Blackrock 1Q17 Earnings Call Notes

Laurence Fink – Chairman and CEO

Investor confidence has partially changed

“Over the past year, global events have had a significant impact in markets and investor sentiment. Following the presidential election, US equity markets surged to an all-time high driven by expectations for fiscal stimulus and regulatory reform, and reflation expectations have been steadily increasing, although, there is still uncertainty about healthcare, uncertainty about tax and trade reform, when they will be ultimately be implemented in the United States and investor confidence has partially changed. There are significant issues related to tax reform, infrastructure spending, and so we need to see how this all evolves. We are still optimistic, but we have to see how these all evolve.”

Unclear how social and political agendas will play out

“Strong first-quarter equity returns have been driven by a synchronized recovery in global economic growth with the sharpest recovery seen internationally. However, it is unclear how social and political agendas will play out, particularly in Europe ahead of several elections, which is creating even more market anxiety. Furthermore, if the dollar remained strong following a period of significant appreciation we could see further headwinds for dollar-based investors with global portfolios.”

Fee rates are coming down

“I mean, look Bill I think fee rates going down, I think as a reality of what’s happening some of that is mix shift some of that is changing regulation in terms of distribution. Some of that will ultimately, will all accrue to the benefits of the end client. I think ultimately this comes down to our ability to generate sustainable alpha I think if we can generate sustainable alpha in a way that in some ways kind of captures three to four time the fee overtime I think will be fine. If we are in a period of significantly lower returns and lower sustainable alpha then obviously I think the fee rates are going to have to come down accordingly.”

Long term returns are structurally lower

“long term return are structurally lower than they were 10 and 20 years ago. So if you have an expected long term return of let’s say 6% which many people think there might be high when you look at balance portfolio? Fees take up a lot of that return. And as long as we believe the world is going to be in a low return environment our clients are under a lot of pressure. And clients are looking for different ways of seeking those outcomes. And this is why I actually believe why more clients are coming to us now because they have the structural problem. Their liability or their actuarial needs are greater than they can earn with our asset base and so they are looking at them or they are looking to have less expensive product but they are looking for a much more holistic solution and I think the era where a manager sold a product a sole product that is what’s being threatened today.”

This is why hedge funds are closing

“I think this is one of the big issues around hedge funds and why we are constantly reading about some hedge funds closing some hedge funds are lowering their fees because the fee structures are just too large versus the returns on a risk adjusted basis that they are achieving so this is a broad based issue. It’s not just in the wealth management area. It’s across spectrum of clients. I know I am belaboring this point but I think it’s a very important point but this is the environment we all live in.”