Good morning, my name is Laurie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated Fourth Quarter and Full Year 2019 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 speaker's remarks, there will be a question-and-answer period. [Operator Instructions] Thank you, Mr. Meade, you may begin your conference.

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 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'll turn it over to Gary.

Thanks, Chris. Good morning and Happy New Year to everyone. It’s my pleasure to present results for the fourth quarter and full year 2019. Before I turn it over to Larry to offer his comments, I will review our financial performance and business results. Our earnings release discloses both GAAP and as adjusted financial results, and I will be focusing primarily on our as adjusted results. For many years, BlackRock’s differentiated globally integrated asset management and technology business, including our risk management and portfolio construction tools, has proven its ability to deliver for clients and shareholders in different market environments, and that continued in 2019. A difficult fourth quarter of 2018 created a challenging start to the year, but as we noted a year ago volatile market environments create opportunities for growth at BlackRock as long as we remain disciplined to continue playing offense. BlackRock achieved both revenue and earnings growth during 2019. Investment performance across our active products was excellent with 86%, 76%, and 84% in taxable fixed income, fundamental and systematic active equity assets respectively above benchmark or peer median for the trailing 3-year period. We generated record net inflows of $429 billion, representing 7% organic asset growth and 5% organic base fee growth, enabling us to once again beat our aspirational organic growth target for the fifth time in the last seven years. And we finished the year with strong momentum reporting over $129 billion in total flows in the fourth quarter. The financial strength and stability of our operating model allows us to continuously invest through market cycles and capture growth in areas of highest client demand by technology, illiquid alternatives and iShares, especially higher growth strategic ETF segments such as factors, fixed income sustainable and megatrends. These investments position BlackRock to offer clients not simply…

Thank you, Gary. Good morning everyone and Happy New Year and welcome to a new decade. BlackRock has consistently and systematically invested for the future in preparation to meet clients changing needs by building a whole portfolio investment and technology platform providing thought leadership on the macro and geopolitical environment and innovating in areas like factors and sustainable investing. We are adapting to and driving change in our industry and building deeper more strategic partnerships with more clients than ever before. The benefits are our investments are evident in our results this morning. We generated a record $429 billion of total net inflows for the year representing 7% organic asset growth and 5% organic base fee growth. BlackRock's result reflects the strength of our platform which is diversified across now $2 trillion in active strategies, $5 trillion in iShares and index strategies and now over $500 billion in cash strategies. We generated $226 billion of net inflows in iShares and index, we generated $110 billion in flows in active investing and we generated $93 billion in cash strategies. Flows were positive across all client channels across all asset classes and across all regions including more than $1 billion in net inflows in each of 16 countries and in more than 71 different products. The total net new assets our clients entrusted to us in the past year equates to the level of assets under management of a top 50 global asset manager. After a dramatic fourth quarter 2018 market decline, which lowered BlackRock's AUM last year by $500 billion, we began 2019 at a challenging starting point. We entered the year with a base fee run rate that was about 6% lower than 2018 base fees. However, the successful execution of our 2019 strategy delivered revenue growth, operating income growth,…

Thank you. [Operator Instructions] Your first question comes from the line of Dan Fannon of Jefferies.

Thank you. Good morning.

Good morning, Dan.

As you think about 2020, can you talk about the outlook for fixed income? In 2019, I think at the start of the year, you talked about rerisking within your client base, you saw big inflows, and now on the active side in the second half of the year, we've seen modest outflows. Can you just kind of level set kind of what clients are doing, your outlook for growth, and how you're positioned?

Well, I think probably the biggest macro change for fixed income, beyond if interest rates go up or down is going to be the utilization of fixed and ETFs for active strategies. As I said in my prepared remarks and Gary mentioned and I'll let Rob talk about it a little more, we believe this is going to be a fundamental shift in how people use fixed income as an exposure, and they're going to be using ETFs as that vehicle for active returns. I believe this is going to be an overwhelming trend in the fixed income landscape as it's easier to navigate; it's cheaper to navigate; and importantly you provide much greater flexibility with substantially less operational risk when you use ETFs versus the myriad of thousands of bonds. The specifics of the outflows in fixed income were very – idiosyncratic with one or two clients. We are seeing some clients, as I said, replace the what we define as an active strategy into more ETF strategies, and so it's hard to differentiate those two things as we build deeper, broader, dialogues about how to use ETFs in a portfolio setting. Rob, do you want to add more to that?

No. I would just add, in general, I think there is a common belief now that rates are going to be lower for longer, and with the amount of money that has been sitting on the sideline in cash, clients cannot afford that anymore at getting less than 1% returns, so they are more than willing now to extend out of cash into fixed income, and those are the flows that we are seeing and rather than come into individual bonds, the trend has been to use a more diversified portfolio that they can go into, and ETFs have been the beneficiary and because of BlackRock's position in fixed income, we have been the beneficiary of those particular flows, which we expect will continue into 2020.

Let me just add, putting a whole year perspective because I can't respond to one quarter versus another. For the full year, we had $75 billion of active inflows in fixed income. For the full year, we had $112 billion in ETFs, and so when you put it all in perspective and then we had obviously even more in index and other types of LDI and other types of strategies. So we had a very strong year in fixed income, and one of the business propositions we provide to our clients is having a holistic conversation about how one can use ETFs in their fixed income strategy. And so, the active ETF mix is kind of harder for you to decipher, but we are having broader, deeper relationships with more clients in fixed income than ever before.

Your next question comes from the line of Robert Lee of KBW.

Great. Good morning. Happy New Year, everyone. I just want to -- maybe going back to eFront, I know it's only been like seven months or eight months, but can you maybe just kind of give us a sense of how you've incorporated, may be start to monetize that, and And then maybe more broadly within Aladdin, I mean to the extent you want it to be kind of the language of portfolios, do you think you now have kind of the full set of capabilities that you need, and it's really just kind of execution or are there other aspects to the platform that you feel like you need to build out and add on to?

So, Rob, I think that early stages are suggesting that everything we anticipated about the eFront strategic fit with Aladdin was well thought through and ultimately is going to come true. Again remember, Aladdin effectively began as more of the premier Risk Analytics and Portfolio Analytics system designed primarily to liquid. As you know, we spent a bunch of time thinking about attempting to build what we've done on the liquid side for illiquid as we thought about doing eFront. And the reality is doing eFront will accelerate that by a number of years for us. I think clients have been very engaged with us in terms of thinking about getting and bringing their entire portfolio together on a single technology platform that allows them to basically bring the same expertise we've been doing for them for years on the liquid side. So, their illiquid to get a complete view of the entire whole portfolio that they have from a risk and analytics perspective. We've had a strong and growing pipeline with a number of live opportunities globally. We actually won our first joint client, which we announced earlier in the year, and our expectation is that this will, that as we bring this together over the next six months to 12 months, it will continue to basically reinforce our long-term growth of low to mid-teens for the combined technology business.

I would just add, the language of portfolios is becoming more and more real and we're committed to that. This is why we believe we have to add sustainability sleeves to Aladdin to making sure that our clients and our investors at BlackRock can look at the sustainability as one of the key investment risk going forward. What we did in factors and adding factor sleeves onto our Aladdin system. I think the key that we've been doing is we are providing more content for the same value proposition, and so while we continue to drive elevated content with the same fee structure. And as what then happens is as the clients grow, we grow with them. And that has been one of the key characteristics of how we've designed Aladdin growing with our clients' needs. But as the clients now believe in more of the components of Aladdin they're putting on more of their assets onto Aladdin and so then we grow with Aladdin. And so the key characteristic is for us to continue to innovate to stay in front to be more additive. And I'm looking back now with our eFront acquisition. I don't even know how we were able to operate without having those sleeves now and making -- we've been spending years talking about the need with our investors to have more illiquids and now we have the technology to be helping them to. And this is why we believe it's additive, not only for the Aladdin business, it is very additive for our all -- for our entire Al's business.

Your next question comes from the line of Ken Worthington of JPMorgan.

Good morning, Ken.

Hi, good morning. Thank you for taking my question. To follow up on that. So your annual letter, the focus on climate change. So as you did with Aladdin in risk management, are you planning or are there opportunities to leverage the expertise you're developing in sustainability to profit either by selling sustainable technology or ESG strategy solutions. In other words, can sustainability be a new Aladdin for BlackRock rather than just another element of Aladdin?

So following up on Larry's last answer, we certainly see huge opportunities in using the sustainability platform that we have for other profit centers for BlackRock and to add into our Aladdin value proposition. So what I could see coming forward would be creating new screens that others would be interested in to screen for ESG, creating specific model portfolios and models that many of our distribution networks would want to use. Potentially creating new indices in the market as people are looking for someone to take the lead and creating an appropriate indices to pinpoint specific areas of sustainability in the future and offer new products like specific ESG, ETFs and it's already working in that sustainable ETFs for iShares were the fastest growing category in 2019 and it generated $4 billion of net inflows in the fourth quarter or total of $12 billion for the year. So I can see also adding on new products, which many of our clients would look for. So, as Larry mentioned, the value proposition of Aladdin would grow as we incorporate our platform into the Aladdin platform for other clients of Aladdin to be able to use. That's just the beginning of some of the ideas we've come up with that that we can put forward in 2020.

Let me just add to that. As I said yesterday in my CEO letter and the firm's client letters, we believe sustainability and the issue is going to have a very large investment impact. For those investors investing in a long illiquid product they have to seek now in 10 years if there is evidence of climate change, how that will be impacting that investment that has a 10-year horizon. So more than ever before we have to drive analytics to help more and more clients, more and more investors understand the interconnectiveness of how climate change, the potential impact of climate change, how does that impact every single investment we have. And because of the resources of BlackRock, the scale of BlackRock I believe more than ever before if we execute on what we intend to do and we could, that's our intention. If we execute, we have probably one of the broadest opportunities that we've ever had. I believe we will be able to differentiate ourselves more than any other firm by providing these analytics by using them on Aladdin as using them as an investment tool this can differentiate us more than any other organization. And this is a call to arms at BlackRock. This is probably the biggest project that we've worked on in years that we have embraced the entire organization and I want to underline the entire organization to be more prepared to start focusing on the analytics. So we have better understanding, overlaying let's say imaging technology on the physical impact on the world and different elements of rising temperatures or rising water levels. By having a better understanding how insurance companies are focusing on their insurance risk and looking at areas that have potential climate risk implications whether that is from fire, flooding or other actions. I do believe as I said in my letter, the possible changes from climate risk have serious implications in other countries that have heat issues and beyond any flooding issue, it could just be heat that's changing the output of their crops. What does that mean for that country's GDP? Should we honor that country's debt? These are all really important things and that I don't believe the investor universe is prepared and it's the management's expectations at BlackRock that we become the leader in designing better tools and helping people navigate this uncertain sustainability future. We are really passionate about it.

Your next question comes from the line of Patrick Davitt of Autonomous Research.

Good morning, Patrick.

Good morning, guys. On the 5% G&A growth guide, it sounds like there's kind of a lot of adjustments we should be making to 2019 to get to the base for that 5% growth, could you kind of walk through everything we should be backing out specifically?

Sure, Patrick. I mean, I think we've been, we've tried to be pretty transparent on our definition of non-core. So just for a little perspective, I mean if you look at the fourth quarter; the fourth quarter was up about $130 million. We talked about some of the seasonality in there, but there was about $50 million of, again, what I would call non-core, in that case, it was contingent purchase price value adjustments as well as foreign exchange remeasurement. That $50 million is probably about 150 basis points of margin in the fourth quarter alone. If you look at the full year, we had about $164 million of what I would call non-core that included $60 million plus for fund launch cost, that's already adjusted out of margin, but it also included a little over $50 million of these purchase price fair value adjustments, which is actually as those go up, it means that the businesses that we've acquired where we have contingent payments are doing better. So that's a good thing. We had about $31 million of FX remeasurement, and there's probably of $15 million to $20 million knock in there for just deal fees related to things that we were doing during the year. So that's kind of the numbers that we would basically think is kind of a non-core. And so while we think about that 5%, we're trying to look at apples-to-apples. And remember, we also have a little bit of lift up from the year just general because we have 12 months of eFront relative to the eight months that we had in 2019.

Your next question comes from the line of Alex Blostein of Goldman Sachs.

Good morning, Alex.

Hey, good morning everybody. So I wanted to turn discussion a little bit to pricing to Gary, I think at the end of last year we talked a little bit about potential kind of strategic reinvestments in some of the ETF as you've done in the past. Could you expand on that a little bit I guess which product categories do you guys think you could target here and how is your kind of tech enabled distribution could help block or capture AUM in product categories that I guess more sensitive to price moves?

So Alex, it's really no different than the messaging we offered at your excellent conference at the end of the year. I think that, frankly, obviously, we'll react to pricing in various segments of our business. But the reality is, most of our strategic pricing investments are really driven towards our iShares business. And I think as we said for the most part, we have a number of criteria we need to meet in terms of when we will make those decisions. We need to see high future growth, but we need to basically see growth in particular where clients are price sensitive and if we see basically the combination of those two things, we will consider basically making pricing investments. Since about 2016, we've invested approximately 1.5% to 2.5% of iShares revenue annually and over that period of time iShares revenue has grown very substantially roughly by 25%. And we think that in that respect as a look back that pricing investments have been good, not only for clients but honestly also for our shareholders by virtue of the positive NPV that we've delivered. In 2019 our pricing investments were at the lower end of that range, but I would expect that we would move to a more normalized level of pricing investments during 2020 and obviously that's an important element of maintaining leadership within our iShares franchise. We know that those tend to be long-term sticky assets and revenue streams. And we think about pricing investments no different than any other strategic investment in our company and we tend to budget them and take them into consideration as we think about making sure that we are growing or optimizing organic growth in the most efficient way possible. There is no question that we think at the moment, most of the pricing will be focused on the core and likely in certain elements of more of the core related fixed income categories, but importantly I think most of the growth that we are seeing in the strategic segments that Rob mentioned earlier as well as where the client simply don't focus on price as a key decision of their buying decision in the precision instruments and importantly in the liquidity areas, those are higher fee today and those will not be a target of any of our pricing investments going forward.

Your final question comes from the line of Brian Bedell of Deutsche Bank.

Great. Thanks very much. Hey, good morning. Thanks very much. Maybe just to hone in more time on the fixed income iShares. So far we're seeing quarter-to-date or January-to-date about $7 billion of fixed income iShares flows about -- little about $2 billion in core and about $5 billion institutional. So just talk about that institutional trend, which seems to be continuing, is it more, are you seeing it more from targeting specific allocations or our institutional managers substituting the ETFs for bonds because of the tighter bid-ask spreads that you're seeing in the ETF and do you see that latter element being a more powerful growth driver going forward.

Yes. So, it's both. So I think there is a lot of reallocation done and our forte because of our scale and size is to capture those institutional flows into our fixed income iShares. So one is its allocations that are being done as people have their view to the value of equity is in the value of bonds in their portfolio. And then as you know the supply and the time it takes to find fixed income and build a diversified fixed income portfolio is quite difficult and can be quite expensive. This is a very quick, convenient, less friction way, more liquid diversified way to get in. So people have now substituted building those portfolios by simply going out and getting that portfolio on the Exchange and it is, winds up being cheaper and more effective. They are also using, we're seeing a lot of model changes and in the models that we have seen that are being used by institutions they are also targeting ETFs. And then, if they want to have any sort of precision, any sort of view on factors or any sort of view on particular areas of the market, they are able to achieve it much quicker and faster in fixed income. So we saw that at the end of the year as the market went down and now this is the time when most institutions sit down and talk about their strategy. We've seen that continue those flows into the beginning of the year. So I think we're very positioned well to attract these institutional large flows.

Ladies and gentlemen, we have reached the allotted time for questions. Mr. Fink, do you have any closing remarks?

Yes. Thank you, Operator. Thank you everyone for joining our morning, and your continued interest at BlackRock. I am proud of the progress we have made to lead the industry throughout 2019. And I can promise we will continue to invest. We will continue to innovate in the years to come. So we could be better in what we do and better to meet our clients' needs. And through that we will generate more growth. And if we continue to fulfill our purpose of helping more and more people experience financial well-being, we will be better positioned as an organization and to you, our shareholders. Have a great start of the New Year and enjoy the next decade. Thank you.

Thank you. This concludes today's teleconference. You may now disconnect.