貝萊德 (BLK) 2014 Q1 法說會逐字稿

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

At this time I would like to welcome everyone to the BlackRock Incorporated first quarter 2014 earnings teleconference.

Our hosts for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Gary Shedlin; President, Robert S. Kapito; and General Counsel, Matthew Mallow.

(Operator Instructions)

Thank you.

Mr. Mallow, you may begin your conference.

Thanks very much.

Good morning, everyone.

Before Larry, Gary, and Rob make their remarks let me remind you that during the course of this call we may make a number of forward-looking statements.

Let me call your attention to the fact that BlackRock's actual results will of course, or may of course, differ from these statements.

As you know BlackRock has filed reports with the SEC which lists some of the factors that may cause the results of BlackRock to differ materially from what we say today.

And, as we usually warn you, BlackRock assumes no duty and does not undertake to update any forward-looking statements.

So, with that, let the call begin.

Thank you, Matt and good morning, everyone.

It's my pleasure to be here to present results for the first quarter of 2014.

Before I turn it over to Larry to offer his comments I'll review our quarterly financial performance and business results and as usual I'll be focusing primarily on as adjusted results.

BlackRock delivered first-quarter earnings per share of $4.43, up 21% compared to 2013.

Operating income was $1.1 billion, 15% higher than a year ago reflecting continued revenue growth and a decline in G&A expense.

First quarter non-operating results reflected a $69 million increase in the market value of our seed and co-investments which were impacted by the monetization of a non-strategic opportunistic private equity investment.

The first quarter as adjusted tax rate was 30% and we continue to believe this remains an appropriate planning assumption for 2014.

Underpinning our results was continued organic growth despite volatile market conditions in the first quarter.

We saw $27 billion of long-term net new flows representing an annualized organic growth rate of approximately 3% with organic revenue growth once again outpacing organic asset growth notwithstanding the volatility which impacted iShares during the quarter.

Our highly diversified multi-client platform generated more than $5 billion of net flows across each of our retail, iShares and institutional businesses.

First quarter revenues were $2.7 billion, up $221 million or 9% from a year ago and were driven by continued growth in base fees, performance fees and revenues from BlackRock Solutions.

We once again experienced year over year base fee growth across all long dated asset classes.

Base fees increased $162 million or 8% from a year ago as average assets under management increased as a function of organic growth, market appreciation, and the acquisitions of the Credit Suisse ETF and MGPA real estate businesses.

Base fees were roughly flat compared to the fourth quarter, in part due to change our AUM mix which was impacted by relatively weaker beta in markets with higher-fee products and a lower day count in the first quarter.

Performance fees for the quarter increased $50 million from a year ago primarily due to a performance fee associated with the planned final liquidation of the opportunistic 2007 vintage closed end mortgage fund that was partially liquidated in the fourth quarter.

This fund now holds only a residual balance with limited additional performance potential.

BlackRock Solutions revenues of $154 million were up 22% year over year and were roughly flat compared to the fourth quarter.

Our Aladdin business which represented 71% of BlackRock Solutions' revenue in the quarter was up 10% year over year.

Sequential results were once again impacted by the timing and recognition of certain revenues as we continue to on board a number of very large clients on to the Aladdin platform.

Our financial markets advisory of FMA group continues to post strong revenues.

While this quarter reflected a higher level of revenue associated with asset disposition assignments than prior quarters, the FMA group continues to develop a more institutionalized advisory model with a focus on helping clients navigate and implement requirements for the changing regulatory environment.

Expenses for the first quarter rose $80 million year over year driven primarily by increases in revenue related items including compensation and direct fund expense partially offset by a decline in G&A expense.

Compensation expense increased from a year ago broadly in line with growth in the overall business.

As we had previously noted the first quarter adjusted compensation to revenue ratio generally runs higher than the full-year due to the seasonality of payroll taxes which increased year over year due to appreciation of BlackRock 's share price.

General and administration expense declined $18 million year over year due to a number of factors including the impact of closed end fund launch costs in last year's first quarter, a current one-time benefit from the reversal of UK-related real estate related retirement obligation which is no longer required to be funded and lower other expense, partially offset by foreign currency exchange movements.

Our G&A expense in the first quarter also benefited from a delay in the timing of certain expense items including marketing and promotional spend which will be incurred throughout the remainder of 2014.

Our operating margin for the first quarter was 41.4%, 140 basis points higher than a year ago.

Notwithstanding the lower level of G&A expense in the current quarter we continue to demonstrate benefits of scale in our overall business.

We remain committed to using our cash flow to optimize shareholder value by reinvesting in our business and returning excess cash to shareholders through a consistent and systematic capital management policy.

As previously discussed we announced a 15% increase in our quarterly dividend to $1.93 per share of common stock.

We also repurchased an additional $250 million worth of shares during the first quarter and are committed to maintaining a steady level of repurchases during 2014.

BlackRock's financial results reflect the breadth and depth of our investment and distribution platforms.

Our first quarter results reflect continued focus on key strategic themes, including income, outcomes, alternatives and strategic beta as clients look to both active and passive vehicles to meet their evolving long-term investment needs.

We continue to see strong growth in global retail.

Retail long-term net flows were $14 billion for the quarter representing an 11% annualized organic growth rate and were positive across all asset classes.

International retail once again demonstrated strong results.

Generating long-term net inflows of $9.8 billion representing a 25% annualized organic growth rate.

Equity flows of $4 billion were led by our top-performing European equities suite while fixed income net inflows of $2.5 million were driven by demand for our short duration, unconstrained and high-yield bond products.

Multi-asset net inflows of $2.7 billion reflect a continued momentum in our global allocation fund, a key component of our bundled outcome oriented family of products.

US retails' quarterly long-term net inflows of $4.2 billion representing annualized organic growth of 5% were led by fixed income's continued success in our duration managed product suite.

We also saw accelerated interest across our diversified retail alternative platform with $1.5 billion of net inflows.

Importantly, our global long/short equity fund managed by our SAE team saw accelerated flows in the quarter with each of global long/short equity and global long/short credit attracting more than $700 million in net new assets during the quarter.

Global iShares generated $7.8 billion of net new business in the quarter driven by fixed income flows.

In the face of market volatility, iShares continue to deliver the efficiency, liquidity and performance our clients expect from the leading global ETF provider.

In total iShares equity flows for the quarter generated nearly $1 billion of net new assets with flows into developed markets more than offsetting outflows of nearly $8 billion from EEM, our flagship emerging markets ETF.

In recent weeks however, we have witnessed a change in emerging market sentiment and flows have reversed with approximately $4 billion coming into EEM since quarter end.

The global ETF industry experienced strong fixed income flows during the quarter and iShares was well-positioned to capitalize on investor demand with a diverse suite of offerings across duration and style.

For the quarter we capture the number one global market share of industry fixed income ETF flows generating approximately $6.6 billion in net new assets including $4.6 billion from Europe.

Our institutional business generated $5 billion in net long-term inflows for the quarter.

Strong passive net inflows of $17.6 billion were partially offset by active net outflows of $12.6 billion.

Overall, results were characterized by a number of sizable client inflows and outflows driven by a variety of factors.

Within passive we saw both re-risking and increased usage of liability driven investing or LDI as clients rebalanced their pension plans taking advantage of strong equity markets and improved funding ratios.

As markets and interest rates continue to rise we expect to see more of this type of immunization activity.

That said, we also saw the redemption of a single large LDI assignment in connection with the annuitization of a client's pension obligation.

Active outflows were driven by several factors including corporate events and legacy performance issues.

Active fixed income flows were impacted by a single $6 billion outflow driven by the acquisition of the client by an entity affiliated with a competing asset manager.

Fundamental equity flows were negatively impacted by a large sub-advisory redemption which was linked to legacy under performance.

Finally, despite continued strong overall performance we also experienced outflows of approximately $4 billion in SAE, including a significant client redemption though we were able to leverage the breadth of our platform to capture a larger passive mandate from the same client.

Larry will discuss performance in more detail but we believe that our current investment performance in both active fixed income and equities is strong and competitively well-positioned.

During the quarter we also saw continued growth in targeted institutional sub-segments, including defined contribution, where we generated more than $8 billion of net inflows with particular strength coming from our LifePath target-date suite and passive equity offerings.

In institutional alternatives, net inflows into hedge funded funds were offset by capital return and other illiquid products.

However, strong fundraising continued in illiquid alternatives with more than $1 billion in commitments raised for the fifth consecutive quarter.

Across retail and institutional clients we saw almost $2 billion of core alternative flows during the first quarter, the highest category flows we have seen in four years.

Overall, the quarter again demonstrated the consistency and stability provided by our diverse platform and we continue to believe that we are well-positioned for the remainder of the year.

With that I'll turn it over to Larry.

Thank you, Gary.

Good morning, everyone and thank you for joining the call.

While the first quarter marked the fifth straight quarterly rise for the S&P 500, equity markets experienced significant inter-quarter volatility.

Central bank policy continue to be a key focus area.

Global economic indicators fluctuated relative to expectations and the market attempted to digest heightened geopolitical concerns.

All of which impacted asset prices.

Volatility continued in early April as valuation concerns and short-term de-risking drove the worst week for domestic equity markets since 2012, and I expect this type of volatility is likely to impact markets for the remainder of the year.

The industry has seen positive mutual fund flow throughout this latest market setback, that's a good sign that long-term investors are actively engaged helping to offset hedge fund deleveraging.

In the midst of these challenges BlackRock's clients' goals remain consistent focused on investing to improve their financial futures.

More than ever our clients, both institutional and individuals, need to think beyond the next news cycle and the next quarter to meet their long-term investment objectives.

BlackRock's focus on long-term strategic themes like outcome-oriented investing, retirement and longevity allows us to have a differentiated conversation with our clients and to provide them with the advice they need to meet their long-term goals.

Our client dialogue is enhanced by our ability to integrate technology and risk management into our investment approach and harness our collective intelligence across the entire firm.

BlackRock attracted $27 billion in long-term net flows in the first quarter.

Which again reflects the diversity and the breadth of our business with positive contributions coming from all client types, all asset classes and all regions.

We have more products on more buy lists than ever before.

The level of RFPs we're involved in and the level of client interest across our platform from active and passive, and increasingly in alternatives, continues to rise and we're seen momentum in important long-term asset classes like infrastructure where investments we've made on our platform are beginning to pay dividends.

My focus and the focus of BlackRock's leadership is on capitalizing on the opportunities we see to deliver the solutions our clients need.

We recognize these opportunities must start with a strong investment performance and performance is at the foundation of the BlackRock culture.

We structured our business to give portfolio managers the technology, the risk management tools and a forum of information sharing and giving them autonomy to promote the superior investment performance that our clients expect.

One significant differentiator for BlackRock is BII or the BlackRock Investment Institute.

By bringing together our investment professionals through daily meetings, topical investment forums and knowledge sharing events, BII heightens the best ideas from our top investors and shares some of the most interesting conclusions with our clients.

We're focused on fostering an environment of information sharing to benefit our portfolio managers which would ultimately enhance performance for our clients.

We are benefiting from that enhanced performance across our fixed income business where 89% of our active fixed income AUM is above benchmark or peer median for three years.

We are also seeing strong performance in many areas of alternatives, multi-asset and equities, including European and Asian equities, and we fully expect the same from our new equity teams in the US.

We've talked at length about the work we've done to address performance issues in our US equity business.

Yet this quarter we saw $4 billion of outflows related to a legacy performance in that business, primarily driven by a loss of a very large subadvisory assignment.

We recognize that our fundamental equity performance was not in line with our clients' expectations, it required a significant advancement in talent.

We made these investments and we remain encouraged by the performance of our new teams.

Since the new teams joined BlackRock over the past two years our US basic value improved from the 51st percentile to the 7th percentile, our large-cap core from the 76th percentile to the 16th percentile, and our large-cap value, from the 97th percentile to the 37th percentile.

These are the trends that we continue to expect and through these trends we expect to see investors asking BlackRock about what we could do for them in active US equities.

As we know from our experience in restructuring our active fixed income business several years ago, the process is costly and it takes time to build long-term scalable track records.

The results we are seeing today in terms of fixed income performance and flows highlight the rewards from successfully executing on this type of overhaul.

BlackRock is committed to bringing in the top-tier alpha producers and we are confident that the moves we've made in our active US equity business will position ourself to achieve that goal.

Fixed income represents a meaningful opportunity for BlackRock.

The fixed income ecosystem is going through significant changes.

The industry is witnessing a heightened period of client interest and on all fronts BlackRock is positioned to win.

The competitive landscape in fixed income is evolving which highlights the importance of strong performance.

As we start to see a shift in the performance paradigm among industry leaders, BlackRock has the products and the investment performance in place to attract flows from both retail and institutional clients.

As we've discussed on prior calls the industry has experienced a shift from traditional long-duration fixed income to more flexible unconstrained products as clients assess the risk of duration they have in their portfolios.

This theme drove a substantial portion of double-digit organic growth we saw at our global retail business.

International retail we saw growing momentum in our unconstrained fixed income global opportunity fund which raised over $900 million during the quarter.

And in the US our flagship strategic income opportunities fund continues to generate strong investor demand with $2.7 billion of flow in the quarter.

SIO has generated $10 billion of flows in the last five quarters and now stands at nearly $14 billion of AUM.

What began as a retail theme early last year is now resonating with institutional and defined contribution clients as well, who invested nearly $1 billion into SIO during the last quarter.

Fixed income demand on the institutional side is also being driven by early signs of pension clients taking advantage of improved funding ratios to rebalance and immunize portfolios and BlackRock experienced strong LDI flows this quarter as a result.

Clients are also increasingly looking to ETFs to manage their fixed income portfolios.

A Greenwich Associates report on the institute's use of fixed income ETFs found that one of five non-users planned to start investing in fixed income ETFs in the coming year.

While two-thirds of existing users have increased their usage since 2011.

Survey respondents named iShares as their preferred provider of fixed income ETFs with pricing, with liquidity and breadth of product offering as their top considerations.

Fixed income is a growth business for BlackRock and it has our largest flow category in the first quarter.

The breadth of our product offerings in performance meaningfully in excess of our key competitors positions us well for the continuing rotation within fixed income and to gain market share as the landscape continues to evolve.

Our platform breadth and diversity of our deep relationship with clients are also a differentiator for BlackRock.

Gary spoke about some of the large flows we saw in institutional business this quarter and BlackRock's ability to bring a variety of product and service oriented solutions to clients often position us to recapture what would otherwise be lost opportunities.

In the case of one pension risk transfer to an insurance provider, although mandates moved away from BlackRock due to successful execution of an LDI mandate, we won a BlackRock Solutions assignment to perform monitoring and valuations on that same asset pool.

This service transition was made possibly by our existing relationships, our strong management capabilities and risk management capabilities and reputation, which includes providing Aladdin or Aladdin risk support services to 12 of the top 35 insurance providers globally.

As a fiduciary it is critical that BlackRock not only provides the investment performance and solutions our clients need, but also to take a leadership role in advocating for the best interests and those of the broader markets and the economy.

That's why last month, I sent a letter to CEOs of every company in the S&P 500 urging them to focus on the long-term to make investments in their businesses that will create opportunities and drive future growth.

BlackRock believes it is our responsibility and obligation to maximize the value of the assets our clients entrust in us and that prudent management practices and strong leadership by boards of directors promoting companies' long-term successes and to lead a better risk-adjusted return for our investors.

BlackRock is also working actively with regulators to help build constructive solutions that improve the financial ecosystem for all investors.

We recently submitted a letter, comment letter to the Financial Stability Board to address concerns over the impact asset managers might have on market stability.

While we share the FSB's desire for a safer market environment, and we agree with their focus on products rather than firms, we argue that leverage, rather than size should be the primary screen when determining the appropriate level of regulatory scrutiny.

We will continue to engage with regulators and policymakers to help ensure that regulation is appropriately focused on where risk may exist at the product and at the product level and the practice level.

Looking forward we remain committed to partnering with our clients around the world to deliver them all that BlackRock has to offer.

Last week we hosted our Institutional Client Conference where we spoke with more than 100 clients on paving new paths to achieve outcomes for those who entrust us with their assets.

On June 17th we will be hosting our second Investor Day to discuss key drivers of future growth for BlackRock.

I'd like to close by taking a minute to talk about BlackRock's focus on our talent.

Talent is something we as a Management team and our Board of Directors review continuously in order to build a deep bench of senior executives.

We view setting high standards for talent as a core responsibility to best serve our clients and investors.

We are excited to have a variety of senior leaders stepping into new roles and to welcome a number of senior hires to BlackRock.

Those new hires include Salim Ramji, who was a senior partner at McKinsey and Company will be joining the firm later this month as our new Global Head of Corporate Strategy; Chris Jones will be joining BlackRock as our Chief Investment Officer and Head of Fundamental Equities for the Americas and Co-Head of our Global Fundamental Equity Team.

And Helen Zhu recently joined to help BlackRock in our Chinese equity business.

Our talent strategy reflects a focused effort we have taken to develop our people and enhance our culture.

We are committed to rotating leaders into roles that present them with new challenges, broadening their responsibilities and maximizing their impact on the firm.

These efforts to develop and invest in top-tier talent will serve to drive BlackRock's long-term growth and to enhance both the experiences of our clients and the value it delivers to shareholders.

As always I want to thank our employees for a dedicated service this quarter and helping our clients build better financial futures.

With that, I'll open it up for questions.

(Operator Instructions)

Ken Worthington, JPMorgan.

First, I'd like to see if you could talk about the level and the outlook for institutional fixed income investment dollars in motion?

You called out in the Press Release the shift towards unconstrained, and you talked in the call about short-term strategies, but taking this from another angle, would you expect the amount of money in motion to increase further given the high-profile performance in management stability issues at PIMCO?

And to what extent has this already started?

And based on your past experience, what kind of scale of opportunity is there here?

I don't ever comment on our competitors and PIMCO is a fabulous investment firm so I'll, and Bill Gross has been a friend of mine for over 40 years, not that quite long, about 38 years.

So we're in a great position.

We're seeing increasingly more dialogue from institutional clients than we've ever seen before.

We began to see accelerated inflows on the retail side but now we are in more dialogue with more consulting firms, advisory firms too, pension funds.

So corporations are looking at how they should look at fixed income.

Some of it is, some of this movement is towards unconstrained into like SIO products.

Let me just speak about BlackRock and reiterate having close to 90% of our products above their benchmarks, and some of them were in, many of them are in the top quartile now is a reason why people are coming to BlackRock.

Both institutionally and retail.

Where we are beginning to see some increased dialogue though, Ken, is in the defined contribution side, where this is an area where we had very little penetration on the fixed income side, we had large penetration on the index equity side.

So we are now enjoying more flows, retail and institutional, and in all components of institutional, and I believe we will begin in the second and third quarter seeing an acceleration in terms of money in motion as you called it.

In the fixed income universe.

Great, thank you.

And then to follow-up, can you talk about the performance of the core alternative strategies so far this year?

We're seeing some hedge fund strategies suffering pretty weak absolute returns earlier in this year and I'm interested to hear how your various strategies are performing and maybe which areas are performing better and which areas are performing worse?

Well you're correct in saying there are some hedge funds that have done very poorly, and that was heavily oriented towards the macro-strategies, our macro-strategy hedge fund had relatively poor performance.

However our single hedge fund strategies, our fixed income hedge fund strategies have all done quite well.

In fact we took advantage of some of the pain within the marketplace over the last two months.

I would say overall we performed very strongly in our hedge fund strategies, our multi, our long/short equity or long/short fixed income hedge funds where we're seeing some very large flows, both retail and institutional, we had good performance.

So we continue to see acceleration in conversations in the alternative space too.

Two areas that I would like to highlight on the alt side where we're beginning to have a total change in dialogue, one is our real estate area.

Where we have had performance issues out five years ago and we have had changes in leadership there.

We did the acquisition of our teams and we are now in more dialogues on real estate than we have had been in many years.

And infrastructure.

Infrastructure we brought along a team over three years ago and we are now starting to see accelerating flows into our infrastructure alternative area.

We're about $2 billion and I expect to see a doubling of flows over the next 12 to 24 months in our infrastructure area.

This is an area that I think is going to, we're going have to continue to invest in.

As we think about the world going forward, there's a greater and greater need for infrastructure in the developing world, in the developed world and most certainly in the US.

And we believe this is a great asset category for many of our investors and so we look at this as an area of extreme growth.

Craig Siegenthaler, Credit Suisse.

Just wanted to circle back on institutional fixed income, specifically LDI, I thought it was interesting that the mandate wins here seem to be really concentrated and passive and not active.

So first, do you think we need higher rates for this wave to really accelerate?

And then will these wins you think reside mostly in the passive business or mixed between active and passive?

Well LDI is a means in which you are trying to minimize risk and I do believe because of the growth in passive fixed income strategies in the ETF area, and obviously in the index side, it's a great product for movement into LDI.

So I would say there would be a higher propensity for investors seeking passive strategies and active strategies for LDI.

But I think you're going to see in some care areas a growth of maybe the unconstrained product areas into LDI also as a way of having diversification in terms of fixed income strategies but you should assume when people go to an LDI strategy they are essentially de-risking.

And a component of that de-risking is staying pretty current onto an index and this is why you're seeing a higher propensity to go into passive strategies.

Thanks, and just my follow-up here on the illiquid alts business which is mostly a retail phenomenon, which specific types of platforms and investor bases are really demanding these products?

And I'm really thinking about both your long/short credit and long/short equity funds.

I'll let Rob talk about that.

So the retail base is very steep for alternatives and so long/short credit, long/short equity, but both global, are important for the retail base and we've launched since 2011 six 1940 Act alternative products.

They continue to raise money.

In the first quarter alone it was $1.4 billion and that's driven, as I mentioned by the long/short credit which has had very good performance as well as the global long/short equity funds.

And each of those has raised over $700 million putting them in the top selling funds.

It's really a retail thirst, and of course that is coming from what else is available to them which is low rates on the fixed income side and sometimes using dividend funds as a surrogate.

So they need that double-digit returns and that's where we're seeing the interest from.

Robert Lee, KBW.

First question is on I guess about a year and a half, maybe two years ago you made a move to combine the ETF with the retail distribution force, and just curious if there's any way of quantifying or color you could give on what impact you may be seeing that have in terms of helping to drive ETF flows.

And do you feel like you're still at the early stages of that or is that kind of in full run rate so to speak?

So we're still at the earlier stages in that and what it gives us the ability to do is have more holistic conversations with our clients because clients on both passive and active, whether they describe that in index funds, ETFs or active portfolios.

So most clients have been focused more on asset allocation and this way, having people that can talk both sides of that conversation really resonates with them, creating portfolios that are much more sticky going forward, or that when there's an asset allocation they will asset allocate within BlackRock because we can offer the full plate of products.

It has taken a while to get that underway because it requires a significant amount of training combining a sales force to have that and also to in a sense upgrade our sales force to be able to talk more holistically.

So while we've seen success, it's still in the early stages and we expect more to come on that.

Okay, great.

Maybe as a follow-up, you've had really strong retail organic growth outside the US.

Can you maybe give a little, provide a little bit of color on maybe by geographic region or country kind of where you're seeing that?

And kind of if there is any specific markets that you're particularly by -- I know there's the business I guess in the UK, but any color there would be helpful?

Rob, it has been very broad-based, that's what's so gratifying.

It's throughout EMEA and Latin America actually, areas of great growth have been really, I would say, the core of Europe, Italy, Germany, Switzerland where we saw very good flows.

So, it just continues to dominate.

And then even in Asia out of those retail flows about $2 billion came from different countries in Asia, so it speaks very broadly about our global footprint and our growing brand recognition in LatAm and Europe and in Asia and we continue to drive a strong position as an independent asset management platform working with our distribution partners worldwide.

But also let me also say what is a key driver to the success is the expansion of high-performing products, whether it's our performance in fixed income, our performance in European equities, active equities where we are in the top decile for five years, and our growing success in Asian equities where we have Andrew Swan now with about two and a half years under his belt at BlackRock with exceptional performance.

So it is about our positioning worldwide globally but it is also, the underlying key component of that success is a growing success in our active product suite.

Matthew Kelley, Morgan Stanley.

First I wanted to just touch on the ETF landscape and there's been a lot of activity for both iShares and competitors, so I'd just be curious how active we should expect you to be on the new product launch perspective and where your efforts are focused both by product and region and where you're seeing the most interest from some of your competitors?

Maybe that's a better question for Rob, but either of you?

Let me just give you a macro view and I'll let Rob get into the granularity of products, the new products, but if you look at, we had real large movements within the ETF space in the first few weeks of January.

We had up to $8 billion of outflows in EM which was pretty disconcerting.

Since then we've had $4 billion of inflows.

But importantly, since quarter end, which is all public, so I can talk about it, we've had $10 billion of net inflows in our iShares product.

So year-to-date we're over $17 billion of net flows, at quarter end we were approximately $7.5 billion.

So huge change in momentum and so getting into the competitive landscape change generally when you have more, I would say more of an international flavor of investing we benefit.

When it's more of a domestic flavor, some of our competitors benefit.

But I would tell you we're in a very good position to remain a leader in the ETF business in 2014.

Rob, why don't you go talk about some of the products that we're launching and we're proposing?

So we focus on what our clients needs are and the changing landscape in the markets.

So we have eight new products already this year, three are currency hedged, two are enhanced international equity products and the other are fixed income.

Obviously there was a very big demand for short duration due to the fact that people, most people think that interest rates at some point have a higher probability of rising, and there's also been a lot of interest in the municipal area.

So we're going to be very opportunistic.

We're going to follow the lead of our clients, and in some cases we're going to grow market share and in some cases we're going to take margin share where we may have been late to the game but we see an opportunity and people respect the brand, our ability to have the best tracking errors and liquidity in the marketplace.

So we're going to go out in both of those, but we're going to continue to be -- have our nose close to the marketplace and we will be very active in new products that we believe that we can have scale.

Okay, great.

And then my follow-up is, I'd just be curious to get your thoughts as a management team on the recent changes to the UK budget and impact on the pension market over there and where you're kind of -- where that -- where BlackRock is positioned to potentially benefit from any of those changes if they come through?

Well, I am glad you asked that because this is a huge opportunity for us and we spent a lot of time and effort developing retirement products around the world and I think you've heard Larry talk a lot about the need for retirement products.

What you're talking about is really the UK pension reform where there will be less money going into the annuity product and more money going into products that are created for retirement.

And as you know you've heard us talk about our extensive US DC experience with our LifePath products and our CoRI products.

We estimate that this opportunity in the UK alone could be about $25 billion in assets that might have gone into annuities that now will be as Gary likes to say, money in motion.

So we intend to put a lot of effort on putting together more retirement products to capitalize on this market.

And I think BlackRock is uniquely positioned because of our multi- asset strategies and our product development specifically tailored to the retirement area of which almost two-thirds of our assets at BlackRock are retirement related.

Chris Harris, Wells Fargo.

Michael Lewis caused quite a stir with his book, it came out this month, and Larry, just wondering where you guys stand on the whole debate about market structure or whether you think the markets are rigged, or whether you think regulators should be doing more to kind of level the playing field if you will.

And just kind of asking this question because given your size obviously you guys have a lot of influence as to how the market structure unfolds.

Well we've invested 10s and 10s of millions of dollars of making sure that the high-frequency traders did not arbitrage us.

We looked at it as a fiduciary responsibility in making sure we always provide our clients the best execution and we only do execution with the reputable counter-parties and market venues.

So this is something that we've been focused on for years.

Obviously it's a piece of -- it's a book that creates obviously greater public awareness and we think there should be greater public awareness on this -- these activities but this is something we've been focused on for years.

It is not, our behavior has been consistent that our job as a fiduciary is to get best execution.

We believe that market structure should always be there to be protecting investors.

We believe in the concept of equal access of information.

We believe in the concept of simplification of order types and message orders.

So this is something we've been living with.

It may be in the public purview, but this has been a component of the market for years and years and years and I think I spoke about this in the past few quarterly updates that we have been vigilant in making sure that we're building adequacy in terms of our trading platform, that we are providing best execution for our clients.

That's what I care about more than anything else that we are there making sure with all the new technologies that we are not being arbitraged or that we have more friction costs in our execution.

Because the high preponderance of our equity holdings are index, as you know we have to be so mindful of friction related to trading.

So this is why we have been very aggressive making sure we have -- that we focus on best execution and I think this is a story that should be discussed but this is a story that we've been aware of for years and have addressed it internally in terms of our platform.

Understood, thank you very much for that.

And just really quick follow-up on the business, you called out the performance of some of your newer team members and they are really having a very good impact.

Just kind of curious to get your thought, how long do think it's going to take for the better performance to really start moving the needle on flows?

Do think it might take something like three years to really start getting a lot better or in your experiences could we start seeing a bigger --

I want to say bifurcated market, in alternatives you could have no track record and announce a strategy and if the strategy makes sense, we've seen this in the marketplace, that people are able to raise money.

So it really depends on the product itself.

We are beginning to see some nice flows and certainly much more dialogue in our Asian equity platform where we have just under a three-year track record there.

It takes more than a year for the key I would say product like large-cap core and large-cap value and it may be three to four -- two to three-year type of process.

After three years I think you then get on many buy lists across the board.

Some of these teams though actually have joined us --

Have carried.

Have a following so even though they didn't have a track record here, they're bringing with them track records so we are, now that they're on board we're seeing those people be more willing to move now that they know they've settled in with us, so we will see some flows from there as well.

And that's a very -- that's a key if they continue to have the performance that they had at their prior place we can benefit early.

But in terms of our witnessing what happened in fixed income, in that case it was really more than a three-year process in which we needed to reprove ourselves because we had such a strong position in fixed income, we lost it, and it took three to four years of building that team back and building the performance back.

I don't think there's any one straight line that's the way that we could review all the different products, it really depends on the circumstances around the team and the product itself.

Marc Irizarry, Goldman Sachs.

Larry, can you talk about the growth of fixed income on constrained?

And it's interesting that you're now seeing I guess some institutional interest for SIO.

Is that a trend, number one, the expected institutional interest will continue to drift toward unconstrained?

Are you seeing that maybe with allocations?

And then relatedly, are you concerned at all about capacity and maybe trading friction in fixed income as the quest for returns and yield goes more sort of off index if you will?

Unquestioningly we are in more dialogue with more public and private institutional plans than ever before on the concept of some form of unconstrained.

It may not just be SIO, there are other products, we have FIGO, we have other types of products, so we are -- and we're looking at creating more unconstrained type of products so it may not just be in one.

And we're beginning to see more interest on the defined contribution side for unconstrained.

So I think this is going to accelerate in a very large way.

Unquestionably, any one specific product like an SIO will have -- this could not be $100 billion fund, it was never designed to be something like that, but do we have quite a bit of bandwidth and capacity for the near future?

Absolutely.

So we're not concerned about capacity at the moment at any one of our products, but this is just beginning this groundswell towards movement towards an unconstrained type of fixed income product.

I think this will accelerate and I think it will become a very large -- well it is a very large component of our dialogue with institutions worldwide today.

The second part of your questions, Marc, did I answer that?

Just in terms of trading --

Trading friction costs.

There's no question as balance sheets of the dealers are more contained you see wider bit of spreads in fixed income.

I don't think this is a long-term problem, it may be a short-term problem.

It will move, it will create more movement towards exchange trading for fixed income, and I do believe this is one of the reasons why more interest in ETFs in fixed income.

So you don't have to focus on a bond, you could focus on ETFs that have maturities or ETFs that are connected to benchmarks.

And so this is one of the reasons why we think fixed income ETFs will grow dramatically over the course of the next few years.

There's no question there is times of great illiquidity in fixed income as dealers have cut back their capital associated with fixed income, and at times it represents larger friction costs then other times but I do believe that will create a faster evolution towards more exchange traded fixed income platforms.

Michael Carrier, Bank of America.

Gary, maybe a few number questions, so I think you mentioned and we saw it in the release just on G&A there were some items, real estate benefit, and I think non-op gains were a bit elevated and then same thing with performance fees.

I guess any color around some of those lumpy items.

Sure.

So on the G&A expense, as we mentioned the current quarter reflects what we call a dilapidation reversal which is a function of some building we have over in London that obviously artificially reduced expenses for the quarter.

As we also mentioned there was some lower expense due to timing of just spend, the most major component there is our MMP spend that we called out on a variety of quarters.

The fourth quarter as you know was actually impacted in many cases by the opposite so we had higher MMP spending during timing, we had some lease costs and a variety of other accruals.

So I think if you listened carefully, which I'm sure you did in the fourth quarter, we tried to walk you through what portion of our fourth quarter G&A increase was kind of tied to our continued growth of the business and we really haven't changed our view on that at the moment.

So I think that the type of analysis you guys generally did in the fourth quarter looking into the first quarter we still stand by.

On the non-op side, you correctly mentioned that the non-op was driven by the monetization of a non-strategic opportunistic key investment.

That was really tied to some years ago where we have a little bit of a different strategy around potentially growing our alts business which obviously has changed at the moment.

And so I would say again there that the Street generally was fairly consistent in terms of its estimates of our non-op with the exception of that one-time item.

And I think on performance fees we really talked about it.

We mentioned in the fourth quarter, this is really the final piece of that liquidation and at the moment we would expect most of the performance fees to be generally recurring in nature tied to our core alts business.

As he think about the alts business we are going to have return of capital, successful monetizations of these things, this is the normal course of business in alts, and this is why we have to continue to have an engine of growth with new products and this is one of the key components.

In connection with that again another $1 billion of commitments that were in the quarter which takes that up for it now five consecutive quarters.

So keep in mind that those numbers are not hitting our net new business flows until the capital is actually deployed and once that capital deploys it then obviously becomes available hopefully to generate performance fees in the future.

Ladies and gentlemen we have reached the allotted time for questions.

Mr. Fink, do you have any closing remarks?

Just thank you for your commitment and investing in BlackRock.

As I said earlier, I think the quarter is an example of the diversification of our business model, of having a strong presence in active and passive, in fixed income and equities and alternatives, and it really shows up quite well in our first quarter.

And probably the other two major points I would like to leave everybody, during the course of the quarter as we had this extreme volatility in market movement, everyday during the volatility we had consistent inflows which leads me to say that much of the market movement was more of a hedge fund oriented fast money type of behavior.

Long-term investors were committed to putting money to work and we saw no change in investor behavior in the first quarter.

Also as a statement towards as we look towards the second and third quarter we have never been in more active dialogue with more clients with more consultants, with more distribution Partners about BlackRock products probably in our corporate history.

And hopefully we can show you at the end of the second quarter that those dialogues turn into commitments.

Once again thanks for all the support and I want to thank all the employees for all the support.

Thank you.

Thank you.

This concludes today's teleconference.

You may now disconnect.