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Good morning. My name is Katie, and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the BlackRock, Inc. Second Quarter 2025 Earnings Teleconference.
Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Martin S. Small; President, Robert S. Kapito; and General Counsel, Christopher J.
Meade. Thank you. Mr. Meade, you may begin your conference.
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 list 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 Martin.
Thanks, Chris. Good morning, everyone. It's my pleasure to present results for the second quarter of 2025. Before I turn it over to Larry, I'll review our financial performance and business results. Our earnings release discloses both GAAP and as-adjusted financial results.
I'll be focusing primarily on our as-adjusted results. At our Investor Day last month, we communicated our ambitions for BlackRock in 2030. Our leadership team and our employees have seen and contributed to that vision over the last 2 years. We anticipated where our clients and markets were going. We've established strength at the foundation of our platform in ETFs, Aladdin, whole portfolio, fixed income, cash management.
They're the strong foundations to serve clients and deliver on our organic growth objectives. We executed on organic business builds in structural growth categories, including digital assets, active ETFs, model portfolios and systematic equities, and we've executed on 3 major acquisitions. We've built a premier investment and technology platform across public and private markets, one that's only at the beginning of a durable long-term runway for growth. Building on our record results in 2024, we continue to see the proof points of the success of our strategy into 2025. We generated 7% organic base fee growth and over $650 billion of net inflows over the last 12 months.
This success has been built on multiyear sustained growth in iShares, fixed income, systematic tax-managed strategies in Aladdin and now expansions in private markets. We believe these engines will enable us to more consistently rise above 5% organic base fee growth. We posted 6% organic base fee growth in the second quarter for our fourth consecutive quarter of 5% or higher organic base fee growth. We finished the second quarter with record AUM, record units of trust of $12.5 trillion.
We once again delivered double-digit year-over-year growth in revenue, operating income and earnings per share. GIP V closed above its $25 billion target, making it the largest private market fund raise in the histories of both BlackRock and GIP. We took early commercial steps to bring a first-of-its-kind public-private target date solution to retirees with Great Gray, a leading collective investment trust platform. And earlier this month, we closed our acquisition of HPS Investment Partners, a major milestone as we evolve towards our ambitions of 30% revenue contribution from private markets and technology by 2030. Second quarter net inflows of $68 billion were impacted by low fee institutional index redemptions, which saw $48 billion of net outflows.
Excluding that activity, BlackRock delivered approximately $116 billion of net inflows in the quarter. Turning to financial results. Second quarter revenue of $5.4 billion was 13% higher year-over-year, driven by the impact of organic growth and higher markets on average AUM, base fee is consolidated in the GIP transaction and higher technology services and subscription revenue, which includes the onboarding of Preqin. Operating income of $2.1 billion was up 12%, and earnings per share of $12.05 was 16% higher versus a year ago.
EPS also reflected higher nonoperating income, a higher tax rate and a higher share count in the current quarter. Nonoperating results for the quarter included $433 million of net investment gains driven by mark-to-market noncash gains on minority investments, including Circle and in our co-invest portfolio. We own approximately 2.3 million shares of Circle common stock, which will continue to be marked through investment income going forward. Our as-adjusted tax rate for the second quarter was approximately 25%, and we continue to estimate that 25% is a reasonable projected tax run rate for the remainder of 2025. The actual effective tax rate may differ because of nonrecurring or discrete items or potential changes in tax legislation.
Second quarter base fee and securities lending revenue of $4.5 billion was up 15% year-over-year, driven by the positive impact of market beta on average AUM, organic base fee growth and approximately $240 million in base fees from GIP. On an equivalent day count basis, our annualized effective fee rate was down 0.4 basis point compared to the first quarter. This was partially due to the impact of catch-up base fees associated with private markets fundraising, which were $36 million lower relative to the first quarter. Significant intra-month equity market declines in April were also a contributing factor.
As a result of market and FX movements into the end of the quarter, we entered the third quarter with an estimated base fee run rate approximately 5% higher than our total base fees for the second quarter. That's excluding the impact of HPS. The closing of HPS added $165 billion of client AUM and $118 billion of fee-paying AUM on July 1. We expect HPS to add approximately $450 million of revenue, including $225 million in management fees in the third quarter of 2025. We expect HPS to positively impact BlackRock's overall effective fee rate by approximately 0.6 of a basis point. Performance fees of $94 million decreased from a year ago, reflecting lower performance revenue from private markets, liquid alternatives and long-only products.
Quarterly technology services revenue and subscription revenue was up 26% compared to a year ago. Growth reflects sustained demand for our full range of Aladdin technology offerings and the impact of the Preqin transaction, which closed on March 3. Preqin added approximately $60 million to second quarter revenue. Annual contract value, or ACV, increased 32% year-over-year, including the Preqin acquisition. ACV growth increased 16% organically, also including the impact of currency exchange tailwinds.
Total expense increased 14% year-over-year, reflecting higher compensation, sales asset and account expense and higher G&A. Employee compensation and benefit expense was up 12%, reflecting higher head count associated with the onboarding of GIP and Preqin employees and higher incentive compensation linked to higher operating income. G&A expense increased 16%, primarily driven by the GIP and Preqin acquisitions and higher technology spend. Sales, asset and account expense increased 14% compared to a year ago, primarily driven by higher direct fund expense and distribution costs.
Direct fund expense was up 23% year-over-year, mainly due to higher average ETF AUM and net inflows. Our second quarter as-adjusted operating margin of 43.3% was down 80 basis points from a year ago, partially due to the impact of lower performance fees. We'll continue to execute on our financial framework of aligning organic growth with controllable expenses. This approach has yielded profitable growth and operating leverage in good markets, and we believe it adds more resilience to our operating margin when markets contract.
We welcomed approximately 800 new colleagues to BlackRock following the close of the HPS transaction. Inclusive of the HPS acquisition impact at present, we would expect a low teens percentage increase in 2025 core G&A expense with the onboarding of GIP, Preqin and HPS as the main driver of the year-over-year core G&A increase. In addition, we'd expect our adjusted compensation to net revenue ratio to be modestly higher due to compensation associated with performance-related revenues from HPS. Our capital management strategy remains, first, to invest in our business to either scale strategic growth initiatives or drive operational efficiency and then to return excess cash to shareholders through a combination of dividends and share repurchases.
At times, we may make inorganic investments where we see an opportunity to accelerate growth and support our strategic initiatives. At the closing of the HPS transaction, we issued and delivered approximately 8.5 million BlackRock SubCo units subject to 2- to 3-year lockup periods. SubCo Units are exchangeable on a one-for-one basis with BlackRock common stock. We also issued approximately 1 million BlackRock restricted stock units, primarily for retention of HPS employees.
Additional SubCo Units may be issued in approximately 5 years, subject to achievement of certain post-closing conditions and financial performance milestones. If all contingent consideration is achieved, all SubCo Units are exchanged for shares of common stock and all RSUs vest and are settled as common stock, we do not expect to issue more than approximately 13.8 million additional shares of common stock in aggregate. SubCo Units issued will be included in our as-adjusted diluted shares outstanding and will be captured in our as-adjusted results going forward. We repurchased $375 million worth of common shares in the second quarter.
At present, based on our capital spending plans for the year and subject to market and other conditions, we still anticipate repurchasing at least 375 million of shares per quarter for the balance of the year, consistent with our January guidance. In May, we made a minority investment and established a strategic alliance with Generation Life with the goal of developing investment solutions for Australian retirees. Last week, we announced our agreement to acquire ElmTree Funds, a real estate investment firm with $7.3 billion in client AUM, of which $3.1 billion is fee paying. The transaction is expected to close in the third quarter of 2025, subject to regulatory approvals and customary closing conditions.
In the second quarter, BlackRock generated total net inflows of $68 billion. Excluding low-fee institutional index outflows, BlackRock's net inflows were $116 billion. ETF net inflows of $85 billion were diversified by channel, and over 1/3 were driven by our clients in Europe using local ranges. Fixed income ETFs led inflows with $44 billion and active ETFs and digital asset ETPs added $11 billion and $14 billion, respectively.
Retail net inflows of $2 billion reflected continued strength in Aperio and our systematic liquid alternatives funds. Institutional active net inflows of $7 billion were driven by insurance client fixed income mandates and strength in infrastructure, private credit and liquid alternatives. Institutional index net outflows of $48 billion were impacted by a single client redemption of $52 billion, primarily from fixed income. Our institutional channel delivered 3% long-term organic base fee growth in the quarter, benefiting from client demand for active and alternatives.
Finally, our scale and our active approach with clients around liquidity management are driving sustained growth in our cash platform. Cash AUM is up 25% over the last year, and we generated $22 billion of net inflows in the second quarter. The BlackRock platform is powered by foundational growth businesses linked to long-term growth in capital markets and fast-growing client and product channels. By combining BlackRock's capabilities with GIP, Preqin and HPS, we've laid the groundwork for an exciting future.
We're already steadily delivering above 5% organic base fee growth and our new colleagues from HPS are only going to help us build from here. There is a bright future ahead to grow with clients, build great careers for our employees and deliver profitable growth for our shareholders. I'll turn it over to Larry.
Thank you, Martin. Good morning, everyone, and thank you for joining the call. Over many years, BlackRock has worked to serve the ambitions of each and every client around the world from the largest asset owners to individuals, just getting -- with a start with investing. We design and deliver strategies and products that fit their unique long-term needs and aspirations.
We delivered in a way that best serves each client, whether it's through whole portfolio solutions, opportunistic investments or customized models and SMAs. Throughout BlackRock's history, we've been relentless and anticipating the future needs of our clients and taking strategic actions to evolve for them. Our sustained multiyear growth has been powered by our whole portfolio approach. We were the first provider to blend active and index at scale through our acquisition of BGI and iShares.
Our integration of active and index investing propelled the next 15 years of success for our clients and shareholders. iShares AUM was about $300 billion when we announced our acquisition. And today, it's approaching $5 trillion. And now we're building on our fundamental -- our foundational platform to redefine the whole portfolio again by bringing together public and private markets across both asset management and technology. That foundational platform has powered performance for clients and sustained organic base fee growth through cycles.
We believe our expansions can drive even higher growth. Our trust and comprehensive relationships we have with clients across our core businesses like Aladdin, ETFs, fixed income and retirement are now driving even a broader -- with even a broader opportunity set. We're seeing secular demand for capabilities we developed in recent years like digital assets, active ETFs, systematic strategies and customized SMAs through Aperio and SpiderRock. The strength of BlackRock platform is also expanding the growth potential of GIP and HPS.
They're both premier firms in their own right, but they recognize how our client relationships and the completeness of our platform could help us all achieve new heights together. BlackRock's ethos of change, the integration of firms and the best parts of their culture, that's what allows us to be more adaptive with our clients. Our history of integration is very different, and it sets us apart from any other public or private markets firm in the industry. BlackRock's breadth and scale has differentiated us with our clients of all sizes worldwide.
We're delivering an integrated approach to help our clients across all aspects of public and private markets investing. We enable a seamless view into investment management into technology and data on one single platform. We remain steadfast in our One BlackRock culture, making sure clients have access to all of BlackRock in a comprehensive, consistent way in every region with every client. Our long-standing relationships and history of reinvention are resulting in a higher, more diversified organic base fee growth.
We're now generating 6% organic base fee growth for the second quarter and the first half of 2025 and 7% over the last 12 months. Revenues, operating income and earnings per share each grew double digit. Total inflows were $116 billion, excluding the index activity, Martin mentioned. Growth is being powered by both our largest core businesses and newer initiatives. iShares ETFs have had a record first half inflows.
Our technology ACV growth reached a fresh high of 16%. These strong fundamentals alongside client demand for private markets, digital assets, Aperio and systematic strategies propel another consecutive quarter above target organic growth and a record AUM of $12.5 trillion. Our global reach delivers diversification and upside to our platform with gains in international currencies lifting AUM by over $170 billion in the quarter. We manage $4.5 trillion for -- in AUM for clients outside the United States.
Many of our largest growth opportunities are outside our home market, including our work in India and the Middle East alongside our established presence in Europe and Asia. BlackRock is executing on a deepening set of opportunities across technology and data in public and private markets. Momentum is only accelerating, and many of our recent milestones have not yet reflected in our results. Two weeks ago, we closed our acquisition of HPS Investment Partners.
We're excited to welcome Scott, Scott and Mike and the entire HPS team to BlackRock. We see immense growth ahead for our combined franchise. Together, we'll be able to serve investors and borrowers across all of the private financing needs. Client feedback has been extremely positive as we integrate GIP, HPS and Preqin.
For many companies, periods of M&A contribute to a pause in client engagement. We're seeing the opposite. Clients are eager to put more capital to work with BlackRock. They appreciate our reputation as long-term investors and partners were not transactional.
We're helping them invest in compelling long-term growth themes like the global needs of new infrastructure investments in the fast-evolving debt financing landscape. These are creating differentiated private market opportunities for our clients. At the end of June, we marked the major milestone with a final close of GIP V's flagship infrastructure strategy. It surpassed its target raising $25.2 billion.
That's a validation of how clients are embracing the logic of the BlackRock GIP combination. Many would expect a change in ownership to dampen fundraising. In our case, it ultimately ended up driving an even higher fundraising ability. GIP V represents the largest ever client capital raise in a private infrastructure fund, and our AI partnership continues to attract significant capital interest, including the recent additions of Kuwait Investment Authority and Temasek.
The diversification benefits and potential for higher returns offered by private markets also make them an attractive investment for retirement accounts, a space where BlackRock has been a leader. We were recently selected by the great, great trust company to provide a custom target date fund glidepath that strategically allocates across public and private markets. We have a wealth of expertise in the defined contribution space, and we're looking to expand across to private markets across a variety of retirement solutions. Retirement is core to BlackRock.
In the United States and internationally, we are a trusted expert in advising clients, advising governments and policymakers on how they can help their constituents achieve a more secure futures and retire with dignity. Demographic shifts and financial pressures are driving governments and corporations to rethink their retirement plans and the retirement systems, putting significant money in motion. In the Netherlands, for example, I transitioned from defined benefits to a hybrid form of defined contribution is well underway. BlackRock is working with clients to manage this transition and improve investment outcomes for plan members.
We had a related $30 billion outsourcing mandate with a Dutch client fund in early July. We take a blended approach of being deeply local and powered by our global platform. We deploy capital in a public and private markets in every country in which we operate and beyond. And we are consistently studying what's driving capital flows both within each country and within each region.
Our ability to execute at scale at the local levels differentiates our international business. We're bringing a global framework to India through our Jio BlackRock offering in partnership with JFS and Reliance, who already serves hundreds of millions of individuals across India. There are huge advancements taking place through the digitization of currency and identification, but India remains a country of savers, not investors. Our joint venture, Jio BlackRock recently launched its first funds, raising over $2 billion with over 67,000 customers.
We look forward to helping more and more people participate in the growth of local and global capital markets and global connections. Our acquisition of Preqin will be a key to enabling more transparency and clarity in private markets. In just the first few months since our closing of the Preqin acquisition, we've seen strong early demand from both GPs and LPs as they are looking to better analyze and benchmark their private market allocations. It's through better analytics, standardized benchmarks and more widely available performance data, we can close the information gap and enable even more future growth in private markets investing.
In the public markets, our iShares business continues to be a powerful growth engine and a key driver of industry innovation. After nearly 30 years in approaching $5 trillion in assets, innovation remains at the heart of our franchise. Our newest investments and product launches from just over the last few years are driving outsized growth, contributing to record flows in the first half of 2025 and 12% organic base fee growth in ETFs this quarter. Our active ETFs delivered $11 billion of net inflows, and our digital asset products continue to set new records.
IBIT, at quarter end, crossed over $75 billion in AUM with another $12 billion of net inflows. As of this morning, it crossed over $80 billion. iShares ETPs are bridging the traditional capital markets with fast-growing cryptocurrency markets. They're also bringing new investors to the iShares brand. Nearly 1/3 of the investors who first came to BlackRock for IBIT have gone on to purchase other iShares products.
It's this type of capability expansion that drives durable growth and new client opportunities for our business. From category innovation and iShares to new ventures across the world, the investments we made across our platform are paying off. Many of the categories that are leading our growth barely existed 2 years ago, categories like active ETFs, digital assets and our scaled private markets franchise. Just as importantly, BlackRock's core businesses like ETFs, Aladdin and cash management continue to be a growth engine for the firm and are cornerstones of many client relationships.
A lot of firms got out of the cash business after the financial crisis when fee waivers were in place during a sustained period of low rates. But we recognize a simple thing. Every client needs to hold cash. Cash management has been the first entry point for many of our clients, who have gone on to build large mandates with BlackRock.
Our cash AUM is nearly $1 trillion, and I think it's remarkable considering we're not a direct retail business or a DTC bank. At BlackRock, we think of cash as another avenue for innovation. We see a great untapped opportunity for cash and liquidity, where people want to use the technologies of digital assets to access traditional instruments, like treasuries. Our tokenized liquidity fund now has $3 billion in AUM and what started as a small corporate investment and asset management relationship with Circle in 2022 has grown meaningfully.
We delivered a significant gain to shareholders this quarter in connection with the IPO and subsequent trading activity, and we now manage more than $50 billion for Circle stablecoin cash reserves. We're entering our seasonally strongest back half of the year with considerable momentum and a robust pipeline. Our recent closing of HPS will help us offer even more to clients. We believe our clients and shareholders will be beneficiaries as GIP, HPS and Preqin are now all coming together in a shared BlackRock story.
We are intentionally organizing to bring clients under one unified firm, not a collection of enterprises, and we have aligned our cultures and aligned each and everybody's interest. The opportunity to deliver the full reach of BlackRock's capabilities to more individuals, to more companies and governments and regions is greater today than ever before. Our comprehensive platform is deeply connected to our clients to the capital market and to the future trends that are driving portfolios. These are just the early days in our next phase of growth at BlackRock.
Operator, let's open it up for questions.
[Operator Instructions] We'll take our first question from Michael Cyprys with Morgan Stanley.
With the number of acquisitions closed over the last year now under your belt, I was hoping you could talk about the progress that you're making here, bringing HPS, in particular, and GIP together with BlackRock, how the conversation is progressing in particular with insurance clients, to what extent you're seeing new mandate wins or expanded relationships there? And then can you just update us on the traction in the wealth and retirement channels as it relates to private market and multiliquid strategies and talk about some of the steps you're looking to take over the next 12 months?
Great question. Thank you, Michael. Well, I think as we showed in the closing of the second quarter, the client feedback has been extremely strong. I actually was in Asia this past week, and the opportunities we have with insurance companies with wealth management across Asia and every other region is stronger than we ever imagined.
As we said, GIP V closed above our target of 25.2%. Our AIP fund will have a lot of positive announcements in the coming quarters. So we announced in the past quarter that we added Temasek and Kuwait Investment Authority as a part of our investment team. And we are confident that we'll be able to raise the full $30 billion that we announced in equity.
And once we then begin those projects, we'll have to raise another $100 billion in associated debt to finance those type of projects. And we're working with the hyperscalers as we speak right now on this, and we have some really great opportunities ahead of us in that. Those are just 2 examples the opportunities we see with GIP. There is no question in my mind that with rising deficits with more and more governments, the conversations we're having, whether it's in Europe or the United States or Japan that the role of public-private financing and the role of infrastructure financing is going to grow dramatically.
And so we see some huge, huge opportunities. Another big opportunity that GIP just closed was purchasing all the Malaysian airports. It's just another example of the opportunity. And we are still progressing with the proposed announcement of our ports transaction with Hutchison.
So all of that is just a good example of some of the growth opportunities we see. But the resiliency and the conversations have never been greater. Related to private credit and HPS, we're just at the beginning. But we could -- we'll have a lot to discuss in the third quarter, but the flow opportunities of HPS during the period of time of announcement and closing did not abate at all.
So we are seeing across the board a very large acceptance of the industrial logic of the combination of HPS, GIP and BlackRock. And I would say that was quite a big difference than when we did the BGI transaction in 2009. Today, clients are looking at the merits of what BlackRock can do, our history of integration, our history of bringing one culture together, bringing the best of all the acquired organizations to be part of us to build a new foundational structure around BlackRock. On insurance, with having $700 billion of AUM with insurance companies, and that is continuing to grow, we are continuing to see more and more opportunities where we could be driving private markets with the insurance companies that we already manage.
In wealth, very, very exciting. If there is a change in the opportunity related to the 5 contributions, it is only going to accelerate the opportunities we have in the private market space with retirement. 50% of our assets that we manage is in retirement. And so the relationships we have with plans is enormous. If you look at our success in LifePath, if you look at our success in our target date products, if you look at our success in what we're trying to do now a LifePath Paycheck where now we have over $500 billion in that alone, our relationships with these supply contribution plans is as strong as ever.
We're innovating, we're creating opportunity. Now if you overlay the opportunity for wealth worldwide, whether it's wealth in Japan, wealth in the United States, wealth in any region, the need, especially here in the United States because you have a much higher threshold related to fiduciary responsibility is going to be analytics and data. And if that moves forward, if there's that opportunity, the need for analytics and data will more than ever create huge opportunities for Preqin and the future opportunity of growth with Preqin eFront. And so we believe all these changes, the integration of -- and blending of both public markets and private markets is going to all be centered around having a base of great analytics and data.
And I am more certain than ever, the acquisition of Preqin alongside eFront is going to be generating much more opportunity for BlackRock. And I believe we are well positioned, whether it's well positioned because of the product profile we have with HPS and GIP and what -- but with the foundational position we're in, in the retirement space in the defined contribution space, overlaying all the analytics data that we have under Aladdin now puts us in a position that we could have broader, deeper conversations with our clients, and I'm very much looking forward to having those deep conversations with each and every client.
Your next question comes from Craig Siegenthaler with Bank of America.
So I actually want to continue with that retirement commentary to Mike's question. So our question is on the potential migration of privates into target funds in the U.S. 40(k) channel. We did see the Great Gray win news in late June. That was a positive sign.
But I think BlackRock may be getting ready to launch its own target date fund with private allocation. So I was hoping you could update us on your strategy time line. And also, what are you willing to see from the Department of Labor, the SEC or Congress before you launch your own target date fund with private allocations?
Thank you. Martin?
Thanks so much for the question. As Larry mentioned, Craig, more than half the $12 trillion of assets plus that we manage at BlackRock related to retirement. And so building better portfolios retirees is at the heart of what we do. I think we have real ambitions also to bring the same tried and true portfolio construction characteristics that built the DB market.
So defined benefit has long been allocating to both public and private markets. If you think of the largest public plans across corporate and across the public sector, they've always been private market investors. That opportunity should be there for individuals and their long-term tax-advantaged accounts as well. We're the #1 DCIO, the defined contribution investment-only firm.
We're a top 5 private markets manager following our recent acquisitions. So we think we have all the building blocks here. As I said on the last call, and I think Larry alluded to, for the opportunity, I think, to be most tangible in larger plans, we'll likely need to see litigation reform or at least some advice reform in the U.S. to add private markets exposure into DC plans. What I would say relative to the call last quarter is we're really encouraged by the recent dialogue with policymakers on these topics and some of the activity by trade associations that I think has been helpful in really building a fact base and consensus around this.
There's still significant work to do, but we feel positive momentum is certainly building. We're really proud of our recent announcement with Great Gray to build and power the glidepath for their public-private target date solution. As I mentioned on the call, I think the real advantage that BlackRock brings here is that we've been doing glidepath technology across target date funds for 30-plus years. We feel that this is a place that we have particular strength and can add a lot of value rather than just rote allocations of X percent to public markets and Y percent to private markets.
That glidepath is so important as you go from the accumulation to the end of the target date and ultimately to a decumulation phase. So with Great Gray, we're going to provide the underlying index equity as well as fixed income exposures as well as our private equity exposures through our product, BlackRock Private Investment Fund, BPIF. We're ultimately working on other products, and we would expect to launch a proprietary LifePath with privates target date fund, I believe, sometime in 2026. So we're excited about that as a way of continuing to bring public-private whole portfolio investing to the retirement market.
Let me just add one thing, just the industrial logic and why this is so imperative. If through broadening the investment profile of what could be included in a defined contribution plan, if you believe over a 30-year horizon, you could add 50 basis points, which is not an unrealistic target. It adds 18% to the corpus 30 years later. That should be compelling enough.
Now the reality is, though, there is a lot of litigation risk. There's a lot of issues related to the defined contribution business. And this is why the analytics and data are going to be so imperative way beyond just the inclusion. And so this is one thing that we are very certain on.
As this moves forward, the need for analytics and data and the role of Preqin, eFront, Aladdin is only going to be a larger set of opportunities for BlackRock in this space.
We'll go next to Alex Blostein with Goldman Sachs.
I wanted to ask you guys around profitability. You've made a number of acquisitions, obviously, now they're kind of coming into the run rate. As you think about the adjusted operating margin for the back half, curious to get your thoughts. But also as you pointed out at the Investor Day, the 45% plus adjusted operating margin, obviously, is quite healthy.
So maybe help us sort of think through the cadence and scaling of the business as these 2 acquisitions kind of come into the full run rate and you continue to grow some of your faster-growing areas of the business.
Great. Thanks, Alex, for the question. I'll take that one. So we talked about the strategy at Investor Day in terms of growing the business.
BlackRock continues to deliver industry-leading margin. The margin in the second quarter of 43.3% was about 80 bps lower year-over-year. That's really partially due to the impact of lower performance fees. Over the cycle, we see a very clear path to continue to target a 45% or greater margin profile.
About 75% of that second quarter margin decline is really due to lower performance fees as well as the lower performance-related compensation in the quarter. Just as a reminder, we defer a portion of compensation that's linked to performance fees for talent retention. So in years where we see higher performance fees, we also see higher deferrals, which impact comp expense in future years. The remainder is really just a margin impact from higher expense offset by acquisitions.
So what I'd say is with the HPS acquisition now closed on July 1, as I mentioned in my remarks, we expect low teens percentage increase in our 2025 core G&A. That's primarily driven by the onboarding of our 3 acquisitions. Ex HPS, G&A would remain in our mid- to high single-digit percentage increase range. And at Investor Day, I talked a lot about how we've executed on our financial framework by keeping controllable expenses with inorganic growth since 2023. That's really driven profitable growth and margin expansion.
And we aim to continue to align organic revenue growth and controllable expenses. That's compensation -- that's compensation across base salaries and benefits as well as G&A, right? We think of controllable expenses, traveling together, comp and base salaries and benefits as well as G&A. For the second quarter, our controllable expenses, excluding acquisitions, are in line with our last 12 months of organic revenue growth of 7%.
On a go-forward basis, I'd say we're in a period now where expense consolidation from recent acquisitions, it's coloring obviously, the comparisons. And next year will really be a full year where we get the impact of HPS and Preqin. Those acquisitions are essentially self-funding, and GIP, HPS and Preqin, they've all been double-digit FRE and ACV growers. So once we're through this period of consolidation in the back half of the year, we expect you'll continue to see controllable expense in line with organic base fee growth.
That's what we've delivered since we introduced this framework in '23 and over the last 12 months. And so as we start to see that really strong FRE and ACV growth, overall organic growth, I think you can expect us to continue to be able to drive towards our 45% or greater margin profile. The last thing I'd say is just we have a really strong entry rate, as I mentioned, into Q3. Our entry rate is 5% higher going into Q3. That's pre-HPS. With HPS, it's more like 10% higher in terms of the base fee jumping off point.
So I think we have a really sound entry point into the back half of the year, even though we get some more consolidated expenses from bringing these acquisitions together. It's really important to bring people together. We've got a lot of energy about co-locating people on real estate. We know we need to do events where we bring people together.
We have to go see our clients. All of those things in the long term are both growth and revenue accretive for BlackRock.
We'll go next to Dan Fannon with Jefferies.
I was hoping just on HPS now closed, Larry, you mentioned the growth there has been strong. I was hoping you could put some numbers around recent flow trends there. And as we think about the second half of the year, what products are in market and how we should think about organic growth or fundraising for that part of the business for the remainder of the year?
Good. I want to turn that to Martin. .
So thanks for the question. Definitely, an exciting time at BlackRock and for our clients in private markets. I think we talked a fair amount about this at Investor Day, but I'll give a little bit more color. We're obviously looking to scale private markets fundraising through a systematic approach to our clients.
Now integrating GIP and HPS, we have a really robust and I think exciting road map for '25 as well as the out years, which includes the next vintage of several strategies and thematic products. Let me just give you sort of a list of the things that are out in the marketplace today. We have fundraising going on across mid-cap and emerging markets infrastructure equity. We have investment grade, high-yield and credit-sensitive infrastructure debt, direct lending and junior capital, private equity secondaries, real estate debt and some more targeted strategies in Europe and Asia on real estate equity.
As Larry and I both mentioned on the call, we successfully closed GIP V, surpassing its $25 billion fundraising target. We also closed our secondary and liquidity strategies II, SLS II, the next of our secondaries fund at over $2.5 billion. At Investor Day, we talked about targeting $400 billion in gross private markets fundraising through -- from 2025 to 2030. We believe that will be led again by our infrastructure and private financing solutions platforms. We're really building on very strong absolute and relative performance.
I think very strong DPIs on the platform relative to the peer group, this power of vintage, LP re-ups and track record, we really feel we're in the best position that we've ever been in there to get closer to clients. I wouldn't expect that $400 billion to be a straight line average for 5 years. So don't just take this last 6 months and average it. We'd expect more of a ramp-up to higher fundraising levels in the later years, call that 2028 through 2030. And again, as Scott Kapnick said, as Adebayo said, as Larry said, as Raj said, consistent investment performance is the license to grow.
So all of our teams are going to be blisteringly focused on delivering for clients as the key input to our fundraising goals. So I think between now and the end of the year, we'll continue to execute on those targets, bringing us towards our $400 billion in gross fundraising out to 2030.
We'll go next to Ben Budish with Barclays.
Maybe just another follow-up on the private markets strategy. So you announced the acquisition of ElmTree, a smaller tuck-in, but just curious, how are you thinking about inorganic opportunities? Is this sort of an acquisition that had been on your radar? Is it something that's sort of that you had been seeking or came across your desk?
How does it kind of fit in? And should this be indicative of maybe future M&A? Or do you feel pretty good about the assets that you have today as they are?
Thanks so much for the question. So our main focus right now is fully integrating our acquisitions and realizing the planned synergies. It's about delivering great integration experiences for all of our clients that are seamless and our employees. I think as we've shown in our results, we don't need M&A to meet or exceed our organic growth targets.
We were doing that before M&A. And now we're running on the trailing 12 months at 7% organic base fee growth. So these capabilities are helping us lift through our targets. So we're going to continue, I think, to be very prudent, selective, tactical with our capital and financial position and in how we look at M&A.
We've made several smaller tactical acquisitions to bolster certain areas of the business. The planned acquisition of ElmTree, which we're very excited about, which brings triple net lease, the intersection of real estate and credit, which we think is very germane to our insurance clients and our wealth clients. And also previous acquisitions like Kreos in growth-oriented lending and SpiderRock, which helps extend our capabilities and SMAs. We also announced a minority investment in Viridium earlier this year, which also, I think, is accretive to private credit and alternatives.
So these acquisitions alongside with our minority investments, they bring incremental capabilities to better serve clients and generate attractive shareholder returns. And so as I said at Investor Day, I think because of large-scale M&A in the near to intermediate term, we've rounded out that agenda. We're going to continue to look at things that we think are complementary in terms of capabilities across private markets and technology.
I would just add a few other things that we've been building, but organically, and the opportunities we see, we believe fundamentally that every country in the world is going to be attempting to build out their own capital markets. They see the success of the United States, one of the great reasons of the U.S. position in the world today is having a strong banking system and a strong capital market system. We talked about this at an Investor Day. But the -- what we saw in India and what we're trying to do and bring out and expand its retirement system platform there is a good example of the expansion of the global capital markets.
Yesterday, we had a conversation with another very big organization and a strong position in a growing developing country with huge opportunity to do the same thing we're doing with Reliance and Jio BlackRock. We've already announced what we are trying to do in the Middle East and Saudi Arabia related to expansion of a mortgage-backed securities market. So we are not just looking at tuck-in acquisitions, but the opportunity we have to expand our position as more and more countries are expanding their capital markets and playing a bigger role in that. And I think India is just the beginning where we believe we're going to build out a very large-scale asset management platform in India itself is going to be -- these are the seeds that we are doing that are probably being obscured by all the inorganic things we are doing.
But I want to just give you that color that we see the expansion of the global capital markets as a primary driver of future success for BlackRock over the next 5 years. And having our global footprint being in 100 different countries, just gives us a unique opportunity to be working with more and more governments worldwide, helping them think about how they expand their capital markets and how do they expand their own Pillar 3 retirement system as a leader in retirement. This is a conversation we're having with everybody. And I mentioned in my -- in one of the prior questions related to what's going on in Netherlands, moving from DB to a hybrid DC.
These are all big changes, but they present huge and unique opportunities for BlackRock. And so inorganic opportunities are still going to be -- if they're compelling, we will still be doing those types of transactions, especially tuck-in areas in private markets or tuck-in in technology. But the opportunity to grow organically as the capital markets grows worldwide is something that we are very excited about over the next 5 years.
We'll go next to Bill Katz with TD Cowen.
So maybe switching gears a little bit. Just thinking through from here. In a world of consolidating the recent transactions and being "more prudent" going forward. How do you think about capital returns?
It seems like you're going to be generating a ton of free cash flow over the next several years. Just trying to think through the interplay between dividend and buyback and maybe the total payout ratio?
Martin should be taking.
Bill, thanks so much. I appreciate the question. Hope you're having a great summer. As I mentioned at Investor Day and again a little bit today, our capital management strategy continues to be to invest first in the business and then return cash to shareholders through dividends and share repurchases.
We repurchased 375 million worth of common shares in the second quarter and expect to purchase at least 1.5 billion worth of shares for full year 2025, subject to market and other conditions. Our share repurchases, again, they're an output of rather than an input to our capital management strategy. We invest first and whatever falls out is the shareholder return. I'd say on dividends, we recognize very much that dividend income and growth is an important part of many of our investors' portfolios.
We continue to target a dividend payout ratio between 40% to 50%. And over the last 5 years, we paid an average of 50% of our GAAP net income and dividends. We steadily increased the dividend since we started in 2003. And over this time, our dividend per share has grown at a CAGR of over 15%. Over the last 5 years, we paid on average 50% of our GAAP net income and dividends and our dividend payout ratio is intended to ensure that the growth in operating and net income under our 2030 strategy that we talked about at Investor Day, will translate into commensurate dividend growth at high single to low double-digit rates.
And as I mentioned at Investor Day, and I'll say it here again to avoid the payout ratio impact from the noncash amortization of acquisition-related intangibles, we'll adjust this amortization in calibrating our dividend to the payout ratio. But again, we think that the 2030 strategy that we discussed at Investor Day should translate into dividend growth at high single to low double-digit rates.
We'll go next to Brian Bedell with Deutsche Bank.
Just if I can maybe switch gears a little bit to iShares in Europe and fixed income in particular. If you can just talk about how you're continuing to see -- you're continuing to see strong organic growth in the fixed income, iShares franchise. Maybe if you can talk about where you see yourselves on the long-term development of substitution of fixed income securities for iShares ETP? And then especially in Europe, I think you talked about this at Investor Day.
You see pretty strong growth potential as Europe sort of democratizes their retail investor base. How do you see that progressing here coming into the second half? And you see that more just on the equity side or the alternative iShares or also on the fixed income iShares side?
So thanks for the question. More growth, more people using iShares ETFs along the active side of the world, alongside of active using the wrapper for hedging purposes, just more and more and more use cases that we're seeing, and it is really caught on in Europe now as a primary wrapper end market to be involved in. So we continue to show industry-leading results. We have the #1 share of global ETF flows year-to-date as the iShares and ETF become the vehicle choice, and we're the industry leader and probably have the most diversified offering of anyone.
That diversification is reflected in our organic revenue, which is nearly 3x the next largest issuer and inflows where 38 iShares products had over $1 billion of net inflows this quarter. So that diversification is working for us. We're seeing outsized strength from our highest conviction growth areas like fixed income, active, now digital assets and European listed ETFs. And Martin mentioned before, bond ETFs led the way at $44 billion, followed by digital assets, $14 billion, active ETFs, $1.1 billion and precision and other at $1.8 billion.
Europe, as you highlighted, saw $29 billion of net inflows. So we will continue to evolve our ETF business and increase access to all kinds of markets more efficiently, more transparently and conveniently. So this is a business that we continue to capture the flag globally and also help our clients expand the use of that product to areas that we didn't think of that we're responding with solutions to our clients with this wrapper.
Let me just add a few more things. As the European markets evolve and change and as regulation really focused on the remunerations, the beginnings of the access to ETFs in Europe is only just beginning. Europe is 5, 6 years behind the United States in terms of access. It's just all evolving now. iShares is about $1 trillion in Europe, 40% market share, and we are in a position now, especially in like countries, as we said, changing away from defined benefit to defined contributions in Europe, you're going to see more and more the financial advisory organizations of Europe.
You're going to see more and more of the digital organizations in Europe, adapting more and more ETF-based strategies. Similarly, as we've seen in the United States. So we believe Europe is just starting to launch the same type of growth rates that we saw in the United States in terms of the adaptation of ETFs. And if you now intersect the role of digital ETFs, to me, that is creating more and more enthusiasm, more access to ETFs, more interest in ETFs.
And as I said in my prepared remarks, we are seeing more and more clients, who first started using ETFs or IBIT are now looking at ETFs and iShares as a vehicle to expand way beyond their first entry into a digital platform. So we're very well positioned. And I look at the opportunities in Europe similarly to the type of growth rates we saw in the U.S. over the last 5 years.
We'll go next to Patrick Davitt with Autonomous Research.
You touched on this briefly, but stablecoin is obviously top of mind for many investors on the back of Circle's IPO, and you're managing that money has been a strong boost to those flows for you. So through that lens, could you speak to how you see what looks like a fairly significant emerging opportunity for asset managers to manage these reserves? Is there a pipeline of other potential mandates, like the Circle 1? And then finally, within that, maybe some color on why these platforms can't or don't want to just invest the treasuries directly versus using your money funds or other people's money funds?
Yes, in my world tour, working with central banks and regulators, conversation about stablecoin is vibrant right now. And so what we are going to see is more competitive type of stablecoins. They may have some role in diversifying away from dollar as we digitize more and more currency. But the opportunity for BlackRock in our world in both stablecoin or all the entire role of tokenization of financial assets, tokenization of real assets like real estate is going to be the future.
And we believe more than ever before that we are as well positioned as any organization in the world to be part of the conversations as stable coins are going to be growing and developing. Related to buying money market funds or buying -- having a role, playing a role as a manager, those conversations are broad. But if you're going to show that a stablecoin truly is a substitute for a currency, it must be invested in those currencies bonds. And so I would hope that, that will remain as a consistent feature of each and every stable coin.
And I believe that is going to be one of the big issues. There is questions remaining with some other stablecoins as to what is the collateral backing some of that. And if we're going to put our name associated with it, we believe each and every stable coin should be invested in short-term government bonds that backs that stablecoin. We want to make sure it's legitimatized, but it's also safe and it's a great digital substitution for each and every country's cash as a cash substitute.
And I think that is going to be moving very rapidly, but it is surprising even to me, the dialogues that we're having with central banks and how they are looking to now use their own digitized currency or using stablecoins to digitize their currency. And so we believe this is just the beginning, and we will be playing a significant role as stablecoins are developed in each and every country. They believe it will fit the needs of their own monetary policy, and there are policies related to their capital markets.
Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?
Yes. Thank you, operator. I want to thank all of you for joining us this morning and for your continued interest in BlackRock. Our second quarter results demonstrated the strength of our global relationships and how our platform is powering the portfolios of the future.
We're so excited to welcome our new colleagues from HPS to our global offices in the coming months, and we're working closely together to better serve our clients across all their investment needs, which in turn should drive stronger and more durable results as we did in this quarter for you, our shareholders. Everyone, thank you. Have a good summer. Enjoy the quarter.
Bye-bye.
This concludes today's teleconference. You may now disconnect.