The Zhitong Finance App learned that BlackRock (BLK.US) announced the results for the third quarter of 2026 before the US stock market on October 14, and then held a conference call. According to the data, BlackRock's Q3 revenue was 7.752 billion US dollars, up 19% year on year, higher than market expectations of 7.4 billion to 7.52 billion US dollars; adjusted earnings per share were 15.93 US dollars, up 38% year over year, more than 11% higher than the market's expected range (14.10 to 14.32 US dollars). Under GAAP, net profit was US$1,659 million and diluted earnings per share were US$10.57, up 25% year over year.
The scale and capital flow are the biggest highlights of this season. As of September 30, the company's assets under management (AUM) reached a record of US$15.49 trillion, an increase of 15% over the previous year; the net inflow for the third quarter was US$205 billion, of which iShareSETF had a net inflow of US$135 billion, a net inflow of active products of US$66.4 billion, and a net outflow of institutional index products of US$27.4 billion. The cumulative net inflow over the past 12 months was 869 billion US dollars, corresponding to a 10% increase in the organic basic rate; the annualized organic basic rate increased 11% in the third quarter.
The management explained the AI infrastructure financing needs and the judgment on the capitalization of computing power during the conference call. The US power grid, ensuring power supply, and core and shell construction of data centers alone will require 7 trillion to 9 trillion US dollars in the next few years; a 1 gigawatt data center enterprise costs about 50 billion US dollars, of which about 40% is GPUs and chips, and 60% is electricity, power grids, and buildings. BlackRock is actively participating in related financing, such as partnering with Meta to finance its planned $14 billion data center in Texas. Management also suggested that computing power capacity may become a new asset class. Its development path is similar to the mortgage-backed securities (MBS) market in the 1980s. At that time, the MBS market grew from several billion dollars to trillions of dollars, and the key lies in data, standardized performance indicators, and risk analysis frameworks; BlackRock hopes to become the center of this potential new market, and in the long run, related financing will have the opportunity to be securitized into a tradable structure for a wider range of customers.
Below are details of BlackRock's third quarter earnings call.
Management statement
Christopher Meade (General Counsel and Chief Legal Officer):
Good morning everyone. I'm Chris Meade, BlackRock's General Counsel. Before we begin, I would like to remind you that we may make some forward-looking statements during this call. Note that BlackRock's actual results may of course differ from these statements. As you know, BlackRock has submitted a report to the SEC, which lists a number of factors that could cause BlackRock's results to differ materially from what was stated today. BlackRock does not assume or promise to update any forward-looking statements. Next, leave it to Martin.
Martin Small (Senior Managing Director, Chief Financial Officer and Head of Global Corporate Strategy):
Thanks Chris and good morning everyone. We are excited to present our results for the third quarter of 2026. Before handing it over to Larry, I'll review financial performance and business results. Our financial reports disclose both GAAP and adjusted financial results. A reconciliation table of GAAP and the adjusted results is included in the schedule attached to today's press release. I'll mainly discuss the adjusted results.
A year ago, customers focused on managing the uncertainty of inflation, interest rates, and growth. Today, they're focused on capturing opportunities created by technology and artificial intelligence. They are concerned about a revival of infrastructure investment and income investment. They want rewards driven by a new round of productivity and innovation. Capital markets around the world are moving more, and opportunities for BlackRock and customers are expanding. These opportunities are driven by profit-driven returns, higher returns, and broader opportunities to diversify and manage risk through a full portfolio approach.
The breadth of our platform is deepening relationships with customers across all channels, retail and institutions, and around the world. Capital is flowing into the infrastructure that powers AI and digital transformation. Wealth portfolios are moving beyond traditional allocations to personalized solutions delivered at scale. Retirement is being reshaped by growing demand for earnings and broader investment channels.
When clients need capital market advice, portfolio construction, or partners to deploy capital on a large scale in public and private markets, they turn to BlackRock. We have invested methodically throughout the cycle and built a large-scale platform that can connect customers in the public and private markets through technology.
This is reflected in our performance and acceleration pipeline. Over the past 12 months, the client has entrusted us with a net inflow of nearly $870 billion to drive a 10% organic base rate increase. It's not a single product or region driving a company, but broad growth across customer channels, asset classes, and regions.
Like our 2030 plan presented on Investor Day last year, we are driving growth in higher value, higher base rate categories, and our portfolio of public, private, and technology businesses is generating more sustained, round-the-clock revenue and profit growth. Shareholders are reaping the benefits of growth. In the first comparable quarter after HPS delivery, EPS growth accelerated to more than 35% year over year.
The high momentum of the business is being translated into stronger financial results. We have once again achieved double-digit growth in revenue, operating profit, and earnings per share, all three of which set records. Our large-scale and disciplined financial framework is helping turn growth into the bottom line. The operating margin reached 47.8%, an increase of 320 basis points over the previous year.
In the third quarter, BlackRock generated a net inflow of $205 billion. The organic basic rate increased 11%, reaching or exceeding 5% for the ninth consecutive quarter. Growth continues to expand in active ETFs, private markets, systematization, SMA, digital assets, and technology. These capabilities are simultaneously scaled, demonstrating the strength of BlackRock's platform breadth and the durability of its growth model.
Third-quarter revenue of $7.8 billion, up 19% year over year, was driven by increased organic base rates, higher market impact on average AUM, higher performance rewards, and higher technology services and subscription revenue. Operating profit was $3.3 billion, up 27% year over year. Earnings per share of $15.93, up 38% year over year, also reflected higher non-operating income and lower number of diluted shares in the quarter. The quarterly non-operating results include a net return on investment of $164 million, mainly from non-cash gains on market capitalization from minority investments in Securitize and Circle.
The adjusted tax rate for the third quarter was approximately 24%. We continue to estimate 25% as a reasonable expected tax rate for the fourth quarter of 2026. The actual effective tax rate may vary due to infrequent or discrete items or potential changes in tax law.
Basic fees and securities borrowing revenue in the third quarter were $6 billion, up 20% year over year, reflecting the positive impact of market beta on average AUM, organic base rate growth, and higher securities borrowing revenue. Based on the number of equivalent days, the annualized effective rate was roughly the same as in the second quarter. Continued customer demand for high-value categories, including private markets, active ETFs, and systematization, continues to support net inflow rates far higher than the company's hybrid effective rate.
Performance compensation of US$630 million, an increase of 22% year over year, mainly reflects higher revenue from alternative products, including HPS's US$110 million performance compensation. Quarterly technology services and subscription revenue increased 14% year over year, reflecting continued demand for our full range of technology products.
Annual contract value (ACV) increased 12% year over year. At a fixed exchange rate, we estimate ACV to grow 13% year over year. We remain committed to long-term low to medium double digit ACV growth.
Total expenses increased 14% year over year, mainly driven by higher salaries, selling assets and account expenses, and G&A expenses. Employee compensation and benefit expenses increased 12% year over year, reflecting higher incentive pay associated with higher operating profit and higher performance-related pay compared to the same period last year.
Sales, asset and account expenses increased 22% year over year, driven by higher distribution and service costs and direct fund fees. G&A expenses increased 6% year over year, mainly due to higher technology investment expenses. Consistent with the G&A outlook we provided in January, we continue to expect single-digit percentage growth in G&A throughout the year after the impact of annualized HPS and Preqin.
We continue to expand our profit margins on profits related to recurring expenses. Excluding all performance compensation and related compensation impacts, the adjusted operating margin for the third quarter will be 48.6%, an increase of 230 basis points over the previous year.
Our capital management strategy remains consistent. We first invest in the business and then return excess cash to shareholders through a combination of dividends and share repurchases. In the third quarter, we repurchased $550 million in shares. Currently, based on this year's capital expenditure plan, and affected by market and other conditions, we expect to repurchase at least US$550 million of shares in the fourth quarter, in line with previous guidance from the July communication.
Shift to cash flow. BlackRock's net inflow for the third quarter was US$205 billion, spread across product types, customer channels, regions, and active and index strategies. The ETF had a net inflow of $135 billion in the third quarter. Index bond ETFs and precision ETFs led the way, with net inflows of $61 billion and $41 billion, respectively.
Continued demand for our growing active ETF lineup increased net inflows by $22 billion. Our digital asset ETP raised $8 billion this quarter. Our ETF has now achieved the sixth consecutive quarter of double-digit organic base rate growth, driven by higher value ETF categories such as Active and Precision.
Net retail inflows of $23 billion were driven by continued momentum from alternative liquidity, widespread demand for active fixed income products in the US, and continued inflows from Aperio and SpiderRock. Institutional active net inflows of US$44 billion were positive across all product types, leading the private market, fixed income, systematized equities, and liquid alternatives.
The net outflow of the Institutional Index was $27 billion, concentrated in low-rate index stocks. The net inflow to the private market was $15 billion, mainly from infrastructure and private credit deployment and the addition of a real estate contract.
This quarter, we updated our earnings supplement to provide greater transparency on the drivers of private market activity and payment of AUM fees. These metrics include fundraising, deployment, total AUM and investable capital, and can be found on pages 9 to 11 of the earnings supplement.
Finally, our cash management platform had a net inflow of $31 billion in the third quarter. These results include inflows into customized liquidity solutions, government funding demand, and Circle's continued growth.
On Investor Day in June 2025, we presented BlackRock's 2030 Vision and Business Plan. In the five quarters since the plan was implemented, we have met or far exceeded our goals: higher and more continuous organic base rate growth; a more durable combination of asset management and technical capabilities in the public and private markets around the clock; continued expansion of operating margins and higher earnings per share. The third quarter was another solid step towards 2030. In a more unbalanced market, we generated record revenue, operating profit, and EPS, with an operating margin of over 47% and an organic base rate increase of 11%.
The opportunities ahead for BlackRock continue to expand. Customers seek partners that can connect the full portfolio, navigate scarce capital, higher long-term returns, and a new environment of decentralized redesign. I don't think we can simply evaluate the investment environment as risk appetite or risk aversion. The new environment is about capital allocation capabilities, financing advantages gained through scale, channels and breadth of opportunities, and the diversification of redesigned customer portfolios.
Our industry is being reshaped by the convergence of public and private markets and the demand for technology and data from the customer portfolio. These conditions are directly in line with BlackRock's strengths. Customer engagement is higher than ever, and we are entering the fourth quarter, where the season is strong. The company is showing significant momentum and has a long growth runway.
Next, leave it to Larry.
Laurence Fink (Founder, CEO and Chairman):
Thanks Martin. Good morning everyone, and thanks for attending the conference call. We founded BlackRock to be a partner for our clients where capital markets flow. We provide our clients with a full range of public, private, and technical advice. We have a global perspective, but a local one. This coverage ability, the ability to cover every corner of the customer portfolio, places BlackRock at the center of capital flows in the world today and is reflected in its performance.
Earnings per share increased 38% in the third quarter. The operating margin reached 47.8%, and the organic base rate increased 11%, reflecting a net inflow of US$205 billion. The year-to-date net inflow and organic base rate growth were both more than 45% higher than the same period last year.
Our results reflect BlackRock's size today. We achieved net inflows in every asset class, every client type, every region, and active and exponential. AUM has grown by more than $2 trillion over the past year and has now reached $15.5 trillion. We have now been operating for a full year with GIP, HPS, and Preqin as part of BlackRock. This quarter was the clearest view of the profit potential of our integrated platforms to date. It helps us to serve more customer needs and create more value for our shareholders.
For the first time in my career — a 50-year career — I saw a real shortage of capital. The government is running a historically large deficit, while the economy's demand for private capital is rising. The government needs infrastructure financing, enterprises need to finance intergenerational AI construction, and individuals need better ways to invest and retire.
Everyone is rethinking how to deploy capital, and BlackRock is at the center of many conversations. We are both a trusted advisor and a destination for global client capital. This drives the company's meaningful activities and future growth pipeline. This is particularly evident in our partnerships with leading AI construction companies.
We have long-term relationships with these hyperscale cloud vendors, sovereign wealth funds, pensions, and global enterprise customers. These long-term relationships now underpin some of the biggest financing deals in the market. We partnered with Meta to finance its planned $14 billion data center in Texas, pooling GIP's infrastructure investments and HPS's private financing capabilities. We're also partnering with leading technology companies to create dedicated funding pools for their clients to expand computing power and capacity.
In the short term, these can provide private placement for high-rated insurance orders. However, in the long run, there is a greater chance of securitizing it into a tradable structure for a wider range of customers.
Rob Kapito and I have experienced this script before. In the early 1980s, mortgages were loans on bank balance sheets that lacked liquidity and were difficult to price. Fannie Mae and Freddie Mac began packaging it, but that alone wasn't enough to make it tradable. What makes it tradable is data, years of performance history, and understanding how performance changes with interest rates and the wider economy. Once investors have a trusted data time series, issuers have construction standards, and the market is open to a wider range of investors. This combination has grown the MBS market from a few billion dollars when I started to trillions of dollars today. Computing power capacity is now following a similar path, and we intend to make BlackRock the center, just like when the mortgage-backed securities market started back then.
BlackRock is particularly suited to help grow this market because we combine capital formation, but what matters most is technology, data, and scale. Thousands of investment professionals have just joined the Aladdin community to use our analysis and risk framework to make investment decisions. AI is amplifying Aladdin's value, and we're innovating faster and creating better analytics.
As computing power capacity becomes an asset class, the market will require trustworthy data, standardized performance indicators, and a common risk analysis framework. These are abilities we've spent decades building. They now make BlackRock unique in partnering with tech companies and investors to build the infrastructure needed for this potential new market. These opportunities highlight the strategic logic behind our private market acquisitions.
We're already mobilizing capital on a larger scale than ever before. Our AI infrastructure partner recently completed the initial deployment and completed the Aligned Data Centers transaction, with an enterprise value of approximately $40 billion. Over the past 12 months, we've raised $68 billion in the private market. In terms of private credit, higher basic fees support stronger income for investors, making private credit an increasingly attractive source of income and portfolio diversification.
We raised $25 billion in private credit in the first full year after integrating with HPS. In particular, we're seeing strong momentum for insurers to rotate or add higher-rated solutions. This is expected to accelerate until the end of the year and 2027. Across the private market, we have a strong pipeline of future fundraising and deployment opportunities.
Customers want access to large-scale capital markets across the entire portfolio, which is how iShares is leading the growth of the ETF industry. iShares's inflows were once again led by index bond ETFs, with a net inflow of $61 billion, as investors turned to the long and short end of the curve. We're also seeing strong demand for AI-related exposure. Our semiconductors and Korean ETFs are among the products with the highest inflows.
What makes iShares unique is the breadth and precision we provide. No matter what opinions investors hold, they can express them through iShares. ETF packaging is also changing the way investors access active management strategies. iShares is leading the industry with active inflows of $60 billion in 2026, including a record inflow of $22 billion this quarter. iShares has taken the initiative to double its AUM to more than $160 billion in the past year. We've surpassed our $50 billion revenue ambition proposed last summer.
Investment performance ultimately drives active net returns and inflows. Performance and scale reinforce each other. BlackRock's technology-driven process provides investment insights across a broad range of securities, and scale drives continued performance. Over 90% of our systematized stocks AUM is above the benchmark or peer median. This performance drove the broader systematized active stock business for the second consecutive record quarter.
Systematic stocks generated a net inflow of nearly US$30 billion in the third quarter, with net inflows of over US$60 billion in 2026. Our systematic stock inflows increased 50% year over year, and the total AUM is now close to $500 billion in active investments.
We're seeing the same dynamic in fixed income. Approximately 85% of taxable fixed income assets were above the benchmark or average of peers for 3- and 5-year periods. This consistency is why customers continue to bring in more combinations. The net inflow of active fixed income of $14 billion reflects strong institutional and retail channels. Customers are turning to strategies such as Strategic Income Opportunities' and Total Return to reap benefits in a higher interest rate environment. Rick and team built this performance for decades, and we're porting it to a new package, including a fixed income ETF lineup.
Customers are also capturing revenue opportunities at the short end of the curve. Net cash inflows of US$31 billion include several large-scale commissions, where the client consolidated decentralized liquidity projects into BlackRock's more customized solutions. Earnings are particularly critical in retirement. In recent years, we've innovated with LifePath Paycheck to provide a guaranteed retirement income option.
Last month, we launched the LifePath Solutions framework. It aims to bring capabilities historically reserved for the largest retirement plans to a wider range of plan sponsors. Our $700 billion global LifePath platform reflects more than 30 years of expertise, giving us a unique ability to meet challenging customer needs.
Our brand and reputation have been further strengthened through initiatives such as BlackRock Future Builders. As part of the project, the BlackRock Foundation deployed capital to connect workers with skilled trade training. It also embeds financial education and digital savings tools to help workers build more lasting economic security from their first wage to retirement.
Many international pension and corporate clients are coping with structural changes in retirement savings plans as defined contribution models continue to grow globally. For example, Dutch program sponsors need partners to help them manage the transition from determining revenue to determining contributions on a large scale. We have added several pension commissions in connection with this deal.
Last month, the Dutch Construction Industry Pension Fund named BlackRock the preferred candidate for its $80 billion outsourcing commission, citing our global scale, execution capacity, and technology. We are advising clients and governments around the world to establish lasting retirement systems and deepen local capital markets. When capital flows across borders, most of it goes through platforms like ours.
Foreign investment is flowing in record amounts into US stocks and funds. BlackRock has benefited from this activity, and one-third of our long-term net inflows come from customers outside the US. More evident in systematized stocks, more than 70% of net inflows come from international clients.
Both Europe and Asia have achieved double-digit organic base rate growth, and the Middle East has seen a global base rate increase of more than 20%. We have a long local presence and years of execution expertise in these regions. This is reflected in the strong participation of the highest-value growth engines such as systematized equities, private markets, retirement, and technology.
Aladdin supports everything we deliver to our customers. ACV grew 12% in the third quarter, reflecting new additions and expanding technology stack relationships with existing customers. We provide full public and private marketplace workflows and data products through Aladdin, eFront, and Preqin.
As private markets become a larger part of the client portfolio, the need for transparency, risk management, and portfolio analysis will only increase. This is a natural extension of Aladdin's role as a full portfolio of operating systems for global investors.
Our results prove the power and potential of integrated companies. Shareholders participated in the growth through a 38% increase in earnings per share, an operating margin of over 47%, and a double-digit organic base rate increase. BlackRock brings together decades of issuer relationships, financing expertise, investment performance, and the technology and data that connects everything through open market platforms.
This combination makes BlackRock unique across all competitive categories and all operating regions. That's why BlackRock has won commissions at the cutting edge of capital markets, from hyperscale cloud vendors to computing power financing, from pension outsourcing to Aladdin and Preqin partnerships.
Our momentum is accelerating, and our pipeline is wide-ranging, covering the full portfolio, private markets, retirement, and the entire international platform. More customers see BlackRock as a capital destination and growth partner. I am confident in the future opportunities and growth of BlackRock, its customers, and shareholders.
Moderator, let's be open to questions.
Q&A session
chairpersons
Now on to the questioning session.
J.P. Morgan Michael Cho
I'd like to talk about organic base rate growth this quarter. Seen a nice acceleration. The influx of driving can be seen from different contributors. Martin, you mentioned a few drivers. Can you elaborate on what contributions are increasing and likely to continue more in each of the businesses you've highlighted?
Martin Small
Thanks Mike. First, we continue to implement our 2030 plan to achieve lasting premium organic base rate growth. The organic basic rate increased 11% in the third quarter, reaching or exceeding the long-term target of 5% for 9 consecutive quarters, and for the 5th consecutive quarter to reach or exceed 8%. I think we've proven that BlackRock can continue to achieve the 6% to 8% range. In a period of high customer activity and strong markets, it is clear that it has the ability to rise to medium to high single digits to the lowest double digits. This can be driven by customer preferences, increased exposure to international markets and precision semiconductors, large entrants, and private market fundraising and deployment opportunities.
Organic base rates increased this quarter, and as Larry and I mentioned, are very scattered across the platform. Systematic business, extensive proactive management, AI partner deployment, infrastructure mid-market strategy fundraising and first-day fee payments, precision ETFs, Aperio and SpiderRock tax awareness, and cash all contributed strongly.
A few financial highlights may help explain the breadth of our core asset allocation, portfolio diversification, tax awareness strategies, and private markets. If we look at the inflow of 524 billion US dollars from the beginning of the year to date, about 220 billion dollars is in the range of 5 to 10 basis points, it can be called a broad asset allocation model and the core exposure held by customers for a long time. Approximately $270 billion is in the 10 to 60 basis point range, including active ETFs, national funds, management decentralization, and exposure to tactical opportunities. The remaining inflows of more than 60 basis points were in private markets and liquid alternatives. Of these, liquid alternatives flowed in the quarter to $25 billion, including $15 billion in private markets, hedge fund strategies, and $9 billion in alternative liquidity.
We think this combination is strong and enduring. Persistence comes from two places. One is what we've always called structural growth players. These categories grow faster when the market is strong and still grow when the market is weak. These include ETFs, active management, private markets, and systematic SMA solutions. This is reflected in the pipeline. We have several large-scale outsourcing relationships, and we expect to inject capital by the end of the year and 2027. We've also won a number of highly rated insurance orders, and deployment over the next few months and days will drive growth. As a result, future organic base rate growth is strong and visible.
In terms of the private market, fund-raising plans are scattered across infrastructure, private credit, and alternatives. We have a strategy of charging at the time of recruitment, as well as a strategy of scaling up with deployment. This also supports recent revenue, long-term growth, and the ability to consistently achieve at least 6% to 8%.
Second, we are integrators. Looking at industry inflows over the past few years, the top 5 asset management companies consolidated about 80% of inflows. However, the industry is still highly fragmented by assets and revenue. In a hugely fragmented market, every investor wants to integrate relationships to obtain maximum value from partners, and our consolidated share is a path for continuous organic growth. Customers really want to do more with BlackRock. As can be seen in inflows, the momentum of this quarter and the past year is visible. This gave the management team confidence and optimism.
Morgan Stanley Michael Cyprys
I'd like to ask, given the recent rise in long-term interest rates, what are you seeing and hearing from asset owner clients? To what extent are customers changing their relative value thinking and incremental capital allocation? Can it be linked to the ongoing major AI infrastructure construction? How sensitive do you think this investment opportunity is to higher financing costs? Are you seeing changes in the pace or economics of AI projects?
Robert Kapito (President and Board Member)
I remember the last time you asked this question many years ago, and the answer was “the bonds are back.” Now I'm going to say that interest rates will be affected by all obvious factors: inflation, energy prices, capital supply and demand imbalances, global deficits, geopolitics. We expect greater fluctuations until balance is found. Currently, interest rates are slightly higher, especially at the long end of the curve.
But demand for fixed income is still in its early stages. Investors have been forced to take stock risks to generate meaningful returns for years. Today, huge changes have taken place. The 10-year US Treasury yield is over 5%, and the real interest rate is close to 3%. In our strategies such as BINC and SIO, we can generate a yield of around 7% in a diversified high-quality combination. These are the benchmark rewards for creating the resilience and durability of the combination Larry mentioned. What is particularly appealing is that historically, the future returns of medium-term bond portfolios are usually closely tracked with the initial yield. In other words, investors don't need heroic market results. Most return opportunities are embedded in today's revenue levels.
We've seen customers recognize this opportunity. The net inflow of fixed income in the third quarter was US$78 billion, and the year-to-date was US$205 billion, reflecting the need for high-quality earnings and more resilient portfolio construction. This environment is directly in line with BlackRock's strengths. Investors can earn attractive income without the risk of significant long-term, fluctuation, and retracement. If interest rates stabilize thereafter, we think there is plenty of room for growth in fixed income allocations. Customers can now use our better fixed income packages, particularly bond ETFs, and want to lock in future yields.
Laurence Fink
Regarding data centers and financing, put it in the context of the overall federal deficit. The federal deficit was $232 trillion after 8 years and $40 trillion 26 years later. As a result, deficit financing needs and requirements are at record levels. I've been talking about the need to unlock private capital. We are seeing this kind of unlocking, which is excellent for America and America's potential growth.
But unlocking private capital means lots of financing, whether it's AI and data center financing, or like Humana, we announced big funding yesterday or last week, or AT&T financing. This is one of the special components of America's growth, and the capital market is playing a larger and larger role.
As a result, competition for capital intensified between record federal deficits and growing demand for private sector capital. All of this means that now we have higher structured interest rates for longer, especially at the far end of the curve. I think this will continue to be with us.
Obviously, as I said in my prepared statement, I don't think we can raise trillions of dollars in custom deals related to data centers. Creating new financing instruments for chips and computing power is critical for the US to continue to build on the scale necessary. Once we're built, the whole world needs to build.
Consider the cost of a gigawatt data center enterprise in the US about 50 billion US dollars. Of this, 40% is the cost of GPUs and chips, and the other 60% is electricity, power grids, core and shell. All of these add up. We are now seeing data center financing based on leasing credit. But we are now also seeing the need to build chips and computing power on a large scale.
If we want to democratize AI, the sooner the better, the more we can expand economic success. This is a must. We can't just have 5 or 7 companies completely buy all current chip production. We need to be able to finance AI startups, and every company needs to buy these new innovative computing power chips. They don't have credit ratings, so they have to innovate their approach.
The best approach is asset-based chip financing through data, analysis, and then we can help finance startups, new young companies to grow, and possibly grow the US by 3% or more. Then the debt I just mentioned will be less serious, because we can continue to grow the economy by more than 3%, and the debt as a share of GDP should drop.
Bank of America Securities Craig Siegenthaler
We wanted to learn more about the Tax Awareness Kit, which includes the over $200 billion in Aperio. Where do you see the greatest demand? Can third-quarter inflows be quantified? Last quarter gave Aperio an inflow of $7 billion. Regarding long and short tax perceptions, how do you handle the capacity limits of the two major RIA escrow banks? They have recently tightened their inflows, is that important? Because the product has also entered many other wealth management platforms, banks, and online brokers.
Martin Small
Craig, thanks. I heard three things: an overview of demand and inflows, details of tax perception strategies, long and short strategy growth, and escrow bank financing.
First, philosophically, we put the customer at the center of these strategies. For taxable customers, maximizing returns means managing markets and taxes. We're seeing strong demand for tax awareness solutions. Includes direct indexing, long and short, and SpiderRock options strategies to help focus stock positions and liquidity events.
The Aperio platform grew from around $40 billion at the time of acquisition to nearly $200 billion in 5 years. Double-digit organic growth continues. The direct indexed traditional long AUM is US$175 billion, with a net inflow of approximately US$13 billion since the beginning of 2026. The long and short AUM is 19 billion US dollars, and the net inflow since the beginning of 2026 is about 12 billion US dollars.
Aperio's net inflow for the third quarter was $5 billion, including 4 billion dollars long and 1 billion long. The inflow of these tax perception strategies in 2026 was $25 billion, 70% higher than in 2025, and reached a record $15 billion in 2025. This is our fifth year in a row.
Through SpiderRock, we also provide options superposition capabilities to complement direct indexation and tax-aware long and short strategies as part of a broader full portfolio solution. SpiderRock's net inflow of $3 billion in 2025. 2026 had three consecutive record quarters, including the third quarter of $2 billion. Congratulations Eric Metz and team.
I think BlackRock differentiates itself in this area based on service, platform breadth, and delivery results. We work with clients not only in the SMA, but also across ETFs, SMA, direct indexing, long and short, public/private models, and full portfolio orientation. This continues to grow well, and the pipeline is strong in the future.
Regarding the growth of long and short strategies and escrow dynamics, let me first say once again that we have a broad value proposition in our broad tax advantage strategy. Long and short is a rapidly expanding category. The industry's escrow model and financing model are being adjusted.
For banks, broker-dealers, and custodian banks, there are favorable returns and financing economies, and we are seeing more parties entering the market to finance growth. The assets of the long and short industry reached 170 billion US dollars, a threefold increase over the previous year. As I mentioned, our AUM is close to 20 billion.
Customers are in high demand for these strategies. As I mentioned, there were long and short inflows of $4 billion. Our focus is on doing everything the bulls do. Multiple heads We maximize the industry's managed access points. Our goal is to also increase these strategies to finance counterparties for the benefit of our clients. We are expanding our platform relationships and anticipate adding access points through distributors and hosting partners.
There is understandable and proper attention to many hosting changes. But we have decentralized financing partners, distribution partners, and other providers, and are increasing capacity. We work closely with senior private wealth management clients to expand access to escrow platforms, expand delivery options through new structures, such as alternative SMA options such as SpiderRock and direct indexing, and provide clear guidance, education, and interface with all partners and financing counterparties to ensure that onboarding, reporting, operations, and financing are managed with the high quality of fiduciary care that customers expect. I think there's more in this area. It has a valuable place in the customer portfolio.
UBS Michael Brown
Profit margin expansion this quarter was very impressive. Can you take a moment to break down the biggest drivers and how should we think about the pros and cons in the fourth quarter? Is it a reasonable assumption that profit margins will be roughly flat from quarter to quarter? More broadly, it is expected to expand by around 200 basis points this year. Thanks for not liking the inclusion of beta in the outlook, but assuming a typical market context, what are the profit margin expansion opportunities in 2027?
Martin Small
Thank you. We continue to deliver industry-leading profit margins. This is part of the 2030 strategy. Profit margins on operating and recurring expenses both expanded by 200 to 300 basis points year over year, as you mentioned. The operating margin for the quarter was 47.8%, an increase of 320 basis points. The profit margin excluding performance compensation and related remuneration was 48.6%, an increase of 230 basis points.
Breaking down the pros and cons, the operating profit margin we report may change during the quarter due to the composition of performance compensation, and different strategies have different payment ranges. The operating margin for the quarter was high, partly due to the performance compensation mix. However, excluding performance compensation and related compensation, we are still seeing an increase in the profit margin on recurring expenses by 230 basis points.
We've talked about building BlackRock around a full portfolio of structured growth categories around investment solutions. These structural growers are private markets, ETFs, SMAs, models, target-date technology, and these categories of inflows and base rate growth are around the clock and are less sensitive to the market. Therefore, we believe they play a key role in driving more structured and adjusted operating margins.
The market continues to influence BlackRock's profit margins, up and down, as you mentioned. But our 2030 goal is to generate more than 30% of revenue from private markets and technology, aiming to dampen this influence, drive more stable double-digit EPS growth and profit margin expansion, while providing more resilience to our customer portfolio. The difference today is that we have private market engines GIP and HPS, both of which operate at over 50% FRE profit margins. Based on this, we believe that the outlook for profit margin growth can drive two things.
First, the profit margin on recurring expenses can rise to a first-class private market company by more than 50%. We can do it through business acquisitions, or through highly large-scale, high-leverage franchises such as ETFs, digital assets, and systematized stocks that can grow and create more expansion and profit. Second, with a constructive market, higher rate inflows, and strong organic growth, we believe we can further improve the company's fully burdened adjusted operating profit margin. We operate today at leading profit margins and still see room for future scale.
Goldman Sachs Alexander Blostein
Hope to talk about AI for a few more minutes. There was a lot of discussion about capital requirements. It was well understood, and you explained it very well. Thinking about which part of the ecosystem is BlackRock most comfortable participating in today, computing power or data centers, and which part of the capital structure? Establishing a fully securitized trading market around this may take time. How many bridges are you likely to provide in the next few years and how can this be turned into revenue opportunities for BlackRock? Ultimately, is there room to set up capital market syndicate businesses like some of their alternative peers?
Laurence Fink
I'll start first, Martin added. Great question. You're right, getting data and analysis takes time. It takes time for rating agencies to review new markets and come up with metrics. Aladdin and Preqin require data sets for proper analysis. But it's a huge priority, and we're focusing on that right now.
Having said that, we participate in almost every conversation. I've spent the past week talking to every major hyperscale cloud vendor. This is a big opportunity, not only for GPU financing, for the HPS team, for the GIP team, for data center construction and cooperation with hyperscale cloud vendors.
As I announced, we have completed the Aligned Data Centers platform. We're actually looking at two other platforms around the world that can play a greater role. But what I said in my prepared statement did resonate. As one of the majority shareholders of every major public hyperscale cloud vendor and technology platform, we have extensive conversations with all companies.
Obviously, many companies want to build not only in the US, but also in other parts of the world, because the world needs computing power. We're involved and will be a part of it. I'm sure this will be a major source of opportunity.
Having said that, customers around the world have also heard from some of our competitors. At the same time, they all want to do the same financing. Therefore, it requires unique structural capabilities, cooperating with hyperscale cloud vendors, and then working with customers to see what they are looking for, what structure they need, and what guarantees the backend requires if it is computing power. All of these we are at the cutting edge and working on. I believe we are involved and more involved, as shown by our announced private market growth. I think this is the main platform for growth. We are currently making a very big deal on the market, and we will know the results in the next few months. But every day we have conversations and opportunities to help.
If you think about the US only building power grids, securing electricity and core and shell construction, it will require 7 trillion to 9 trillion US dollars over the next few years. Obviously, a lot of financing. This is America only. Other parts of the world are also looking for similar financing capabilities. So it's going to be very broad. This is the role that the US capital market can play, and it is also a big opportunity for BlackRock to participate in this big opportunity.
Martin, would you like to continue talking more?
Martin Small
I want to emphasize one point Alex and Larry said, from the CFO's point of view. The future of Western capital markets is here, and it is happening now. When we talk about the integration of public and private portfolios, we are not only talking about customer portfolios, but also about how the company is funded. Open and private market options, flexibility, and liquidity. Companies that directly finance off-balance sheets through public-private structures will have more, and they must do a good job to finance the huge opportunities for productivity and innovation brought by AI.
For BlackRock, you'll see more of the deals you've already seen. We participate in the advanced investment-grade open debt market or 144A, participate in holding company notes and mezzanine financing through insurance accounts, and participate in equity and primary securities, particularly through HPS and GIP platforms. However, being able to deliver financing for the entire capital stack and can be done in a wide range of regions and customer types, we believe this is essential to provide financing solutions for issuers, and we also regard issuers as customers. So there's more. I think that's why Larry's enthusiasm was evident on these phone calls, and these pockets are still specialist capital. If we want to see broader participation, we need to see overall weight considerations turn into GPUs, data centers, computing power, etc. This requires extensive analysis, as well as opening up pension plans and traditional fixed-income allocations to these.
Regarding the second question, syndication, we are first and foremost a fiduciary business. The goal is to find attractive investments for long-term client accounts and generate long-term recurring management fees. As we launch, focus on where the investment creates the most value within the institutional, wealth, and insurance client portfolio. Again, our strength is the breadth of our customer base. We have a large demand for private credit funds, insurance entrustments, custom client accounts, pensions, and OCIO entrustments. This gives us significant flexibility to match assets with long-term capital. The focus is therefore on growing fees to pay AUM as a fiduciary to place assets into long-term customer portfolios. If and when appropriate syndication and distribution revenue is available, we will do it. However, any syndicated and distribution revenue should be viewed as an increase rather than a major driver of value creation. We see a greater and more lasting opportunity to deliver private high ratings, private credit, infrastructure debt, and deepen customer relationships over time on the platform.
Jeffrey Daniel Fannon
Martin, I wanted to break down your earlier comment about inflows, where you mentioned the acceleration pipeline. Curious about the future, what do you think the bigger contributors are, or where certain combinations, asset classes, or products might change? Compared to the first nine months of this year?
Martin Small
Thank you. First, we are entering the fourth quarter of the season's strongest. iShares' annual inflows are typically 30% to 40% in the fourth quarter. Therefore, it is expected that the end of the year will see a typical seasonal iShares inflow. The difference is that we will continue to see a shift to higher value, higher rate ETF classes, including precision exposure, active ETFs, digital assets, factors, etc.
Second, the third quarter is usually the softest quarter for private market fund-raising. As a result, stronger fundraising is expected in the fourth quarter towards annual goals, including a first-day charging strategy. What I am more optimistic about is that in the fourth quarter and the first half of next year, the private market Evergreen Fund will take a real turn. Our Evergreen Fund of about $20 billion has inflows of about 1.2 billion US dollars this quarter, with a total subscription of 800 million US dollars. I saw a twist. I would like to point out that an increase in base interest rates will bring back a constructive allocation to private credit and retail BDC direct loans. SOFR interest rates have risen, and private credit performance has been resilient. I think you'll see that we're having a very constructive conversation with our distributors. We still have redemptions in the queue. Industry rates are higher than before. However, I think in the fourth quarter and the first half of next year, Evergreen's structural returns and cash returns will enter a more constructive environment.
Concluding remarks
Moderator: Ladies and gentlemen, time for questions and answers. Do you have any closing remarks, Mr. Fink?
Laurence Fink
Thank you to the host. Thank you all for attending the conference call this morning and for your continued interest in BlackRock. This quarter's results reflect the clearest view of the strength of our integrated platforms. I think we can all see that the investments we have made are being reflected in growth that far exceeds our target, and we are just getting started in the next few years. Entering the end of the year, the momentum is growing, and I am confident about the future of us, our customers, and your shareholders. Thank you all and have a great season.
MODERATOR: The conference call ended for today. You can now disconnect.