Hi. I’ve recently started thinking a lot about Blackrock and I wanted to share my thoughts and get your feedback. Overall, I am extremely bullish on BLK (and other asset managers), and I don’t understand how everyone isn’t.
- From what I understand, BLK is the biggest asset manager in the world. From the 31st December of 2008 to the 31st December of 2021, it’s AUM grew 16.9% p.a. (from 1.31 tn to 10.01 tn), its revenues grew 13.3% p.a., its earnings grew 16.8% p.a. and its stock price grew 16.8% p.a. as well (its possible I made some calculation errors). I think that it is safe to assume that earnings are correlated with assets because of the fees-centered business model? Then, as long as its assets grow, the stock should do well, correct?
- I understand that there are two drivers to this growth of assets, first the actual gains of the funds it invests, and secondly the new business it wins from existing and new clients. However, I feel like the new assets brought to BLK are also a function of how well BLK invests and performs (more true for private markets than for ETFs I guess)
- Although earnings depend on the assets under management, the AUM depends on how well the markets are doing. BLK is just riskier than the market, and that is why its beta is higher?
- BLK owns 10tn in AUM, which must be a pretty big and diverse slice of the entire world assets pie. They own stocks, bonds, private equity, private debt, hedge funds, etc., and their revenues are a percentage of those assets. If an asset class does well, then the fees that BLK collect grow as well. Since BLK's portfolio is so diversified across different assets classes and sectors and geographies, can we say that holding BLK is similar to holding a diversified ETF (it would be even better since ETFs only hold public stocks and bonds)?
- In university, we learn about the 4 typical stages of a company lifecycle, 1) startup, 2) growth, 3) maturity and eventually 4) decline because its product becomes obsolete. However, I am under the impression that investment management is the only industry where this won’t ever happen (maybe I’m too short-sighted). Individuals and companies will always need to invest for the future, and although its form might change (switch to etfs, rise of passive investing, cryptos perhaps), asset managers are embracing those trends from what I see.
- I want to comeback to the AUM growth numbers. Between 2008 and 2021 BLK has grown its assets by as much as 7.7 times. This is just fascinating to me. Because of compound returns, the biggest asset managers are going to become even bigger (it takes money to make money) and the difference between the big fish and the small ones is only going to grow wider, no? I understand that the markets are expected to do bad going forward, but would it be possible for BLK to grow its assets another 7.7 times in the next 12 years? 77 tn in AUM by 2035 sounds insane. As a quick back of the envelope calculation, in the last decade BLK’s revenues have on average been equivalent to 0,22% of its AUM, and it had a 30% profit margin. Assuming an AUM of 77tn in 2035, that’s 170B of revenues and 51B of earnings… Priced at a PE ratio of 16, the company would be worth $813B, and each share would be worth $5280 ($617 currently) … That represents a 20% annual growth rate for the stock. Is there something that I missed?
- I understand that the biggest risk is a regulatory/reputational one. If they mess up some compliance thing, investors will ask for their money back, and with its reputation gone its AUM will shrink to 0. How likely is this to happen? Do you see any other risk?
That’s it. I do not own shares, but I would like to buy some soon. Please share your thoughts about what I missed.
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