貝萊德 (BLK) 2009 Q4 法說會逐字稿

Good morning, my name is Kieri and I will be your conference facilitator today.

At this time I would like to welcome everyone to the BlackRock, Inc.

fourth-quarter 2009 earnings teleconference.

Our host for today's call will be Chairman and Chief Executive Officer, Laurence D.

Fink; Chief Financial Officer, Ann Marie Petach; and General Counsel, Robert P.

Connolly.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer period.

(Operator Instructions).

Thank you.

Mr.

Connolly, you may begin your conference.

Good morning.

This is Bob Connolly here with Larry, Ann Marie and Sue Wagner who is our Chief Operating Officer.

Before Larry and Ann Marie make their remarks, I want to point out that during the course of this conference call we make a number of forward-looking statements, we call to your attention the fact that BlackRock's actual results may differ from these statements.

As you know, BlackRock has filed with the SEC reports which list some of the factors that may cause our results to differ materially from these statements.

Finally, BlackRock assumes no duty to and does not undertake to update any forward-looking statements.

I'll now turn the meeting over to Ann Marie.

Thanks, Bob.

Good morning, everyone.

We're reporting earnings for the first time since the December 1st acquisition of BGI.

As you will see from the results, earnings have been positively affected by a combination of the BGI acquisition, continued strength in new assets, positive markets, continued cost discipline and strong business momentum.

I'll be discussing primarily as adjusted results.

Fourth-quarter net income was $379 million or $2.39 per share, including $2.34 per share of operating earnings and $0.05 per share of non-operating earnings.

Net income improved 29% compared to third quarter and over four times compared to a year ago.

The December 1st BGI transaction contributed $94 million to fourth-quarter net income.

As a reminder, as adjusted results exclude BGI's transaction and integration costs, which were $152 million pretax in the fourth quarter and $183 million for the full year.

These costs are comprised primarily of banking, legal and professional fees, restructuring and integration related compensation costs and other consulting and G&A expenses.

Over $50 million of these expenses would have been capitalized under the prior acquisition accounting standards.

These costs will continue into 2010 and are in line with the $300 million to $350 million estimate we provided previously.

We will continue to exclude these costs from as adjusted results in 2010.

For the full year net income was $1.021 billion and earnings per share was $7.13.

Net income was up 19% from a year ago, despite strong headwinds coming into the start of the year which affected revenues and operating income particularly in the first half of the year.

Non-operating income started the year negative as the value of co-investments on the Company's balance sheet troughed in the first quarter.

Since that time we have been writing those assets back up as markets have steadily improved throughout the year.

On a full year basis our balance sheet investments ended the year up $2 million, more than offset by net interest expense of $48 million.

Note that the fourth-quarter results do include the interest expense associated with the $2.5 billion of term debt which we issued in December.

Also note that the full-year tax rate payment at 33% due in part to the favorable settlements of certain tax matters in the first half of the year and to the geographic mix of earnings.

We would expect our 2010 tax rate to be higher in the 35% range in 2010.

Fourth-quarter revenues of $1.544 billion improved by $404 million or 35% compared to the third quarter and $480 million or 45% compared to a year ago.

The improvement in revenues from the third quarter reflects $278 million in base and security lendings revenue associated with the $1.8 trillion in AUM related to the BGI transaction.

The improvement also reflects revenues associated with the $42 billion of positive long-dated asset flows and over $22 billion of net positive market and FX affects on AUM.

The fourth-quarter revenue included performance fees of $125 million, an improvement of $76 million from the third quarter and $102 million from a year ago.

The improvement reflects a period of [more locks] than the third quarter, a trend of improving fund performance and the addition of BGI-related performance fees.

As far as the revenue trends, it is worth pointing out that long-dated assets of $2.8 trillion at December 31st include not only the $1.8 trillion of acquired assets under management, but also $221 billion of long-dated asset growth throughout the year.

BlackRock Solutions and advisory fourth-quarter revenues remained strong at $108 million, reflecting a continued appetite for analytic and Aladdin services and continued advisory assignments, although the pace of advisory assignments has slowed relative to prior periods as greater stability has returned to financial institutions.

BRS continues to have a strong pipeline of financial market advisory, Aladdin and risk reporting opportunities as the focus of clients has shifted from short-term assistance to long-term solutions.

As adjusted operating income of $561 million includes $161 million or 40% compared to the third quarter and $191 million or 52% compared to fourth quarter 2008.

Fourth quarter included $141 million of operating income related to BGI.

The BGI acquisition and organic revenue changes explained earlier were key drivers to the operating income improvement.

The operating margin as adjusted of 39.7% reflects a combination of improved revenues and continued cost discipline.

As adjusted compensation costs increased compared to prior periods due to the addition of the BGI employees and increased incentive comp related to improved earnings.

Our compensation to revenue ratio has been stable at about 35% over the past three years.

Though the performance of the financial markets has varied greatly over the past three years we have consistently sought to balance the interest of shareholders and employees resulting in stability in the cost of revenue ratio.

G&A expenses, excluding transaction and integration expenses, increased relative to prior periods primarily due to the BGI transaction.

In addition, fourth-quarter G&A included an increase in occupancy costs and a reserve associated with an outstanding collateralized loan to [add the sites].

Fourth quarter included owing a $2 million benefit from balance sheet related foreign currency effects whereas the fourth quarter of 2008 included a $31 million benefit.

With the fourth-quarter income statement we have introduced a new expense line item called Direct Fund Expense.

This item includes expenses which are directly related to the fund's operations but paid by the Company.

All of these expenses are essentially recouped by the Company through a unitary fee structure and administrative fee.

These expenses include index licensing fees associated with iShare products, custody fees, transfer agent fees and fund accounting fees.

We have isolated these fees as they are expenses which are likely to vary directly with revenue or number of accounts or other key metrics that are associated with the volume of the business.

The increase in this expense compared to prior periods relates to the BGI transaction.

The BGI transaction did not affect our balance sheet exposure to (inaudible) investments.

We did not acquire any such investments with the Company.

Overall balance sheet exposure remains at levels greatly reduced from a year ago.

The total value of investments portfolio stands at about $840 million or about $735 million excluding investments which represent hedges or which are hedged.

As I mentioned earlier, the last three quarters have actually been a trend of gradual write-ups of these assets offsetting a portion of the write-down which began in the first quarter of 2008.

As I have said before, we do not run any proprietary investments but rather invest alongside our clients or seed new products as required for the base business.

As you will see in our 10-K, the BGI transaction has had some material effects on the balance sheet.

Most notably the acquisition of their UK group pensions business will add about $140 billion of offsetting assets and liabilities.

Based on 141R acquisition accounting the BGI transaction will be valued at about $15 billion and will come onto the balance sheet primarily in the form of intangible assets and goodwill.

The majority of the intangible assets have been determined to be indefinite live.

The amortization of intangible assets related to the BGI transaction in the month of December was less than $2 million.

In December we completed all of the long-term financing associated with the BGI transaction including the issuance of 37.6 million shares from Barclays Bank, the issuance of 17.8 million shares to other investors and the issuance of $2.5 billion of term debt.

Fully diluted shares at the end of the year were about 196 million.

In summary, 2009 was an extraordinary year in terms of improving business trends, markets and transformational change.

The combination of organic growth and the BGI transaction has positioned us uniquely to work with our clients and deliver solutions to their investment and liability management objectives.

We offer a broad diversity of investment projects and risk management tools which allow us to support clients' needs with their knowledge that we are working solely as a fiduciary on their behalf.

With the addition of iShares we have a new suite of products well-suited to retail and institutional investors in a rapidly expanding market.

As we enter 2010 we'll be exploring both efficiency opportunities in our base business as well as investment opportunities to continue to support strong organic growth in the future.

With that I'll turn it over to Larry.

Thank you, Ann Marie.

Welcome, everyone.

I would like to wish everyone a Happy New Year.

And importantly, welcome all our new clients, our new investors as this is the first formal phone call public conversation related to our year end and, more importantly, our closure of the BGI transaction on December 1st.

And so the firm is actually in a very good position in terms of where we are going forward.

And let me describe some of the key attributes as I look out at 2010.

So as I reflect on 2009, BlackRock's results strongly indicate that our business model of providing asset management and risk management services to retail and institutional clients worldwide is working and that we are very well-positioned for 2010.

An independent investment management company with a strong fiduciary culture and organization that has no proprietary trading, we don't compete with our clients whereby virtually 100% of our revenue is client-driven business, an organization that invests and manages more money for teachers, firemen, school teachers, individuals than any firm in the world.

I believe our business model has proven, especially in these times, to be a business model that works in a more scrutinized and a more transparent world of investing.

And importantly, I believe the platform of BlackRock of multi-asset products, having a strong position in beta products and output products, strength in fixed income, equities and alternatives with a strong risk management culture has positioned BlackRock to help and assist our clients with their investment and risk management needs.

And I believe this will set us apart in 2010 as it set us apart in 2009.

As our fourth-quarter release stated, our merger with BGI has progressed very well.

We are very excited about where we are at this time.

A little reference, when we closed our MLIM transaction in 2006, that transaction took eight months from contract to closing.

The BGI transaction, which is far more complex, required a much larger proxy solicitation, much more complexities in the businesses, we closed that transaction in six months.

Sometimes it felt very hurried, sometimes we made mistakes, sometimes we miscommunicated.

Overall, though, the merger closing went extremely well and I'm very pleased to say that we are in a very good position going forward.

We are very excited about the intellectual teams that came with the BGI, interfacing with the BlackRock teams.

As I sit here today in late January I can't tell you the excitement we're seeing worldwide with our employees on the opportunities we have in terms of blending the different business products together and going to our client, representing one solid product across regions, across distribution channels and obviously across products.

The intersection of beta and alpha is becoming more pronounced.

We believe clients worldwide are asking just as many questions about beta strategies as alpha strategies.

And these strategies are not separated anymore, whereby maybe five or 10 years ago when people thought about beta it was much more simplistic.

And now through technology and innovation, much of it from historic legacy BGI and other firms, the intersection of beta with alpha is becoming a very important component of our conversations and positioning with our clients.

And it is that intellectual capital that we have from legacy BlackRock and legacy BGI that we're bringing across to our clients.

As we stated in the press release, integration is very hard and we are going to have more bumps, and we are not going to have this completed for about two years, as we stated when we closed the transaction.

We are on target though, on schedule.

We have already put all the global cash products on Aladdin.

By the end of the first quarter we will have all legacy BGI products on our green risk management risk reporting platform.

And so we are moving ahead quite nicely and we are working very closely in trying to bring all of these products to our clients.

But I need to just be very clear to everyone -- merger integrations are hard.

Bringing everybody onto one platform, onto one -- onto the one BlackRock platform just takes time, it takes commitment and it takes repeating yourselves many times.

We have been successful, as I said, to date.

We have many more milestones to ensure that we are representing our clients onto one common platform and we are coming with one common voice across the world.

Obviously as the world is changing, as the financial markets change, as governments reflect on how best positioned the financial markets, we have to -- we are working alongside with those changes with the regulatory regimes.

At the same time we're doing integration.

As globalization continues to expand this also means we have to change our business model as we try to grow internationally, which I'll discuss a little bit later.

Let me just go into some of the assets under management and trends.

Hopefully, for those who read our release, we are trying to be as transparent as possible; we're providing you with information on a reported basis, on a pro forma basis and we know these trends are -- and all the numbers can be difficult to understand, so obviously we're prepared to answer a lot of questions.

Assets at the end of the year were $3.346 trillion.

We had continued strong growth in the fourth quarter of approximately $85 billion of long-dated commitments.

And then we had about $42 billion of total organic growth after some advisory and cash management reductions.

What's very impressive for the year for long-dated assets, we had approximately $200 billion of organic growth as a firm.

This is a pro forma basis -- I need to repeat that, that is using all the year's performance of BGI and BlackRock.

I would also like to say very loud and clear, please don't annualize this.

We had an extraordinary year; we hope to have an extraordinary year in 2010.

But I just want to -- until we have our arms around integration and our platform, I'm not here to tell you this is going to be a re-occurring growth rate.

It is our hope that we can achieve that, but I need to put caution with everyone.

Fixed income -- as we continue to rebound from the problems we had in '08, we had strong performance which led us to have some very strong momentum.

For the quarter we had $43 billion in new organic growth, $14 billion of it was active and $29 billion went through index and ETFs.

For the quarter equities grew by about $36 billion, all of it and then some was in indexing, about $46 billion was from indexing.

The active side of the equities was down about 10, all of it was from a legacy BGI product, equity product, which is under some stress now like Quant equity throughout the industry is under a lot of stress right now.

This is a business that we are very committed on, this is a business that we believe is going to be robust in the future.

But like what we had to do in some of our fixed-income products over the last few years, we are rebuilding that product.

And we are experiencing and we expect to experience some more outflows in that one product area.

Institutional flows for the quarter was up close to $50 billion.

For the quarter our mutual fund platforms, the legacy BlackRock mutual fund platforms grew about $11.6 billion.

And iShares' platform for the fourth quarter grew by about a little over $21 billion.

What's also very remarkable in terms of the iShares positioning, this has been reported earlier, the market share for iShares' platform in the ETF space actually grew last year and we are just under $500 billion in total assets with an industry above -- just crossing over $1 trillion of total assets.

BlackRock Solutions continues to see very strong opportunities and growth.

For the year we had more assignments than we've ever had before.

The fourth-quarter new assignments were 14.

And in the -- and we just announced a few weeks ago the acquisition, which is very small, of a product called Helix, that I think is going to have huge opportunity for BlackRock in the future.

This is a little product that is going to be allowing us to analyze commercial mortgage-backed securities, taking the structure and digging down below the structure and analyzing every loan.

I think one of the outcomes of the credit crisis has been too many investors relied too heavily on their rating agencies and did not have enough analysis of understanding what's in these structured products.

One of the strong positionings of BlackRock Solutions and Aladdin will be allowing our investors to use the Helix products to analyze their holdings and commercial mortgage securities and understanding all the base assets, all the loans, how they're performing on a period-by-period basis.

And we believe this is going to be the new fiduciary standard and this is one of the reasons why we bought this because we believe having that information is going to be necessary if you're going to invest in these products, not just for BlackRock but all of BlackRock clients who use the Aladdin system.

So albeit it's a very small -- a little acquisition, but we believe it's going to drive a lot more opportunity and we believe it is going to, once again, raise the level of fiduciary standards, what is necessary when investors buy structured products.

What's also very important to note, we crossed the $9 trillion market in terms of assets that we are analyzing, whether it is risk-based analysis or our Aladdin system or BlackRock Solutions.

So if you think about the $9 trillion in the solutions space plus the $3 trillion plus at BlackRock, we have responsibility of risk management and investment management of about $12 trillion, a pretty impressive number.

The pipeline remains robust and we continue to see some strong strength this year.

Our pipeline is about $38 billion of wins unfunded and we continue to see strong flows in our mutual fund and iShares platforms.

Let me go over some other statistics that I think are important to note, and that's the balance of BlackRock today, which is an important component as we think about our business.

About -- a little over $1.1 trillion or 35% of our business is active today; about $1.6 trillion or 50% of our business is passive; $350 billion or 10% is cash and about $161 billion is advisory or 5%.

And so this firm is very unique in terms of the business mix, between active and passive cash and advisory.

What I think is also very remarkable when you think about BlackRock, where we were four years ago, five years ago -- we have $1 trillion of fixed-income assets, but we have $1.5 trillion of equity assets.

On top of that $350 billion in cash, $102 billion of alternatives, $141 billion in multi-assets and about $161 billion in advisory.

Another import characteristic of where we are and where we think our business is going -- about 40% of our business is now international, which I spoke about over the past few years as an important characteristic, and that is $1.3 trillion.

And about 60% of our business is US, a little over $2 trillion.

And so our business mix is very different and, more importantly, our -- the amount of business that we are doing in the non-US space is growing dramatically.

This is where we are going to invest in the future; we continue to believe this is an important characteristic for us; and we will continue to spend money in investing overseas, especially in Latin America and in Asia.

The other area that is interesting to look at as we think about our businesses, our mutual fund ETF investment trust or co-mingled assets are now more than our separate accounts.

So we have $1.8 trillion in these bundled types of products and in separate accounts we have $1.5 trillion.

So what I'm trying to frame out to everyone, our business is very different today than it was even a year ago.

And this is one of the real characteristics and differentiating features of BlackRock going forward.

As we have these products, as we grow, the one area of growth that we think is going to continue to really differentiate ourselves, that is in the multi-asset product space where clients are looking for more fiduciary outsourcing, are looking for much more of a comprehensive business.

In that area we saw some very large business flows and that will continue to grow above trend in 2010.

The other opportunities we have as a firm going forward with our business mix is going to be in the defined contribution space.

This is a space that we have never been as large as some of the large players, but we believe as a sub advisor to some of these large platforms we have some very unique opportunities to provide in the DC space.

The other areas I would like to just emphasize where I believe we are going to continue to have some dominance -- clearly iShares, the business there is going from strength to strength.

The teams internationally and domestically have been very protective of the entire ETF space.

We've been vigilant in terms of making sure we're providing products that meet the test of time.

We are not -- we do not have any leveraged or inverse ETFs.

We don't believe ETFs should be used as a speculative tool and yet we sometimes worry about in terms of making sure that we are creating the right products that will test -- that will stand the test of time.

The synergies that we see right now between the iShares team and our BlackRock mutual fund platform team is incredibly strong.

If I had to say that one real surprise is how strong the connection and opportunities we have together in building opportunities in the retail space with beta and alpha products together.

Institutionally, as our fourth quarter suggested, we continue to have very unique opportunities institutionally globally.

As you can see in our press release, we continue to have some very strong momentum with official institutions and that business now has crossed over $236 billion in terms of assets.

So great growth, great opportunities and we continue to see great successes in the taxable institution space or the insurance space where clients are looking more for fiduciary outsourcing in different products.

I don't want to spend too much more time because I think it's important to open it up for questions.

We are very well-positioned for 2010.

We have a lot of risk though; we have the risk of making sure our business model is correct as governments and central banks are looking at restructuring financial institutions.

We need to make sure that we are differentiated and that clients understand who and what we are.

We have to make sure that our integration continues to go smoothly, that our customers come first, that we're representing our clients continually.

And we need to make sure that we're vigorous in terms of making sure we have growth in all our product areas.

And if there are cases in which we have needs for rebuilding or enhancing, we will be doing that.

One area that we are continuing to be bullish on, and yet we've had a very difficult time especially in the news, is our real estate business.

We've unfortunately been in the news a little too much because of a bad investment in New York City, which I think we identified many quarters ago that we actually wrote it off many quarters ago, actually in 2008 and 2009.

And yet it is still an unfortunate point.

We are not perfect.

We always have to rebuild.

Despite our scale, despite our size we need to be vigorous in terms of rebuilding, rebalancing and fixing where there is need to be fixed.

As I said, real estate is an area that we believe in in the long run and we are committed to this area and we believe it's going to be an opportunity for us in the future.

We are not alone in problems in real estate; we have just been highlighted in the last few weeks, but most of the real estate platforms have had a very difficult time.

We look at this as an opportunity for BlackRock and we are working with many clients on these opportunities.

Quant Equity is another area that is under a lot of stress industry wide, like real estate.

Many firms are moving outside the space.

We believe it is a great space.

Despite underperformance and despite large outflows we believe the product will stand the test of time; we believe the product will be a strong product in the future and we are very committed in making sure that we represent ourselves in that product area too.

So I'm not here to suggest all products are doing well; I'm not suggesting that BlackRock does everything perfectly.

I would say overall though in 2009 we had a great year, we are very well-positioned.

I am very bullish on our business model.

I think our business model has been incredibly validated throughout 2009.

I believe we are well positioned for 2010.

I believe we have opportunities not just in the United States but globally.

And I believe we're as well-positioned in the asset management space as any investment manager in the world.

With that, thank you to all the employees in working incredibly hard in terms of the hard work of this integration.

It has been a remarkably intense period of time.

I may have said this too many quarters and so I may sound like a broken record.

But I am very proud of the employees in pulling our merger off in such a record point of time, continuing to build momentum and continuing to build our client relationships.

I am standing or sitting here today as a very proud CEO in terms of the successes of the BlackRock team.

With that let's open it up for questions.

(Operator Instructions).

Robert Lee, KBW.

A couple of quick questions.

First, I'm just curious, is there any update on your expected cost savings from the acquisition?

If I remember correctly, I think over time you're targeting initially around $200 million or so.

Any change in that?

No, no change in that.

But what I did say in my comments is we really are going to be balancing -- getting the costs and efficiencies in the business, and at the same time appropriately investing in the business to continue topline growth.

I would argue that if we found more cost savings it would be all really invested in different parts of the business, whether it is iShares, defined contribution, Asia or Latin America.

So I think this is a time, Rob, for us to be investing in a lot of ways, not just getting the synergies out.

We are relentless on the synergies, so I do not want to leave you with the idea that we are not committed in terms of making sure the synergies are there.

But I'm telling you -- if there are more synergies I don't know if that's going to show up because of our belief that we need to continue to build out.

Okay, great.

And Larry, I know you just mentioned about you're feeling that I guess the BGI sales force and the BlackRock I guess wholesaling sales force are integrating well.

But I'm just curious, how do you deal with the fact that you have so many products, so many categories, how do you actually get an integrated sales force to focus on that breadth of products?

I mean do you --?

Are you talking more institutionally?

Well, actually I guess it's both, really both retail and institutionally.

Let me start off and say at this moment starting yesterday we have our institutional global teams here talking about that, kind of making sure that we represent our clients, making sure that all our two legacy teams learn each other's products.

And so this is a big hurdle, this is part of the integration process.

I think we have done a very good job in a very short time doing that.

But the key is going to be in terms of the employee education on the products and making sure that we are -- that each of our client service teams have the ability to market and understand those products.

And importantly, that they are good listeners to our clients and their needs and then coming back to them with a product that we have.

And so this is an issue, I think you said it very clearly.

On the retail side we do have two separate teams on the ETF team.

The iShares team is separated in terms of product versus our historic and legacy mutual fund teams.

And so on the retail side we have less of an issue.

On the other hand, we need to make sure, and we're doing that too, making sure our ETF team, our iShares team, has the ability to cross fertilize our mutual fund platform products and vice versa.

So this is going to be an ongoing educational process.

As I said, we have a meeting today, I'll be speaking to that team at lunch today.

But it is an issue and I think you should ask that question each quarter and I can give you a better statement as to how we're doing.

But in the short run I think we have shown in terms of to our clients that we have a pretty good beginning in terms of offering products.

I was in Europe I guess last week, maybe two weeks ago now -- I don't remember where I am, last week I was in San Francisco, so two weeks ago -- and we had a client meeting with about 13 clients over dinner in Amsterdam.

And to a client, they were talking to me on about how they really don't know today who is a legacy BGI or who is a legacy BlackRock person, that we have represented to ourselves quite well and we've done quite a good job in terms of bringing all the products to them.

That was a nice thing to say to the CEO.

And it was right before bonuses.

So maybe somebody got us to do it.

But I think we've done a good job to date, but we have a lot of education in front of us.

Great.

And maybe just a follow-up question for Ann Marie.

I think I may have missed it -- did you say that the intangible amortization related to the transaction was only $2 million in Q4?

I may have misunderstood that.

Yes, yes, it was just a little bit less than $2 million.

Okay.

Yes, the bulk of the intangibles were in definite lives.

Okay.

And with the definite lives intangibles, can you give us a sense if any proportion of that is tax-deductible and maybe what kind of tax benefits you may be able to derive from it?

No, I think that looking at individual pieces of the whole tax equation, I tried to give you an idea of where the range in which the total tax rate might come in, sort of in the 35% range in 2010.

Okay, thank you very much.

Craig Siegenthaler, Credit Suisse.

Thank you.

Just first question, Larry.

Now that your product menu has really expanded into really every significant strategy out there, I was hoping you could provide a little perspective on flows.

I know this liquidity crisis has really thawed out and you've seen flows go to money markets and then to credit and convertibles and equities, we've started to see some DRIP especially on the passive side.

Where do you think we are between really the institutional and the retail channel in terms of moving back to equities?

And how do you think actively managed domestic equity stands?

And can we get better flows there in 2010?

We still continue to see -- despite we had a very strong fourth quarter in terms of cash relative to the industry, we still believe we're going to see net outflows in cash because we believe we're going to see a persistently steep yield curve in 2010 which will move money out from cash to other risk-based assets whether it's a two year treasury or emerging market debt.

And so we continue to see that.

In terms of institutional cash, institutions are sitting with record amounts of cash.

Institutions have actually two and a half years of excess cash flow, a record amount.

Corporations in the United States do not need to really come to the debt markets, they had that much cash sitting with them.

So they don't even have to raise new debt if they have debt maturities over the next year or so.

And so we see large cash balances as institutions have not restocked their inventories as they historically have.

Or one would suggest with all this cash we're going to probably see more M&A activities from corporations over the course of the next year.

So we're not -- so that's more on the corporation side.

In terms of investor cash, we are certainly seeing more and more investors migrate from cash to other risk-based assets.

And I think that will continue to be the case.

On the retail side, we still see retail moving from money market funds into demand deposits because -- so we still see that trend.

I think that trend will persist.

But let me talk about it in terms of retail flows.

Our retail flows so far are very strong this month into equities, especially internationally.

I think our flows month to date is way over $1 billion in terms of retail flows.

But I would say most of it is in equities and some of it is in fixed income.

In terms of the US, I don't have a clear picture on the mix so I can't talk about that.

But I think you hit on something, Craig.

I believe we're seeing a continued flow out of more active strategies into index strategies.

I think that will continue.

I think investors are looking for some form of beta.

We still see very strong trends out of US equities into emerging market and global equities.

I think that trend will continue this year; we're seeing that both domestically and internationally.

Our fastest growing funds are global opportunity funds, that crossed the $61 billion mark.

So it's not just global funds, but funds that could go from the US into different product areas.

So we continue to see the same type of trends that we saw after the second quarter into more international products.

I don't see any trend changes on that, Craig.

So I think the trends that we saw in the third and fourth quarter will persist, at least for the foreseeable future.

And any hope for domestic active equities?

Yes, no, I actually think -- if you have performance, if you have the right products, no question you're going to see it.

But I still believe (inaudible) fund which I just talked about, the $61 billion fund, has a great opportunity, he could put all his money in US equities if he chose.

So I think you're going to see more flows into more -- if you're going to go into active strategies you're going to go into more of these actively allocation strategies.

I think you're going to see much less money going to the bucketed strategies of S&P or things like that.

So one should not think that this is just going out of S&P or domestic strategy, they're going to go into more -- I would tell you, as clients spend more time investigating beta strategies, they're also going to be barbelling and moving more into more actively traded equity strategies like our global allocation fund.

So I think you're going to see more barbelling as people have a higher concentration in beta.

Great, thanks for taking my question.

Mike Carrier, Deutsche Bank.

Thanks, Larry.

Just a question -- when you get to these asset levels the question that always comes up is on the organic growth side and how to maintain maybe not the level this year, but just a healthy level that continues to drive pretty good earnings growth.

So I think we can always try to gauge where investors are, the flow commentary is helpful.

I guess on the distribution side, whether it's on that retail platform or the institutional or the US, particularly international.

Just now with the new BlackRock, including BGI, where are you and where do you see the greatest opportunities whether it's getting into new clients or offering some of the products that maybe weren't in those distribution channels?

Well, I think the biggest trend, as I said to Craig, was I think you're going to see continued large allocation to beta strategies.

A large allocation from retail into ETFs as you have instantaneous flexibility of going into a subcategory, whether it's a financial institution index or a semiconductor index or a healthcare index or if you want to have beta strategies that are going into a country specific of Mexico or Brazil or India or China to regional indexes like the MSCI and other product areas.

So we've never had that flexibility and this is one thing -- I've said this very lovely to almost anyone who would listen to me in terms of working with regulators and governments.

I think people don't truly understand the transformation of investment for individuals and institutions with the advancements of ETF.

That they have such quick flexibility of moving into different asset strategies.

We never had that flexibility of instantaneously investing in Brazil or Taiwan or India.

And so the speed in which investors can migrate into different strategies still is going to play out for the years to come.

And it's going to change its scope of investing.

And I think this is something that is still not totally recognized or understood.

But I think we're going to continue to see some very strong flows in our beta strategy, institutionally and retail.

We are very constructive on alternatives, I didn't say that enough in my prepared talk.

But I think, as I said, clients both institutionally and retail are going to do more barbelling strategies.

And we saw some very good flows in our BAA platform as clients are putting large sums of money back into hedge funds.

It's all part of the beta -- the barbelling strategy that we're seeing.

As I said in my prepared speech, I don't expect to have, or we should not plan on having, the same type of organic growth that we had in 2010.

But I'm pretty constructive on our positioning for organic growth versus our peers.

I'm not here -- I can't project what type of organic growth we're going to actually achieve because it's a function of the growth of the global capital markets.

But one thing is certain for me, as central banks worldwide move away from quantitative easing or, another word, buying assets, what that means to me is they're going to be more dependent on the growth of capital markets because who is going to finance the US or who is going to finance Europe as central banks are not going to be the financier in the future.

And it's going to be more dependent on the global capital markets to be the financier of developed growth.

So, I am quite constructive that the global capital markets will continue to grow and I can't think of another firm that is as well positioned to take advantage of that global growth.

And that's going to add to the organic growth as our clients will start building more cash, more opportunities; they're going to be looking to put more money to work outside of cash.

I think we're just in a very good position.

I would say though, we need to continue to build out Asia and Latin America to really seize a lot of that.

We not are not as well positioned as we should be because much of that money is not going to go into dollar-based assets; it's going to go into local markets as China and other regions build their own domestic capital markets.

And so that's where the opportunities are, making sure that we are -- that we are positioned to take advantage of the growth of global capital markets in the world.

Okay.

And then Ann Marie, just two questions on from some of the numbers.

On BGI the margin looks like it's coming in at 45%, which is much stronger than it was last year, a lot due to the markets.

But when you're talking about the synergies at 200, just so we get where the run rate is today, like are there much of those synergies in the current run rate on the expense level?

And then on the performance fees overall, any sense of how much of the performance fees were related to BGI?

Yes, as far as the BGI margin -- and going forward we're not going to try and segregate the true results because really as a combined firm it's a bit random where the results end up because we now have BlackRock people reporting to BGI people and BGI people reporting to BlackRock people.

So I wouldn't try and dissect a lot into the individual margin or [trends at].

As far as the performance fees, of the 125, about 24 on the income statement was related to BGI.

Okay, thanks a lot.

William Katz, Buckingham Research.

Thanks very much.

Just a couple questions.

I was wondering if you could sort of come back to BGI yet again.

You talked generally about the defined contribution, maybe Latin America, et cetera.

I was wondering if you could talk a little bit about specifically where you see the greatest lift for BGI over the next 12 to 24 months.

You mean for BlackRock?

Yes.

I think I said this last, Bill.

I think it will be in the beta products where I just believe we're going to continue to see some real growth, real opportunities.

If we are able to expand the products by having actively managed ETFs, especially in terms of asset allocation products, I think that will be a very large growth area.

I do believe we are going to continue to see very large growth in our non-US ETF products.

And I do believe clients are going to continue to allocate heavily into fixed income, into municipals, especially GOs.

So I think more of the same is going to happen, Bill.

I don't think there's going to be a remarkable reversal.

I don't think we're going to see a huge reversal into actively manage equities.

But I do believe, as we see today in our mutual fund area, we are seeing a continued growth in active equities, but not to the same extent as what we're seeing in the beta products.

Alternatives will continue to be an area that we are going to be emphasizing.

So as the world improves, as the global capital market stabilizes, I think we are just in a very good position to take advantage of those opportunities and flows.

So I don't think there is anything that I could highlight, other than maybe the beta products, as we see more and more clients barbell, using a beta and Alpha.

And we are just very well-positioned for that type of conversation, of managing both beta and Alpha products.

I would say, which I didn't say in my prepared text, but one thing I could say, a surprise too is, we are not seeing as much of issues with our clients in terms of concentration issues.

I don't want to say we haven't seen any, because we have seen some.

But I would say they are less than we budgeted when we announced the transaction last June.

And clients have separated the beta and Alpha strategies by and large in terms of thinking about how they should think about the new BlackRock.

That's helpful.

My second question -- I asked this last quarter and I suspect I'll get the same answer this quarter, but I'm going to ask it anyhow.

You're obviously generating a significant amount of free cash flow, you put the term debt on, sort of curious if you could talk a little bit about dividend policy, maybe a share repurchase, and share repurchase in the construct that you've had some interesting legislation being proposed by the President about ownership of profiteering (inaudible), etc., and two of your largest shareholders obviously have indirect ownership on your stock.

Sort of wondering if there's an opportunity here maybe to enhance the float somehow or maybe use the shares to repurchase from that.

Sort of curious just more broadly on your capital management plans.

Well, dividend policy is reviewed in the first quarter by our Board.

But I think our policy has been consistent in the past and I believe that consistency will continue on going forward.

I don't want to speak on behalf of the Board and so that's something that will be announced sometime in February when we have our next Board meeting on terms of the dividend policy.

But I think we are going to have the same consistency, so you could look back and see how we have done it and I would think it would be pretty similar in the future.

I don't see anything -- addressing what the President announced in prop trading.

I would actually say that as -- we still don't know what ultimately will happen.

It will take some time for Congress to come to terms with what the President spoke about.

I guess we now call it the Volker rule or Volker plan or whatever.

I think if something of that nature occurs I would actually think that investment in BlackRock is actually a better thing; because we have proven to be a higher returning asset for them.

And so if anything I would think their ownership in us is probably more -- is probably more stable than it would have been otherwise.

I can't speak about my large investors and their financial situation.

But there is no question, A, we are -- we will be thoughtful in the future in terms of thinking about float.

If there are any opportunities with any of our large investors we will be thoughtful in terms of share repurchases if there are any changes with our large investors.

So I think all those things are open issues.

You're correct in saying we're going to have some very large free cash flow.

And with that free cash flow we either can utilize that in terms of more acquisitions in terms of BlackRock Solutions space.

We could use that for just general business opportunities or we can use that in some form of dividend or share repurchases.

And I think we're going to have many options with the free cash flow that we're going to have in the future.

Ann Marie, do you want to add anything to that?

No.

I can't be committed on anything, Bill, so basically (inaudible).

Okay, just one last question.

Thanks for taking all the questions.

There have been some interesting developments coming out of the SEC which I guess is going to get potentially voted on over the next day or so around the money market business.

Just wondering if you could give an update on how you view the business.

How do you see it economically viable?

You obviously talked about some further market share erosion this year to demand deposits that seems straightforward.

But just longer-term maybe your thoughts on the business?

I love the business.

It's a business that we think with our positioning with corporations and our scale is going to be a great business for us.

I do believe we will be one of the strong entities in this space in the years to come.

I do believe the money market business is an area that government needs to reflect on and look at because of the reserve fund situation.

There was a period of time where the money market business was under severe stress, we needed the liquidity -- Bank of the Federal Reserve to stabilize the money market business in the commercial paper area.

And so one of the outcomes will be some form of capital that will be set aside which would obviously lower margins in the money market business if that's going to be required.

We have been very involved in conversations with our regulators on this.

It's something obviously that we are involved in and that we will continue to be involved in.

But we believe the money market business will evolve into a large-scale business with few.

And I believe we will be one of those few that will be heavily involved in that in the future and may have lower margins in the future if capital needs are going to -- capital is going to be needed to stabilize the business.

I would also reflect though, after the crisis is over in terms of the reserve fund, I believe they return pretty -- over 99.75 of all monies back to their investors.

And so most of the problems in the money market business was a liquidity run and some of it obviously was credit, which that's why they returned 99.75.

But it's going to be clear to make the money market business robust and strong for our clients and I believe there are going to be some form of need to having reserves of capital associated with that business.

Okay, thanks so much.

Marc Irizarry, Goldman Sachs.

A question on the DC channel.

Can you help put that opportunity for BlackRock in perspective?

Particularly we're hearing a lot more about guarantees in that channel and that seems more to be an insurance product rather than an asset management product.

How do you plan to go to market there and particularly could you comment on guarantees in DC?

You're correct in saying that's an insurance product.

We are working with some insurance product -- insurance carriers on that.

So we will be the manufacturer, they'll be the distribution and the wrapper.

So that's one area that we're working on.

We are working -- with our scale now, with our products we're working also directly with many more corporations in terms of offering a more diverse product.

I believe because of the diversity of our products, whether it is beta products are alpha products, more distribution platforms are adding more BlackRock products to their channels.

We have a dedicated DC team that we are committed in building out.

So it's an area that quite frankly was an area that we under invested in; it was an area that we did not have the appropriate scale and now today we have the scale and the investment to be a player in the future.

Okay, great, that's helpful.

And then just in terms of the pipeline, can you give us some information on the long term of the breakdown of the pipeline by assets?

Somebody is turning to the page and giving it to me -- Ann Marie just gave it to me.

So here's the pipeline so let me see pipeline walk forward.

Total unfunded, okay -- so fixed income is $23 billion --.

No, but the pipeline (inaudible).

The total pipeline, [$25.7 billion], excuse me, $25.7 billion is the pipeline of fixed income, brokered 50-50 with passive and active.

And equities is $6 billion, it is $3 billion of outflows and fundamental and $9 billion of passive.

(inaudible).

And that's still the issue of the quantitative active equities.

So it's -- obviously out of the pipeline, $36 billion of the stated 32-ish is long-dated and there is year-to-date outflows in cash.

Okay.

And then what have you seen in terms of your win rate of business since the closing of the deal?

Have you noticed any change in the metrics or search activity that's notable?

Searches, very, very strong, and that's a function of clients re-looking at their risk tolerance and starting to think about making more money than cash returns.

And so that's a function of where we are in the cycle.

I don't have any trends of terms of wins versus anything.

I can tell you we're involved in more special situations, we're involved with much more multi-asset product strategies with clients; clients are looking to us to spend a great deal of time.

I think of the important trend, which is very different than any year and that is in the ETF space of iShares.

Historically, and I think this has been noted by any many analysts, ETFs have very strong fourth quarters and very weak first quarters.

So you see for tax strategies a lot of people buy ETFs to offset stock selling to take gains or take losses and they get the beta through the ETF.

And they reverse that trend in January as they have taken the tax strategy that was appropriate and unwind that trade in January.

I would say in December we did not see as big of inflow of ETFs that we've seen in the last few years, but I can tell you now in the first quarter we actually -- or January to date, we're seeing positive flows, which is a very large trend change.

So A, it's saying we have actually more net new demand than the outflows from tax strategies, or maybe as December suggested, there was just not as many tax strategy trades at the end of the year.

And so that -- obviously it's only a month now, we don't have the trends -- we don't have any long-term trends.

But clearly the momentum in ETFs in January are pretty resounding compared to the last few years.

Great, that's helpful.

And then just in terms of sec lending, what impact did that have on your revenues this quarter and how should we think about that going forward given the outlook for rates?

Well, there are three issues in sec lending.

One is you make money on the cash balance of that; cash is virtually zero and the return.

So that will continue to be pulling down the returns on sec lending.

The other issue on sec lending though is just borrowing rates.

And we saw, as I said earlier, very large flows into hedge funds and also we saw that hedge funds in November/December actually de-risked a lot because they had such big gains.

So the real question is, are we going to seek higher utilization rates on sec lending as hedge funds have more capital to invest?

It's too early to make that determination, but those are the two big areas for sec lending -- the cash return, which is going to be small and will remain small, and the borrowing rate on the equities or the fixed income.

Ann Marie, do you have anything else?

Yes, the other comment I would make is that for reporting we are combining our sec lending revenues along with our base fees.

And the reason for that is the really split between those is a bit random.

Some clients might choose to pay no base fee and really we take 100% through some kind of revenue share.

Some might not share much of the sec revenue -- lending revenue, but might pay a larger base fee.

So that as we really analyze this business we found that really representing something as a sec lending revenue number was a bit of a random not truly representative number.

So we've included that because we really view it as a bundled business.

And the bundled pricing is the relevant pricing, not the individual segments.

Okay, great, thanks.

Jeff Hopson, Stifel Nicolaus.

Great, thanks a lot.

A couple questions.

On the numbers side the BGI $95 million, is that just pure operating or does that include the effect on interest expense?

And then, Larry, on the ETF business, obviously you have great market share, great momentum.

But a number of players have come into the business, some significant and some concern about the fee pressure there.

Can you respond to that concern?

We never -- we are very bullish on our position in the ETF space.

We believe our position is one of tremendous strength; we see more opportunities than we've ever seen before.

And yet because of increased competition, because of the expansion of the product, we have never anticipated or believed that our market share will remain as strong.

We believe our growth will be very strong because we believe the space is going to grow very fast.

As more and more players get in it, it actually feeds upon itself.

And so we look at this as a growing business.

And yet we may -- we would not be surprised if our market share went down with new players, new opportunities.

I would say though there's a lot of noise about active ETFs.

I think in many cases active ETF is misunderstood.

It is a -- active ETFs would be a very hard product to have the liquidity that people are looking to have when they invest in ETFs.

That is one of the key components of ETF and that's the liquidity.

And so I would say clearly having first mover and scale is going to be -- will remain to be a very dominant reason for people using iShares.

But if you cannot create the liquidity in the construction of an ETF, it's going to be very hard to have liquidity.

And so in a pure active ETF the constructors are going to need to know the active manager's portfolio every minute to construct the underlying assets to build ETF and create liquidity.

And I think that is not understood as well as it should.

The reason why the ETFs have succeeded is in my mind the liquidity and the opportunity to invest in a product or a region or an area.

And I believe that will continue to be the dominant reason for investing in ETFs.

So as we expand ETF products the key is do we then -- can we create liquidity in those other products?

And that's less certain.

So I think we're in a very good position.

We have dominant positions in most of the regions of the world in many of the products.

We continue to innovate and create new products.

We're focusing on many products such as fund to funds of ETFs which will allow us to have the liquidity, a global allocation ETF.

Those are the types of products that we think will have a lot of [applicability] in the future.

But we welcome the competition.

We would agree with those competitors who are getting into the space, this is the space to be in.

And so, we're certainly not frightened of it and we believe there is room for many more.

And then back to your first question, the $95 million related to BGI net income is indeed just an after-tax statement of their operating results.

So it does not include the interest expense or any other expenses associated with really the transaction or, in the case of interest expense, what will be an ongoing expense.

Okay, great.

Thank you.

Roger Smith, Macquarie.

Thanks a lot.

I just have one follow up on the money market funds.

You talked about regulatory capital.

Could you give us some more specifics around what you're thinking there?

Would you believe that a Tier 1 ratio would be in line or is there something with an industry fund?

No, the last thing we are looking for is an industry fund.

I think the biggest mistake in the system is socializing credit risk and that's exactly what we -- that's the banking system and that's why people are now looking at, okay, we have socialized risk, how do we manage socialized risk?

And I think that's one of the keys of the Obama plan is to reduce some of that socialized risk.

So the last thing we need to do is socialized money market risk.

So, I believe firms that get into the money market business need to set aside capital; it's not Tier 1 or anything like that.

Setting aside capital associated with a business, whether that's 4 basis points or 5 basis points, no different like a loan was reserve or whatever that number is appropriate.

I'm not here to suggest it has been determined yet.

But setting aside capital and building up a capital base over the course of a number of years so you have capital associated specifically for that business.

At the moment our auditors will not allow us to do this.

We are not allowed to set aside capital because -- and so we need relief on this to allow us to set aside capital specifically for this business as a means to have a loss reserve for that business.

And right now it is prohibitive because we can't do it.

And this is the type of thing that we are suggesting.

I am not suggesting we should not have some form of maybe industry wide liquidity bank, but the liquidity bank cannot have -- cannot take credit risk.

And the credit risk has to fall on the individual manager.

To me this is a -- this is a dividing line between us and some other players, I must say, because we don't believe in the socialization of credit risk.

And I think the Obama plan is actually stating that related to the banks.

And the last thing we need is a new socialization of credit risk.

Okay, great.

And then on the alternatives, it does look like things are starting to get a little bit better here.

Can you tell us what you think the appetite or the view on risk is from institutions in here?

And is it really looking for multi-manager funds or is it single manager or what's happening in the alternative space?

You know, I think it's really a function of the client's experience in '08, '09.

I think if you had -- if you brushed with fire and badly singed, those institutions have less risk appetite than those who only marginally more harmed and now are looking at opportunistically investing.

So how we see in our multi-manager products large continued interest.

We did have a great year last year in our multi-manager products.

And so we are seeing flows and inquiry because of our experience.

And in our individual products we are starting to see more flows.

Just this week we won I think it's a $300 million, going up to $600 million, mandate from a state pension plan in our global set fund, this is a legacy BGI, a single strategy of global investing.

And so, it really depends on the client's appetite.

But worldwide I would say, as I said, clients are looking for multi-manager products but they're also looking for single manager strategies.

We're benefiting from both.

And I think this is all a function of the barbelling that I discussed repeatedly during the phone call.

Right, okay.

And then just lastly on the scientific equity, what's going on there that's causing investors to leave the product?

And then how big is that product at BlackRock right now?

The product is approximately $100 billion-ish today -- is that right, Sue?

Scientific is about $100 billion -- approximately $100 billion.

It's a product -- it's in an area industry wide that has underperformed the last few years.

$145 billion.

$145 billion.

It's a product that has underperformed for the last two years industry wide and it's an area that investors aggressively invested in over the years.

It has had probably a seven- to 10-year great track record, in the last few years a poor track record.

And we're addressing it.

As I said, we're very constructive on it.

But it is an area that other firms have announced they're either abandoning, other firms are deemphasizing, and we are committed in building.

So it's an area that we -- it is going to be an area that's under stress in 2010.

It's an area that we knew was under stress when we looked at the pro formas of BGI and it still remains to be under stress.

But it is an area that we believe has real strong long-term applicability as an investment product in equities.

Got you.

Thanks very much.

Ladies and gentlemen, we've reached the end of the allotted time for questions.

Mr.

Fink, Miss Petach, are there any closing remarks?

Just once again, thank you all, all the employees who are listening.

Thank you to our investors who've tolerated us during these trying times and through this integration.

As I said earlier, I think 2009 was a -- turned out to be a very strong year for BlackRock, for our investors, for our clients, for our employees.

And I'm very excited about the opportunities we have for 2010.

Thank you, everyone.

This concludes today's teleconference.

Thank you for your participation.

You may now disconnect.