Good morning. My name is Jamie and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated First Quarter 2018 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.

Good morning, everyone. I am Chris Meade, the General Counsel of BlackRock. Before we begin, I would 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 lists 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, I will turn it over to Gary.

Thanks, Chris. Good morning, everyone. It’s my pleasure to present results for the first quarter of 2018. Before I turn it over to Larry to offer his comments, I will review our financial performance and business results while our earnings release discloses both GAAP and as adjusted financial information, I will be focusing primarily on as-adjusted results. In addition as we have previously discussed, our first quarter 2018 financials reflect a recent adoption of FASB’s new revenue recognition accounting standard which became effective on January 1. The only significant change relates to the presentation of certain distribution costs, which were previously netted against revenues and are now presented as an expense on a gross basis. For 2017, the new standard resulted in a net gross up of approximately $1.1 billion to BlackRock revenue, a corresponding process to expand and no material impact to as adjusted operating income or as adjusted operating margin. In order to simplify historical comparisons of current and future results, we adopted the new standard on a full retrospective basis and filed an 8-K in late March with recapped quarterly results for 2016 and 2017. All year-over-year and sequential financial comparisons referenced on this call will relate current quarter results to these recast financials. After a strong start to the year driven by optimism related to U.S. tax reform and global economic growth, markets reversed in February and March at escalating trade tensions, inflationary concerns and a flattened yield curve cause investors to pull back. Despite this increased market volatility, BlackRock’s first quarter results once again demonstrate the value of the investments we have made to assemble the industry’s leading global investment and technology platform. The diversification and breadth of our business positions us to serve clients in a variety of market environments helping to drive consistent…

Thanks, Gary. Good morning, everyone and thank you for joining the call. Driven by a strong January, BlackRock generated $55 billion of long-term net inflows in the first quarter representing a 4% annualized organic growth rate and a 5% annualized organic base fee growth in a volatile market environment. These results reflect our ability to deepen partnerships and manage holistic relationships with a more diverse and global set of clients than at any time in our history. Meeting with clients recently in Europe, in Asia and here in the United States, I believe we are positioned with clients has never been stronger. The quality of our discussions our people are having is more robust than ever. BlackRock’s technology and risk analytics and the diversity of our investment platform positions us to have a broader a deeper more robust conversations with our clients about their long-term needs. Following a period of historically low volatility in 2017, the record high equity markets in the first month of 2018, investors experienced the spike in equity market volatility in February and March rising concerns over a trade war and headlines in the technology sector have tempered investment sentiment causing many clients to pause or pullback as it become more uncertain about the future. In addition, the yield curve has hit its flattest level since October 2007 as it spread between 10 and 2-year treasuries has shrunk to just 50 basis points. While the prospects of rising rate tends to push investors away from long-dated fixed income, the flat curve is creating strong relative risk return opportunities in short duration funds and cash management strategies, which we saw clients take advantage of in the first quarter. While global economic growth prospects and expectations for corporate earnings remains strong in the quarter, the ongoing impact of…

[Operator Instructions] Our first question is from Craig Siegenthaler with Credit Suisse.

Hi Craig.

Hi , good morning Larry. Gary, thanks for taking my question here. So over the last 2 years equity ETF flows have benefited from the implementation of the DOL [ph] role which is now vacated and also very strong equity market backdrop which triggered re-risking, I am just wondering how do you look for equity ETF flows to trend here, is there some deceleration as we have this evolving backdrop and also what’s the risk now to equity ETF outflows if we have a large pullback in the equity markets just given that the business is now more mature?

So we are going to be subject to the same cycles Craig that everyone else’s in our active equity flows. But today, we are in a much better position because we have performance and our products are priced properly should be the best value in their class. So as we see cycles move towards active equities when active equity managers can outperform the benchmark including their fees, you will expect to see some flows out of the index product into the active equity product and we should be the beneficiary of that. With the changes in the DOL rules a lot of the financial advisors have been using index like an ETF products to create model portfolios and build those model portfolios with the least expensive products. But as the cycle started to change they will start to incorporate more active products in that both active fixed income and active equities and we should be the beneficiary of that now more than we have been in the past.

Craig I would also add, we have witnessed a big shift from the big financial advisory firms more towards advice. I think that shift is moving more rapidly whether we are guided by a fiduciary rule or not next week, the SEC will be reviewing this. So we will hear from the SEC. But I do believe that changes that we have witnessed by the large platforms has changed how they sell products, I think it’s much more portfolio based. I believe it’s – we will continue to be more portfolio baseless product base, more solutions based, but I would also say they are in confusion as you suggested in U.S., but in Europe it’s moved. Europe has definitely moved especially with MiFID II much more towards advice and through a portfolio of solution. So I think this trend towards advice is global, it is not slowing down. And I do believe and I will reconfirm it the secular growth in ETFs will continue to be very strong we have said and we have not changed our opinions over the next 3 years to 5 years ETFs will double in size.

Our next question comes from the line of Glenn Schorr with Evercore ISI.

Hi Glenn.

Hi. Thanks very much. It can’t help, but try to ask you guys if the move up in LIBOR and LIBOR OIS, curious if you think it’s indicative of any future credit prompts just to move up in rates and rate expectations and some technical issues and then importantly how does that impact your fixed income platform flows activity levels things like that?

So volatility in fixed income market was actually really good for us as you know Glenn. We are one of the largest players in the fixed income space and creating some more interest in higher rates is going to pull a significant amount of money out of the cash into products that have been fairly stable for quite a long period of time. So you know that there is a very big imbalance right now because of volatility where we estimate there is over $50 trillion of cash that’s sitting in bank accounts earning less than 1%, some places negative. So as rates go up especially in the short end that is going to attract a lot of this cash into the fixed income markets of which we can manage that money rather directly into the normal fixed income products or into ETF fixed income products which seem to be getting a lot of the new flows from rises in rates.

I am going to also add Glenn, we did witness outflows in high yield as an industry, as a firm and so your statement related to LIBOR, there I think it’s a reflection on some fears of the credit markets are – have over I think the credit spreads have tightened way too much and are going to witness some possible widening of yes more of a directional of the equity markets more than anything else. I don’t believe it’s a systemic change, but I do believe the rise in LIBOR is an indicator of some poor positioning by some professionals, but I don’t think it’s anything of any significance at this time.

Our next question comes from Bill Katz with Citi.

Hey Bill.

Okay. Thank you very much. Good morning everyone and thank you for taking the question. Just coming back to expenses, so thank you very much for the added disclosure, that is helpful. As we look at the 383, particularly in the G&A line, $32 million how should we think about that going forward, Gary you mentioned a few things in there that sort of affected the year-to-year change, but I know you are spending a bit, I heard that the income through the commentary as well, is this a good base to run-off of or are there more seasonal pressures here that maybe changed up to basically get to the second half of the year?

Good morning, Bill. Thanks for your questions. I think we tried to answer that question last quarter, we will continue to try and answer it again. I think that we need to continually focus on looking at the entirety of our discretionary expense base. There is definitely an interplay between our G&A line and compensation and as we continue to invest more across the platform some of those items will hit the G&A line like data, like technology, like occupancy, obviously MiFID II costs hit there as well. But we are also as we do that we are able to change the composition of our employee base. So, I think as we said before as we would expect G&A expense to increase in stable markets, we are also looking for compensation as a percent of revenue to decline primarily as a functional historical investment and scale in our business. So, the result when you look at the two of them again assuming that we have got fairly stable markets is continued upward bios in our margin and we intend to continue playing offense in this environment. We went into 2018 planning to basically invest as much in the business as we have in years. And I think for the moment really nothing is changing our view there. That being said, I think we have tried to call out and you will see obviously on some of the disclosures there, I mean, most of that was basically in our cue, we are moving it up a little bit. We have added a few lines. We have been calling out what we have called some more episodic, let’s call it non-core G&A lines that make that line item bump around a lot and we think hopefully with the incremental disclosure you will have better insight as to what the recurring investment through that category is.

Our next question is from the line of Michael Cyprys with Morgan Stanley.

Hi, good morning. Thanks for taking the question. Just wanted to ask about the BlackRock lab for artificial intelligence, just curious how you are thinking about the key objectives for this lab how you are betting it within the overall organization and what sort of metrics you are focused on in measuring the success of this lab and maybe you can share with us any sort of stats on the headcount and how you see that growing over the next couple of years?

So, this is really quite important to us and it dovetails with the first area that we have built to assist portfolio managers, which is the BlackRock Investment Institute and this was getting all of our portfolio teams together with some of the best econometrics and people to talk about how we can structure portfolios better. Once we have that together and that’s a pretty significant group of people that meet 4 times a year and produce weekly commentaries and this is really for internal use. With the success of that, we wanted to take this further, because we believe that utilizing artificial intelligence and people, so man and machine is going to create a better result of man or machine. And so what we are doing is we are staffing up and we hired a number of technology-oriented people, we have hired someone from NASA, we have hired someone from the technology area out-west. And what we are doing is we are putting together a group to start to use the technology that we have already built to see how we can find some significance in that forward performance. So, this is the beginning of what everyone has been writing about. It’s more than just fin-tech. This is using data to try to pull it in first which is not easy to do. Yes, there is the technology to pull in the data of which most data has only been around for the last 5 years getting access to the data, pulling it in, analyzing it, seeing if there is any significance to it and then testing that in the portfolios of our performance. So, this is a real important effort that’s going on and we are investing quite a lot into this and it will dovetail into our investment institute, the internal research that we do, the portfolio manager’s capability and eventually all be able to be the throughput through Aladdin and our other technology.

Let me add one more thing Michael. As I have said in many quarterly updates and I just discussed that in my Chairman’s letter that is going to be released, I guess, Friday, Monday, I have it already. Technology continues to be one of our most important focuses as a firm. And this is a focus not just for the investment areas of focus across the entire firm. Clearly, using technology to give us better insights for investment performance is key, but we have historically have used technology to improve our operational scale, I think this is one of the reasons why our margins have improved over the last 5 years. We are using technology to enhance our connectivity with our clients in creating better distribution technology. And obviously we have historically viewed technology to enhance our risk analytics. So our scale and our global reach is allowing us to continue to invest and invest significantly for the future on behalf of our shareholders and our client. But there is I think our labs is just another step in this investment. The key for us to continue to drive our scale, our connectivity to our clients and better investment performance is pretty better operational efficiencies. So if you find this question about how many people we are going to be hiring and overall that’s significant whether the number is as we – that is our expectation that these investments as they have in the past is going to create more operational efficiencies over the longer. And I believe that’s how we continue to drive our business, are driving by creating better operating efficiencies, by creating more scale, especially as we expand globally and the needs for better risk analytics as we are investing more and more globally worldwide. So this is just a component, it’s pretty special as Rob suggested. And we believe we are going to get better, deeper insight on AI specifically with this one investment, but it is part of the whole strategy of investing related to technology.

Our next question is from the line of Brian Bedell with Deutsche Bank.

Hi Brian.

Hi. Thanks for taking my question. Maybe to shift back to the financial advisor sales effort that you guys have been obviously really printing up to the last few years and especially with Aladdin for Wealth, could you just mention the potential for a renewed sort of advisors revisiting active strategies, maybe if you can talk about that a little bit more and how you are positioning your ETF franchise versus your active franchise with advisors. And also on smart beta, obviously we have been more in a beta rally with the ETF flows over the last year or so, do you see a greater demand for smart beta products versus the beta with the certain new volatility regime in the markets?

So working backwards, we are seeing a huge demand for our smart beta product. And you know that in 2017 we saw about 15% organic growth in smart beta and we are really differentiating ourselves in that particular area. At the end of the first quarter, we managed about $190 billion in factor based products including 108 of smart beta ETFs which were the number one player. iShares now has a global lineup of 147 smart beta ETFs, so we have created that as we are seeing the demand. We did see factor based inflows of about $3 billion this quarter, representing so far 6% annualized organic growth rates. So we believe the fact that strategies are going to continue to grow and we are investing in people and technology in the states. We have a pretty good set of unique advantages in factors, a rich history of innovation and thought leadership. As we created the first smart beta equity yield fund in 1979, we have the full spectrum of strategies from smart beta whether it be multifactor, single factor min valve to enhance to long only factors which enable us to actually create solutions. The construction capabilities I believe that we have help our clients to construct what we call a factor aware model, that technology and analytics that we have powered by Aladdin really help our team isolate and monitor factors in our investment process and to perform the necessary risk and analysis for clients and lastly, our people which we have included Andrew Ang, who heads our factor-based strategies group and they bring significant portfolio construction experience and model-based investment skills for the clients. Now, when it comes to ETFs and financial advisors, financial advisors are being asked to do more, it’s not a stock picking or…

Your next question comes from the line of Michael Carrier with Bank of America.

Hi, Michael.

Hi, Larry. Thanks a lot. So just a question on the institutional channel and just two parts you mentioned lot of the inflows and outflows kind of the lumpy things in the quarter, has that mostly died down or do you expect more and the more important question is you highlighted the alternative platform. And specifically on the illiquids, I think you guys are around $50 billion, it’s definitely scale relative to some of the players in the industry, but some are at 150, 200 plus have relationships with most of the LPs out there. So, if you all fund-raising backdrops create, just wanted to get an update on your guys’ strategy, maybe ambitions for the illiquid alts and where you think that can be over the next couple of years?

I think you are correct in saying we had a good quarter. We expect illiquid alts could be one of the more significant delta or net drivers for us in the next few years. We have spent since 2012 a long foundation in building our infrastructure business is up to $18 billion now we are out fund-raising now for another global alternative energy fund. We are in the process of raising long-term private capital fund. And so I think we are going to have a lot to talk about over the next few quarters related to the opportunities and the position that BlackRock has across our illiquid platform. I would also though suggest I think we are in very good position in our illiquid alts area too. So, we look at this as a important growth area for the firm. We believe this will be a continuing waiver in our net organic base fee column. And we purposely have been investing in these areas now for the last 5 years and I do believe we are just beginning to see the net positive flows into these strategies.

Michael, I would just remind people that a couple of things on the illiquid alts business. First of all, when we talk about the so-called committed, but un-invested capital that there is about an $18 billion incremental pipeline for that $50 billion number that you mentioned, which frankly is across the board both in terms of private equity solutions and private credit, which is a big focus for us. Larry mentioned both real estate infrastructure and obviously by virtue of the fact that we are a solutions oriented firm we actually have a fairly significant effort and time together solutions of alternatives, which has got another couple billion of commitments that are outstanding. Secondly and that not creates as you know for us, because we call it committed capital and not net new business, it’s because we don’t earn fees on the committed capital, so if that committed capital basically gets put into the ground that becomes a future bank of net new business for us going forward. And then secondarily just because the performance fee line gets a lot of attention now and then remember, we also don’t account for our performance fees in illiquids the same way as some of those pure-plays do. We are basically waiting until the end of the cycle of those funds once the capital is returned and no longer subject to claw-back and we are not marking to market that across the board. We do try to provide some incremental disclosure for you in some of our annual filings on that, so you have an idea of what the built-in bank there is. But I think as we think about it, we are very bullish on the future growth prospects of that sector.

Our next question comes from the line of Chris Harris with Wells Fargo.

Thanks. Hey, guys. Wondering if you can give us an update on the actives business outside the U.S. really just helping you guys could maybe give us a little bit incremental color on where you see the biggest opportunities and what you are most optimistic about outside the U.S.?

So, the area that we are seeing the most interest right now is in Asian equity franchise. A lot of people are looking for exposure there and lucky for us we have some very large products that have excellent performance. Those where we saw some of the inflows this quarter and expect that to continue as we are hearing more and more people are trying to figure out how to get exposure into those areas. The second area is the European equity and European equity hedge fund that we have, both have significant demand primarily because of their long-term track record and performance and you find the cycle here of what we are saying. When you have good products at the right price with good performance, people find out and want to invest but the two I think growth areas for us outside of the U.S. have been European equities, primarily in the large cap side and Asian equities really across the stack.

Our last question comes from the line of Patrick Davitt with Autonomous Research.

Hi, Pat.

Hey, good morning. So, we are starting to see UK pension mandate consolidation enough if you press or accelerate and we would expect the upcoming consult and anti-competition review to push that along. As one of the largest pension managers there, I imagine you could be a consolidator through this theme. So, could you speak to how that’s playing out from a flow and fee perspective and how you see BlackRock positioned as a net winner or a loser as it plays out?

Well, right now, I would say considering the things that we are working on we will be a beneficiary of money that’s going to be in motion, because of the changes in regulation and the movement of money out of some of the pension plans. So that’s on the good side. On the negative side of that, there is nobody that wants to pay increased fees, I can assure you that. So this is where the scale and size and efficiency that a manager have is going to put them added advantage. And that’s really what the key advantage is for us to be able to go in and take a large size at fee levels that are within the context of what they are willing to pay. So I think we will be a beneficiary, but it’s going to be a lot of work and the revenue opportunities are not going to be as large as one might think.

I will just add one more point to that before going to my closing remarks. The consultant community because you suggested has been a heavy winner in some of the OCIO businesses. I think that’s where the opportunities will be for us and as Rob suggested those are the lower fee businesses. But I do believe there we can be a consolidator and we don’t have any apparent conflicts that are being investigated in the UK pension community. With that, let me just thank you all for joining us this morning and having continued interest in BlackRock. BlackRock’s first quarter results reflect the value that our diverse investment platform, investments we made, our risk management capabilities, our technology what we provide to our clients as they are trying to invest to achieve their long-term goals. We have continuously evolved our platform to deliver the outcomes for our clients through a changing market backdrop and today we are better positioned. We are having deeper dialogues. We are having more consistent meetings with our clients than ever before. In these higher volatility moments this is when BlackRock over 30 years have differentiated ourselves. The anomaly of low volatility in 2017 is now over, we are back to more volatile world, different inputs, different issues and this is where BlackRock is – has historically done quite well and I believe we are well-positioned for that. We are focused on delivering growth and scale advantages to both our clients and our shareholders in 2018. And I think the first quarter was a good start to that and I expect a continuation of that throughout 2018. So have a good quarter. And we will talk to everybody sometimes in July.

Ladies and gentlemen, this concludes today’s teleconference. You may now disconnect.