BlackRock Pitches Compute Capacity as the Next MBS Market, While Q3 Delivers 11% Organic Base Fee Growth and a 47.8% Margin
Third quarter 2026 earnings call, October 14, 2026: record revenue of $7.8 billion, EPS of $15.93, and $205 billion of net inflows
Compute financing is framed as a securitization market still to be built
The most strategically significant message from BlackRock's call was Chairman and CEO Larry Fink's argument that compute capacity, meaning GPUs and chips, is becoming an asset class, and that BlackRock intends to sit at the center of it. Fink drew a direct parallel to the early 1980s mortgage market. Mortgages were then illiquid loans on bank balance sheets, and pooling by Fannie Mae and Freddie Mac "didn't make them tradable. What made them tradable was data, years of performance history and understanding of how the performance would move with interest rates and with changes in the broader economy." He argued that compute financing now needs the same ingredients, and that BlackRock's combination of Aladdin analytics, Preqin data and private markets origination positions it to supply them.
The financing gap Fink described is large. He put a 1 gigawatt U.S. data center at roughly $50 billion of enterprise cost, with about 40% going to GPUs and chips and 60% to power, grid and shell. Data center financing is already being done against hyperscaler lease credit. Chip financing is not, and Fink said bespoke transactions cannot scale to the trillions required. He cited $7 trillion to $9 trillion of U.S. spending needs over a number of years across the power grid, power supply and core and shell, and said other regions face similar demands. He also argued that the market must extend beyond the largest buyers: "We cannot have just 5 companies or 7 companies entirely buying out every chip production that is being produced right now." Startups without credit ratings need asset-based financing built on data and analytics.
Investors should note the timeline and the competition. Fink acknowledged that "it's going to take time to get the data and analytics" and for rating agencies to opine on the new market, and that Aladdin and Preqin need to build the relevant data sets. He also said competitors are pitching the same clients on the same type of financing. In the near term, the product is private placements into high-grade insurance mandates, with securitization into tradable structures a longer-dated opportunity. Fink said BlackRock is in the market with a "very large transaction" whose outcome will be known in the coming months. Concrete evidence so far includes the Meta financing for a planned $14 billion Texas data center, which combined GIP infrastructure capital with HPS private financing. The AI infrastructure partnership also made its first deployment with the closing of Aligned Data Centers, at an enterprise value of about $40 billion, and Fink said BlackRock is looking at two more platforms globally.
In response to a Goldman Sachs question on syndication, CFO Martin Small was explicit that BlackRock is "first and foremost, a fiduciary business." The goal is to place assets in long-term client accounts that generate recurring management fees. Any syndication or distribution revenue "should be thought of as incremental to our model, not the primary driver of value creation." That sets expectations that this will not become an investment-banking-style fee line like those at some alternative peers.
Margins and earnings power reach a new level, helped by performance fees
Revenue rose 19% year over year to $7.8 billion. Operating income increased 27% to $3.3 billion, and EPS grew 38% to $15.93, the first comparable quarter since the HPS close. The operating margin reached 47.8%, up 320 basis points. Part of that expansion reflects a favorable performance fee mix, which the CFO acknowledged. Performance fees were $630 million, up 22%, including $110 million from HPS. Excluding performance fees and related compensation, the adjusted margin was 48.6%, up 230 basis points, which is the cleaner read on underlying leverage.
Small said GIP and HPS both operate at fee-related earnings margins above 50%. He sees recurring fee margins moving toward the best-in-class private markets names, supported by high operating leverage in ETFs, digital assets and systematic equities. Net investment gains of $164 million, mainly mark-to-market gains on minority stakes in Securitize and Circle, also helped EPS and are non-cash. Total expenses rose 14%. Sales, asset and account expense grew 22%, outpacing revenue, on higher distribution and servicing costs. G&A rose 6%, and full-year G&A is still guided to a mid-single-digit increase. BlackRock repurchased $550 million of shares in the quarter and expects at least $550 million in the fourth quarter. The tax rate guidance is about 25%.
Flows are broad, but the fee mix tells the story
Net inflows of $205 billion drove 11% organic base fee growth, the ninth straight quarter at or above 5% and the fifth at or above 8%. AUM reached $15.5 trillion. Small provided a useful breakdown of the $524 billion of year-to-date flows. About $220 billion came in the 5 to 10 basis point range, which covers core allocation models and long-term holdings. About $270 billion fell in the 10 to 60 basis point range, including active ETFs and country funds. The balance, above 60 basis points, is concentrated in private markets and liquid alternatives. Management still frames the sustainable range as 6% to 8%, with scope for high single digits to low double digits when activity is elevated, so investors should not extrapolate 11%.
ETFs took in $135 billion, led by $61 billion into index bond ETFs and $41 billion into precision ETFs. Active ETFs added a record $22 billion and $60 billion year to date, and iShares active AUM has doubled to more than $160 billion. Fink said the business is tracking ahead of its $500 million revenue ambition. Digital asset ETPs raised $8 billion. Systematic equity brought in nearly $30 billion, more than $60 billion year to date, with AUM approaching $500 billion and more than 70% of inflows from international clients. Fink noted that over 90% of systematic equity AUM is above benchmark or peer median. Institutional index saw $27 billion of outflows, concentrated in low-fee equity, which is a positive for fee mix. Cash management added $31 billion, and private markets added $15 billion, mainly from infrastructure and private credit deployment plus a real estate mandate. BlackRock raised $68 billion in private markets over 12 months, including $25 billion in private credit in its first full year with HPS.
Fixed income and rates: structurally higher yields
Fink said federal deficits are structurally keeping rates higher, and that competition for capital between governments and a growing private-sector funding need means "structurally higher interest rates for longer, especially out the curve." President Rob Kapito said the 10-year Treasury yields more than 5%, with short-term rates near 3%, and that diversified, high-quality strategies can generate about 7% yields. He argued that "investors don't need a heroic market outcome" because intermediate bond returns tend to track starting yields. Fixed income took in $78 billion in the quarter and $205 billion year to date. Management still expects more volatility until a balance is found.
Private markets: evergreen funds still lag, and a recovery is a hope
The candid weak spot is private wealth. Small said evergreen private market funds hold about $20 billion, but quarterly flows were only about $1.2 billion net, on $800 million of gross subscriptions. Redemptions remain "in the queue." He said he is "more optimistic" that evergreens will turn the corner in the fourth quarter and the first half of 2027, helped by higher base rates supporting private credit and retail BDC allocations. That is a forecast rather than a trend. Third quarter is also seasonally the softest for fundraising, and the fourth quarter should see stronger closes, including strategies that are fee-paying from day one. Small also said 30% to 40% of iShares annual flows typically arrive in the fourth quarter. Insurance mandates are expected to accelerate into year-end and 2027.
Tax-aware strategies grow fast, though long-short faces custodial constraints
In response to Bank of America, Small said Aperio has grown from about $40 billion at acquisition to nearly $200 billion in five years. Direct indexing totals $175 billion, with $13 billion of year-to-date inflows. Long-short AUM is $19 billion, with $12 billion of inflows year to date, and Aperio took in $5 billion in the quarter, including $4 billion into long-short. Total 2026 tax-aware flows of $25 billion are 70% above the 2025 record of $15 billion. SpiderRock added $2 billion in the quarter.
The question flagged capacity tightening at the two largest RIA custodians. Small acknowledged that "the industry custodial model and financing models, they're adjusting," and said additional financing parties are entering a long-short market that has tripled to $170 billion. BlackRock is working to add custody and financing access points, and to steer clients toward alternatives such as SpiderRock and direct indexing. He did not quantify any near-term flow impact. Long-short is therefore both the fastest-growing sleeve and the one most exposed to a financing bottleneck.
International and retirement wins add to the pipeline
One-third of long-term net inflows came from outside the U.S. Europe and Asia each posted double-digit organic base fee growth, and the Middle East grew above 20%. A Dutch construction industry pension fund named BlackRock its preferred candidate for an $80 billion outsourced fiduciary mandate, and BlackRock has already onboarded multiple pension mandates tied to the Dutch shift from defined benefit to defined contribution. Small said several scaled outsourcing relationships should fund toward the end of the year and in 2027. Technology services and subscription revenue rose 14%, with annual contract value up 12%, or 13% in constant currency. That is within the low-to-mid-teens long-term goal, though at the bottom of that range.