Larry Fink is happy to go with the flow. And, increasingly, everything is flowing through BlackRock.

In a blockbuster third-quarter earnings report on Wednesday, the asset management supergiant said it took in net inflows of $205 billion, beating expectations. The new money helped push its total assets under management to a truly titanic $15.5 trillion, up 15% year over year. Meanwhile, Fink said in a statement that “demand for capital is growing across the global economy,” and boasted how the company and various subsidiaries including Global Infrastructure Partners and HPS Investment Partners are “increasingly at the center of how that capital is deployed and managed.” Here’s how all that money is flowing in and out.

Private Practice

BlackRock’s core money management business, to put it in Classic Rock terms, is hooked on a feeing. The firm’s iShares line of exchange-traded funds accounted for $135 billion of its $205 billion inflows. That includes $22 billion in inflows for active ETFs, up nearly 5% year over year; active ETFs draw higher fees than typical ETFs. Meanwhile, $66 billion of inflows came from non-ETF actively managed funds, which come with much higher fees. In fact, ETFs and active funds generated roughly the same share of total base fees, despite the large inflow disparity.

Still, Fink’s dream is to lure more client money into the much more lucrative alternatives, such as those in the private market, which account for just 3% of BlackRock’s AUM but 15% of total base fees. Not so coincidentally, he sees plenty of demand for the company to meet. “For the first time in my career … I’m seeing genuine shortages of capital,” Fink said during the company’s earnings call. “Governments are running historically large deficits, while at the same time, demand for private capital is rising across the economy. Governments need financing for infrastructure. Companies need to fund a generational AI build-out.” Rest assured, BlackRock is finding plenty of new homes for its clients’ capital:

• BlackRock said Wednesday it deployed $30 billion across private markets in the quarter (bringing its total up to $88 billion in the last 12 months). It also raised $14 billion across its private market funds (for a total of $68 billion in the last 12 months) and is sitting on $139 billion in dry capital.
• Recent days have delivered even more deals. BlackRock’s HPS division on Tuesday entered a $2.8 billion joint venture with Humana to manage and finance 150 senior care centers, while GIP entered into a joint venture with AT&T earlier this month to finance fiber optic expansion.

A $100 Trillion Opportunity: The big fish, of course, is data center growth and the energy infrastructure needed to support it. GIP President and COO Raj Rao told Bloomberg on Wednesday that global infrastructure investments represent a $100 trillion opportunity in the next 10 to 15 years. Fink, meanwhile, sees the build-out as similarly critical. “If we have a [data center construction] moratorium of some sort in this country, we will be in a recession,” Fink told CNBC, adding “So much of our economy is based on the buildout of this capex.” So now data centers are too big to fail.

You couldn’t sum it up better than Harris Financial Group Managing Partner Jamie Cox on Wednesday: “Inflation is cooking with gas.”

The Labor Department reported that the Consumer Price Index (CPI) rose at an annualized 3.7% pace in September. A white-hot 9.1% jump in gasoline prices from a month earlier accounted for more than half of the 0.6% monthly increase in all prices from August, the department said. The gloom does not spell doom for everyone. Take for example US refineries, whose earnings are getting heavyweight hype from analysts.

Betting on the Spread

“It is abundantly clear where the inflation impulse originates, but two wars need to end before we get any relief,” said Cox, referring to the conflicts in Iran and Ukraine, neither of which is poised to end any time soon. “The Federal Reserve made the mistake of calling COVID era inflation transitory, and now it appears they are set to make the same mistake in reverse on the energy supply shock.”

The International Energy Agency lent support to that notion Wednesday, forecasting that the inflation-driving energy crunch will likely drag on into the second half of 2027. “Record diesel prices are already having broad economic consequences by raising the cost of goods and impacting real incomes, economic activity and inflation,” the IEA’s latest Oil Market Report reads. Making matters worse was an escalation in the Iran conflict. A Singapore-registered container ship sank in the Strait of Hormuz after it was hit during a significant escalation of attacks on vessels by Tehran.

US refineries processing crude oil into usable fuels like diesel are potential winners. Wednesday’s CPI report strengthened Wall Street’s expectations of potential record profits as they report earnings over the next three weeks. The current energy crunch has blessed them with a widened “crack spread,” the measure of the price between a barrel of crude and the products refined from it. Essentially, the spread shows margin on those products, thus acting as a proxy for refineries’ net profit.

• Since the start of the Iran conflict, America’s big three independent oil refineries – Marathon Petroleum, Valero Energy and Phillips 66 – have added roughly $215 billion in market capitalization. Shares in Marathon Petroleum are up 140%, Valero Energy 122% and Phillips 66 89%.
• JPMorgan projects that Valero, for example, could post $8.95 billion in pretax third-quarter earnings, a 50% increase from the second quarter and 24% higher than its all-time quarterly record set in 2022.

Fear of a Post: US oil refineries, already operating at more than 96% capacity, are not in any rush to address this year’s supply pressure. Wood Mackenzie analysts said it would be “naive” to think refiners won’t first consider their appeal to shareholders, which relies on “disciplined capital management and reliable dividends.” The consultancy’s analysts said production takes nine to 12 months to respond to price moves, and so increases are only beginning but are capped by a reluctance to spend only for oil prices to fall. “The volatility in the oil price makes companies cautious,” said Nathan Nemeth, Wood Mackenzie’s director of Lower 48 Upstream research. “One tweet can drop crude by US$20 a barrel.”

Delta is rolling out the red carpet for its biggest spenders — well, the red Cayenne anyway.

The world’s most profitable airline is increasingly focused on fliers sitting in front of the curtain. Delta said yesterday it’s upgrading Delta One, its long-haul business class product, with a series of VIP upgrades. The airline will increase its Porsche fleet for fliers making short connections across the tarmac by 75%, from 40 to 70 cars.

Delta’s also adding Missoni mini pillows, Blanton’s bourbon, Delta logo-emblazoned tableware and a new menu developed alongside a Michelin-starred chef (wagyu burgers, Taittinger Champagne-topped sorbet). Flights out of LAX will be the first to see the perks later this month, with a global rollout planned for early next year.

The over-the-top expansion is part of a wider plan to make the front-of-cabin experience even more luxurious as airlines look to top spenders to bring in the bulk of their revenue.

K-shaped Airconomy

Delta’s led the flock for decades when it comes to investing in its premium cabins, only amping up its efforts in recent years. Early next year, its new Airbus planes will feature bigger screens and plusher lie-flat seats — it’s considering upgrading other jets in its fleet, too. The push into premium has paid off:

• Premium ticket revenues rose 18% in the third quarter Delta reported earlier this month, while coach revenue increased 12% — and premium revenues edged out coach revenues despite taking up far less space on planes. Delta CEO Ed Bastian told investors that the top 40% of US households are “nearly $40 trillion wealthier than they were just a few years ago and increasingly prioritizing experiences, including travel.”
• Rival airlines have also leaned into premiumization as revenue from top spenders surge. United, which is set to report third-quarter results next week, saw premium revenue growth outpace basic economy in the spring quarter. The airline last month launched its larger Polaris Studio business-class suites. Alaska Airlines, which is also overhauling premium seats, is aiming to make 60% of its revenue from high-end seats by 2030.

Upsell and Away: Restaurants have “Would you like to add avocado for $4?” Airlines have “Would you like to add a Porsche ride for $550?” As airlines look to increase premium profits, they’re creating expansive menus of customizations. Airlines are trying to create new options for customers to splurge within their cabin, and their primary focus is on the customers being served Blanton’s, not Biscoff.