Blackrock 2Q17 Earnings Call Notes

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Lawrence Fink

State of the Markets

“While significant cash remains on the sidelines, investors have begun to put more other assets to work and global equity markets continue to rise in the quarter underscoring a generally healthier global economy and proving that so far markets have been resilient the political shocks. Through the second quarter the S&P was up 8% year to-date reaching all-time highs and many international markets have even outperformed. At the same time while markets have started to anticipate a normalization, a policy in the environment of sustained expansion, negative yields remain a reality in some countries and expectations for a continued low yield environment persists. And while amounts of cash is still are un-invested and the ongoing risk of both economic and political disruption on the horizons, investors continue to face challenges in meeting their clients future need.”

Using machine learning to generate better sustainable alpha

“Technology will impact all aspects of our business, the way we generate alpha, the way we build portfolios, the way we manage risk, the way we distribute solutions, the way we engage with service providers, the way we operate and even the way we source talent. Aladdin’s portfolio and risk management technology continues to be in demand by institutional clients looking to invest and operate smarter and with more efficiencies. We now have nearly 200 institutional clients using Aladdin. Our investment teams are combining big data and machine learning with traditional fundamental human analysis to generate better sustainable alpha for our clients. As portfolios become increasingly complex and interconnected, we are leveraging our analytical and risk management technology to create more sophisticated and more scalable portfolio construction. Asset allocation and risk management tools for wealth management. Our first three Aladdin risk for wealth management clients are now live and they are benefiting from the Aladdin technology.”

Opportunity to get more people into securities markets in Europe

‘One thing I would say the key issue for Europe is over 72% of all savings is in cash in Europe. One of the great reasons why PE ratios are lower in Europe than the United States is most savers are only in cash and bank deposits. If through regulatory changes, through digital advise, through low cost alternatives, if we could provide Europeans with a better alternative that they look towards for investing overall a long horizon by being positioned there with digital technology with our iShares brand in Europe, I think we are as well positioned as any firm in the whole continent.”

We continue to believe in active management

“So, look we continue to believe in active management. And as clients focus more on outcomes, both the active and the index are going to play a role in portfolios to drive returns. So, we announced changes to our active equity platform in March. These changes were not effective until mid to late June. So, it’s a little early to tell and see any material progress from the re-org of both flows or financial advice, but as anticipated we saw some accelerated outflows from the funds impacted by the changes, which contributed to some of the active equity outflows in the second quarter. ”

Technology is changing every industry in the world

“I would argue in every industry in the world today technology will be changing how we operate, how our clients operate and if we are not aggressively trying to be providing technology to interface with our clients better, technology to create more efficiencies as we operate and technology as we think about how to get better insights we will be – we will not provide the information and the ideas to our clients. And I believe we need to be driving this faster. And I do believe as I said for quarter and quarter and quarter I believe through this relentless investments we are able to secure deeper, broader relationships with more clients worldwide.”