Blackrock 3Q14 Earnings Call Notes

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This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Volatility is likely to continue

“We’ve seen some meaningful shifts in market dynamics since we spoke last quarter. Diverging monetary policy, changes in global economic growth expectations and heightened geopolitical unrest all impacted the investment landscape and resulted in higher volatility in both asset prices and currencies in the past few weeks. And that volatility is likely to continue, as conflicting Central Bank policies and questions about the timing and magnitude of U.S. interest rate hikes led to an ongoing market uncertainty.”

It may take longer to stabilize Europe than people expect

“I believe it’s going to take longer to stabilize Europe than many think and we’re likely to see an aggressive ECB behavior for a long time.”

We’ve never had a centralized CIO

“This team based approach is a critical differentiator for BlackRock. We do not and never had have a centralized CIO. We don’t have a house view where any one person is setting a single investment strategy for our platform. Our process enables our teams to make independent portfolio of construction decisions to meet client objectives. That may result in differing performance for our clients at times, but it means we don’t have an overwhelming bias towards one strategy or an another and we minimize the risk that entails – that it tails.”

iShares assets have nearly tripled in the last five years

” when BlackRock acquired BGI five years ago. BlackRock’s global iShares assets under management were $385 billion. I’m proud to say that BlackRock’s iShares closed the third quarter with nearly $1 trillion of assets under management.”

Scale is not impacting ability to raise assets

“we have not seen one example where our scale is and our presence with our clients are being impacted. We actually won some business from one client already in the DC side, where when we did the BGI merger, they were concerned about our large presence within their plans. Over the course of the year as they become accustomed to our large presence, and they’ve indeed since then have awarded us more business, well we’ve been awarded more business again from them. So we’re not seeing any evidence of that at the moment.”

It’s still too early to tell how much in flows they’ll get from PIMCO

“It’s still too early to determine how much is growing. It’s fair to say there is a sizeable opportunity. It’s in the tens of billions of dollars. We’ve seen recent strong momentum, but it’s going to play out over quarters and maybe a year. And as I said, it’s going to be in the core fixed income strategies, it’s going to be in unconstrained fixed income strategies. You may see people, I think there is evidence of that, you’ve seen some people moving into ETFs and maybe there’s a holding pattern. But I just want to underscore, we’re seeing this type of flows because of our five years of performance.”

Liquidity in bond markets is a problem. We need to address this issue

“I think there’s been some great consistency across the fixed-income market. With that said, we are [ph] worried (01:01:13) about the liquidity in the fixed income market especially in the corporate bond area, where there’s just so many different CUSIPs and so many different issuance and there’s no consistency. And importantly this is the big role that the investment bankers and Wall Street played in terms of providing balance sheet, and navigating your positioning within the fixed-income universe and that balance sheet has been reduced significantly.

And so it does at times present liquidity issues. This is why we have been so loud in stating that we need a more expedient adoption of electronic protocols and markets. I do believe this is one of the areas where regulators need to focus. I spoke about this at an [ph] IMS (01:02:16) session this past weekend, but I think it’s imperative that we focus on this. As the regulators have put more capital demands on banks, by definition the capital markets are playing a larger and larger role in terms of financing corporations and financing different organizations.

With that in mind now, we need to be focusing on how to improve the capital markets and making sure they provide a stable mechanism for buying and selling securities. And we’re in this transition phase right now, and the faster and sooner we have this adaptation of electronic trading, the sooner we have standardization of some form of corporate bond issuance. And then importantly, we need behavioral changes across the board. This is going to take time and so the worry we have is, do we have enough time before there is a true liquidity event that really destabilizes the market. And this is why I said in my prepared statement, if we need to be working with regulators to make sure this – we have a more stable trading environment.”