Blackrock 1Q16 Earnings Call Notes

Laurence D. Fink – Chairman & CEO

Smart beta is a priority

“The second priority is smart beta, BlackRock is investing in factors and factor products that we believe will become increasingly important as asset allocation tools and alternatives through traditional beta or lower outlook capture active strategies and BlackRock now manages more than $125 billion across a range of factor based solutions.”

DOL fiduciary rule will have an impact on our business

“Last week the Department of Labor published their Fiduciary rule which has implications for our clients and our own business. While we’re currently reviewing the final role to thoroughly assess its implications, we are likely to see changes in our distribution partners’ accounts and fee structures, their product preferences and importantly their use of technology, to both build portfolios for clients at the manager increased risk and most importantly their compliance needs.”

DOL rules may give investors more confidence which would be good because they’d invest more

“If they believe the DOL rules will give them better transparency, better certainty that we are treated like, and they invest more money for the long run. It’s better for the country, it’s better for their financial future and it’s really very good for the entire industry. And I think that message is totally lost in the conversation.”

The need for more technology to manage risk is greater than ever

“can’t underscore enough how the ecosystem is changing, that’s going to require more of capital market participants of your insurance company or asset managers, they are going to — the need for better risk management technology is slowly increasing. The need for better interfacing with clients is only going to be more and more important”

The utilization of fixed income ETFs is going to be larger and larger in the coming years

“As ecosystem of bonds and secondary bonds and liquidity continues to be changing and we are seeing phase of more illiquidity. The utilization of ETFs has a mechanism to find liquidity and to have the ability to navigate the factors that impact valuations of fixed income whether that’s duration or in subsidy or credit, a navigation with the utilization of ETFs is going to — it enhances the opportunities for returns and so we believe as I said in my prepared remark, the utilization, the implementation of fixed income as a fixed income ETFs as a component of the fixed income strategy that clients are employing are going to be larger and larger in the coming years.”

Gary S. Shedlin

Everyone focuses on adjusted results

“I’ll review our quarterly financial performance and business results. As usual, I will be focusing primarily on as adjusted results.”

Remain extremely expense aware in current environment

“we remain extremely expense aware in the current market environment, and we will continue to be prudent with our discretionary G&A spend.”

In challenging markets, need to be smarter about decisions

“we’re all mindful that in challenging markets as Larry and I both have said that we need to make tougher and smarter decisions especially when it comes to reallocating those invest dollars.”

Clients are not going to be able to meet their liability needs in this interest rate envrionment

“negative rates, if you think about 70% of our clients more, our pension funds, I was some form of retirement and insurance companies. We hear worldwide how negative interest rates or low interest rates have been impactful in how they are actually harming their objectives of attaining an asset base to meet their liability needs. In fact last week, we were with one of the largest New York State funds, a U.S. State funds, not in New York State funds, one of the largest U.S. State funds it happened to be in New York City after our meeting we had and they were in the top deciles of performance last year and because of lower negative interest rates and their discounting rate, they actually deteriorated their asset and liability gap. We’re hearing this worldwide, we’re hearing from savers worldwide they’re not going to meet the needs of building their pool of savings to meet the needs of retirement. We’re hearing some insurance companies that they’re going to have a really hard time meeting their liabilities.”

We need a fiscal policy response

“I believe a lower negative interest rates has served a great purpose in the short run. But I don’t believe lower negative interest rate was supposed to be a permitted feature of the investment landscape. We are now entering the eighth year, and I believe that we are going to have a stronger more robust economy and the IMS has lowered their forecast even more, all right. I think the fifth time in a row we are going to need a policy of responses by governments. And I think the dependency on Central Bank behavior is one of the problems that we have in the world and we need policy of response by governments related to fiscal policy.”

It’s incredible the amount of money that’s sitting in cash earning zero

“I think it’s actually quite incredible the amount of cash that’s sitting in banks today, earning zero and that money has typically vanished from the fixed income market. ”

Robert S. Kapito

Smart Beta is a way to add alpha

“Well when there are you know when we have this type volatility people are looking to add alpha in other ways. And the smart beta category is one of these ways. We have made some very substantial hires in this area. “