Good morning. My name is Jennifer, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock, Incorporated Second Quarter 2016 Earnings Teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink; Chief Financial Officer, Gary S. Shedlin; President; Robert S. Kapito, and General Counsel, Christopher J. Meade. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer period. [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

Thank you. Good morning, everyone. I'm Chris Meade, the General Counsel of BlackRock. Before we begin, I'd like to remind you that during the course of this call, we may make a number of forward-looking statements. We call your attention to the fact that BlackRock's actual results may of course, differ from these statements. As you know, BlackRock has filed reports with the SEC which list some of the factors that may cause the results of BlackRock to differ materially from what we see today. BlackRock assumes no duty, and does not undertake to update any forward-looking statements. So with that, let's begin.

Thanks, Chris, and good morning, everyone. It's my pleasure to present results for the second quarter of 2016. Before I turn it over to Larry to offer his comments, I'll review our quarterly financial performance and business results. While our earnings release discloses both GAAP and as adjusted financial results, I will be focusing primarily on our as adjusted results. Clients are struggling to navigate an incredibly difficult investment landscape. Notwithstanding the recent market rally over the last 12 months, many global equity markets were down double-digits and interest rates touched historic lows worldwide. The current macro environment including negative yields in many jurisdictions, Brexit and U.S. election uncertainty is causing clients to defer investment decisions resulting in significant increases in global cash balances, lower active flows, and a shift from equity to fixed income assets. This environment is also resulting in lower revenue capture across the asset management industry. In times like this, growing and evolving our business are critically important, as client needs for our investment advice and risk management capabilities are greater than ever. BlackRock is having richer dialogues with clients than in any time in our history, and we are well-positioned for growth when client activity accelerates. Last month, at our 2016 Investor Day, we described how BlackRock is built for change. Our strong foundation drives consistent financial results and stable cash flows, enabling us to fund innovation and invest in new growth areas. This is critical to clients, especially during volatile times when other investment managers may be forced to pull back, and to shareholders, as we have an opportunity to win market share. During the second quarter, strength in our global investment platform and Aladdin risk management business, coupled with continued expense discipline enabled us to continue investing in our business despite market headwinds…

Thanks, Gary. Good morning, everyone, and thank you for joining the call. As Gary mentioned, our clients are facing unprecedented challenges as they attempt to navigate the current investment environment which I'll describe in more detail in a moment. While this has caused many of our clients to pause their investment activity for the moment, it has also led to a more and deeper conversation with our clients than ever before. They are seeking our advice; they are looking for our investment solutions and are wanting the risk analytics and technology that BlackRock can uniquely offer. We are better positioned, I mean, we BlackRock, are better positioned than we've ever been to deliver the solutions they need. Political and macroeconomic uncertainty including Brexit, the upcoming elections in France and the United States, historically low yields and elevated market volatility, regulatory pressure including the DOL, Solvency II, these factors and others are leading clients of all types to pause, as they assess both their own needs and their investment options available for them. Our pension clients with 7%-plus return expectations are facing an ever-expanding liability gap. Our insurance clients with significant regulatory constraints cannot make their business models work in a zero yield environment. Sovereign wealth funds have been forced to focus on liquidity and funding needs after years of rapid growth, and individual savers are wrestling with a choice of too much risk versus too little return, as they face the prospects of their own underfunded retirement plans. Where can clients turn to address these challenges? Today, there's $10 trillion of sovereign bonds that are delivering negative returns and negative yields, yet central banks continue to be buying, and global derisking continues to bid up fixed income prices. Active equity managers as a group have underperformed over a multi-year period,…

[Operator Instructions] Your first question comes from Michael Carrier with Bank of America.

Hi, Michael.

Hi, Larry, how are you doing?

Good.

Larry, just a first question, I think everyone – when you look at BlackRock, and you look at all of the products that you guys offer and you’ve proven it over time, in terms of the organic growth that you’re able to generate. So this quarter, it’s a bit surprising, but the backdrop has been anything but normal. But when you think about some of the comments that you made, particularly on the institutional side in terms of flows, you look at all of the cash on the sidelines, yet you look at where equity valuations are, where yields are, when you are talking to clients, is there a risk for the industry that we see a lot of money remaining on the sidelines for a period of time, just given the lack of opportunities? Or do you think that there’s still enough – I don’t know conversations or drive to allocate some of this cash into other solutions that can still generate some attractive returns?

Sure. Well, first and foremost, clients want to put money to work. They’re pausing, that’s certainly true. I think we’re seeing an anomaly right now. We’re seeing – if you look at our ETF flows since Brexit, I would say the majority of those inflows are probably are institutional. Because at the same time, I’m sure you’re looking at the data, there’s still outflows in mutual funds which tells you, obviously retail are still selling, but that the divergence is quite stark, and shocking to see that type of differential. The dialogues we’re having with clients are, as I said as robust as possible. Some clients are looking to put money to work. The issue is some clients who have regulatory issues for capital issue, investing in bond yields at this time, it gets it more difficult. Some of them are looking to invest in dividend stocks. And so, I believe we’re going to see more unlocking of money over the course of the next 12 months. I can’t predict whether it’s the third quarter, but I’m particularly surprised at the sheer volume of inflows in iShares in the first 14 days of the month, which is public so I could talk about it. And the dialogue we’re having institutional and we’ve seen good flows in, and awards in alternatives already this quarter. So it is not as – I wouldn’t call it to be as systematic and easy. It is more periodic and idiosyncratic depending on the clients needs. But this is a time for us to be in front of our clients more than ever before, as they are questioning their asset allocation, where should they put money, how should they think about it? And so, Michael, I can’t predict one quarter over another. But what I can say, over a long period of time, there is huge pent-up demand, and I believe we will be more involved than ever before. I can’t say that about the industry though.

Your next question comes from Craig Siegenthaler with Credit Suisse.

All right, Craig.

Hey, good morning, Larry. With rates now at zero, and actually more like negative across a decent, out of the spectrum, I’d imagine there’s a lot of pent-up demand for alternatives, infrastructure, et cetera. What’s your thought on that? When are we going to see some more of this money move, and how is BlackRock positioned for that?

Well, I think we’ve been consistent in saying we’re continuing to grow our illiquid alts business. I said, just from the last question, we have been awarded one or two mandates already this quarter in the alt space. I think across the board, we’re well-positioned. It really depends on what category. You mentioned infrastructure. We have a huge emphasis in this. We are continuing to hire people there. We are in dialogue with many different parts of the world related to infrastructure investing. As we find those investments, it’s very easy to find the capital. So as you know, we have a $30 billion real asset platform, $15 billion in fund to funds of private equity. We continue to see growth in private credit. We’re well-positioned in some of these products. Other products, we are not as well positioned as others. But importantly, I could say with absolute confidence, the positioning we have in the alt space with our clients has never been more robust. And obviously, we are not as – in some of the platforms, we’re not as strong, because it was not one of our core competencies 15 years ago, and we’ve been building it. We did a – we have an institutional client survey. And in that survey, we did determine that 53% of our clients are going to be reallocating more into alts and real assets. So I think that feeds what you just asked. And so, we believe we’re in a very good position for it. I would argue though, some of the asset classes, the reason why they have done poorly in the alternative space is, because there’s so much money chasing this, so few investments.

Craig, just recall that when you look at the numbers that you see, it’s a little complicated, because remember we’ve got commitments coming in, that don’t impact on net new business for the quarter. But we have return of capital going out that does impact our net new business for the quarter. So on a – if we kind of normalize for that, in terms of the institutional business for the quarter, we did see NNB we did see NMV before return-of-capital of about $825 million, let’s call it $825 million again infrastructure pep in BAA that Larry mentioned. And we also did institutionally, another $700 million of commitments in the quarter. Again infrastructure opportunistic credit, NBAA that I think was critically important. Our total today is about $10 billion of uninvested, but committed capital. As you know, we’ll hit NNB as the assets go in the ground.

Your next question comes from Alex Blostein with Goldman Sachs.

Hey, Alex.

Thanks. Hey, Larry. Good morning. So I was hoping to zone in a little bit more on the active fixed income business for you guys. I guess, A, just a little bit of color around the reallocation you highlighted in the second quarter, where there was a kind of one-off event. And then, just broadly given the negative yield dynamic that you burned off earlier, was just hoping you could comment on your unconstrained bond platform? Because it sounds like that’s the product that could solve some of the issues? And the uptick has been good, but perhaps a little bit slower the last couple of quarters. So maybe you can comment on that as well? Thanks.

Rob, why don’t you – ?

Yes, so let me give you a little bit of a deeper dive on the fixed income results for the quarter. So clients continue to search for a yield in a low rate environment. And in the quarter, we saw significant equity market volatility. So fixed income has remained the critical component of most client’s portfolios. We continue to have very strong performance across our fixed income franchise, with 80% of assets above the benchmark or peer median for the three year period. iShares had $10 billion of fixed income net inflows, and that was driven by strong flows into investment grade corporates, broad U.S. or EM debt and TIPs. The fixed income ETF industry recently reached by the way, $600 billion in total AUM. And that’s doubled over the past four years, and our own franchise is north of $300 billion. And we see significant opportunity to increase the penetration of the $100 trillion global fixed income market. Now to drill deeper, just on July 7, to give you an idea, LQD, which is our corporate bond fund, took in $1.1 billion of net inflows. And that was a record daily inflow for a corporate bond ETF. So on the retail side, the fixed income business continues to be strong, and it’s led by total return, and it’s also led by our strategic municipal offering. We saw $2 billion of net inflows into retail active fixed income. And on the institutional side, the active fixed income net outflows of $7 billion were driven primarily by client reallocation activity in Asia-Pac and in the U.S. And clients continue to come in and ask for presentations on strategic income opportunities. The reason being, giving the portfolio manager more tools, more ability to find different types of fixed income securities with lower risk, but higher returns in a low interest rate environment. So we believe that area of the market is going to continue to grow, as well as from the iShares fixed income side.

Your next question is from Bill Katz with Citigroup.

Good morning, everyone. Thanks for taking my question. Just to switch gears a little bit. Big picture Larry, I guess, there’s been some talk coming out of DC, about some building liquidity constraints, or requirements for mutual funds. I was wondering what you could share with us, or maybe what you’re hearing, and what the implications might be across the business, if any?

Well, I don't know much more. As we said in the last quarter, we are supportive of rules that enhanced investor protection. We are highly enthusiastic with roles that give more confidence to investors that they believe at a level playing field so they could invest. And if we can see that confidence build and unlock some of this huge cash holdings, we're in a very good position. So I want to put that into context of what is being proposed. We certainly don't know the end results of how liquidity is going to be addressed, the disclosures related to liquidity, we know in the proposed document that the SEC is looking at, different buckets how you analyze and risks they are going to set a limit to, the illiquid bucket of 15%. Overall, we have been very supportive of these rules and we believe there is a need for better disclosure related to the composition of all portfolios. As you know, we have been founded on a culture of understanding and managing the risks and importantly, it is rules like the liquidity rule or even the DOL rule that I believe some of the foundational reasons why we see accelerated interests and having a dialogue with us in a risk platform or risk technology for Aladdin. So I don't know much more than that Bill but we are a constructive participant in the dialogue with the SEC and we hope that we have that transparency in all the funds and understanding so people – investors can understand what are the embedded liquidity risks in these funds and we don't know how they are going to respond to the differentiation between a mutual fund and ETF or how they look at them differently. So we don't know enough and we will wait and see when they come out with a final common period, final proposal for another common period.

Your next question comes from Eric Berg with RBC Capital Markets.

Hi, Eric.

Thanks so much. Good morning. Given that there has been a decline in the quarter or a decline in the retail business but the iShare business in terms of your last 12 months organic growth remains as strong as ever. Is it possible here that what we're seeing is less a slowdown in the – in investor interest and more just a continued shifting of investor interest, not a slowdown in retail investor interest but just a continued shifting of investor preference from active to the iShares?

Well, I think that that is a trend, that is a trend, but I think it's more than that. I think it is as I said, I think some of the great growth in the fixed income ETF platform is related to the illiquidity in some of the marketplaces – if people are looking for exposures, they can go buy an ETF for that type of exposures. But we believe the marketplace – like we do agree with the notion of what BWC has suggested, that ETFs are going to continue to grow, and maybe double in size. I think the big thing Eric, maybe a bigger issue is, we're seeing a redefinement of active. As you heard, we're making our investments – our investments are our smart beta which is a form of active, it's not – we call it tethered active but it is a form of active. We are talking about using factors as analysis and our minimum volatility ETF is a great way of getting Active – some form of active returns through a ETF platform. So I think its technology using different instruments like ETFs. Like more importantly, I think preferences are changing so the old way of investing maybe just as in categories of market capitalization is certainly going to be changing. And so I think it's more than just a preference out of active into passive. I am a big believer that active will play a role in the future, so let's be clear about it. We believe whether it is – alternative is an active product. We are a big believer that and in some categories like in Asian equities and components and European equities and in some areas in the U.S. equity market where active returns can and shall outperform it's…

Your next question comes from Robert Lee with KBW.

Thanks. Good morning, Larry.

Hey, how are you? Good morning.

Thanks for taking my question. I just wanted to maybe talk a little bit about – go back to the DOL rule and a couple of things around that. I guess the first thing is, I mean it is – even though it's just kind of announced, it is a relatively short implementation or goes effective in next April which means I guess distributors have to decide soon how they're going to deal with it and what that means for you guys. So the first thing is, is there – do you have any better sense of how not so much in terms of more iShares demand but maybe from a cost or expense perspective, how you think this may flow back into BlackRock and your peers, in particular? How does distributor continue to demand kind of payment for access in a DOL world? And then maybe related to that, you did develop the Aladdin for Wealth Platform or adopted the Aladdin platform for the Wealth market; kind of curious to any update on how you're seeing the uptake on that or potential uptake on that platform in the Wealth Management market?

So – really good question. I don't' have much better insight than probably you do at the moment. We are having constant conversation with all our distribution partners. There are some partners who believe the DOL will be revolutionary for their business and there are some of our distribution partners who believe it's evolutionary. It does mean change for the business, and I think we're very well positioned for those changes in the business. As I said it in our first quarter results that once again, if better understanding, better outcome for the ultimate investor which leads to more investable assets out of cash, that's all good for the ecosystem of our distribution partners and really good for the asset management industry. Two, I think it's most certainly as you raise the question related to Aladdin for Wealth; most certainly I think the DOL and the responsibilities under the DOL, it's going to need a much tighter risk management oversight culture with all the clients. And we are having robust dialogues with everybody on the uptake of Aladdin for Wealth, and we'll see how that plays out. I don't have anything tangible yet to say but I will say we are in very deep dialogue, and I am very optimistic that there will be uptake for Aladdin for Wealth. And I do believe, as I said, the DOL puts much more responsibility on the firm, on the financial adviser to act in a fiduciary way. There is a big dialogue – as we know that DOL is only about retirement assets, the big dialogue is does that force an upgrading of fiduciary standards for all the business that could be debated among different people. So I don't know what it means as outcome. I think the positive side – so I'm taking this in the long run a positive for most distribution partners. I think they will have – they have to obviously have much more oversight and understanding of the client asset as a fiduciary. But I do believe that they are going to have more centralization. I think they're going to have almost more like the European model where you have CIOs who determine which mutual funds, what platform. And as you know because we talked about the European experience now for at least eight years and one of our strong positioning in Europe with that CIO model. I believe the DOL rule will move the U.S. more to a CIO model. Obviously, we know it's going to move for those that are appropriate work to a advisory model instead of a commission-based model. And for those client that have that advisory relationship it builds a deeper relationship between the client and the distribution partner, and their advisor. And I believe because our scale, our positioning, we will be a huge beneficiary of that positioning.

Your next question comes from Chris Harris with Wells Fargo.

Hey, Larry. I want to come back to the interest rate discussion for a second. We know money-market funds have been waiving fees for some time now just because rates are so low. If medium- to long-term interest rates continue to decline, might bond funds have to start doing similar things? And if they might have to, are we getting close to having to worry about this risk?

Well, if anything, we've had it in that 25 basis point increase in the United States, so actually money market funds in many cases are in a better position today than they were a year ago. You're seeing, as you suggested, a flattening of the yield curve. I actually don't believe, I mean, we saw the 10 year go down to as low as what, 1.35%, and we're at 1.47% right now at I last looked, 1.46%. The two year note is still trading at 66 basis points, or approximately around that area. If the U.S. goes down that path, and we're reversing that increase, and indeed the Federal Reserve needs to ease, that's a whole different issue. I don't see that as an outcome at this moment. I believe the U.S. economy is growing – not as well as we want it to be, but I think we will see a 2% economy this year, which would tell – and we still have plus or minus, a 5% unemployment rate in this country. So despite all of the headwinds and uncertainties, I don't see at this time, a Federal Reserve that turns itself into a central bank that has to aggressively ease. And so, it may delay their path towards normalizing of interest rates, but I don't see any possibility at this moment that they will be forced to going back into an easing mode. I think the actions of the Bank of England today is another good example. Marketplace anticipated an easing. They suggested in their commentary, that they are going to possibly ease in August, and looking for more data. So if the UK growth rate does fall like we at BlackRock anticipate, it doesn't mean it falls worldwide. It moves around. And I would tell you very clearly, the U.S. economy is still, the area where people want to invest worldwide. And I don't see that – I don't see the atmosphere where I have to worry about money market funds in the United States any time soon. I think we're going to live in this environment of low rate for a long time though.

Your next question comes from Michael Cyprys with Morgan Stanley.

Hi, Michael.

Hey, good morning. Just a question on the illiquid strategies, an area of growth that you guys have been flagging here. Can you talk a little bit more about the private credit space, how you're building out that part of the business, and do you feel that you have all the pieces and parts, or would you look to buy anything? And then, if you could just also touch upon some of the demand trends that you see, especially in light of this low rate environment?

Yes, so the private credit business is really one that is very customized, and very specific to the institutional investor, that is looking to find uncorrelated investments in the marketplace that you'd say are a little outside of the box. And we put together a very, very strong team, that has backgrounds in private equity, in venture capital, in credit, and using all of the resources that we have. And you can imagine across BlackRock, there are so many resources and so many types of transactions that we see, we never really had a pocket of money to take advantage of those opportunities. So putting this group together, we have been able to source transactions from all across the globe for these institutional clients, that while they're a little outside of the box, the risk tolerance fits very perfectly. The return profile in most of these cases is double-digit returns, and they are not correlated at all with various parts of the market to basically diversify their portfolios. So the other part of this, which is quite interesting, is that they come in very large sizes. So these institutions that are looking to invest here, are north of $1 billion type mandates. The struggle for many institutions in this, is to get the money invested. We haven't had a problem in finding the opportunities, we just never really went after them. So this is an area that we continue to add resources to. We continue to use and coordinate within the firm to source assets for this, and we’re very optimistic. And quite frankly, when we’re sitting down with a lot of the large institutions, this is exactly what they’re looking for. And I might add, one of the things that we’re going to have Mark Wiseman when he comes in, is also help us to source these assets. Because at his previous job, he is one of the guys that’s in the forefront of the industry that has been able to source, and find these type of investments outside of the box. So they’re very customized, long-term, very large mandates that require a significant team, significant resources. And we have it, and we’re very optimistic on this in the future.

And we have reached our allotted time for questions, and I would like to turn the call back over to Mr. Fink for any closing remarks.

Well, I really truly want to just say thank you for joining us, and your continued interest in BlackRock. I can promise you, we will continue to evolve our business to enhance the differentiating platform of BlackRock’s diverse and global platform. I could also proudly tell you, that our dialogue with our clients have never been deeper, more robust, and when those opportunities prevail, we will be a component of their future allocations. Our relentless focus on always improving the Firm will drive that future growth, and we’ll continue to create that long-term value for you as our shareholders, and I believe we’re in a good position to do that. With that, have a good quarter. Hopefully, it will be a little less volatile in, the remainder of the quarter, but it started off as a really good quarter for BlackRock. Thanks. Have a good one.

Thank you. This concludes today’s teleconference, and you may now disconnect.