貝萊德 (BLK) 2010 Q4 法說會逐字稿

Good morning.

My name is Sara and I will be your conference facilitator today.

At this time I would like to welcome everyone to the BlackRock, Incorporated, fourth-quarter 2010 earnings teleconference.

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

Fink; Chief Financial Officer, Ann Marie Petach; Vice Chairman, Susan L.

Wagner; and General Counsel, Robert P.

Connolly.

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

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

(Operator Instructions)

Thank you.

Mr.

Connolly, you may begin your conference.

Good morning, everyone.

It's Bob Connolly, I am General Counsel of BlackRock.

Before Larry, Ann Marie, and Sue make their remarks, I want to point out that during the course of this conference call we may 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 which may cause our results to differ materially from these statements.

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

I will now turn it over to Ann Marie for her comments.

Thank you.

Good morning, everyone.

This morning we are reporting record as-adjusted fourth-quarter earnings of $3.42 and record full-year earnings of $10.94.

I would also like to welcome to the call our new shareholders.

In December, Bank of America and PNC sold about 59 million shares or about 30% of our total shares outstanding into the market.

As a result of that transaction, now over 50% of our shares are owned by shareholders other than our three strategic investors.

Looking at our results, we had strong results.

They reflect strong product performance as well as strong markets.

We're beginning 2011 with the merger-related issues and outflows largely behind us.

Just to comment on that noise a little bit more, we do have $14 billion of merger-related outflows still sitting in the pipeline.

The majority of those were in the prior pipeline; so what is reflected is more the timing of the withdrawals rather than the pipeline containing a lot of new notifications.

We still have a handful of clients with known concentration concerns.

If those materialize, we will call them out when they happen.

But it's important to note, of the concentration issues, those outflows have been at very low single-digit basis points, so have not had a material effect on revenue.

With respect to our quantitative products, the performance on the scientific active equity product has turned positive and competitive since Ken Kroner took over the leadership of that product.

It will take some time to fully repair the medium- and longer-term track record, so it will just be noise we have to watch there as we repair that track record.

The total pipeline stands at $73 billion.

That includes $61 billion in long-dated assets; and that is net of the merger-related items.

The rest of my remarks I am going to walk through the supplemental slides, so -- and I will be talking about as-adjusted earnings.

If you move to slide 1, operating earnings in the fourth quarter were $962 million; that is up 31% compared to the third quarter.

Net income was $670 million, and EPS was $3.42.

Both of those are up 25% compared to the third quarter.

Moving on to the full year, operating earnings of $3.167 billion and net income of $2.1 billion were both more than double 2009.

EPS of $10.94 was up 53% compared to 2009.

And if we look at the 2009 results as if the BGI transaction had taken place on January 1 -- and so I am comparing them to pro forma results -- our operating earnings were up 22% and the net income was up 37%.

Moving on to the third slide and taking a look at our operating margin, the full-year operating margin came in at 39.3%.

That is up 1.1 points compared to a year ago.

It's up 2.5 points compared to the pro forma 2009 results.

The fourth-quarter margin came in at 40.7%.

That does reflect both the strong performance fees in the quarter as well as the benefits of markets flowing through in core margin.

Not shown on the page, our compensation-to-revenue ratio came in at 34.8%.

This is the low end of the range of what we have been running for the last several years.

We have been running in the 35% zone.

It is down almost a half a point from our 2009 margin and really is consistent with our focus of really the benefits of data flowing through to our shareholders.

As we begin 2011 we remain very confident in the ability to grow the top line as well as our companies and our margins.

We plan to continue to seek efficiencies in our business and to realize the benefits of scale.

At the same time we plan to invest in growth opportunities.

We have got a lot of strength.

The roadshow gave us the opportunity to get out and dialogue with our shareholders about the external environment and how our capabilities lined up with that environment, to be able to really service our clients.

With that, we are confident in our ability to grow iShares and retail platforms, defined contribution platforms, BlackRock Solutions, iShare, multi-asset class strategies, and alternatives.

On the next slide I'll talk about markets which are also contributing to growth and margins.

So moving on to slide 4 you can see that average 2010 markets were up about 20% compared to average 2009 markets.

2010 year-end markets actually were -- closed to year about 10% higher than the average 2010 market.

That means we've got positive tailwinds coming into 2011; and that is before considering the positive markets we have seen so far in January.

Moving on to slide 5, our total earnings of $3.42 were composed of operating earnings of $3.35 and non-operating earnings of $0.07.

The operating earnings from improved $0.74 compared to the third quarter.

The non-operating earnings included $45 million of positive marks on our co- and seed investment portfolio.

The level of those positive marks, however, was a little bit lower than the level of positive marks we had in the third quarter.

The full year as-adjusted tax rate came in at 33%.

That is down from the third quarter year-to-date tax rate of 33.5%.

The half a point decrease in the tax rate reflects some international tax benefits associated with the late December extension of US legislation which had been due to expire.

The half-point benefit resulted in about an $0.08 improvement in earnings compared to if we had had the 33.5% tax rate.

We do expect the bulk of these benefits to carry into 2011.

All other things being equal -- and that means we have the same mix of earnings, no other tax legislation changes, and no big news on tax resolutions -- the 2011 tax rate will be likely a little bit higher than 2010 to in the same range.

Moving on to slide 6, total revenues for the quarter came in at $2.5 billion; that was up 19% or $400 million from the third quarter.

Important part of the increase came from performance fees, which were up $212 million from the third quarter.

As was discussed, the fourth-quarter is our primary quarter for loss.

Even comparing to the fourth quarter of 2009, performance fees are still up $73 million reflecting improving performance across a number of our funds.

The absolute level of performance fee was $326 million and included $128 million of fees really associated with relative performance, as well as $188 million of fees that we earned on our alternative products, reflecting strong absolute performance in those products.

And that does include our really large hedge fund, GMSG.

I remind everyone that we have very few funds that have performance fee measurements in the first quarter.

I also -- I am going to talk about base fees later, so I'd just mention briefly on the BRS revenues that came in at $132 million for the quarter, an increase of $32 million from the prior quarter; reflects the completion of 20 advisory assignments.

We have got a lot of active interest in our BlackRock Solutions, the strongest interest that we have ever seen.

We do have some interesting things in the pipeline including the publicly noted assignment from the Central Bank of Ireland.

Moving on to slide 7, which outlines our expenses.

Expenses of $1.5 billion for the quarter were up 9% or $176 million from the third quarter.

Just want to put that in the context of the revenue increase of 19%, and that even with expense increases we saw those improvements in margins that I talked about earlier.

Now, about $80 million of the expense increase related to AUM and revenues.

The biggest single component there related to incentive comp, which closely links to revenue, of course.

We also had $96 million of increases in G&A in expense.

We did in the fourth quarter make a $20 million contribution to a charitable fund account for the first time.

That is something we would like to continue to do over time.

Also in the fourth quarter, there was a one-time assessment to the UK asset management industry, our share of which was about $20 million.

We did see some increases in marketing of about $17 million and professional fees of about $13 million; and the rest of the expenses are small movements across many items.

Moving on to base fees on slide number 8, base fees came in at $1.951 billion.

That was up 9% compared to the third quarter.

We saw improved revenues across all of our long-dated asset classes, in large part driven by favorable markets.

I would note that of our merger-related outflows there was one outflow of $24 billion that was out about a half a basis point, so had very little effect on revenue; whereas our $28 billion in net new long-dated assets came in at closer to our average basis point realization across our whole portfolio so contributed positively to revenue.

Moving on to slide 9 and non-operating results.

Non-operating results came in at $20 million.

That is $45 million of investment gains on our co- and seed that I mentioned earlier.

Those were gains across all asset classes in the portfolio, offset partially by $25 million of interest expense on our debt that we put on, associated with the BGI acquisition.

The investment portfolio stands about at $1 billion.

It is largely consistent with the third quarter.

And just to remind everyone, we do not do any proprietary investing.

Those are all co- and seed investments to be aligned with our clients.

Moving on to slide 10, we generate substantial cash flow.

We used about $1 billion of our 2010 cash flow to repay short-term debt.

In addition, we have returned a meaningful amount of cash to shareholders.

Our dividend represented about a 38% payout of our earnings.

In addition, we repurchased about 900 million shares; that brought our total payout to about 44%.

We still have 4.2 million shares of authorization for repurchase.

However, we have sort of paused for a little while, at least for now, on those repurchases since the sale by Bank of America and PNC.

The reason we have paused is we believe that we now meet all of the eligibility criteria to be included in the S&P 500 Index.

We think an important criterion within that is the degree of public float.

And we just think protecting that public float is an important priority at this point in time.

I would just say we do always and regularly discuss our dividend policy with our Board, and you can see our history of dividend across that slide.

With that, I would just like to conclude that 2010 ended up with a very strong year.

We are entering 2011 with, again, those merger-related issues and outflows largely behind us and with strong momentum just -- both in terms of new business and markets.

And with that, I will turn it over to Larry.

Let me just add one other thing.

Our Board regularly reviews our dividend policy in the February Board meeting; and it is scheduled again for us to work with our Board to come up with a 2011 dividend policy.

So that's one of the opportunities we have going forward in 2011.

First of all, let me welcome everybody.

I need to apologize in advance.

I may have a fit of coughing since I am in the back end of a cold.

It is no indication of my views of the future.

So let me just begin and talk about alpha.

Our performance across most of our products was strong.

Throughout our integration process we needed to be assured that we are protecting our portfolio managers from the integration process.

We needed to make sure our clients understood that, that our business with them is not going to change; that we are going to make first and foremost our manufacturing platform, our portfolio teams to be uninvolved in all of the issues around integration.

And I think 2010, looking now backwards, was a success.

Our teams had very strong performance across our equity, our fixed income, and our alternative product area.

I do believe that performance now will continue to drive business in 2011.

And most importantly, good performance drives good performance fees.

And I think some of the messaging that we said in the past few quarters, the importance of good performance, the importance of alternative products, truly is now starting to become more apparent in our earnings related to these phenomenons.

I would like to go back to early '06 and parts of '07 where we had as much as 30% of our earnings being driven by performance fees.

Obviously, the market setbacks of '08 changed all that.

I am not suggesting our earnings model will ever have that type of strength; but I do believe as clients begin to re-risk and clients are looking to move from beta products or even core fixed income products to other products, they are going to entail products that may have some form of performance-oriented fees.

And with that we are going to have hopefully large base performance fees.

So we look at this as a great indication of our evolution as our platform.

We believe our success in performance fees in the third quarter and in the fourth quarter are indicative of that performance and the repositioning of our firm.

And it is our strongest intention in 2011 to continue to build out our alternative space, to continue to be working with our clients as our clients are driving more risk positions.

Whether that may be an emerging market product or it may be just a credit product, clients are looking to move away from core fixed income strategies and are looking to move away from some beta strategies.

I will get into that a little later; but I think it is important to really focus on that and once again remind everyone we are going to make this a continuation of our focus for 2011, to continue to build out these alternative products.

Let me also reflect on another component of our business, and that is scale.

I think now looking backwards, we are now showing the investment world that scale is a virtue.

It is a positive.

We obviously have much negative noise related to concentration issues.

As Ann Marie suggested, that is largely behind us, moving away from low-fee products into other types of products where we have greater ability to navigate with our client base.

But most importantly, with our scale and as Ann Marie talked amount our free cash flow, no investment firm is investing as many -- as much dollars as we are to build a bigger, stronger, more robust platform in which we can provide stronger base alpha products for our clients, and more solution-based relationships with our clients.

So some of the areas that we are really investing in, we are continuing to invest in our investment products which I will talk about a little later.

We are expanding our platforms regionally in Asia and South America.

We are continuing to build out in Europe.

We talked about over the last few quarters the building out of our trading platform which we believe will have huge benefits for our clients.

And already our buildout of our capital market capabilities to win large assignments directly from issuers is very positive for us in terms of building out alpha for our clients.

I should also state very loud and clear, as we build out these trading platforms and as we build out our capital markets capabilities, this is to enhance our connectivity with our clients.

This is to find ways to get more product at higher net threads to our investors.

Our business model is not changing.

100% of our revenues will be client-centric business.

So we are building out this platform because we believe scale will be a virtue and we believe throughout 2011 that will continue to differentiate us.

In scale most importantly we are building out our global footprint to provide more consistent and more very alpha and solution-based products.

So over the course of 2011 we have a strong emphasis in building our products in iShare, both credit and in equities, in emerging market equities.

As I said earlier we continue to build out our alternative products, and we believe that will be one of the drivers for us in 2012 and 2013.

We continue to believe we are differentiated by our multi-asset class products, our BMACS products.

Yesterday we announced we hired Nancy Everett, who was the CEO of Promark, which was the General Motors pension plan, and prior to that she was the head of the Virginia retirement plan.

She will be running our US fiduciary business, a part of this multi-asset category platform.

So we believe this will continue to be an area where we invest.

Another area of real growth for us in 2010 that has already been validated in our pipeline and wins already, and that is the defined contribution area where we believe more and more money will be moving away from defined benefits and defined contributions.

I do believe over the course of 2011, as state governments starting to tackle their tremendous deficit burdens, one of the outcomes will be most probably a restructuring of their plans for new employees that will be predominantly defined contribution plans.

So we believe DC will become a larger and larger driver.

We also believe, because of the retrenchment of cost, many more public plans, maybe the smaller ones, will be looking to do more fiduciary outsourcing.

This is why we have Nancy here.

So we do believe there is going to be quite a bit of changes as a result of public plans, public state plans needing to restructure because of the tremendous state burdens with their deficits.

We hope to be taking advantage of that because of our scale, because of our multi-asset class products and capabilities, because of our beta capabilities and our alpha capabilities.

So our theme for 2011 continues to be alpha generation; but alpha generated connected with a solution-based relationship with our clients as more and more clients are going to be looking for help.

As good as the equity markets were in 2010, the problem for most public plans and private plans was their liabilities.

Because of rates being lower in most cases, if not all cases, the deficits for many of these plans were actually increased because liabilities changed more than even the nice asset growth that so many plans experienced.

So need for solution-based relationships is becoming more and more a necessity.

And having the breadth and the depth that BlackRock has is very important.

Let me just touch on and reflect on 2010, the merger integration.

Largely completed.

We spent a great deal of time in the early part of the year and in terms of evolving our culture, which is still a multiyear project; but I think we have done a great job in that.

In June we refined our organizational structure, our governance model.

And after we announced all that, I think it is no surprise to the leadership of BlackRock that is when we began to see more and more momentum as you reflect backwards.

And looking at business opportunities we saw in the third quarter and most questionably the business opportunities we saw in the fourth quarter going into 2011, it has much to do with the enormity of restructuring the platform, of tackling the integration of our two great firms into one, building a strong, unified culture worldwide, building that One BlackRock brand and culture.

I think so much of that is behind us and we are starting to see that in so many ways, obviously including in terms of our business momentum.

I need to put a caveat on it.

We still have one more year left in terms of technology integration.

We still have many redundancies because we are still operating in many cases on multiple platforms.

We are on track to finishing the technology integration by the end of this year, so we feel very strong about the opportunities we have related out in 2012 in terms of margins.

But we still have many more milestones this year to accomplish in making sure that the full integration in terms of our technology, our infrastructure is complete.

I would like to also say that this remains to be a burden.

We just completed an employee survey where our employees still want to have more connection.

And until we have the technology conversion completed, having as much connection, multiproduct connection across products, across regions, is still not where we wanted to take it.

To the employees who are listening, this is going to be a big milestone as we build -- finish our technology conversion and we will have much greater connectivity amongst all our businesses and regions when we do that.

One other thing I would like to talk about, because it has been an irritant, to say the least.

And that is how so many of our competitors possibly, some publications, have talked about turnover at BlackRock over 2010.

I would say change has been great.

We are a far better firm today than we were six months ago and most importantly a year ago.

The team in place is as powerful as any team we have ever had.

We are very excited about the leadership team.

We are very excited about our product teams, our portfolio teams.

And I do believe those changes have been predominantly very strong changes.

I would like to add one other thing that most people don't focus on.

What differentiated BlackRock when we did the Merrill Lynch merger, and certainly what is differentiating BlackRock with our BGI merger, is we do not do mergers for massive cost take-outs.

Although we have had huge margin increases from the pro forma of last year, we actually added over 1,000 employees this past year, on top of the merger.

So we are not a firm in which we are looking to do a dramatic downsizing of people for accretion purposes.

I look backwards and in talking about the merger for revenue opportunities.

And if you go back and reflect on where we thought we were going to be when we announced the merger in June '09 to where we ended up when we talked about what we thought we could earn in 2010, we exceeded our expectations and the entire market in terms of revenues, in terms of net income, on top of hiring another 1,000 employees to build the platform.

So I just want to address -- change has been very positive.

We have added many people.

Overall as a firm we had about 6% turnover, which is below industry statistics.

So this is a very important issue that finally I wanted to be public about, but it's very hard to do that when the articles are trying to hurt us, not help us.

I would like to talk about branding for a minute.

Branding will continue to be a major priority as we expect a larger segment of revenues will be generated from our US and international mutual fund business and our iShare business.

So we believe our mix of business as our platform grows, as our brand recognition continues to grow, will be from the retail and iShare platforms worldwide.

We need to continue to build out that brand and that brand recognition.

Importantly, as we continue to build out our platform in defined contribution it is very important in that space too, in that theoretical institutional space, that we drive our brand.

And this will be a very big priority for us.

Just touching briefly on our flows in retail, I would just like to highlight a few things.

Our US retail mutual -- US mutual fund business grew by $25 billion last year.

Our international mutual fund business grew by $6.3 billion.

Our iShares business grew by $43 billion.

Our retail platform in iShares grew by $74 billion last year.

I don't think we get enough attention about the power of our global platform in this space, and I want to congratulate all our teams, our iShare team and our global retail -- global mutual fund teams worldwide in having an extraordinary performance.

Let me just highlight a few things about iShares.

Our business in Asia-Pacific grew by 33%.

Our business in EMEA grew by 16%.

Our US business grew by 7%.

So, this is a global business.

This will continue to grow.

We are emphasizing this business worldwide.

We believe we have the leadership position.

We will continue to have the leadership position, and we expect still very robust competition.

And some of it, in some cases our competition is going to beat us.

In many cases we are going to beat our competition.

The ETF business will continue to be a strong growth business worldwide.

And we believe, especially if the FCC changes the model of the FA business and the investment counselor business to a fiduciary model, it is going to have a dramatic impact on the ETF business.

It may put a drag on some mutual fund business, but I believe BlackRock will be very protected; and BlackRock will be more than enough differentiated even if the model change happens with the distribution channels.

So let me just talk about some of our equity and fixed income and alternative products.

We are seeing clients re-risk.

I would like to note that we as a firm have been more right than most firms in the prognostication of where the markets were going to go in 2010.

We never believed in the, quote-unquote, new normal.

We were always talking about a market -- a US economy growing 3-plus.

It did.

We were positioned for that, and we had very strong performance in many of our equity products.

Our equity dividend product, as more and more people are looking to buy equity dividend products, as fixed income rates are so low.

Global opportunities, Dennis Stattman and team, that crossed the $75 billion mark.

We are confident the team is ready for a bigger and larger future.

Our European equity team has gone from strength to strength, bringing in the lion's share of flows internationally and in Europe in terms of in the equity mutual fund space.

And our UK teams across the board had a lights-out year.

Our fixed income team had a great year and performance with over 75% of our products outperforming their benchmarks.

We are seeing strong flows in credit.

We have a go-anywhere, do-anything mutual fund that we launched mid last year; it is over $1.2 billion and growing very rapidly with extraordinary good performance.

I think we are the single number-one performer in that category.

Also I would just like to highlight our strong performance in fixed income, our strong performance in equities, created good performance fees.

So once again, there is a linkage between performance and performance fees.

Performance fees are just a great indication of performance.

Second of all, our alternative products where we continued to grow, our fixed income alternative products, our equity performance products, our global allocation products.

Global Ascent had really extraordinary years.

And we continue to start seeing some real good flows into all those products.

Let me just highlight BlackRock Solutions, which I cited in the third quarter as a business that has continued to grow.

We announced in the fourth quarter we had 20 new assignments; I think that is a record for any quarter.

It is being highlighted by our recently announced engagement by the Central Bank of Ireland.

This actually is the biggest assignment that we have ever received from any governmental.

This is bigger than AIG with the Federal Reserve; this is bigger than what we did with the Bear Stearns.

This is a gigantic assignment.

We have teams in Dublin.

It is a validation more than ever before that our product, our BlackRock Solutions space, is world-class.

And we are in conversations with other governments, with other opportunities right now and helping them navigate the credit crisis and the crisis that we are seeing in the sovereign credit world of Europe.

One highlight that I would like to note also is a major milestone for Aladdin.

We crossed the $10 trillion mark in terms of assets that we are analyzing.

So if you add the $3.5 trillion of assets that we manage on behalf of clients and the $10 trillion of assets that we are advising on risk management, it is a $13.5 trillion platform.

Ann Marie spoke about flows.

Our pipeline is a good indication of where we believe our business is going.

I am very pleased with the mix of business going forward and the types of flows that we are seeing, with a large preponderance of long-dated flows.

We continue to believe short rates will remain low, and so we are going to have messy and mixed flows in cash.

But one day rates will go higher -- I'm not suggesting any time soon -- and that business will become even more robust.

So let me just talk about margins wrote quickly.

Ann Marie mentioned margins of 40.7% in the fourth quarter.

This is something that we talked about over the last few quarters, and especially in terms of our equity roadshow, that we expected never to expense all beta, that our shareholders are going to benefit as beta increases in terms of our margins.

We showed that in our margin.

We showed that in our comp ratios, which I believe is a huge differentiator versus so many financial institutions that have comp ratios way in excess of 40%.

We are trying to differentiate ourself on that component too.

Regulatory reform is still in front of us.

The Federal Reserve will have commentary periods related to systemically important institutions.

It may encompass us; it may not encompass us.

Whether we are determined a systemically important institution will not change our business model.

We are at this moment still one of the most regulated investment managers in the world, by being regulated by the OCC, by the Federal Reserve, by the SEC, by the FSA.

So whether we are designated as a systemically important institution or not does not change our business model, does not change our business mix, does not change who and what we are.

However, I look forward to -- if the regulators determine BlackRock and other investment firms should be considered systemically important, we believe if that is what we need to do in our financial system, we welcome it.

So it is something that we will see over the next quarter.

But I just wanted to highlight that, because that will be something that will probably be in the marketplace over the next quarter.

Lastly, we remain constructive in equity markets.

We believe confidence is growing.

We believe people are -- CEOs are beginning to spend their huge backlog of cash.

We need to see over the course of the first two quarters if that spend isn't in the form of hiring; if that spend is in the form of factories and plants and not in the form of stock repurchases and not in the form of mergers or investing outside the United States.

Those are going to be important validators in terms of looking at our economy for 2011.

We do believe Europe remains to be an area that is going to be in the news as Europe tries to manage their banks and the sovereign credit issue, which I do believe is totally linked, as we saw in Ireland.

And I believe it will be linked in other countries, too.

BlackRock is in a great position to take advantage of the changes in the marketplace.

We're in a great position to take advantage of the opportunities on a global basis.

And I welcome in a very positive way 2011.

I want to thank all the employees for all the hard work.

It is -- 2010 looking backwards was a pretty difficult year; and yet the hard work and the perseverance and the teamwork really translated into a really phenomenal quarter, a phenomenal year, and great momentum into 2011.

Let me open it up for questions.

(Operator Instructions) Craig Siegenthaler, Credit Suisse.

Good morning, everyone.

Larry, just a big-picture question here.

As the merger-related flows start to subside here in 2011, how do you expect core organic growth to trend, given your view of investor flight back to risk here?

In prior cycles -- I don't know if this is a good comparison -- but with BlackRock plus the MLIM combo in '06, '07 you were doing at least 5%.

Is that a good run rate?

Yes, but here is how I look at it.

I am spending less time, Craig, looking at absolute numbers.

I am looking at composition of businesses.

So if our business with some clients translates into products that have higher fees but less assets, I am perfectly okay with that.

With some clients I know we are going to be doing some very large beta types of products and we welcome those too.

So I must say, Craig, unlike when we did the MLIM transaction, the definition of flows and the absolute percent is less of a focus for me as the composition and the revenues associated with the composition.

But I think 5% is a very good baseline to consider.

Got it.

Then in the pipeline guidance, $73 billion, that $13.6 billion planned redemption, was that the same redemption you talked about last quarter, where I believe it was a passive equity, very low fee?

That's it.

Okay, all right.

Got it.

Thanks for taking my questions.

Bill Katz, Citigroup.

Good morning, everyone.

A couple different questions if I could.

Larry, you talked about broadly the competition in ETF globally.

Just wondering if you could maybe touch a moment on pricing trends.

That has been a pretty big investor focus point in the last few weeks in particular.

I will let Sue talk about it, give her some time; I have got to clear my throat.

Good morning, Bill.

I guess a couple things.

There have been a lot of stories written about pricing trends.

I think our view is that the flows really reflect different issues than pricing; that that is sort of a simple way to talk about things, but not really what is driving investor behavior.

So from an investors' perspective, it is more than about an expense ratio.

It is about total performance.

It is about transaction costs, commission costs, bid-ask spread.

And for many of the advisers also about the support they get from an education and client service perspective.

When you look at some of the trends in the market we think that you can pass scale benefits through to investors, and you can do some restructuring to improve efficiency.

So for example we did that last year in Gold.

There was a recent article about price adjustments in a variety of iShares.

That was great scale benefits, right?

We have scaled fee structures and so those go into effect in the normal course as the products get larger.

Investor demand evolves over time, and people move.

So for example, in emerging markets we have seen a pickup in people investing in -- wanting to invest in individual country funds rather than the broad emerging market.

To give you an example of that, last year in the fourth quarter we had $1.3 billion of net inflows into our Brazil iShare funds against $500 million of outflows in emerging markets.

So like any other product, A, it's about performance; B, it's about service; and C, investor appetites change from time to time.

Those are the dominant factors.

Okay.

Then maybe one for Ann Marie, a little bit more narrow in scope.

But you were ticking off a few things around the G&A sequentially.

Of that $96 million, if you back out say $40 million for the combined charitable gift plus the regulatory step up in the UK, of the residual $50-some-odd-million, how much of that would point to year-end cleanup versus a normalized run rate?

It was clearly a mix of both.

So we probably had -- we may have had certainly a meaningful percent of that that was some year-end cleanup.

The things I talked about such as marketing, there was some occupancy, the consulting and professional fees were more ongoing in nature.

But I would say of the remaining $50 million there was certainly -- let's say half of it might have been items that we wouldn't see every quarter.

Okay.

I would just like to add, we believe with the amount of monies we manage for retirement and pension plans, both public and private, and our position as a firm, we have a bigger obligation to be part of different communities worldwide.

And this is one of the big reasons why we determined, working with our Board, to start funding towards building a BlackRock Foundation.

This is an important position for us, and I think once again it will differentiate us versus a lot of the other money managers.

Okay, just one last one.

Thanks for taking all my questions.

I think your discussion on free cash flows was pretty well said.

But just curious; I think the Barclays percent of ownership unlocks in a month or so.

I'm just wondering if you could talk a little bit about contingencies, where would you stand in terms of buyback if that stock were to come up for sale.

Well, we have no indication as to Barclays' intentions.

From all indications I have they are very comfortable and happy with that position.

Obviously, like other banks, Basel III is an issue that all banks are going to have to conform.

Whether that has an impact on Barclays' ownership in BlackRock, you know as much as I do.

If there is a change from what I believe there is related to Barclays, and Barclays was seeking to sell a portion of it, I would say with our free cash flow it would be something that we would most probably purchase all, a part or all of what they would have for sale and retire it.

But I don't want to leave any indication as to if there is anything that we know of in the future.

Because as I said, the last conversation I had with the leadership of Barclays they are extremely happy with their ownership.

Okay.

Thanks very much for taking all my questions.

Robert Lee, KBW.

Hi, good morning.

Thank you.

Larry, a question I have is on the alternative business.

I know you have spoken of that a lot.

If I look at the past year, I mean the new business there has been kind of flat, maybe against a backdrop where you have seen better capital formation in a lot of the different alternative managers.

And understanding you had one account loss this quarter, but is there anything going on underneath there that has kept the organic growth of those businesses more subdued this year, and that we should expect has played out and it can start to accelerate next year?

Yes, I think the biggest noise was real estate, where we knew we were going to have some big outflows in real estate; and that offset some big inflows in the other products.

So in terms of real estate products we were not having really any fees associated.

So from our vantage point -- obviously you can't see it in the gross numbers -- we actually had some very good flow.

And looking forward we see a huge book of new business going forward in that.

So we are very excited about our flows in our alternative area.

We believe the movements in the real estate area, which in 2011 were in the midst of a whole rebuild, is hidden in the noise around the grossing of all the business.

Okay.

Maybe another question on performance fees.

I mean you did mention that given the growing demand for alpha products you could see an increase in more and more products that have some type of performance fee component to them, whether absolute or relative.

If you were to look at that 70 -- the $60-odd-billion pipeline excluding Solutions, is it possible to characterize?

Would you see it in that pipeline that there's -- 10%, 20% have a performance fee type of thing, or (multiple speakers)?

No, it's lumpy.

I know a -- I don't know the exact number right now.

Ann Marie could get it offline, a little more work.

But in the pipeline there is alternatives and Global Ascent and some Obsidian and a few of the products where I know of some good flows that are going to be coming in in the first quarter.

So I don't know specifically which ones and where, but we could give you that information offline.

Okay, thanks.

Maybe one last question for Ann Marie.

BlackRock Solutions, the big jump in revenue; I think you mentioned that there were 20 advisory mandates.

Should I be thinking -- how much of -- are those ongoing relationships, so that is a good run rate?

Or was some of that an advisory, kind of a one-time fee that may roll off or --?

Those that I mentioned were really the completion of assignments.

So the timing of those revenues can be a little lumpy based on when assignments are completed.

However, when you think about 2011 in total, we have got -- what we saw in 2010 was a ramp up in our ongoing recurring business, as well as we've got a lot of new interest in advisory business.

So we are going to see both in 2011 and from quarter-to-quarter it may vary just because of when an assignment gets completed.

But I would see a strong mix of both types of revenues in 2011.

All right, great.

Thanks for taking my questions.

Alex Blostein, Goldman Sachs.

Good morning.

Just another one on the pipeline.

Out of the $61 billion in long-dated business that you guys won, Larry, can you just give us a little color on the types of mandates, active versus passive, and also maybe by client type and geography?

Yes, hold on.

Active?

I have got to go across the board.

Active is $23.5 million; and passive is with $20.7 million -- $37 million, $37.6 million.

There it is.

And by region?

Yes, please.

So Americas is $23 million; EMEA is $26.5 million; Asia-Pacific is $5 million; and advisory is $12 million.

Got you.

Then just a little bit broader question.

That is all net.

Yes.

Then just a little bit broader question I guess on the operating leverage in the model.

Larry, in the past you talked about the 40% being the top end of the range.

No, that was -- I stopped saying that a quarter ago.

Okay, so should we think about, I guess with a lot of the integration already coming through at the end of this year, 2012 being in a 41%, 42% type of range?

But that is where I don't go any further.

I don't like shorting myself in margin.

I could promise you margins will have upward bias.

If I am right on where equity beta will go, our margins will improve accordingly.

And it's true, after we do the technology integration there should be a step up in margins.

But we pay close attention to the margins.

Margins will have upward bias.

Whether it is 40.7% or 41.7% or 42.7%, I am not going to hold that to a target because I think we need to see the dynamics in the marketplace; we need to see the competitive pressure related to comp and employment and keeping people.

So margins to me are a function that we need to pay attention to, obviously; and we do believe there is upward bias to our margin.

But I need to look at it in a complete way related to compensation and connecting that with our needs for investing, investing in iShare, investing in other areas.

So it is pretty complex.

So that is why I don't like being targeted or benchmarked over a certain margin over the course of the next 12 or 24 months.

Got you.

Fair enough.

Thanks.

Michael Carrier, Deutsche Bank.

Hi, thanks.

Larry, one question on the institutional business just in terms of the outlook.

When you are talking to all the clients and even some of the consultants, what percent do you expect in the industry to be shifting out of some of the lower return products in fixed income and cash, going into some of the alternative equity spaces?

Then for BlackRock, when you look at your product setup, I guess, where do you expect to see the most traction?

Are there any holes, particularly on the alternative side, that you could fill in?

I really think it is client-specific.

I don't want to talk about one industry.

There is no question clients -- the real issue is where will interest rates be in 12 months.

That is going to be an important component as to how clients think about re-risking.

With rates staying this low clients are -- and with where liabilities are, this is why where interest rates are that changes their liability, it changes their forecasting in terms of how much re-risking they are going to do.

And so I think it is pretty complex to just understand it.

It is just not just where equity markets are going and other products.

It's a function of where will be their liabilities at the end of the year in terms of where average 10-year corporate rate is.

So there is a bias worldwide.

These clients have -- in my mind -- are overweighted in fixed income, overweighted in cash, and in many cases clients have underinvested -- have systematically underinvested in equity-like products.

I believe if there is greater and greater comfort, clients are going to start to re-risking.

But that re-risking could be in the form of some type of multi-asset class strategy that encompasses some beta but some alternatives.

It may encompass utilization of maybe some of our global iShares products.

And it may be some hedge fund products.

And it may be a combination of all that overlaying our Solutions and Aladdin product.

So I don't think there is one strategy and I don't think there is one solution.

It really is a function of each client's risk needs versus their liabilities.

Okay.

Just within fixed income, are there any products -- given that outlook -- that can still do relatively well or clients will reallocate to and exit some of the more obvious ones?

Well, I think as an industry we are seeing more and more flows into these go-any-way type of products.

Like our equity global allocation product which is now $75 billion, we are seeing more and more money going -- like we saw in equities then -- going into fixed income.

Some of our competitors have $10 billion, $12 billion products in that.

As I said earlier ours is probably I think the number-one performing product, and it just crossed about $1.2 billion and growing very rapidly.

So that is where we see movement moving towards.

We still believe credit is going to be a good place to be.

We actually love mortgages at this level.

So there's many opportunities to make better returns than treasuries and fixed income.

So whether -- so it really is a function of how much capability these institutions have in re-risking.

Some re-risking may be just moving from treasuries to credit.

Some of them may be moving from maybe beta strategies to more fundamental active strategies.

And many of them will be a combination of all of that plus probably a greater investing in alternatives and more investing outside the United States.

Okay.

Last one, just one follow-up on the margin.

When we think about the flow mix and where you get business, any way that you, I don't know, put some color around if money is going into more of the -- some of the iPath products in line with just the stronger growth in the industry, how the incremental cost is in a product like an ETF or like an indexed product (multiple speakers)?

Yes, I think -- you know, if you look -- we didn't have it in our slides, but we had a big slide in our roadshow talking about the mix.

There is no question, on ETF and index products our margins are huge.

It's a highest margin business for us, or it's one of the highest margin business for us.

So it's high margins, low fees.

The margins on alternative products actually are lower margin for us because the PM's share in some of the performance.

So that mix changes dramatically.

But no question; as money moves into indexes -- as evidence we saw still a good flow into indexing in the first quarter in our pipeline.

This is very high-margin business for us.

Okay.

Thanks a lot.

Jeff Hopson, Stifel.

Thanks a lot.

So the first question in (technical difficulty) retail and ETF, if there is a shift out of fixed income into equities, given your market shares and the respective fees, how will that mix shift change?

And then --

In the mutual funds space?

That's right, yes.

A, one of the greatest failures of BlackRock has been our fixed income mutual fund flows over the last few years compared to our great competitors.

We did not benefit like some of our great competitors did in the fixed income flows.

And it was a disappointment.

Obviously our performance in 2008 was a chief cause of that.

But in the last two years our performance has been very strong, beating most of our competitors.

So I don't believe if there was a dramatic turnaround out of fixed income into equity it would be damaging.

We have a much stronger presence in the mutual fund space in our equity products, and so I believe we would be a net benefit if that happened.

Okay.

Then on the institutional side, obviously over the past few years -- even in the last year -- institutional clients, a lot of problems, and they don't seem to be sure of what they need or want to do.

Would you say that they are more engaged right now and potentially more active in taking action, whatever that action might be?

Well, always in the first quarter there are always much more actions or at least hope, potential for action.

We are doing a number of roadshows, seeing our US clients and trying to talk to them.

I saw our largest institutional state plan last week.

And as they think about what they are planning to do in 2011, later this week I am seeing two of the largest state plans.

Again we're trying to get in front of our clients.

I am spending more time with our institutional clients here in the States to find out what they are trying to do.

I don't think clients are necessarily confused as much as -- it is not just the asset size they are struggling with.

They are also struggling with -- are they getting funding from their corporation?

Are they getting funding from their state?

How much is their drawdown?

So one of the clients, the client I saw earlier this week, they had a 12% or 13% increase in their plan but their state did not fund them.

And because of demographics they had more outflows than they had in terms of performance and participant contribution.

So the corpus actually shrunk.

So this is a dilemma that we think we are going to see more and more of.

This is one of the reasons why these plans are going to have to say -- should we be re-risking now?

Or should we -- how do we address this issue of a depleting corpus?

These are serious issues.

So I think it is going to be very individualistic, depending on the issue related to their funding sources, as to how they are going to restructure their balance -- their assets.

So it is not just an uncertainty around the global capital markets.

It is also the uncertainty around their funding sources.

Okay, great.

Thank you.

Chris Spahr, CLSA.

Good morning.

Given your change in A-- actually let me take a step back.

Can you tell me what your AO mix by region is as of year-end?

Yes, I could do -- why don't we get that offline with Ann Marie?

That's fine.

We have all that stuff.

In that context, I mean, what do you think the tax rate will be say in 2012 and beyond then, given that, I guess -- ?

Oh, that's Ann Marie.

Yes, it is hard to say 2012 and beyond because -- I mean I tried to give you a good sense of 2011.

I think it really is hard to forecast the geographic mix of earnings as well as what will happen and perhaps legislation.

But I think we are trying to give you a pretty good confidence around a reasonable tax rate for 2011 in the zone of where we are.

Maybe up a little, but in that zone.

Okay.

Then regarding expenses, do you guys expect any pickup in IT spending this year?

Is that going to be leveling off?

We are going to continue to spend because -- like we did last year in a lot of it, because we have redundancies in some of the positions as we roll everything onto Aladdin, which will be completed by this year.

So there is no change from what we said in the third quarter.

Okay.

Then finally I think you touched upon this before, but just again reducing friction within the trading platforms, say with the broker relationships, is there any way we can track that as an investor, as an analyst?

How is that going to fall to the bottom line?

Is it just going to show up in greater market share?

It hopefully shows in performance by reducing friction costs.

That is the objective.

Hopefully clients will appreciate that.

Clients do measure our friction costs, so if we can find ways to reduce our friction cost and differentiate ourselves, hopefully that shows up not just in alpha, but it shows up in flows.

Is that already working or when do you expect that timing?

No, that is being rolled out sometime this year.

We are spending a lot of money that is in our G&A right now.

We are spending a great deal of money in building out because we do -- we believe this will be a good differentiator in the future.

So sometime in the second half or so?

Yes, I would say the second half, certainly not the first half.

Okay, thank you.

Roger Smith, Macquarie.

Great.

The first question, how often do you speak to Barclays?

Oh, I am sure my trading desk does it hourly.

How often I personally speak to leaders at Barclays, I would say it is very periodic.

It is sometimes quite often.

I actually had a nice conversation with Bob yesterday, but as Bob Diamond is on our Board, so I update him as a Board member.

And so it's a very positive, long relationship; and we are confident we are going to have a strong, robust relationship in 2011.

Okay.

Then I guess I want to make sure I understood when you were talking about the pricing pressure in the ETFs, where you get -- as they grow there's bigger breakpoints.

Should I then naturally think that over time that the fee per AUM in that business will come down?

Or is there really different products in there that are growing and offsetting those breakpoints?

Yes and yes.

Exactly.

That's a yes.

If we reach those breakpoints, it's good news.

Revenues are going up, and we are delivering scale benefits to clients.

In addition, there is a lot of products on the platform that are a smaller size, but grow very nicely.

So revenue makes those attractive and our revenue share, as opposed to our market share of AUM, both are very, very strong industry leaders, but increasingly we think you should keep an eye on both.

I would also argue if we saw a change in investor appetite from fixed income to equities, our ETF platform was a very strong leader in fixed income ETFs.

As a leader of equity ETFs I think that would change the fee makeup too.

At this time, ladies and gentlemen, we have reached the allotted time for questions.

Mr.

Fink, Ms.

Petach, do you have any closing remarks?

No, I just want to thank everybody, and welcome all our new investors.

I would like to also welcome our new Board member, Ivan Seidenberg, to the BlackRock family.

Thank you, everyone.

Talk to you in a few months.

This concludes today's teleconference.

You may now disconnect.