Blackrock 4Q16 Earnings Call Notes

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BlackRock’s (BLK) CEO Laurence D. Fink on Q4 2016 Results

The global economy began to show signs of optimism

“2016 was a turbulent year for investors, whether institutions or individual investors, one that no one fully predicted. Global political events like Brexit, the U.S. political — U.S. presidential election and the Italian referendum have forced many of our clients and also our self to rethink our assumptions and our perceptions of the world. Even with some political surprises, the global economy began to show signs of optimism throughout 2016. The U.S. equity market surged to all-time high as expectations for fiscal stimulus, reflation, and tax and regulatory reform has sparked investor optimism and enthusiasm.

Accomodative monetary policy may subside faster than many have anticipated

“The Fed’s decision to raise rates in December and the signal of additional hikes in 2017 suggest that the long period of accommodative monitory policy in the U.S. may finally subside at a faster rate that many have had anticipated.”

Many markets haven’t fared quite as well as US equity markets

“However, uncertainty and the wave of populism upending the political status quo persist. And despite the rally in U.S. for domestic equities since we’ve had our U.S. election, many of our investors are seeing a very different performance in their other markets. As Gary suggested, we see negative fixed income markets. We see underperforming international equities and a very strong dollar, which means for the dollar based investors with broad global asset allocation such as pension funds, the fourth quarter was more challenging than the market perception.”

I think you’re going to see more clients using ETFs for active returns

“I believe investors are going to continue to rethink their approach to active benefit; they may now move more towards factor-based strategies; they may have asset allocation or portfolio construction, but I do believe, we’re going to continue to see a drive using ETFs for active returns. We’ve been purposely investing in our platform to provide our clients with a full spectrum of offerings and to enhance alpha generating active strategies.”

Institutions were pausing but they put some money back to work in the fourth quarter

“In terms of institutions, I think into the fourth — we said in the third quarter, institutions are pausing. They put some money to work in the fourth quarter; they put a lot of money to work at BlackRock in the fourth quarter. We’re having deeper dialog with more institutions today than we ever had. The dialogs we’re having with some very large insurance companies, pension funds worldwide are very encouraging whether they act in the first quarter, the second quarter of 2017, we’ll see. But I do believe clients are reassessing their liabilities in the form of pension funds, clients are really looking at what their liability rates and the terms of insurance companies, they’re looking at their asset allocations accordingly now and how they’re going to do it, for insurance companies rise of interest rates, steepening of the yield curve is very positive and many insurance companies, I think we talked about early last year were short their liabilities, they were anticipating higher rates, and now with higher rates, some of them are putting some money to work.”

People are using passive strategies that are very liquid so that they can navigate around markets to take active exposures

“”In terms of the asset allocation, we are having dialogs with some clients right now; we’re talking more about alternatives. Rob Kapito has had two conversations with two large states in the last week about a bigger allocation in alternatives. So, I don’t want to suggest there’s one macro trend and one way of looking at asset allocation but I can say we’re involved in a lot of very deep conversations. And I do believe the market is still misunderstanding how people are using passive strategies. They’re not just using it because they want to be indexed; they’re using passive strategies that are very liquid that they can navigate around markets to take active exposures.”

We’re talking about outcomes rather than specific products

“I’m always disappointed of how much money is sitting in the sideline. And I believe at the end of every year, we talk about this that we need to have more of our clients, more of our investors to focus on the outcome investing and not whether the market’s rich or cheap, because that gets caught up and getting in out of the market and therefore missing big market movements, and this is a big issue. I believe this is one of the reasons why we’re having deeper dialog with our clients because we are talking about outcomes, we’re not talking about a specific product; we’re not talking active or passive. We’re allowing our clients to make those decisions, whether they should have a bigger allocation and passive or active. We’re making our clients determine whether they should be in high yield or unconstrained bond plan. We’re allowing our clients to work on how to navigate; we’ll give them input about what we think. But I do believe the fourth quarter of 2016 positioned us well because of how we’re constantly, repeatingly talking about solution-based relationship.”