront will accelerate that by a number of years for us.
I think clients have been very engaged with us in terms of thinking about getting and bringing their entire portfolio together on a single technology platform that allows them to basically bring the same expertise we’ve been doing for them for years on the liquid side to their illiquid to get a complete view of the entire — whole portfolio that they have from a risk and analytics perspective. We’ve had a strong and growing pipeline with a number of live opportunities globally. We actually won our first joint client, which we announced earlier in the year and our expectation is that this will, that as we bring this together over the next six months to 12 months, it will continue to basically reinforce our long-term growth of low to mid-teens for the combined technology business.
Laurence Douglas Fink — Chairman and Chief Executive Officer
I would just add, you know the language of portfolio is becoming more and more real and we’re committed to that. This is why we believe we have to add sustainability sleeves to Aladdin and making sure that our clients and our investors at BlackRock can look at sustainability as one of the key investment risk going forward, what we did in factors and adding factor sleeves onto our Aladdin system. I think the key that we’ve been doing is we are providing more content for the same value proposition, and so while we continue to drive elevated content with the same fee structure. And as what then happens is as the clients grow, we grow with them. And that has been one of the key characteristics of how we’ve designed Aladdin growing with our clients’ needs. But as the clients now believe in more of the components of Aladdin they’re putting on more of their assets onto Aladdin and so then we grow with Aladdin.
And so the key characteristic is for us to continue to innovate to stay in front to be more additive and I’m looking back now with our eFront acquisition. I don’t even know how we were able to operate without having those sleeves now, and making we’ve been spending years talking about the need with our investors to have more illiquids and now we have the technology to be helping them to. And this is why we believe it’s additive, not only for the Aladdin business, it is very additive for our all — for our entire [indecipherable] business.
Operator
Your next question comes from the line of Ken Worthington of JP Morgan.
Laurence Douglas Fink — Chairman and Chief Executive Officer
Good morning, Ken.
Kenneth Worthington — JP Morgan — Analyst
Hi, good morning. Thank you for taking my question. To follow up on that. So your annual letter, the focus on climate change. So as you did with Aladdin in risk management, are you planning or are there opportunities to leverage the expertise you’re developing in sustainability to profit either by selling sustainable technology or ESG strategy solutions. In other words can sustainability be a new Aladdin for BlackRock rather than just another element of Aladdin?
Robert S. Kapito — President
So following up on Larry’s last answer, we certainly see huge opportunities in using the sustainability platform that we have for other profit centers for BlackRock and to add into our Aladdin value proposition. So what I could see coming forward would be creating new screens that others would be interested in to screen for ESG, creating specific model portfolios and models that many of our distribution networks would want to use, potentially creating new indices in the market as people are looking for someone to take the lead and creating an appropriate indices to pinpoint specific areas of sustainability in the future and offer new products like specific ESG ETFs and it’s already working in that sustainable ETFs for iShares were the fastest growing category in 2019 and it generated $4 billion of net inflows in the fourth quarter or total of $12 billion for the year.
So I can see also adding on new products, which many of our clients would look for. So, as Larry mentioned, the value proposition of Aladdin would grow as we incorporate our platform into the Aladdin platform for other clients of Aladdin to be able to use. That’s just the beginning of some of the ideas we’ve come up with that that we can put forward in 2020.
Laurence Douglas Fink — Chairman and Chief Executive Officer
Let me just add to that. As I said yesterday in my CEO letter and the firm’s client letters, we believe sustainability and the issues is going to have a very large investment impact. For those investors investing in — investing in a long illiquid product they have to seek now in 10 years if there is evidence of climate change, how that will be impacting that investment that has a 10-year horizon. So more than ever before we have to drive analytics to help more and more clients, more and more investors understand the interconnectedness of how climate change, the potential impact of climate change, how does that impact every single investment we have. And because of the resources of BlackRock, the scale of BlackRock I believe more than ever before if we execute on what we intend to do and we could, that’s our intention.
If we execute, we have probably one of the broadest opportunities that we’ve ever had. I believe we will be able to differentiate ourselves more than any other firm by providing these analytics by using them on Aladdin as using them as an investment tool this can differentiate us more than every, any other organization. And this is a call to arms at BlackRock. This is probably the biggest project that we’ve worked on in years that we have embraced the entire organization and I want to underline the entire organization to be more prepared to start focusing on the analytics. So we have better understanding, overlaying let’s say imaging technology on the physical impact on the world and different elements of rising temperatures or rising water levels.
By having a better understanding how insurance companies are focusing on their insurance risk and looking at areas that have potential climate risk implications whether that is from fire, flooding or other actions. I do believe as I said in my letter, the possible changes from climate risk have serious implications in other countries that have heat issues and beyond any flooding issue, it could just be heat that’s changing the output of their crops. What does that mean for that country’s GDP? Should we be — should we honor that country’s debt? These are all really important things and that I don’t believe the investor universe is prepared and it’s the management’s expectations at BlackRock that we become the leader in designing better tools and helping people navigate this uncertain sustainability future. We are really passionate about it.
Operator
Your next question comes from the line of Patrick Davitt of Autonomous Research.
Laurence Douglas Fink — Chairman and Chief Executive Officer
Good morning, Patrick.
Patrick Davitt — Autonomous Research — Analyst
Good morning, guys. On the 5% G&A growth guide, it sounds like there’s kind of a lot of adjustments we should be making to 2019 to get to the base for that 5% growth, could you kind of walk through everything we should be backing out specifically?
Gary Stephen Shedlin — Senior Managing Director and Chief Financial Officer
Sure, Patrick. I mean, I think we’ve been, we’ve tried to be pretty transparent on our definition of non-core. So just for a little perspective, I mean if you look at the fourth quarter, the fourth quarter was up about $130 million. We talked about some of the seasonality in there, but there was about $50 million of again what I would call non-core, in that case, it was contingent purchase price value adjustments as well as foreign exchange remeasurement. That $50 million is probably about 150 basis points of margin in the fourth quarter alone. If you look at the full year, we had about $164 million of what I would call non-core that included $60 million plus for fund launch cost, that’s already adjusted out of margin, but it also included a little over $50 million of these purchase price fair value adjustments, which is actually as those go up, it means that the businesses that we’ve acquired where we have contingent payments are doing better. So that’s a good thing.
We had about $31 million of FX remeasurement, and there’s probably of $15 million to $20 million knocked in there for just deal fees related to things that we were doing during the year. So that’s kind of the numbers that we would basically think is kind of a non-core. And so while we think about that 5%, we’re trying to look at apples-to-apples. And remember, we also have a little bit of lift up from the year just general because we have 12 months of eFront relative to the eight months that we had in 2019.
Operator
Your next question comes from the line of Alex Blostein of Goldman Sachs.
Laurence Douglas Fink — Chairman and Chief Executive Officer
Good morning, Alex.
Alexander Blostein — Goldman Sachs — Analyst
Hey, good morning everybody. So I wanted to turn discussion a little bit to pricing to Gary, I think at the end of last year we talked a little bit about potential kind of strategic reinvestments in some of the ETF as you’ve done in the past. Could you expand on that a little bit I guess which product categories do you guys think you could target here and how is your kind of tech enabled distribution could help block or capture AUM in product categories that I guess more sensitive to price moves?
Gary Stephen Shedlin — Senior Managing Director and Chief Financial Officer
So Alex, it’s really no different than the messaging we offered at your excellent conference at the end of the year. I think that, frankly, obviously we’ll react to pricing in various segments of our business. But the reality is, most of our strategic pricing investments are really driven towards our iShares business and I think as we said for the most part, we have a number of criteria we need to meet in terms of when we will make those decisions. We need to see high future growth, but we need to basically see growth in particular where clients are price sensitive and if we see basically the combination of those two things, we will consider basically making pricing investments.
Since about 2016, we’ve invested approximately 1.5% to 2.5% of iShares revenue annually and over that period of time iShares revenue has grown very substantially roughly by 25%. And we think that in that respect as a look back that pricing investments have been good, not only for clients but honestly also for our shareholders by virtue of the positive NPV that we’ve delivered. In 2019 our pricing investments were at the lower end of that range, but I would expect that we would move to a more normalized pricing — level of pricing investments during 2020 and obviously that’s an important element of maintaining leadership within our — within our iShares franchise. We know that those tend to be long-term sticky assets and revenue streams. And we think about pricing investments no different than any other strategic investment in our company and we tend to budget them and take them into consideration as we think about making sure that we’re growing or optimizing organic growth in the most efficient way possible.
There is no question that we think at the moment, most of the pricing will be focused on the core and likely in certain elements of more of the core related fixed income categories, but importantly I think most of the growth that we’re seeing in the strategic segments that Rob Kapito mentioned earlier as well as where the client simply don’t focus on price as a key decision of their, of their buying decision in the precision instruments and importantly in the liquidity areas, those are higher fee today and those will not be a target of any of our pricing investments going forward.
Operator
Your final question comes from the line of Brian Bedell of Deutsche Bank.
Brian Bedell — Deutsche Bank — Analyst
Great, thanks very much. Hey, good morning. Thanks very much. Maybe just to hone in more time on the fixed income iShares, in terms of the — so far we’re seeing quarter-to-date or January-to-date about $7 billion of fixed income iShares flows about — little like $2 billion in core and about $5 billion institutional. So just talk about that institutional trend, which seems to be continuing, is it more, are you seeing it more from targeting specific allocations or our institutional managers substituting the ETFs for bonds because of the tighter bid-ask spreads that you’re seeing in the ETF and do you see that latter element being a more powerful growth driver going forward.
Robert S. Kapito — President
Yeah. So it’s both. So I think there is a lot of reallocation done and our forte because of our scale and size is to capture those institutional flows into our fixed income iShares. So one is its allocations that are being done as people have their view to the value of equity is in the value of bonds in their portfolio. And then as you know, the supply and the time it takes to find fixed income and build a diversified fixed income portfolio is quite difficult and can be quite expensive. This is a very quick, convenient, less friction way, more liquid diversified way to get in. So people have now substituted building those portfolios by simply going out and getting that portfolio on the Exchange and it is, winds up being cheaper and more effective. They are also using, we’re seeing a lot of model changes and in the models that we have seen that are being used by institutions they are also targeting ETFs. And then if they want to have any sort of precision, any sort of view on factors or any sort of view on particular areas of the market, they are able to achieve it much quicker and faster in fixed income. So we saw that at the end of the year as the market went down and now this is the time when most institutions sit down and talk about their strategy. We’ve seen that continue those flows into the beginning of the year. So I think we’re very positioned well to attract these institutional large flows.
Operator
Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?
Laurence Douglas Fink — Chairman and Chief Executive Officer
Yes. Thank you, operator. Thank you everyone for joining our morning, and your continued interest at BlackRock. I am proud of the progress we have made to lead the industry throughout 2019. And I can promise we will continue to invest. We will continue to innovate in the years to come. So we could be better in what we do and better to meet our clients’ needs. And through that we will generate more growth. And if we continue to fulfill our purpose of helping more and more people experience financial well-being, we will be better positioned as an organization and to you, our shareholders. Have a great start of the New Year and enjoy the next decade. Thank you.
Operator
[Operator Closing Remarks]