Mike Brown

Mike Brown asked about the impact of the DOL's proposed rules facilitating alternatives in 401(k) plans, expectations for market opening in 2026, and any new developments regarding the alliance with Vanguard and Wellington.

Answer

Jon Gray, President and COO, stated that 2026 is expected to be a year of building for 401(k) rules, with capital raising likely starting in 2027, and sees significant long-term potential if private assets are allowed. Regarding Vanguard and Wellington, he indicated product launches are hoped for in the first half of the year, aiming to reach a broader audience beyond top-tier clients and wealth advisors, leveraging Blackstone's brand and performance.

Mike Brown asked for an updated view on the potential market opening for alternatives in 401(k) plans following the DOL's proposed rules, including expectations for 2026. He also inquired about the current status and any new developments regarding the alliance with Vanguard and Wellington.

Answer

Chairman and CEO Steve Schwarzman indicated that 2026 is expected to be a foundational year for 401(k) rules, with capital raising likely to begin more significantly in 2027, noting the significant long-term potential if private assets are allowed into American workers' savings programs. Regarding the Vanguard and Wellington alliance, he stated that products are hoped to launch in the first half of the year, aiming to reach a broader audience beyond top-tier clients and advisors, emphasizing the firm's brand strength and performance in the wealth channel, with new products like those in the hedge fund area also in development.

Mike Brown asked about the broadening of private equity activity, its expected ramp-up in 2026, and potential risks of M&A exits disappointing expectations, particularly concerning continuation vehicles. He also inquired about the Asset Management fee rate exit rate, the asset mix of the $13 billion unfunded mandates, and its fee rate.

Answer

CEO and Chairman Peter Orszag indicated 2026 is expected to be a strong year for PE activity due to LP demand and narrowing bid-ask spreads, viewing secondaries as a permanent and growing feature. CEO of Asset Management Chris Hogbin noted the Q4 exit fee rate was modestly higher than the quarter average, and the $13 billion unfunded mandates are predominantly high-fee emerging markets and listed infrastructure, broadly in line with the Q4 fee rate.

Mike Brown asked about the sponsor-side M&A market, the need for LPs to return capital, and the outlook for private equity activity, including potential risks for M&A exits and the role of continuation vehicles. He also questioned Asset Management's fee rate trends and the asset mix of unfunded mandates.

Answer

CEO and Chairman Peter Orszag expressed optimism for increased private equity activity in 2026, driven by LP demand for cash returns and narrowing bid-ask spreads. He views continuation funds and secondaries as a permanent feature of the private equity landscape. CEO of Asset Management Chris Hogbin noted that the Q4 exit fee rate was modestly higher than the quarter average due to a specific sub-advised relationship closure. He described the $13 billion in unfunded mandates as predominantly emerging market equities, listed infrastructure, and systematic services, with fee rates broadly in line with the Q4 average.

Mike Brown asked about the longer-term potential and ceiling for margin expansion, and for measurable revenue lifts from AI, including key performance indicators (KPIs) to track and Schwab's proprietary data advantage over new fintech entrants.

Answer

CFO Mike Verdeschi stated that margin expansion is a result of balanced financial management, revenue diversification, and expense discipline, with no arbitrary target or ceiling. He expects continued expansion. President and CEO Rick Wurster highlighted existing AI efficiencies, such as moderating growth in client-facing reps while growing accounts and assets. He indicated that key KPIs to track for AI's impact will continue to be Expense on Client Assets (EOCA) and cost per account, aiming to maintain a low cost to serve.

Mike Brown asked about the longer-term potential and ceiling for Schwab's pre-tax profit margin, and inquired about measurable revenue lifts, key performance indicators (KPIs), and the advantage of proprietary data from AI investments in areas like conversions, retention, advisor productivity, and service triage.

Answer

CFO Mike Verdeschi stated that margin expansion is a result of balanced financial management, revenue diversification, and expense discipline, with no arbitrary ceiling, and further expansion is possible. President and CEO Rick Wurster added that AI is already yielding efficiencies, moderating growth in client-facing reps while growing accounts and assets. He highlighted EOCA (expense on client assets) and cost per account as key metrics to track, aiming to maintain a low cost to serve.

Mike Brown asked about BlackRock's strategy in the insurance channel, its differentiated offering spanning cash to private credit, and the demand outlook for 2026 amidst rising competition in the space.

Answer

CFO Martin Small detailed BlackRock's position as the largest insurance general account manager with $700 billion in assets and HPS's contribution of over $60 billion in credit assets. He highlighted the combined platform's ability to provide high-grade solutions, integrate Aladdin, and offer middle-office services. Martin noted over 20 ongoing conversations to migrate public fixed income to private high-grade and pursue strategic partnerships, emphasizing BlackRock's full-service partner approach.