貝萊德 (BLK) 2011 Q1 法說會逐字稿

Good morning.

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

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

first quarter 2011 earnings teleconference.

Our hosts for today's call will be Chairman and Chief Executive Officer Laurence Fink, Chief Financial Officer Ann Marie Petach, Vice Chairman Susan L.

Wagner, and General Counsel Robert Connolly.

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

After the speaker's remarks, there will be a question-and-answer period.

(Operator Instructions).

Mr.

Connelly, you may begin your conference.

Good morning.

This is Bob Connolly.

I'm General Counsel of BlackRock.

Before Larry, Ann Marie and Sue make their remarks, I want to point out thatduring the course of the conference call, we may make a number of forward-looking statements.

We call 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.

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

And with that I'll turn it over to Ann Marie, our Chief Financial Officer.

Thanks, Bob.

Good morning, everyone.

This morning as we report first quarter earnings, we're delivering a top-line revenue story.

Today we announced earnings of $2.96.

This is up 23% compared to a year ago, and those earnings are being driven by top-line revenue growth up 14%.

Our revenue growth is a combination of both market, but importantly strong organic growth.

And we are seeing that organic growth consistent with a number of the themes we've been discussing.

You saw strong revenue growth related to retail, flows -- that's both US and internationally and reflects the strength of those markets, as well as our relative share of those markets improving.

You saw good flows in our ETF business, iShares, and just a reminder that that business in the first quarter is usually seasonally the weakest quarter of the year.

We see good revenues in multi-asset products.

Clients are seeking people to solve their problems and help them manage risks, not just manage assets.

And we are seeing good revenues from alternatives, both related to the performance in alternatives and flows into alternatives.

And that's a trend as investors continue to separate alpha from beta.

The first quarter was also a quarter of a number of important milestones.

We increased our dividend by 37.5%.

We increased our credit facility by $1 billion to $3.5 billion and extended the maturity to five years.

While we have no plans to use the credit facility, we think it's an important source of long-term flexibility.

Our merger-related concentration flows are at this point largely behind us.

The first quarter is the lowest quarter since the merger.

We have only one $9 billion outflow that's relatively low revenue from a single client remaining in the pipeline, and we've got no other known concentration concerns.

With respect to our long-only quant products, the near-term performance is going to take time to work its way into the medium and longer term track records.

With that in mind, we did budget for outflows in 2011, and we are seeing outflows in our US and global products.

At the same time, we're beginning to see inflows into regional quant products, where we have had good performance.

And so we do believe quant is an opportunity going forward, and I wanted to see which our quant hedge funds, which are performing well and attracting assets from our long-only quants.

The pipeline is strong with the high quality of revenue, and Larry is going to talk much more about that.

Finally, a note that on April 1, we were added to the S&P 500 index.

And on the date of inclusion, we were the 75th largest company in the index.

I'm going to walk through number of the slides, starting with slide one.

Our operating income, which is shown in the left-hand side of the chart, of $819 million, was up 13% compared to a year ago, with net income and EPS both up 23%.

With respect to margins, shown on slide two on the far right-hand side, our margin came in 39.1%.

That was up from the first quarter a year ago, and [just] the fourth quarter margin, as a reminder, reflected a peak period of performance for BlackRock.

Our comp to revenue ratio for the quarter was 35.4%, consistent with where we've been running for a very long time.

We do remain confident in both top-line growth, combined with a good margin as we continue to seek efficiencies and realize the benefits of scale.

Just a couple examples from the quarter.

Late in the first quarter, we migrated a number of our data centers into an all-new facility in Washington state.

We're going to benefit from doing this by lower cost [power].

Another example is we have been consolidating our operating functions into centers of excellence, which will benefit from scale and following the sun.

At the same time we're investing in the firm, bringing in some great new talent and capabilities, something Larry is going to spend time talking about.

On slide three we're shown markets, and all in all we continue to benefit from improving markets.

On slide four, on the far right-hand side, we've laid out the key components of our earnings per share.

Earnings per share up $2.96, included operating earnings of $2.93.

That $2.79included $0.06 associated with the successful launch of a $1 billion closed-end fund investing in commodities and energy.

We have a tax adjustment of $0.12 that was related to resolution of certain tax matters, and $0.05 of non-operating [revenue].

If you take the $2.96 and you exclude the closed end as well as the tax adjustment, we still had earnings of $2.90 (sic) in the quarter.

Compared to the fourth quarter, -- compared to the first quarter a year ago, you can see the business grew across all dimensions.

And compared to the fourth quarter, we had growth in the base business, fewer one-time costs offset by a period with fewer performance [fee loss].

The first quarter as adjusted tax rate was 33%, before considering the $24 million tax adjustment.

That brought the quarterly rate down to 30.1%.

Speaking of revenues now, as shown on page six, year-over-year revenues grew 14%.

I'm going to talk about base fees in a minute, but really starting with performance fees.

Performance fees in the quarter came in strong at $83 million.

That reflected both strong relative performance on a number of equity accounts, as well as the strength of our alternative platform.

We had good performance across our single strategy hedge funds.

And also of note, at this point over two-thirds of our hedge fund of funds are above high water mark.

That compares to about 20% a year ago.

We had strong BRS revenues of $128 million.

We continue to grow the base Aladdin business.

We continue to win and implement new advisory assignments.

We're beginning to see the runoff of some of our long-term liquidation assignments.

This reflects the opportunity for holders to benefit from improved valuations and liquidity on the underlining assets and is a trend we expect to continue.

Included in the AUM pipeline is $15 billion in new long-term disposition assignments.

And there is active interest across the board on Aladdin, so we feel great about the BRS opportunities going forward.

Moving onto base fees.

As shown on slide eight, really base fees improved 13% year-over-year across all long-dated asset classes.

Compared to fourth quarter, as shown on slide nine, we had a $33 million or 2% increase in base fees, and that is despite the drag of two fewer days in the quarter, worth about $40 million.

When I talked about retail and US international strength, that comes through in the $27 million of revenue associated with active equity products.

You can also see the growth in alternatives and multi-assets that I mentioned.

With respect to ETFs, we are sees trends implode, which reflect the rotation into equity, rotation into yield products, and we are seeing strong global growth.

And that reflects international clients both coming into US products as well as domestic products.

Just for transparency sake, and thinking about our institutional index assets, those assets can be high velocity assets.

Clients sometimes park their money in an index while they decide what they're doing longer term.

That can result in high volume inflows, as well as high volume outflows, which have relatively low revenue impact.

So beginning in the fourth quarter, we separated this out.

Clearly in the press release you can really see the impact of those revenues and flows.

Moving onto expenses, which are shown on slide ten and 11.

Compared to a year ago, expenses are up $195 million, about 15%,consistent with the growth in the base business.

G&A is up $85 million.

Really three key drivers; fund launch costs $19 million that I talked about earlier, $20 million of FX remeasurement, and $28 million of marketing and travel expense.

Compared to the fourth quarter, expenses are down $68 million or about 4%.

Compensation costs were relatively stable at about $800 million, where we had lower direct incentives and bonus offset by the fact that we hired more people.

First quarter was up -- payroll taxes associated with our bonus payout, and we are beginning to reflect the new stock awards into our expense.

G&A was down $69 million, despite the $19 million closed end launch cost, we didn't repeat a number of the unique costs that we experienced in the fourth quarter.

A couple of which you'll recall, which was really establishment of a charitable fund and the one-time regulatory fee to the asset management UK industry, both of which were about $20 million.

Non-operating income, which is shown on slide 12, was $14 million, but was $43 million of investment things across all asset classes, partially offset by net interest expense of $29 million.

The value of our investment portfolio is stable at about $1 billion, or $940 million, excluding hedging relating items.

Really the gains in the portfolio were offset by net distributions out of the portfolio, so the value of investments are about stable.

And these investments, as you know, are co-investments, alongside our clients [or] seeding of new products.

So everything we're doing here is aligned with our clients' interest.

With respect to cash flow, we're generating substantial cash flow and returning a meaningful portion of that cash to shareholders.

As shown on slide 13, we did increase the dividend from $4 annualized to $5.50, the 37.5% I mentioned earlier.

And in the quarter that resulted in a 48% payout.

We still have repurchase authority of 4.2 million shares.

We didn't do any repurchases in the first quarter, but we have given notice to redeem our convertible debt, which is likely to result in those investors converting the shares into common and increasing our float by a small amount.

We are still very conscious of our float, since we've been included in the S&P 500.

We want to continue to meet the criteria, which got us included.

At the same time, we would like to begin repurchasing shares at a minimum for antidilutive, and we're going to seek opportunities to buy back shares in a way that won't materially disturb our flow.

We do not have any plans for material M&A or investments that would be cash drag, andbelieve me we don't want to have idle assets on our balance sheet over the extended periods of time.

So wrapping up, the first quarter is indeed a growth story.

We entered 2011 delivering double-digit earnings growth, fueled by top-line revenue growth.

We delivered a healthy margin, generated substantial cash flow, and return as large portion of that cash to our shareholders.

We feel great about our business model.

We feel very strongly that we are well positioned strategically, relative to the global trend, and that is already reflected in our pipeline and gives us great confidence in our future growth opportunity.

With that, I'll turn it over to Larry.

Good morning, everyone.

Thank you, Ann Marie.

As we reflect on our first quarter, it became very evidence to me that BlackRock has come together as one firm.

Cultural and business integration from our BGI merger is totally behind us, and our success this past quarter and in the beginning of the second quarter, demonstrates that our business momentum is accelerating.

BlackRock's broad range of products, our worldwide business footprint, our solutions in risk management approach to our clients' needs, have allowed BlackRock to serve our clients with more opportunities, enlarge and enhance our client relationships.

As BlackRock builds nor comprehensive relationships with our clients, we are expanding our product offerings, both in beta and alpha, andmore investment solutions.

Our relationships are becoming larger and more substantial with many, many of our clients worldwide.

As Ann Marie stated, our earnings were $2.96, up 24% year-to-year, chiefly driven by organic long data assetted growth.

Beta obviously.

But more importantly, by our expanding product mix.

And also, as we said at the end of the last year, by what we are seeing more frequently, re-risking by our clients.

Moving into equities and moving into alternatives.

And BlackRock is planning a larger role in that than we've ever done before.

And this is leading to revenue growth of 14% year-to-year.

And I should note, unlike so many other financial institutions who are reporting, our earnings growth is fueled by revenue growth.

100% of our revenues is driven by client business.

Ann Marie spoke about that.

Our business model is not going to change.

We'll use our balance sheet only to co-invest with our clients and seed products.

We are not using our balance sheet to compete.

And importantly, we intend to use all excess cash flows to -- in the form of dividends, and as Ann Marie spoke about, to buyback shares when it's -- especially the shares that are being created for employee plans.

And as Ann Marie spoke about, we did raise our standby credit facility, ifthere's any event that needs us to take advantage of opportunities in repurchasing shares.

Let me review our quarter.

Our headline at AUM is six trillion -- $3,648 billion.

This has been led principally by our multi-asset class product growth, which grew by about $22.4 billion, of which $6.8 billion is in the fiduciary assignments and $16.8 billion of growth in the defined contribution business, principally through our life path products.

And we continue to have more and more opportunities working with our clients in these products, whether it is LDI and/or just more complex relationships.

And having beta and alpha, as we said, it increases the product mix that isn't global -- that is global, allows to have a much more comprehensive relationship in terms of asset allocation, mixes of products, how does one look at risk and how should one design a portfolio around liabilities?

One of our most important jobs for the future is going to be the continuation of building our brand.

We need to continue to build our brand recognition worldwide.

This is going to be a big and aggressive campaign over the next five years.

We believe this will demonstrate the growth of the platform, and it will allow us to continue to grow worldwide.

I have to emphasize worldwide growth, although we are still seeing tremendous growth in the United States.

But as the world continues to grow faster outside the United States, in parts of Asia and South America, we need to continue to build out that platform.

And it has to be a way from dollar-based assets, so it has to be more in local currencies.

And in doing so we need to continue to build out that brand and the brand recognition as we expand our footprint worldwide.

A good indication of how our brand recognition is being enhanced and also a good indication of the ability to grow in multiple channels, I'd like to highlight our retail channels in the first quarter.

In terms of long-term asset growth, our US retail platform in long-term assets grew by $7.4 billion.

Our international retail channels in long-dated assets group by $6.3 billion.

So a total of close to $14 billion in terms of assets in the first quarter.

I should also note fixed income long-term assets grew $8.5 billion, and equities -- getting back to the re-risking -- grew by $10.5 billion in the first quarter.

In our iShares products, we continue to see very good momentum.

And if you look at a year-to-year type of growth through the first quarter, generally it is sometimes a low to no growth after expanding growth in the fourth quarter.

If you add our growth in April and our growth -- up to April to date and our growth in the fourth quarter, it's over $12 billion and includes the iPath products.

We are growing in every product in our iShares platform, except our emerging equity market ETF.

This is where we actually had bad tracking error last year.

I am pleased to say that has been fixed.

We've put a lot of emphasis on it.

And in the last few weeks we have begun to see a reversal from outflows to multi-billion dollar inflows in that product.

So the first quarter for our iShares product was strong, and we continue to believe there's going to be more and more opportunity.

What's interesting to note, and we said this in the fourth quarter, but we're seeing it even more so in the first quarter.

I do believe ETF flows is a good forward indicator of where asset allocation is going.

And we began to see a shift out of fixed income into equities at the beginning -- in the third quarter last year, but that's accelerating.

And we're seeing actually more growth now in equity ETFs than we did in fixed income.

So this is another example to us that clients are re-risking, and why I think I've been -- have been publicly talking about why we believe equities will continue to rally.

Long-term flows, as Ann Marie stated, grew by close to $35 billion.

This has been offset by an outflow of $24 billion in our cash management business.

Our flows are representative of the industry.

With the shortage of short-term treasuries, we see rates below five basis points.

This is a business that will continue to flounder during these low-rate environments.

We are constructive about it.

We actually in the first quarter, though, saw a positive flows in the institutional side, and we saw very large negative flows more on the retail side.

And so it's very -- so we are building our market share in terms of institutional, and it's not represented with our gross $24 billion of outflows in cash.

But we are building market share institutionally, and we are certainly seeing some substantial line-downs in the retail side.

And much of this is because -- in many cases the retail platforms are migrating from money market funds to bank deposits.

Bank deposits are higher in yield than money market funds, even at a time when banks are having little success in terms of C&I loans, they may be using the deposit for buying short-term treasuries or mortgage securities.

But they're willing to pay more than money markets can afford.

So that trend is not going to change anytime soon.

And so this is going to be an area that will have a drag on our flows, albeit this is low-fee business, and what I'm trying to stress is the revenues from the very, very high fee businesses that we're demonstrating.

In addition, as Ann Marie suggested, in our BlackRock advisory business, BlackRock Solutions, we are paying to our clients the principle by principle paybacks and interest.

So as you witnessed now in the last few quarters, a decay in the advisory business, alittle over $4.5 billion a quarter.

Once again, this is what we expect will continue, and yet in our pipeline, which I'll talk about in a minute, there's a big win in the advisory business.

I should talk about merger related outflows.

As Ann Marie suggested, it slowed to a little more than $18 billion.

We are not going to report merger-related activity again.

We believe this is principally over.

We are forecasting and telling you there is in our pipeline another $9 billion.

But this reporting is over.

It will all be net.

We believe we can look forward to growth now, and we don't see any of the concentration issues that we had before.

Let me just talk about our pipeline.

$82.4 billion of pipeline wins.

This represents also the netting of the $9 billion of outflows in it.

So this is a net number in our pipeline.

I'd like to really emphasize one important characteristic about our pipeline.

$60.7 billion of that pipeline is long dated.

Which I'm also pretty pleased to say 55% is in beta products and 45% is in active alpha products.

So a very strong pipeline of wins in the long-dated products.

$6.2 billion was money that left the last quarter -- the last few days in our money market funds.

They went back into the money market funds.

And then we did win a $15.5 billion advisory assignment in our BlackRock Solutions business.

Over the last few quarters, we said we're going to be expanding our product mix, especially in alternatives.

We've been very active in the first quarter.

We brought in a team from NTR for alternative energy.

We are adding more single-strategy alternative products.

And importantly we saw over $2 billion of flows in the first quarter and a few -- first week in April.

And now I'm pleased to say our total assets in alternatives is $115 billion.

We are witnessing even more and more demand for alternative products, as clients are looking to continue to re-risk.

Some clients are re-risking through barbelling, using some Beta products, and in some cases using less, maybe, standard active equity strategies and are moving toward what I would call a more evolved, more higher return, active alternative products.

So growth continues in that space.

And we're continuing to make large investments in teams and in our platform in the alternatives base.

Ann Marie spoke about the scientific active equity team.

I am pleased to say in almost the 80% of our products we are witnessing positive returns.

We still have some negative returns in our US platform.

But we are working tirelessly to rebuild the entire platform.

We are seeing flows in our SAE business outside the US.

And we believe this is going to be a much stronger product in the future, as so much money has runaway in this product.

Not just from other firms, and we believe the opportunity in that product continues.

We are going to continue to build out our investment teams.

That's a big characteristic for the future.

We have many -- we talked to many people in terms of building out our fundamental equity teams and our fundamental fixed income teams.

We continue to believe that global credit will become a very large component, and we're very active in terms of building those teams.

So despite our success, we are aggressively believing that we need to continue to build our global footprint, not just in distribution, not just working with clients, but our entire manufacturing platform.

BlackRock's solutions had a very, very strong first quarter.

The momentum continues in the second quarter.

12 new assignments.

Revenues were strong, $128 million.

We have a large pipeline of opportunities.

I should note that we received a lot of attention, and I do believe we did an exceptional job with working with the Central Bank of Ireland in helping them understand the significance of their banking system.

And the team worked tirelessly in working with many -- with our clients [in] the Central Bank of Ireland, but importantly with many other regulatory regimes that are involved.

So we are building a stronger future.

We are very constructive on the platform of BlackRock.

I believe the first quarter was a very strong one, that helped us validate our business model of multi-product strategies.

Our continued and relentless approach to making sure that alpha is the most prominent issue that we're faced with every day.

And the production of alpha, that does not change with growth.

That does not change with our scale.

But importantly as we build that alpha, we're going to build out our manufacturing teams.

We do believe worldwide clients are in need of more solution-based answers.

We believe the political and economic issues around the world are only raising more questions as to how the clients should think about their portfolio.

And we believe we are the best suited firm in the world in asset management to work with our clients in terms of solving these complex issues.

Let me just add a few more things as an indicator of the strength and conviction we have on our platform.

We were very aggressive in building out our leadership team in the first quarter.

We hired a new head of institutional client service in the US.

We are aggressively building out our BlackRock Institute.

This is a very important issue for us, because as we grow our global footprint, as we grow our products worldwide, we need to make sure we are connecting all this information, and then redistributing this information to our portfolio teams and, importantly, to our client.

And so we believe this is going to be one of the core cornerstones of BlackRock in the future; having the BlackRock Institute become the area in which we bring all this information together, understand what all the information that we're seeing means.

It should lead to better alpha production, butimportantly, it should lead us to have more complex relationships with our clients, and helping our clients in terms of understanding the dynamics of the world.

We announced this week a new head of our real estate platform, we are very excited about this.

This is an area that we were embarrassed in 2008, where we actually had this performance in 2010, and we continue to have good performance in 2011.

And we are going to build this out, as we believe this is a great asset class, and we're very proud of the changes we're making there.

We're adding many more people in our alternatives teams.

I mentioned NTR.

And I mentioned earlier we are going to be aggressive in continuing to build our equity and fundamental equity and fundamental fixed-income teams.

So in closing, BlackRock is building a stronger global footprint, we're adding product.

We see more opportunities.

We're very pleased with the position we have with our clients worldwide now.

And we're very excited about the future for BlackRock.

I just want to thank all of the employees for a really good quarter, and especially in terms of -- with all the noise in the world economies and the world political scenes.

We do believe the regulatory issues are going to be -- will still be with us for many months and years ahead of us, andglobal uncertainty and global volatility is going to be probably more prevalent than we've seen in many years ahead.

And having a global footprint, a global platform will allow us to navigate probably a little better than many other people.

And I would like to just thank all of the new shareholders who came onboard with our offering in November, andI believe your first two quarters of ownership have proven to be successful.

With that, thank you.

Let's open it up for questions.

(Operator Instructions).

Your first question comes from Michael Carrier with Deutsche Bank.

Hi, Mike.

Hi.

Thanks, guys.

So, first question, I think alot of the investments, itlooks like, given where the pipeline is, they're starting to pay off.

And when you look at whether it's the international distribution -- you guys announced the relationship with Mizuho.

You mentioned the DCopportunity, and you see more and more DB plans shifting.

I guess when you look in some of those opportunities and where you are today versus what's still out there, is there any way you can gauge or size that up in terms of whether it's market share, or just how you can continue to sustain the growth?

It looks like it's -- your producing it, but just if you can size any of those markets up.

Well, as you're just as aware of everyone else of the global instability that we're seeing.

We believe on the retail side, on the defined contribution side, the main two areas, we have enormous opportunities in the future.

I would say only a few years ago we did not have a brand that was well understood or recognized in the retail channels.

Each year we're expanding it.

As I said earlier, we need to really invest in that brand to continue to build out the channels and make it easier.

We are seeing worldwide a distribution platforms limiting the amount of manufacturers that they have.

There are one or two big events that are going to happen with some international distributors that are going to reduce the amount of key manufacturers are going to be working with.

We believe we'll apart of that inthose cases.

So we see actually somewhat of a crowding out effect that's going to be happening in the manufacturing space.

And what I'm trying to suggest is the large multi-product platforms are going to grow probably significantly faster than single strategy platforms.

And so for me to give you a size, Mike, I believe we have just enormous opportunities in those areas.

As you said, money is moving out of DB into DC.

I think I said this at the end of the first quarter; we believe that trend will accelerate as public funds are struggling with their defined benefit plans, and they're going to probably shift new employees into defined contribution plans, away from defined benefit plans.

So that trend will continue.

And I do believe we will be a big beneficiary of all that.

And the whole impact of re-risking, as I said publicly many times in the last two quarters, investors are overweighted in fixed income, because of fears, underweighted in equities, and we believe having our Beta products and our expanding alpha products in equities, will allow us to have more opportunities with more clients.

Sue, do you want to add anything?

I was just going to say, Mike, in the institutional side I really don't think we think about it as a market share (inaudible -- audio skip).

I think it's about the value-added services and the way we work with clients.

So I think there, while it may well be the case that our overall AUM continues to grow, and we certainly would expect that, in addition, we think that over time the revenue mix moves as we work with clients, particularly around barbelling and long-term investment strategies, like [F]-class solutions that Marie has already talked about.

Okay.

That's helpful.

Just one follow-up on the -- just thinking about the margin.

I think one of the things that everyone always focuses on, and this isn't just with you guys, but any type of passive products you tend to have lower fees.

So you have a downward trending fee rate over time if the passive industry is growing faster than active.

But if you can give any sense of what the incremental cost structure is on the passive versus active side or the incremental margin, just so we can kind of say, all right, we can see the fee trend in that product area.

But if you have some type of a cost base or the incremental, just so we can kind try to gauge the margin over time, that even though the fees can decline, the margin can still --

Fair question.

Fair question.

Ann Marie?

Yes.

When we think about the in-depth investment, it's a little bit like the cash business.

In that you really don't have to add a lot of resources, as you have billions of dollars of assets coming in.

So when you think of the new business coming in, you can think of that coming in at an accretive margin.

That is very positive.

Despite low fees.

Yes --

But we don't segment a report on that.

I mean, offline Ann Marie can give you more color.

Okay.

Thanks a lot.

Thanks, guys.

Your next question comes from Craig Siegenthaler with Credit Suisse.

Thanks.

Good morning, everyone.

Good morning.

Good morning, Ann Marie.

Just first here on capital management.

Just want to make sure we had the math right.

So kind of in the second quarter what we should really think about some debt conversion, maybe some comp-based stock issuance, but then you also have a cushion related to the passive constraint, the flow constraint.

Should we expect, though, a net increase in stock in the second quarter?

No.

No,I don't think there's going to be a material change.

Okay (inaudible -- multiple speakers).

Well, it is our objective -- I would say we clearly hope that we will be reducing that --the outstanding.

That we're going to start repurchasing some of the employee plans.

What Ann Marie said in her speech is, we have to be conscious of the hurdles that we have with S&P.

We do not want to break any of those issues, and we will be very mindful of that.

But we do have room.

Got it --

(Inaudible -- multiple speakers).

Okay.

Just second question here.

When we think of the advisory [area] in the Solutions business, how should we think of the [maiden energy] business here?

Specifically in terms of kind of scheduled redemptions, and also the economics of this business?

Should we see a step up in revenue as you help dispose of some of these assets?

And then what's the economics in term of the fee rate?

Well, A, anything I do with the Federal Reserve, I can't even talk about.

So -- and that's a requirement with our relationship there.

As I said in a macro way about BlackRock Solutions, our business is very strong.

The opportunities are large.

We had a very strong first quarter, and we expect the second quarter to continue to be strong.

Great.

Thanks for taking my questions.

Your next question comes from Bill Katz with Citigroup.

Hey, Bill.

Sounds like no Bill.

Can you hear me okay?

Hey, Bill.

There we are.

You were probably on mute.

Okay, I'm sorry about that.

Okay.

In terms of capital management, how much capital do you think you need to actually run the business against the north of $3 billion free cash flow number that you generating per year?

Well, that's -- we're not going to answer that question specifically, butwe do -- and I think this is a positive for us in the business -- is we do have a certain amount set aside and disclosed for risk of regulatory purposes.

And that's certainly the core foundation.

We -- as you know, Bill, we have -- we will have opportunities to continue to raise our dividends aggressively, and/or if when we have those opportunities, that we'll [prevail] in repurchasing shares, subject to paying attention to the S&P hurdles.

Got you.

Thank you.

Second question.

Just in terms of the broad discussion on margins, I certainly appreciate the accretive nature of the passive business.

When you think through the AUM build against your discussion here about in terms branding over the next five years, and the decision to boost -- focus on alpha, and then the head count additions associated with that.

Any thoughts on the baseline view on the adjusted margin?

I noticed 39% this quarter.

Probably held up a lot better than people anticipated, but now as you look forward to normalized or sustainable basis, what's a reasonable --

As I think I said at the end of the first -- at the end of the fourth quarter, that our objective is to have margins over 40%.

And that has not changed.

So as we continue to invest in people , in brand, in product, we are mindful of where we believe our margins should

Okay.

But if we see a massive opportunity, I won't -- I will invest in that.

I'm not here to tell you there's anything that is unusual that we're going to be investing in right now that is going to change my views of margins.

But I will not forsake what I [would say] accelerated growth for one quarter's margins, if that was the case.

But I know what my target is.

We are mindful of it every day as leaders, andwe are managing our investments accordingly.

Okay.

And just one last one.

I know this is probably a "to be determined," anyincremental thoughts on systemic risk?

Your company continues to be a primary focus, just given the girth of the AUM.

Any thoughts now in terms of what it might mean to the business, if any, [read] at this point?

I think the Financial Times had a really good story on designation of [sify].

And it basically alluded to it.

I'm citing the article, not my opinions, but I think it has merit.

It cited that in most cases, in most of the members of this committee believed [the sify] designation should remain with leveraged companies.

It should be small.

And if that criteria carries the day, we would not be designated as one.

There was another competing view that there should be 50 firms in that article.

And it kind of alluded to that was a very minor, minority position, but the article is already two weeks old, soit's dated.

But from my indications and our conversations with Belgium, in Washington, in London, I don't think at this time we would be a systemically important institution under that definition that is prevailing at the moment.

Now the definition may change.

Okay.

Trying to dance around it, Bill, as you can see.

Good job.

All right.

Thank you very much.

Your next question comes from Glenn Schorr with Nomura.

Hey, Glenn.

Hello there.

Just curious, I met with a private equity firm recently that called BASEL III the private equity and private manager Christmas tree, alluding towards certain banks not being able to hold certain assets and that just a regulatory arbitrage.

I think you've spoke about that in the past.

Just curious if you're seeing asset movement -- I do see some auctions out there for some assets -- and how BlackRock might play a role in that?

Yes.

There's no question.

We are --I actually had a conversation with a leader of a large institution.

And they're looking at capital management, and they're -- our solution team is going to be visiting them next week on things of that nature, of helping them with asset sales and how to look at their capital base.

And obviously we don't give them advice in terms of when and what to raise in terms of equities, so we're not an underwriter.

We are working with institutions as they think about BASEL III in terms of how should they be looking at their assets.

So that's, no question, the big opportunities that we see for our advisory business.

And in addition, this is one of the reasons why we are a little more aggressive than I thought we would have been in terms of building out our alternative spaces, as other [funds] that we're in, areas that are not considered proper under Dodd/Frank.

We are relooking at different types of alternative activities, including private equity.

And so we do believe it's an opportunity.

I wouldn't call it a Christmas tree, because you still have to perform, butI would call it added opportunities for asset managers and certainly for BlackRock.

Okay.

Fair enough.

And apologies if I missed this, butdo you disclose the remaining size of the scientific equate book, both -- either total or US, just so we can understand what potential headwinds might still be there in the short-term.

No, we don't.

We don't do that segment reporting.

But I don't believe there's that much headwind left.

I mean, there are some in the US area, butas I said, we're seeing growth in the non-US.

Okay.

Cool.

And final one.

Any directional comment?

I know it's tough to get too specific, butanything regarding the -- what seems to be an ongoing discussion with the banks on reps and warranties and potential settlement there?

Well, that's an active dialog that we're having.

And my General Counsel is looking at me and saying because there are active dialogs right now -- I'm going to have my General Counsel smile now -- that I can't talk about it.

All right.

Thanks very much.

I can tell you it's active right now, and solet's just leave it at that.

Okay.

I appreciate it.

Your next question comes from Robert Lee with KBW.

Hey, Rob.

Hey, good morning, everyone.

Thanks.

Good morning, Larry, Ann Marie.

Quick question.

I know, Larry, you talked at length about the goal to expand the business globally.

When I -- one thing that I think would be helpful for me, at least, would be to get a little bit more color on kind of how you think of your global footprint at this point in broad terms.

I mean, if I look at the inflows, very strong in the US, positive in other regions, but substantially less so.

So can you maybe kind of put some color if it's AUM mix or client mix?

How -- what the footprint may be right now?

One thing I can say, because we're expanding our flows in retail internationally -- those are higher margin -- higher fee businesses than the US.

Well, I think some of the flows internationally were skewed by some events in Japan.

The circumstances around Japan with the tsunami, nuclear problems and the earthquake, we have witnessed outflows from Japan, andthat's skewing some of our international flows.

The Japanese have brought back money.

I think this is one of the reasons why we're seeing maybe weakness in the dollar recently.

And so I think our numbers internationally are skewed by some of that.

But we believe, Rob, in the long run, and this is just an investment for the future, as GDP grows, as savings grows, opportunity will prevail.

You're right in asserting that we're still seeing more growth in the United States.

That's a fact.

We are witnessing more growth now out of South America and the opportunities we have there.

And we believe we're going to have more opportunities in Europe as our brand continues to grow, especially in the retail side.

And -- but Asia flows are slower than we would like.

But we believe we need to continue to build out Asia to take advantage of future opportunities.

Okay.

And maybe a follow-up question on the merger-related outflows.

Understanding that they've been starting -- thankfully starting to curtail, and it looks at this point the pipeline there is pretty modest, if you want to use that word.

But it's possible -- I'm just curious ifthere's any kind of color around which clients set you saw most of the merger-related outflows from.

Is there any -- is it a certain investor profile?US domestic pensions more so than sovereign wealth?I'm just trying to --

It was predominantly pension.

It was predominant pension, both US and non-US, where we had both large relationships -- both legacy BGI, legacy BlackRock had large relationships.

And that's where the flows were.

It was not sovereign wealth.

It was not insurance.

It certainly was not retail.

It was in those -- it was pension funds worldwide.

And as we are trying to telegraph, most of it is in index.

Some of it was related to -- which we knew when we did the merger -- scientific on the equate side.

And so that's where it is, and that's -- the remaining block is another -- is institutional -- yes.

Yes.

So that's where we are.

Okay.

And that -- thoseare all my questions.

Thank you.

Good, Rob.

Your next question comes from Marc Irizarry with Goldman Sachs.

Great.

Thanks.

Larry, on the multi-asset class business, looks like the fees in that business may be continue to come in a little bit, at least on the surface.

Can you talk a little bit about how you're pricing some of the fiduciary outsourcing mandates?And then also, is there some seasonality maybe in this period for the DC business, or are you gaining -- or is it really about the shared gains there on a secular business that pass is making at the expense of maybe some active target the day funds?

Well, A, I think -- I don't -- we don't see any fee pressure in that area.

I think what you're seeing is just a very large DC allocation and DC's lower fees in the fiduciary outsourcing and some of the other products.

And so, as I told you, we had some very large wins in DC, andthat's where the fees are smaller.

In terms of our growth in DC, I think we have -- I think we are picking share, because we have some really innovative products in our life path products.

And we just rolled out a new really strong product in our life path -- in our target date and life path products, that we're starting to see some really accelerated opportunities there.

But I think it's fair to say, defined contribution, there is a lot of flows at the beginning of every year.

And I think that's a seasonal component.

That's when people will generally change a defined contribution plan.

They -- at the beginning of each year, unless there's some serious issues, the first quarter is generally a quarter of a lot of change from different managers in the defined contribution plans, and I think we've picked up share in the first quarter.

Okay.

And then just in relationship to fees on some of the institutional fiduciary outsourcing mandates that you're winning, and multi-asset class mandates.

Are you seeing more of a pick-up in incentive and performance fee AUM?And I don't know if, Ann Marie, can maybe give some perspective on how much of your assets are set to earn annual or quarterly performances.

No, we don't really break out those assets.

I don't think we've seen a material shift in the way that we're working together with clients.

And that's a trend we watch.

So again, Marc, where you have the greatest transparency is thinking about the alternatives, but what we don't break out for you are those separate accounts and long-dated assets eligible.

Okay.

Great.

Thanks.

Thank you.

We have reached the allotted time for questions.

Mr.

Fink, Ms.

Petach, arethere any closing remarks?

Once again I just want to -- I'd like thank everybody for their commitment to the firm.

Once again, as some of the employees are on the phone call, I want to thank all the employees for another good quarter anda lot of hard work.

I'll talk to everybody at the send of the second quarter.

Have a good one.

This concludes today's teleconference.

You may now disconnect.