Good morning. My name is Jake, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock, Inc. second quarter 2022 earnings teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink, Chief Financial Officer, Gary S. Shedlin, President, Robert S. Kapito, and General Counsel, Christopher J. Meade. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press star two. 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 lists 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. With that, I'll turn it over to Gary.
Thanks, Chris, and good morning, everyone. It's my pleasure to present results for the second quarter of 2022. Before I turn it over to Larry to offer his comments, I'll review our financial performance and business results. While our earnings release discloses both GAAP and as adjusted finance results, I'll be focusing today primarily on our as adjusted numbers. As a reminder, beginning in the first quarter of 2022, we updated our definitions of as adjusted operating income, operating margin, and net income. Year-over-year financial comparisons referenced on this call will relate current quarter results to these recast financials. Global equity and debt markets delivered their worst first half returns in decades as investors reacted to uncertainty associated with rising recession fears, surging inflation, interest rate hikes, and geopolitical tensions.
In total, these market declines, along with significant dollar appreciation against major currencies, reduced the value of BlackRock's assets under management by $1.7 trillion since December 31. Despite this challenging backdrop, BlackRock's comprehensive platform still generated industry-leading organic growth of over $175 billion in net inflows in the first half of 2022. BlackRock's second quarter results once again demonstrate the resilience of our platform and validate the investments we have consistently made to build the most comprehensive range of investment management and technology solutions in the industry. I cannot think of a time when the value of our diversified platform and our commitment to continuously investing for the long term ahead of client needs has been more evident.
Over the last 12 months, BlackRock's broad-based platform has generated over $460 billion of total net inflows, representing 5% organic base fee growth, providing a strong foundation to help immunize our base fees from the impact of double-digit market declines on our assets under management. During a tumultuous second quarter, BlackRock delivered total net inflows of $90 billion, representing 4% annualized organic asset growth. Flows were positive across all product types and regions, demonstrating the diversification of our differentiated platform, even in the face of macro and industry headwinds, and an ability to quickly adapt to changing client needs. Importantly, second quarter flows did not reflect the funding of any significant AIG-related assets, which will now occur in the second half of this year.
Second quarter annualized organic base fee decay of 1% reflected client portfolio repositioning, favoring lower fee index and cash products, and higher redemptions in active fixed income and equity mutual funds. Second quarter revenue of $4.5 billion was 6% lower year-over-year, primarily driven by the impact of significantly lower markets and dollar appreciation on average AUM and lower performance fees. Operating income of $1.7 billion was down 14% year-over-year, while earnings per share of $7.36 was down 30%, also reflecting meaningfully lower non-operating income compared to a year ago. Non-operating results for the quarter included $200 million of net investment losses, driven primarily by unrealized mark-to-market declines in the value of our unhedged seed capital investments and minority stake in Investment.
Our as-adjusted tax rate for the second quarter was approximately 25%. We continue to estimate that 24% as a reasonable projected tax run rate for the remainder of 2022, though the actual effective tax rate may differ because of non-recurring or discrete items or potential changes in tax legislation. Despite double-digit declines in equity and fixed income indexes year over year, second quarter base fee and securities lending revenue of $3.7 billion was down just 2% year over year. The negative impact of approximately $1.5 trillion of market beta and foreign exchange movements on AUM over the last 12 months was partially offset by 5% organic base fee growth over the last year and the elimination of discretionary yield support money market fund waivers and higher securities lending revenue versus a year ago.
On a constant currency basis, we estimate second quarter base fee and securities lending revenue would have been flat year-over-year. Sequentially, base fee and securities lending revenue was down 4%, reflecting the impact of continued market declines on average AUM. On an equivalent day count basis, our effective fee rate was up approximately 0.3 basis points benefiting from the elimination of discretionary money market fund fee waivers and higher securities lending revenue. As a result of significant global equity and bond market declines during the quarter, including the impact of FX related dollar appreciation, we entered the third quarter with an estimated base fee run rate approximately 5% lower than our total base fees for the second quarter. Performance fees of $106 million decreased from a year ago, primarily reflecting lower revenues from alternative and long-only products.
Our Aladdin business delivered record sales in the first six months of 2022, and demand for our technology solutions has never been stronger. Quarterly technology services revenue increased 5% from a year ago, reflecting this increased demand, but also reflected the currency impact of significant dollar appreciation on Aladdin's non-dollar revenue. Annual contract value, or ACV, increased 10% year-over-year. On a constant currency basis, we estimate ACV would have increased 13% from a year ago. We remain committed to low- to mid-teens growth in ACV over the long term, especially as periods of market volatility have historically underscored the importance of Aladdin and generated increased demand from clients. Total expense was flat year-over-year, reflecting lower compensation and direct fund expense, partially offset by higher G&A expense.
Employee compensation and benefit expense was down 6% year-over-year, primarily reflecting lower incentive compensation due to lower operating income and performance fees, and lower deferred compensation expense driven in part by the mark-to-market impact of certain deferred cash compensation programs, partially offset by higher base compensation. Direct fund expense decreased 5% year-over-year, primarily reflecting lower average index AUM. G&A expense was up 12% year-over-year, primarily driven by higher T&E expense and other costs associated with return to office and ongoing strategic investments in technology, including the migration of Aladdin to the cloud. Sequentially, G&A expense was up 7%, primarily reflecting higher T&E expense.
Our second quarter as-adjusted operating margin of 43.7% was down 320 basis points from a year ago, reflecting the immediate negative impact of markets and foreign exchange movements on quarterly revenue and the ongoing longer-term strategic investments we've been making in technology and our people. While we can't control near-term market volatility, we are always prepared for it. We have strong conviction in our strategy, our clients' increasing needs for whole portfolio and technology solutions, the growth of global capital markets, and the strength of our proven operating model. The diversification and breadth of our business positions us to serve clients in a variety of environments, and we continue to believe that our growth engines, including ETFs, alternatives, technology, and whole portfolio solutions, are well-positioned to increase market share.
Whether it was during the financial crisis of 2008 or in the early days of the pandemic in 2020, BlackRock has always capitalized on market disruption and emerged stronger because the stability of our business model enables us to responsibly invest for the long term and continue playing offense when many others are forced to pull back. We have navigated these choppy waters before and are well prepared for what may lay ahead. As always, we remain committed to optimizing organic growth in the most efficient way possible. We are continually focused on managing our entire discretionary expense base and will be prudent in reevaluating our overall level of spend in the current environment. Our capital management strategy remains first to invest in our business and then to return excess cash to shareholders through a combination of dividends and share repurchases.
We repurchased approximately $1 billion worth of shares in the first half of this year, including $500 million in the second quarter. Our repurchases exceeded our planned run rate as we took advantage of what we viewed as attractive relative valuation opportunities in our stock. At present, based on our capital spending plans for the year and subject to market conditions, including the relative valuation of our stock price, we still anticipate repurchasing at least $375 million of shares per quarter for the balance of the year, consistent with previous guidance. BlackRock's second quarter net inflows of $90 billion once again demonstrate the stability of our diversified platform to adapt to changing markets and client needs. ETF market share has increased as investors use them as vehicles of choice for strategic and tactical portfolio reallocation.
Illiquid alternatives continue to provide clients with higher income and uncorrelated returns as the traditional hedge between stocks and bonds has weakened, and demand for cash management offerings is increasing amid rising rates. BlackRock was the beneficiary of each of these industry trends during the second quarter, enabling us to capture money in motion as investors recalibrated their portfolios. BlackRock's second quarter ETF net inflows of $52 billion were positive across each of our product categories, core, strategic, and precision, representing 7% annualized organic asset growth. Our strategic category drove nearly 70% of net inflows in the quarter, led by continued demand for our diversified fixed income offering as clients utilized bond ETFs to reposition portfolios given the major shifts in the fixed income market. Core equity and higher fee precision ETFs also saw net inflows of $15 billion and $1 billion, respectively.
We've invested for years to support the growth of fixed income ETFs, both to create a diversified bond ETF platform and to deliver the liquidity and price transparency our clients expect, especially during times of market stress. In another challenging quarter for fixed income markets, our bond ETFs once again delivered for clients and generated $31 billion in net inflows. Retail net outflows of $10 billion reflected industry pressures in active fixed income and world allocation strategies, partially offset by strength in index SMAs, municipal bonds, and our systematic multi-strategy alternatives fund. Gross sales in U.S. active mutual funds have remained strong, but were offset by elevated redemptions from long duration fixed income, high yield and growth equities.
BlackRock's institutional franchise generated $26 billion of net inflows as we continued to partner with institutional clients to deliver investment expertise, greater customization, industry-leading risk management, and the benefits of our global scale. BlackRock's institutional active net inflows of $5 billion were led by growth in systematic active equity, illiquid alternatives, LifePath target-date funds, and outsourced CIO solutions. We see continued demand for our outsourcing capabilities and are increasingly engaging with the world's most sophisticated institutions to partner with them on whole portfolio solutions. In March, we announced an assignment with AIG, where BlackRock will manage up to $150 billion of AIG's investment portfolio and execute an Aladdin mandate. Roughly $400 million from this assignment funded during the second quarter.
At present, we expect the Aladdin contract to be executed and the majority of the remaining AIG assets to be funded during the second half of 2022. BlackRock's institutional index business generated net inflows of $21 billion, led by continued strength in LDI solutions. Across institutional and retail clients, demand for alternatives continued, with nearly $5 billion in net inflows across liquid and illiquid alternative strategies during the quarter, driven by private credit, infrastructure, and private equity. Fundraising momentum remains strong, and we have approximately $36 billion of committed capital to deploy for institutional clients in a variety of alternative strategies, representing a significant source of future base and performance fees.
Finally, with cash becoming a more attractive asset class as rates rise, BlackRock's cash management platform generated $21 billion of net inflows in the second quarter, benefiting from the investments we've made to build this business in recent years. Net inflows were driven by U.S. government mandates and included inflows from Circle as we became the primary manager of their USDC cash reserves. In a rising rate environment, BlackRock is well positioned to grow market share by leveraging our scale, product breadth, technology, and risk management on behalf of liquidity clients. As BlackRock has demonstrated throughout our history, challenging environments create unique opportunities for future growth, and we've always emerged stronger and more deeply connected with our clients. While we are not immune to market headwinds, the last few months have only given us more conviction in our strategy and ability to deliver differentiated growth over the long term.
The diversification and breadth of our platform enables us to serve clients across market environments, and we believe BlackRock is as well positioned as ever to meet the needs of all stakeholders. With that, I'll turn it over to Larry.
Thanks, Gary. Good morning, everyone, and thank you for joining the call. The first half of 2022 brought on a combination of macro, financial, and economic challenges that investors haven't seen in decades. Rising energy prices, disrupted supply chains and hawkish pivots of central banks to confront inflation has sparked a reassessment of growth, profitability, and risk across financial markets. Central banks are trying to rein in supply-driven inflation, running at multi-decade highs without triggering a deep recession. Demand in the economy now is about the same as it was in pre-COVID. As pandemic restrictions have lifted, we're seeing that it's easier to restart demand than it is to restart supply.
Countries and companies were already reevaluating their interdependencies following supply chain disruptions during the pandemic, and the Russian invasion of Ukraine has only intensified the prior-prioritization of supply chain resiliency and security over cost of these supply chains and efficiencies of these supply chains. In the United States, the Fed's effort to fight inflation through faster rate hikes helped push the US dollar to a 20-year high in the quarter, impacting consumers, companies, portfolios in the United States and around the world. U.S. companies with international businesses, including BlackRock, are facing foreign exchange headwinds impacting the value of their overseas earnings. Markets are reflecting investor anxiety as investors evaluate the potential impact of these pressures. 2022 ranks as the worst start in 50 years for both stocks and bonds, with global equity markets down 20% and the aggregate bond index down about 10%.
While BlackRock is not immune to these markets and foreign exchange headwinds, we see it as an opportunity to strengthen our relationships with all our clients worldwide. It is during these uncertain times like these that the resiliency and diversification of our platform is most evident. BlackRock generated $175 billion of total net inflows in the first half of 2022, including $90 billion in the second quarter. These flows do not yet include any funding of the significant portion of the large client mandate we announced last quarter. The substantial organic growth demonstrates our ability to deliver industry-leading flows even in these most challenging environments. Even after the worst first half declines in decades, BlackRock's assets are up over $2.5 trillion since the beginning of 2019.
What I'm most impressed with, at the same period, we generated $1.5 trillion of AUM through organic growth alone. No one else in the industry has come close to that. Our strategic investments over the years, including iShares, ETFs, private markets, active whole portfolio solutions at Aladdin have allowed us to build a comprehensive platform to solve our clients' needs across market environments. Cannot think of a time when BlackRock's strategic focus has been better aligned to the markets and the needs of our clients than it is today. We see more and more clients looking for a partner who can provide a truly whole portfolio approach across index, across active and cash, across private markets, but all underpinned by global insights and our industry-leading risk management technology. Only BlackRock can offer that. That is why clients are entrusting us with more of their portfolios.
That is why BlackRock is seeing such a substantial increase in OCIO mandates. That is why we had record Aladdin mandates this year. Connectivity with clients is even more important in a volatile and uncertain environment. Our clients, more than ever, are turning to BlackRock to help them navigate uncertainty. There have been incredible demand for clients, for insight from BlackRock. During the recent months of volatility, we've hosted numerous large-scale events to share our market outlooks. In addition, our direct connectivity with our clients. In the first half of the year, the BlackRock Investment Institute had hosted calls reaching a record number of clients, providing unique global insights, further amplifying our connectivity and reinforcing our voice with our clients globally. This connectivity enables us to better understand the challenges our clients are facing.
Our comprehensive solutions have enabled us to help clients reallocate risk, rebalance, increase liquidity, and capture opportunities in response to market moves. Our iShares business is one of the examples where our continuous innovation has allowed us to deliver new solutions for clients and for growth for the firm. 20 years ago, in the summer of 2002, iShares launched the first U.S. domiciled bond ETF, innovation that went on to break down many barriers in fixed income investing. Today, both individual investors and large institutions are using bond ETFs for convenient, efficient exposures to thousands of global bonds and to make quick, specialized recalibrations to their portfolio. In other words, they're using bond ETFs for active investing.
The challenges associated with high inflation to rising interest rates are attracting more first-time bond ETF users and prompting existing investors to find new ways to use ETFs in their portfolios for active investing. In the second quarter, we generated $31 billion of fixed income ETF net inflows, led by our record flows in the month of May. Fixed income ETFs once again delivered the market quality that clients expected from us in stressed markets, providing liquidity, providing price transparency. U.S. fixed income ETF trading volume reached new records. In fact, the second quarter average volumes was up over 50% compared to last year. Our growth this quarter highlights the diversity of our fixed income ETF product range and our ability to serve clients as their needs change.
As we still see this as the early days of a major transformation of how people will invest in fixed income, we expect the bond ETF industry will nearly triple and reach $5 trillion in AUM at the end of the decade, driving significant growth in the broader ETF industry. When you consider that we build our fixed income ETF platform in an extremely low yield environment, it is particularly exciting to consider how rising rates will bring a whole new set of investors into these funds. Beyond liquidity and market access, investors also turn to iShares ETFs for long-term investments. We saw growth in each of our ETF product categories in the quarter for $52 billion of total ETF net inflows.
BlackRock's active platform demonstrated continued momentum in systematic equities, LifePath target-date, alternative strategies, and great opportunities in our industry-leading fixed income platform like SIO. We believe we'll outpace industry flows and active management due to our strong long-term investment performance and our diversified platform. While market volatility impacted shorter-term performance in some funds, long-term performance remained strong with approximately 85% of our active taxable fixed income and fundamental equity AUM above medium and benchmark peers for a five-year period. The diversity of our broad investment management platform enables us to capture changes in demand within active or as investors change their allocations to index or private markets.
We saw this phenomenon in fixed income during the quarter where active fixed income net outflows were offset by inflows in fixed income ETFs and index LDI strategies as certain clients looked to reallocate or immunize their portfolios. We also saw it as a client demand shifted to cash as the interest rate environment improved. We continue to see strong demand for illiquid alternative strategies, with clients growing their allocations to private markets to improve portfolio diversification and to seek sources of yield and uncorrelated returns. In alternatives, we raised nearly $8 billion through committed and net flows across liquid and illiquid strategies. Illiquid flows were driven by private credit and infrastructure, and liquid flows were led by our systematic multi-strategy fund, which takes a credit-oriented approach. Since 2021, BlackRock raised over $55 billion of gross capital across our entire alternatives platform.
One of the biggest long-term opportunities in alternatives will be the intersection of infrastructure and sustainability. Recent supply shocks have only increased the focus on energy security and compounded the need for infrastructure investments. Last month, we announced a perpetual infrastructure strategy that will partner with leading infrastructure businesses over the long term to help drive the energy transition from shades of brown to shades of green. This will help address the historic long-term investment opportunity presented by the global transition to a low carbon economy. By 2050, an estimated $125 trillion of investments is needed globally to reach a net zero. That implies an annual investment needs to grow to over $4 trillion compared to the $1 trillion a year that is being achieved this year.
As a fiduciary, we're working with clients to help them understand, to help them navigate, and for clients to choose and help that transition. BlackRock's cash management platform reached record AUM levels in the quarter and generated $21 billion of net inflows. Surging short-term rates, flattening yield curves, and now an inverted yield curve has made cash not just a safe place, but now, also a more profitable place for investors as they evaluate how to optimize their portfolios for the future. Even during low-rate environments, we invested in our cash business and have grown our share, positioning us well to benefit from the resurgence of client demand as rates rise. BlackRock's diverse cash management offerings, including governments, prime municipals, ESG strategies, allow us to serve all our clients' cash allocation needs.
Market volatility, growing cost pressures, and increasing complexities in optimizing whole portfolios have only underscored the need for robust enterprise operating and risk management technology. The value of Aladdin's integrated end-to-end technology platform and leading risk analytics became particularly evident in these market conditions when portfolio managers needed real-time information, sophisticated tools to manage risk exposures and make investment decisions. We saw record Aladdin Climate mandates in the first half of 2022, spanning our range of technology solutions with strong demand for our newer capabilities, including Aladdin Accounting, eFront and Whole Portfolio View. The market environment has also reinforced the need for offerings like Aladdin Wealth. Users of Aladdin Wealth by financial advisors at our largest clients have increased by more than 40% since the onset of market turbulence this year as financial advisors look to assess portfolio risk for all their clients for their entire business.
BlackRock's technology and risk management capabilities are also supporting the growth of our OCIO business. Since the beginning of 2019 and with the anticipated funding of the $150 billion AIG mandate later this year, we have raised over $430 billion from major OCIO and fixed income insurance outsourcing assignments. As the trend towards outsourcing increases, BlackRock is well-positioned to capture this opportunity to be a trusted partner for our clients. Another major trend defining our industry over the past several years has been interest in sustainable investing, and we continue to see strong client demand for sustainable strategies. BlackRock manages nearly $475 billion in dedicated sustainable AUM on behalf of our clients, and we saw over $20 billion in net inflows across active, index, and cash management in the quarter.
One note, particularly noteworthy strategy we announced in May was the $800 million commitment raised for the BlackRock Impact Opportunity Fund. This fund is first of its kind, a return-seeking, multi-alternative strategy that invests in businesses and projects owned or led by people of color. The topic of sustainable investing has sparked a lot of debate in recent months. In many ways, it reminds me of my early days being in the mortgage market. When I started my career working as a mortgage trader in the 1970s, shocking, huh? Mortgage loans were first being securitized into bonds. There were lots of questions from investors, lots of questions from policymakers, lots of questions from regulators alike. While the mortgage market has since had many ups and downs, it is today a $10 trillion market.
With the appropriate underwriting standards, it has played a vital role in delivering attractive returns to investors and making home ownership affordable for millions. Just two years ago, sustainable investing was not a priority for many clients. It is now one of the fastest-growing segments of the asset management industry and one of the topics our clients are asking more questions than in any part of our business. I continue to believe that we are in the early days of this trend. Two years ago, I said I believe it will fundamentally reshape finance. I still believe that. But as in the early days of the mortgage market, there are a lot of questions. With the mortgage market, the key to avoiding excesses and missteps is through better data and through better analytics.
That's why BlackRock is so focused on leveraging and creating better ESG data and analytics to help our clients better understand risk and opportunities in their portfolio, including those related to global transition to a low carbon economy. ESG data and indexing is still an evolving area, and we are working with our partners to assess and refine the best available data to help our clients meet their investment objectives in alignment with ESG preferences. We have long encouraged companies to report on sustainability issues so that investors better analyze how companies are navigating the transition to a low carbon economy and other critical investment considerations. We believe a common taxonomy and coordinated high-quality disclosure framework will allow investors to more effectively compare data across companies and geographies. We must also recognize that the energy transition itself is a journey and will not occur overnight.
It is not gonna be a straight line. It can only work if the energy transition is fair and just. To ensure the continuity of affordable energy during the transition, companies will need to invest in both fossil fuels like natural gas and renewable sources of energy. That is why we are working with energy companies throughout the world who are essential in meeting society's energy needs, and we will play a critical role in helping any successful transition. Another area that has been of increasing interest to our clients is digital assets. BlackRock has been studying the ecosystem, particularly in areas that are relevant to our clients, including stablecoin, crypto assets, tokenization, permissioned blockchains.
Last quarter, we announced our minority investment in Circle, a global internet payment company and issuer of USD Coin, a stablecoin that is one of the fastest-growing digital assets in the world. As part of our relationship, we became their primary manager of their USDC cash reserves, with assets invested entirely in short-term U.S. Treasuries. The digital asset space is a developing area that has attracted increased attention from investors and policymakers, and we are encouraged by the discussion and the debate that is occurring about the creation and implementation of an appropriate regulatory approach and framework. The crypto asset market has witnessed a steep downturn in valuations over recent months, but we are still seeing more interest from institutional clients about how to efficiently access these assets using our technology and product capability.
This is a space that we are continuing to explore to help our clients who wanna learn more and to help them, who wanted to participate in these assets, and to do it in a transparent and an efficient way. BlackRock continues to innovate in a variety of areas to expand the choices we offer clients to help them achieve their goals. Last fall, we announced the BlackRock Voting Choice initiative, which uses technology to help eligible institutional clients participate in proxy voting decisions. In the second quarter, we further expanded the opportunities for eligible clients, including public and private pension funds, insurance companies, endowments, foundations, sovereign wealth funds, to participate in proxy voting decisions.
Following years of work on technology and regulatory barriers, nearly half of our clients' index equity assets, including pension funds representing more than 60 million people, have simple and efficient options to vote their preferences if they choose. Of the client assets currently available for voting choice, nearly 25% are held by clients who have so far elected to exercise their own voting preference, and we're working to expand choice even further. We're committed to a future where every investor, even individual investors, can ultimately have the option to participate in proxy voting processes if they choose. Over the course of BlackRock's 34-year history, and in the years since the financial crisis and our acquisition of BGI, markets have experienced various periods of volatility and uncertainty. BlackRock has always come through stronger.
It is through periods like this clients more deeply connected with BlackRock's platform, and we have more opportunities to work with the clients who continue to differentiate themselves, and we are working with more and more of our stakeholders worldwide. We have always emphasized the connections between BlackRock taking a long-term view of our business and delivering differentiating growth for our shareholders. Many of BlackRock's biggest successes have grown out of times of uncertainty and disruption. I see more opportunities for BlackRock today than ever before, and I'm incredibly excited about our future. As we look to realize those opportunities, we will continue to invest for the future and evolve ahead of our clients' changing needs. The diversification and resiliency of our platform allows us to pursue critical investments while maintaining our focus on expenses and on our margins.
We will continue to manage what we control, bringing together the entire firm to serve every one of our clients, big or small, to strategically invest in the highest growth opportunities of the future, leveraging our scale to deliver benefits to our clients, and operating more efficiently. We will continue to drive forward on our commitments to our clients, to our shareholders, to our employees. As I said earlier, I believe that BlackRock's position has never been stronger. With that, operator, let's open it up for questions.
At this time, I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. If you do ask a question, please take your phone off its speaker setting and use your handset to avoid any potential feedback. Please limit yourself to one question. If you have a follow-up, please reenter the queue. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Michael Cyprys with Morgan Stanley.
Hi, Michael.
Hey, Gary, Larry. Just a question on the OCIO mandate wins. I was just hoping you could update us on some of the dialogue and conversations that you're having with asset owners there. Maybe you could talk a little bit about the opportunity set that you see over the next couple of years. How does this macro environment impact the sort of pendulum swinging between insourcing and outsourcing? Thank you.
I would say that dialogue is becoming more robust than any time in our history. Much of it has to do with, you know, the uncertainty of the world, the complexities of markets. No organization can bring the resources, the scale, the Aladdin technology, the completeness of investment platform than we can. The conversations we're having are because of that. We are showing more and more clients the benefits that what we can provide to them. I think this is we are going to see an acceleration of OCIO mandates because we can provide our services cheaper than in-house. We can provide as a fiduciary to their needs, a more systematic approach using investment technology.
The breadth of our investment scale across all products from obviously from cash to alternatives gives us a very unique advantage. We see this as a real huge opportunity for us. Obviously, it's been noted about AIG. We had another big U.S. pension fund. It was announced this week that we are now gonna manage their entire defined contribution platform. We are working with other companies right now with more opportunities. I am incredibly excited because this is probably the greatest example of one BlackRock. The uniqueness of our platform by having a one culture that interconnects areas of active investing, index investing, investment technology, having the ability to provide alternatives, whether that may be some decarbonization investments across the board to other sides, to private credit.
Having the ability to work with these clients in a one BlackRock comprehensive way has really shown to our clients that no firm can provide this. This is a virtue of having a one connected organization. We're not a multi-boutique organization. Our enterprise is intricately connected across the board, and we're able to provide that dialogue across the whole organization. It shows up in these client conversations, whether that is the General Dynamics conversation or whether that is the British Airways, these previously announced mandates. As I said, the dialogues in OCIO has never been greater, and I'm very excited about these opportunities. Let's be clear, you cannot underscore the need for one BlackRock in culture to make this work. You overlay our technology, you overlay the completeness of our investment platform. It's a pretty compelling story.
Now we'll take our next question, and that will come from Craig Siegenthaler with Bank of America.
Hey, Chris. Good morning.
Greg.
Greg.
Hey, good morning, Larry, Gary. Hope you guys are doing well.
We're doing fantastic.
Great. We have a question on client rebalancing. From your recent conversations with investors, is there a general trend for how they're thinking about portfolio rebalancing? I also wanted to hear how the ETF vehicle, which is still inflowing nicely, fits into that dynamic.
Craig Siegenthaler, it's Robert S. Kapito here. As you know, so far, the volatility has disrupted all of the traditional portfolio allocations. It's a rare moment when both equities and bonds have declined in value. The traditional 60/40 allocations are very out of balance, and the hedge between stocks and bonds has certainly weakened. Portfolio liquidity profiles have been impacted. What I mean by that is many institutions have gone to their maximum in alternative or private equity allocations, hoping to fund that.
From the liquid portion, meaning the equity side and the bond side. Now with that liquid portion declining, they are short in the demands to draw down for private equity allocations, which are also probably declined in this quarter. They're gonna have to rebalance, and they're gonna have to get closer to their target allocations. This means that there's a lot of money that's going to be reallocated, and clients are gonna need a partner with the comprehensive capabilities that Larry was just discussing to rethink their target allocations and to rethink the models that they're using. BlackRock today, I believe, is the only global asset manager that can meet those client demands in every reallocation scenario, whether moving to fixed income, equity, cash or private markets, or index or active on a diversified platform that could reposition this portfolio.
What they're looking for is inflation protection. They're looking for solutions for a rising rate environment. They're looking for cash solutions. They're looking for more private equity and in some points, liquidity in private equity. They're looking for outsourcing partners because not only is this complex, but the operational cost and efficiencies play a very, very big role in that. Now, during the last several years, keep in mind the market structure has changed, and it's changed that reallocations are not being done in individual stocks and bonds, but they're being done in index and ETFs because they're cheaper, better, faster and more liquid. That plays exactly into the strategy that we have outlined. That is one of the reasons why during this volatile period, we have seen inflows into the ETF and index markets.
I hope that answers the question, and we are predicting that this volatility and this reallocation is only going to increase as rates continue to rise, that we see volatility in equity markets and these portfolio reallocations have to occur.
We'll now move to our next question, which will come from Brennan Hawken, UBS.
Good morning.
Good morning. Thank you for taking my question. Just curious, Gary, you indicated that, you know, you would be assessing the environment and being focused on managing the discretionary expense base. I'm curious maybe to drill into that a little bit. Does that mean we should be rethinking the core G&A expense growth previously indicated? How should we think about that specifically when we're considering how to update a forecast for you all? Thanks.
Good morning, Brennan. Thanks for the question. You know, just looking at expenses in terms of where they came in for the quarter, as we mentioned, the operating expense year-over-year comparison was essentially flat. I think as expected, we saw flex in our what I would call our more variable related expense or asset related expense and incentive compensation. When you look at, you know, what optically happened to the margin, year over year, effectively all of that decline was associated with what I would call our historical discretionary investments, which were both in people technology growth initiatives and a return to office. We talked about salary increases. We've been growing some headcount. We've been trying to get our people back to the office. We're actually getting out to see clients more. T&E is up.
We're trying to ensure that we have an incredibly safe work environment for our employees, so health and safety protocol costs are up and obviously higher tech costs, which are primarily tied to that, the cloud migration for Aladdin that we've talked about. You know, we have long had a philosophy of what I would call a growth and hire model. We're coming off effectively two years, but obviously last year in particular, our fastest growth rates ever. We're continuing to invest to support that embedded growth as well as the significant near-term opportunities as you've heard both from Larry and Rob on the call, especially in places like OCIO. You know, we are mindful of the current environment, and we are proactively managing the pace of what I would call certain of our discretionary investments.
Let me just give you an idea of some of the things we're doing. We are delaying certain senior hires into next year. We are also trying to juniorize a number of other roles where appropriate. While I would say these actions will not materially impact our 2022 results, I think they clearly position us well for next year should some of these market headwinds persist. Now, that's not to say we're cutting back. Let me be very clear. I would say that our estimated headcount growth for the year will be generally consistent with the earlier guidance we gave, but roughly 100% of that growth will be at the more junior levels of the organization and something like 40% or so of that growth will be in our iHub locations.
We're also, as you mentioned, we're continuing to evaluate the pace of our core G&A spend.
While there is no material change to the plans we communicated in January, we would clearly expect the year-over-year increase to come in closer to the bottom end of that previously communicated 15%-20% range, in terms of core G&A. I would just say, you know, at the outset, we've said this in a couple of our comments, you know, we've invested for years to develop industry-leading franchises in a number of these growth areas. I think this quarter is, you know, yet another example of how those investments are allowing us to deliver differentiated growth going forward. I think that we've shown throughout our history that we're pretty pragmatic and agile in being able to both manage our expense, but also to continue executing on critical investments.
Your next question will come from Dan Fannon with Jefferies.
Hey, Dan.
Hi, thanks. Good morning. Wanted to follow up on just the fixed income commentary. You've talked a lot about iShares and some of the dynamics there, but obviously active is a big portion of your business in the market, and performance there has come under some pressure. How are you thinking about allocations or kind of trends within the broader active, you know, fixed income product set for you guys?
Well, I would say the shape of the yield curve is gonna play a big role in that. It is my view that we're gonna continue to see Fed tightening. If the market expectations for another 75, first of all, that's over a short period of time, you would see money market funds providing about a 2% return. You're gonna see money run into that. It's gonna be, you know, you're paid to keep your money in the short end. I expect to see a further steepening of an inverted yield curve, and where we're gonna see short rates higher than the 10-year Treasury.
I do believe funds like SIO, Rick Rieder's industry leading fund will continue to have industry leading inflows. Across the board, you know, I think we're gonna see on the active side quite a bit of opportunities. As I said in my prepared remarks related to fixed income ETFs, we will continue to drive more and more fixed income flows, whether that may be in a passive way. What I really do believe and what we've been saying now for the last five, six, seven years was the utilization of fixed income ETFs for active investments and exposures.
What we have already witnessed with the rise even in the 10-year area, we're seeing more and more insurance companies looking to put money to work, especially in the credit side. We're gonna continue to see more and more interest in private credits. Obviously, spreads have widened. There's some views that we're gonna continue to see even further, you know, rising credit spreads. This presents huge opportunities for a lot of the long liability insurance companies. In the institutional space, we're gonna see money moving across the yield curve, but we're gonna see movements both in and around from privates to publics. Rob did you wanna add anything from that point?
Yeah, I do. I know that people that are long fixed income don't like to see rising rates. However, with this environment, it's actually going to be a good thing for many institutions who need fixed income in their portfolios to meet their long-term goals. We expect to see a lot of allocation, and it's not only gonna go to fixed income ETFs, it's going to go to top performing and diversified fixed income funds that have been consistently performing. What I would expect is that people that use large cap dividend paying stocks as a surrogate for fixed income during this period of very, very low rates will now reverse that and be able to get some yield into their portfolio that they desperately need for the long term.
I expect to see some flows out of what was called high yield, and certainly high yield over the last couple of years wasn't necessarily high yield. I think there'll be demand for Treasuries, for U.S. investment grade, munis, and TIPS. A lot of that is gonna come through ETFs, but it will also come through individual bonds and issues that are being offered by companies going forward.
Your last question will come from the line of Brian Bedell with Deutsche Bank.
Oh, great. Thanks.
Good morning, Brian.
Thanks. Good morning. I apologize I entered the call a little bit late, but just curious, just a couple follow-ups. Rob, your commentary on the reallocation plan that was really in-depth, thanks for that. Do you see the net result of that being higher fixed income allocations from pension plans over the long term, you know, versus sort of the conventional 60/40? I know that's antiquated, the 60/40. Longer term, you talked about pension plans revisiting the private allocations as well. Naturally, they've hit their targets now. Do you see them raising their thresholds to alternatives?
I think it's going to be hard until we assess where the marks came out on alternatives at the end of this quarter. It's hard for me to believe that they're gonna be up. I think just because of the market movement, it's gonna be hard for them to enter into new private equity. Also there's still a lot of dry powder in the private equity space. I do think that it's going to.
The reallocations are gonna drive more money into fixed income than ever before because the 60/40 mix is pretty simplistic, and within that fixed income space, there are many more flavors today that people have the opportunity to buy, and some of those are gonna provide some really good inflation protection and just overall good yield that they haven't been able to get for a long time. I think the mix of that 40 is gonna be different, and it's gonna ultimately be better for the long term for our clients, and therefore there'll be more going into fixed income. Secondly, when you see the volatility of equities, there are people that are afraid of that, and they really don't need it. That could also drive more money into fixed income now that it will have a yield.
Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?
Thank you, operator. I want to thank everybody for joining the call this morning and for your interest in the firm BlackRock. Our second quarter performance, as I said, is a direct result of our commitment in serving our clients, staying close to their needs, our commitment in serving them, focusing on their long-term needs. Hopefully you can see why we're so excited about the opportunities ahead of us. Our differentiating strategy is producing industry-leading flows and our expectation of industry-leading flows in the future. Everyone please have a great summer. Try to get rested up. We're gonna have very exciting times the latter part of this new year. Everyone have an enjoyable quarter and stay safe.
This concludes today's teleconference. You may now disconnect.