Key Points

BlackRock built a massive business around exchange-traded funds.
The company's current focus is to build out its private markets business, which could be a much more profitable opportunity.
Dramatic growth in private markets could come if they are offered more broadly within retirement plans.

BlackRock (NYSE: BLK) ranks among the top providers of exchange-traded funds. ETFs account for roughly 40 percent of its overall operations. The challenge is that ETFs typically carry modest expense ratios. While ETFs deliver steady results, other areas offer stronger profit potential. Private markets represent one such area, and BlackRock is directing its expansion efforts there. Here is what matters most.

BlackRock maintains a strong base

Given the scale of its ETF lineup, BlackRock still earns substantial revenue even from these lower-cost offerings. Scale matters greatly in financial services. The ETF platform provides a reliable base that supports additional lines of business and can work alongside them. This connection becomes relevant as the firm grows its private markets presence.

Private market investments involve commitments to assets outside public exchanges. These can include debt instruments, real estate holdings, infrastructure projects, and stakes in private companies. The goal is often to achieve returns above those found in public markets. For BlackRock, the main draw is the higher management fees these investments can produce.

BlackRock reported 8 percent organic net fee growth year over year, its seventh straight quarter above 5 percent. That pace marks the strongest first-quarter result in five years. Much of the improvement stems from the multi-year effort to expand private markets capabilities.

BlackRock prepares for the next major opening

BlackRock now functions as a comprehensive provider where clients can address many investment needs through a single connection. A key development could accelerate progress further. Private market options remain largely unavailable inside retirement vehicles such as 401(k) plans.

Industry efforts are advancing to change this situation, which would create fresh avenues for BlackRock. The firm already maintains established client ties, so the shift would mainly extend current relationships. This could include adding private market exposure to ETF structures over time. Investors holding or evaluating BlackRock shares should track private markets progress closely, since higher fees in that segment may influence earnings more than asset totals alone.

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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BlackRock. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.