BlackRock, Inc. (BLK) Q2 2014 Earnings Report, Transcript and Summary

Good morning. My name is Regina and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated Second Quarter 2014 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, Matthew Mallow. 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. Mallow, you may begin your conference.

Thanks very much. Good morning, everyone. Before Larry and Gary make their remarks, let me remind all of you that during the course of this call, we may make a number of forward-looking statements. And of course, we call your attention to the fact that BlackRock’s actual results may 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 say today. And as we usually warn you, BlackRock assumes no duty and does not undertake to update any forward-looking statements. So with that, let the call begin. Gary?

Thanks Matt, and good morning everyone. It’s my pleasure to be here to present results for the second quarter of 2014. Before I turn it over to Larry to offer his comments, I’ll review our quarterly financial performance and business results. as usual, I will be focusing primarily on as adjusted results. At our Investor Day last month, I reaffirmed the growth framework, predicated on driving organic growth, using scale to create operating leverage in a consistent capital management strategy. BlackRock executed on each of these drivers during the second quarter, resulting in continued earnings growth. We generated second quarter earnings per share of $4.89, up 18% compared to the second quarter of 2013. Operating income was $1.1 billion, 15% higher than a year ago. Non-operating results reflected a $37 million increase in the market value of our [Steed & Co.] investments. Recall that non-operating income in the second quarter of 2013 reflected $30 million – $39 million pretax gain related to PennyMac’s IPO, and the results in the first quarter of 2014 were impacted by the monetization of a non-strategic opportunistic private equity investment. Our 24.8% as adjusted tax rate for the second quarter benefited from several favorable non-recurring items and an improved geographic mix of earnings. As a result of increased growth in our international businesses, we now estimate that 29% is a reasonable tax rate for the second half of 2014. And based on what we know today, 30% represents a reasonable projected tax rate for 2015. Our second quarter results were driven by $38 billion of long-term net new flows, representing an annualized organic growth rate of almost 4%. Flows were driven by our retail and iShares client businesses. As we discussed at Investor Day, faster growth in these businesses will drive favorable change in our…

Good morning, everyone. Thank you for joining the call. thanks, Gary. The second quarter marked the sixth great quarterly rise for the S&P 500, and rising markets, equity markets across the globe. This was driven by growing confidence in the United States, and in Europe, and in pockets of outperformance in the emerging economies. The 10-year treasury is back to near 2.5%, the Fed continues to ease their bond buying efforts, and even in light of some of the recent volatility, the VIX is hovering near pre-crisis lows. Markets have been complacent in the face of this risk with down days quickly followed by elevated buying trends. Credit standards are loosening, cap rates are falling, and correlations remain very high, following the spring shakeup in the global momentum trade. However, the positive environment and the market gains we’ve seen in the past several years have been driven primarily by accommodative policy decisions and coordinated central bank actions. More of the same won’t be enough to move market forward from here. Corporate results and earnings growth will be needed to become larger drivers of valuation. That’s where our attention has been, and in the past couple of days, we’ve seen second quarter kickoffs with some bellwether names, posting very strong results. Investors are also going to have to focus more economic growth to justify driving asset prices higher. for that to happen, governments across the globe must take meaningful action beyond monetary policy. The United States needs to address issues like immigration and infrastructure, and readers like Prime Minister, Abe in Japan, and Prime Minister, Renzi in Italy must advance their reform agendas to produce tangible economic results. Around the world, infrastructure is a key area where governments and private capital providers can partner to drive long-term economic growth and job…

(Operator Instructions) Our first question will come from the line of Glenn Schorr with ISI. Please go ahead.

Hey, Glenn. Glenn P. Schorr – International Strategy & Investment Group LLC: Hey, how are you?

Good. Glenn P. Schorr – International Strategy & Investment Group LLC: So I guess the first question I have is the cost of leverage on the street is kind of rising as banks get their houses in order, and that pushes out the cost of leverage to various products that companies like yours run. So I’m just curious, it certainly didn’t seem to affect your flows in the current period, but in things like long/short credit, multi-strat products that you’ve had success growing, does that factor in at all in terms of a) the growth and b) the profitability of those?

That’s a good question. There is no question, you’re seeing, as you’re referring to the cost of leverage, I will just say, the Basel III, Volcker rule, Dodd-Frank has forced many sell-side organizations to reduce their overall capital committing in the marketplace. And two, you’re seeing obviously, liquidity issues in some asset categories. Glenn, to date, we have not seen a dramatic change in our ability to buy or sell for our hedge fund strategy. But we’re mindful of that, and indeed you’re correct, if we see a continuing amount of inability to navigate our trades and we are seeing larger bid/ask spreads, there’s no question that can minimize the opportunities that our alternative products have. I should say though one other ways that investors are utilizing, or trying to change their behaviors, and this is a growth engine for us, we’re seeing hedge funds utilizing ETFs as – instead of futures or single-stock or single-bond strategies, they’re using ETFs as the mechanism to express a long or short type of exposure. So in some respects, if there’s more liquidity in different products such as an ETF, you may see that. And so I think, in some respects, the changes in the world related to dealer behaviors is a benefit for the ETF market in itself, and we’re benefitting from that and I tried to express one of the avenues in which people use ETFs. But one of the big things we have seen is the utilization and the cost of using futures, margins and all that has elevated and people are using ETFs as another example. But you’re absolutely correct that we have to be mindful of liquidity by market in terms of the exposures we have in some of the long/short products. Glenn P. Schorr – International Strategy & Investment Group LLC: Okay. And maybe, just a follow-up, I appreciate that is related to alternatives, and I don’t know if it’s a technical question, but the platform across the board seems great. Your retail penetration is clearly growing and yet the net flows into the total, the alternatives bucket is pretty modest.

Yes. Glenn P. Schorr – International Strategy & Investment Group LLC: Less than $300 million this quarter, now I don’t know if that’s a – some are growing, some are shrinking thing, or is it – the technical part of the question is, if you raised a lot, but have not deployed the capital, does it show up as a flow or does it show up as a flow when you get – my question is commitment versus funding?

We do not put commitment in our AUM bucket, some firms do. So, as Gary said in his speech, we did raise a little over $1.3 billion in commitments. Over the course of the year, we raised about $8.5 billion of commitments and we funded approximately 1.8 of it. That is a big change. We also – and we mentioned this in the first quarter and we’re still doing it. We’re actually monetizing some of our alternative products. So you’re seeing our commitments grow, but we’re not – but we haven’t invested in that, and yet, you’re seeing on the same time, we are monetizing some of our alternatives, because of the success of the strategies and we’re giving back the capital.

So Glenn, it’s Gary. I would say one way to think about it is the return of capital hits the flows immediately and this quarter that was roughly $925 million thereabouts. And we were basically able to raise new commitments of $1 billion. So over the long-term, the new $1 billion that we’ve raised will obviously replace the $900 million that we just paid out. but unfortunately, it takes some time to basically invest the money over the…

Well, we take the more conservative approach the way we identify those with the asset raise.

So Larry’s point is that of the $8 billion plus that we’ve raised since 2013, about $1.5 billion of that has effectively hit flows, meaning it has been invested and the dry powder or the $6.5 billion or $6.7 billion will hit flows over time as it’s invested.

But we are probably in more dialogue with more clients on our alternative space than we ever have been in the history of the firm. So we like where we’re positioned, but also we like the fact that we can monetize good successful strategies for our clients.

Your next question will come from the line of Marc Irizarry with Goldman Sachs. Please go ahead.

Hey, Marc. Marc S. Irizarry – Goldman Sachs & Co.: Hey, Larry. Just following on the alternatives question, the performance fee is always tough to get our arms around, the alternatives performance. But can you give us some sense maybe of what kind of embedded gains you have in some of the portfolios that you’re harvesting, and maybe, what that means for the outlook? And then I guess just broadly across the alternatives platform, how is performance holding up there? Thanks.

I’ll let Gary answer that.

So Marc, as you know, we obviously don’t take the approach to economic net income that some of the pure play alternative managers do. so as we effectively see gains building up, which trigger accruals of, if you will embedded performance fees. We fully reserve for that going forward until they become permanent and no longer subject…

They don’t report us.

So that’s not in our P&L and frankly, we don’t really disclose those as a matter of course. I think obviously, you saw performance fees were up 29% year-over-year. I think the important thing to note for us is very broad based. So it’s not a single fund that is basically driving that, it is a very deep. The breadth of the platform is evident in the fact that it’s when you see the results, it’s lots and lots and lots of different funds. Though it was clear that this particular quarter, we had a number of annual locks, meaning that they lock annually as opposed to quarterly, and we benefitted from a much stronger performance in this 12-month lock period than we did in the prior year. But broadly speaking, I think we’re feeling very happy with the performance of the alternatives platform and the performance fees are coming through.

And we are, as I said Marc, some great opportunities we have, I mentioned in the speech, in the infrastructure space, where we think this is going to be a great driver in the future for us and our clients. And so we have great opportunities in front of us across the alternative space, Rob Kapito and team and Charlie have spent a lot of time in a quietly rebooting our whole alternative platform under Matt Botein and Andy Stewart, and it’s been in the short-term, we’re starting to see real tangible results. Marc S. Irizarry – Goldman Sachs & Co.: Okay. And then Larry, just one follow-on, can you give us some – an update, if possible, on any of the asset management regulation, and maybe, specifically any update around maybe the discourse on systemic importance for asset managers?

I wish I had something to tell you that is factual, I don’t. We don’t know anything more than what you’ve been reading in the newspapers. Under Dodd-Frank, banks, anybody related to Dodd-Frank, whether it’s SIFI, or anything. we’re not allowed to have a dialogue, it is called lobbying, and it has to be publicly revealed that we’re lobbying. So there is not, there is – you don’t have the transparency of the process at all. this is very unusual. Any other type of world creation in Washington, there’s always a process of dialogue and this was explicitly prohibited in the law of Dodd-Frank. And so we don’t know anything more than what we read, and unfortunately, what we read, sometimes we believe there are leaks. And so it’s a pretty inappropriate process from our perspective. But our job is a constructive participant in this. We have been occasionally asked to provide information to various different regulators worldwide on different things that they may be studying. It’s a one-directional approach. we provide information and we get very little back and that’s obviously what the laws say. So I don’t know anything more, but what I’d like to do is give you some of how we think about asset managers and regulatory oversight. We calculated BlackRock, there’s $225 trillion in global financial assets. Assets that are being managed by investment firms, managed $62 trillion of the $225 trillion. So over 70% of the financial assets are owned and managed directly by the owners. And the other thing I would like to say, as you know, these are not our assets across the board. We have a contract in what we invest in and how we invest with every client. As you know, at BlackRock, we have hundreds of portfolio managers making decisions, we don’t have one CIO managing all the assets across all the spectrum going left or right or forward, and we’re – so this isn’t, we don’t take principal risk. And the last thing, I would just say related to BlackRock, if you dissect our platform, 62% of our assets or $2.8 trillion of our assets are index products. And then we manage about 32% of our assets are in active and another 6% in cash and advisory. So you think about the makeup of even as large as we look upon, much of our activities are very different than a lot of other asset managers in itself. So we believe that narrative that I just expressed is beginning to be more understood. And there was a proposal in Congress yesterday to allow for greater transparency in the process, deeper dialogues in the process and we welcome that type of activity. And we want to be a constructive participant in this dialogue.

Your next question will come from the line of Luke Montgomery with Sanford Bernstein. Please go ahead.

Hey, Luke. Luke Montgomery – Sanford C. Bernstein & Co. LLC: Good morning. thanks, guys. So a couple of questions on retail distribution. You entered 2013, I think, with a range of new strategic initiatives. Then the results over the last year or so have been pretty impressive as indicated by net flows. But aside from some of the key products that drove that growth, you’ve touched on them multi-asset in the Core ETF series. Could you give us a sense of how successful you’ve been with the goal of really broadening that penetration with the warehouses outside of that relationship you had historically with Merrill Lynch.

Well, it’s – I’m going to let Rob answer that. Rob, why don’t you?

Yes. so we have grown significantly from being Merrill Lynch-centric on retail, and in fact broadened the distribution to several others in a very significantly way. And in fact, our market share at some of the larger warehouses beyond Merrill Lynch has more than doubled over the last two years. So we continue to penetrate, because we are bringing products that a lot of them do not offer, and especially, in the ETF side, we’ve seen a lot of growth in that particular area. There’s other channels that have also been developed beyond just a typical warehouse, which is the RIA channel, of which a lot of financial advisors have moved from the large broker dealers into smaller channels, and we have pretty significant penetration in the RIA channel. We also as you know, have read about our joint venture was fidelity and that has been more successful than we had originally planned. So that broadens out our effort. And one of the things that has really been successful for us is that rather than going out with individual sales forces for our ETF channel and for our mutual fund channel, over the last year, we have combined our sales force to have the largest sales force going out and talking to broaden the distribution and treating the FAs more holistically, because they own in their portfolios both mutual funds, active, index and ETF. So we can talk to them about a more holistic solution. And I don’t think that many of our competitors can claim to be able to do that. And the last thing that has also helped to broaden out the channels is that we announced a core series and are specifically developing in the ETF channel, specific ETFs for the buy-and-hold retail segment. And again, that’s something that has also broadened out our retail network and has been very successful. So many things are going from years ago when we were more Merrill Lynch-centric. now we have a much broader and deeper retail penetration in our products.

Let me add one other thing, Luke, which I think is not fully understood by the investment community, and that is the substantial growth in mutual fund sales in Europe. As you know, banks continue to deleverage, more and more activities are going onto the capital markets, greater confidence in Europe and the Europe’s future with a huge amount of savings in Europe. And so we’re seeing much greater penetration across the board in European retail. So there are two other macro trends that are going on in Europe. one, domestic managers are losing out to the global international managers. And so across the board, you’re seeing the international investment managers picking up market share in Europe. And the last thing I would say you’re seeing a real consolidation in flows. the top 10 managers in Europe are driving almost 90% plus, maybe 110%, I don’t have the actual number in front of me, of all the flows, because with the smaller managers are actually having net outflows. but if you look at the substantial growth of $9 billion in international retail, this year-to-date that’s a high component of our growth. And I would – I should say international retail means Asia, it means Europe, it means South – Latin America. So let’s get back to my comments earlier about being in 30 countries, being local in 30 different countries. We are benefitting from that, and we believe as the world begins to look for other alternatives away from bank deposits looking for the strategies for their retirement, if you link in longevity and longevity issues, investors worldwide are looking for global advice and we’re very well positioned across that. Luke Montgomery – Sanford C. Bernstein & Co. LLC: Okay, thanks. And so my follow-up and I apologize, Larry, because I know you chafe at the comparison of your firm to Vanguard’s, but a question on the distribution strategy in retail ETFs and index markets. I think over the years…

(Indiscernible) say I chafe. Luke Montgomery – Sanford C. Bernstein & Co. LLC: All right. Maybe I missed characterized that, but I’ve heard some warehouse distribution executives over the years lament that Vanguard products basically free ride on the warehouse distributors who have to custody their products as a courtesy to FAs and clients. So I wonder do you see any specific opportunity based on your willingness to partner more directly with those firms to pay channel access fees, etc. Does that give you an opportunity to supplant some of the market share they’ve acquired [concurrently] (ph)?

I’ll let Rob answer that.

Yeah. I don’t think.

Bob, do you chase?

I don’t chase that at all. I view our strategies as quite different. We’re using; we’re going to expand by education, the use of how ETFs are going to benefit client’s portfolios, both institutional and retial. And I think in a product life cycle, this is very typical that you have people come in at first and you want to just get involved and then you have all the other uses of this product. Larry mentioned one for example, where we have a notice that ETFs are cheaper to use than futures. There is nobody better to go out into the marketplace and educate the community on a change like that than BlackRock is. And this is something that many of the other issuers of ETFs really don’t think about. they are out selling products. We’re selling a solution. An ETF is a part of that solution. when it comes to people that are looking for large credit portfolios, we’re able to talk to them about a holistic solution where they can get diversification, liquidity and actually have a better structured portfolio by the use of iShares than just buying the individual assets itself. We have so many different ways that we are developing the users of ETFs that a broker dealer community and the institutional community looks to us to use ETFs as part of an overall solution. So we’re not out there just pushing one product versus another product, because it’s half, we’re using this as a full part of a portfolio allocation. I think that’s very important. So it’s core investments, it’s to get more precision exposures into the marketplace and we are treating this as a significant financial instrument, not just a product that we hope to the garner more assets in. It’s a very different strategy than Vanguard is. they’re a good firm. So we’re glad to compete with them.

Your next question will come from the line of Bill Katz with Citigroup. Please go ahead.

Hi, Bill. William R. Katz – Citigroup Global Markets Inc.: Hi, good morning, everybody. Thanks for taking my questions. Larry, just coming back to the regulatory front for a second, maybe a two-part question, one is what has been the sort of reaction from the institutional clients given the SEC discussion about possibly voting on a prime fund with a floating-rate NAV? And then a separate part of the question is, in certain early days, it looks like MiFID out of Europe is coming up with some pretty onerous shifts of views on how they are treating research versus trading, sort of wondering how you might be thinking about that dynamic as it relates to your business?

So, we have continuously been a constructive organization working side-by-side with our regulators related to money market funds. So we’ve been continuously engaged with the SEC throughout the process. we have made a number of recommendations. we have spoken to when asked about what we think about it, we’ve had dialogues with many of the commissioners when asked, and importantly, we’re well positioned regardless of where the SEC comes out on the portfolio – on the proposal excuse me. money is moving around and like we’re going to see how this all plays out for our clients that when you think about where we are as a firm in terms of money markets. We have money market funds; we have separate accounts, or money market accounts. we have short duration bond funds. we had ETF. we have other vehicles. Money will be in motion; money will change if clients find whatever the outcome is as very restrictive, they’ll move money elsewhere. We will also see, but most importantly, we’re well positioned and I do believe the SEC has been – have been very open to conversation related to recommendations and all that. We’ll see how this all plays out. The one thing I can’t say, can’t comment on, because I don’t – we don’t know what this means related to bank deposits, necessary, bank deposits could be even a better alternative. So obviously, money market funds are – in some cases, alternative to bank deposits and the flows of money market funds is a function of what bank rates are. But a lot of people are very mindful of how much exposure they would have with any one single bank. And so I think this is why money market funds are desired by clients and this is one thing that…

Your next question will come from the line of Ken Worthington with JPMorgan. Please go ahead. Kenneth B. Worthington – JPMorgan Securities LLC: Hi, good morning. Just one question from me. I wanted to ask about the retirement business outside the U.S. We’ve seen changes to the UK Pension Plan this year, which appears to benefit maybe asset managers over insurance companies. The EU has been underway for pension reform for I think the last four years. BlackRock has had some success in the U.S. taking market share and driving growth in the U.S. retirement business. Maybe, Larry, you could discuss what’s happening outside the U.S., and maybe, where the biggest opportunities lie for BlackRock?

Well, there’s no question some of the rule changes in the UK is a big opening for firms like us, especially, related to the UK pension reform. As you suggested, it was really an insurance product and now it’s migrating to much more opportunities. So the defined contribution savers will have now an option. They can take and withdraw beyond the 25% tax-free lump sum. So we believe, this is a big opportunity for us, yeah. so especially, in light of how we think about investment outcomes and solutions. I mean retirement is something that we are spending a great deal of time trying to help savers and potential retirees in thinking about longevity and how their solutions are going to have to be more weighted towards equities, less annuitized products. Historically, as you suggested Ken, annuitized products were the prime driver of this, and if you are going to be living a long time, earning 2% on an annuitized product for 3% you’re just going to have to be saving a lot more money to earn the necessary pool of money you want. This is what we’re rolling out, we rolled out CoRI overseas in the UK, we’re going to continue to roll out our investment type of products to provide what I would say that solution based strategy. So we’re encouraged, we think we’re well positioned for these changes, and as you suggested, hopefully, we’re in a good position to take share.

Your next question will come from the line of Craig Siegenthaler with Credit Suisse. Please go ahead.

Hey, Craig. Craig W. Siegenthaler – Credit Suisse Securities LLC: Hey, Larry. Good morning, guys. First, just on Target date, can you talk about how the longer-term themes of open architecture and the adoption of passes are really progressing really both in the Target date funds in the U.S.? And I’m really thinking your perspective here from both your LifePath and your GlidePath products.

Rob, you want to answer that.

Yes, I mean, look, it is the same trend on retirement. People have not saved enough for retirement and they have lived through too much volatility in both the equity and fixed income markets. So they are looking for an alternative for someone to manage the asset allocation and the process throughout their lifetime. So to us, the opportunity is to develop the tools to the technology and one that we have is called the CoRI Index, Cost of Retirement Index, of which we can manage through target date funds and LifePath funds, a better way to do the asset allocation as a person gets closer to retirement. Do you think there is going to be incredible opportunities for us in this way because the advice and asset allocation is something that we specialize in? The models that we have specifically target retirees and manage this process throughout their life. And it’s something where we see a lot of the sponsors are moving towards and, as Larry mentioned, a lot of DB and DC plans changing that have someone else to manage this asset allocation throughout their life.

Your next question will come from the line of Dan Fannon with Jefferies.

Hi, Dan. Daniel T. Fannon – Jefferies LLC: Hi, I just want to talk about fixed income. I mean, can you talk about the momentum you are seeing particularly on the institutional side? Performance was flagged as improving. I just want to talk about just kind of client dialogue, kind of outlook for growth and how that compares to in the recent periods.

Well, having 90% of our fixed income products above their benchmarks for three years, having a lot of products that are in the top decile, if there is a conversation to be had firms are going to be talked, assess what are the possibilities? That puts us into a very good position. We’re seeing very mix types of conversation across board, we continue to see large-scale pension funds derisking as they’ve taken profits in equities, we’re seeing a lot of pension funds looking now towards looking now towards some form of immunization as they get closer to their liability or even in some cases above their liability are using bonds as a vehicle. But probably the most important key for us is our fixed income platform is more than just one product. It’s across the board where we are seeing increased activities. We are in more dialogue today than we have ever have been in fixed income, in terms of new flows. In the unconstrained area we’re just beginning to see public pension plans, migrate out of index based products into unconstrained products. So we are in some very large dialogues at this moment, we do believe one or two conversations constitute some large wins in the third quarter. We continue to be in deep dialogue with many clients related to credit, and high yield and whether it’s an insurance company who is looking and in need of some form of income to us, to assess their annuity liabilities. And we’re still seeing a large scale international investors are looking to continue to invest in dollar-based assets and expressing those investments in the form of fixed income. And so across the board we are seeing heightened interest in fixed income, even in the low interest rate environment. As I said, some of it is because they’re de-risking in equities, but some of it is because they’re seeing increased activity in their own business, like an insurance company. But I would say overall, probably overall theme I can say related to BlackRock’s future and future activities in fixed income, having the performance that we have across our platform for our platform for five years, for three years, for one year is giving us a position where we are in dialogue with many clients worldwide.

Next question will come from the line of Brennan Hawken with UBS. Brennan Mc Hawken – UBS Securities LLC: Good morning.

Good morning. Brennan Mc Hawken – UBS Securities LLC:

Rob?

I don’t know, we are willing to breakdown what is coming from one place for another. But I can also tell you that the growth that we expected is probably twice what we had anticipated. Brennan Mc Hawken – UBS Securities LLC: For core series.

For a core series. And we have high aspirations for this, because there is a segment of the market that is really not looking for the liquidity, they’re looking for the buy-and-hold. And this is a particular segment of that Fidelity actually addresses, so we have expectations of future growth for that, but we don’t rely especially in that just upon one distribution segment, there are other distribution segments that also cater to the buy-and-hold segment. That being said, there is – the other segment, which is the institutional or the trading segment, they are looking more at the liquidity of this and the access for asset allocation in their portfolios. So what we are trying to do is have products to appeal to the right segments and we'll price those appropriately and make sure the performance of those is appropriate for those particular targets.

I would just say also we are benefiting tremendously this year from the, and Rob said it earlier from the integration of two sales forces. And so, you asked a question related to fidelity, but we’re seeing in large activities across all the independent channels from all the major distributors, and so, I would say it’s pretty broad based, but our relationship with Fidelity is strong, growing and it’s a very good partnership.

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

Hey, Michael. Michael R. Carrier – Bank of America Merrill Lynch: Hi, Larry. Larry, just a question. If I look at the growth that you guys have generated in iShares and on the retail side, it’s been very consistent on retail, big improvement over the past couple years. And on the institutional side, I feel like you guys have the relationships. When I look at the solution products, the alternatives, it seems like the product offering is there, but the flows just aren’t as strong as on the other channel. So is it an allocation problem? I know you mentioned some on the performance side, whether it is active equity or the (indiscernible) is just not there. But just from an outlook standpoint, do you guys feel like things are in place. so over the next two years that we kind of see the same trend that we saw on the retail side, or is there something else that’s somewhat of a hindrance there?

You are right in suggesting – in terms of iShares, our rolling 12 months were growing 10%; in retail, our rolling 12 months is about 13% growth, and our rolling 12 months in institutional is flat. And so those are actual facts. What we’re witnessing in institutional though, and if you look at our revenues are growing faster than our AUM, we are seeing a mix change. We’re growing more in alts, which is lower AUM, higher fees. And importantly, we have seen some large scale clients derisking in equities, saying going into cash. A lot of that was international and so the net result is a flat type of growth rate over the last 12 months. I’ll be bold enough to say we believe we are well-positioned in institutional and that we are going to see opportunity for growth in institutional. Whether it is in fixed income, as I said earlier about all the unconstrained conversations we’re having with large pension plans in the fixed income space, we continue to be driving more opportunities in alternatives, and I hope I can comment in the future that we’re going to continue – we’re going to start seeing opportunities in their model based equity business, because we’ve had exceptional return. But we also have opportunities in the official institution business and corporate, in the DC plans and in the financial institution group. So among those different areas, we are in more dialogue today than we have been. But I am disappointed in the net results of AUM, and I’m not upset at the revenue growth that we’re seeing in the institutional side.

Your next question will come from the line of Chris Harris with Wells Fargo. Chris M. Harris – Wells Fargo Securities LLC: Thanks. Hey, guys. So just a quick follow-up on fixed income. You guys and others in the industry, clearly benefiting from growth in unconstrained and you’ve highlighted that. I’m kind of curious if you guys think investors understand, or fully understand the risks of these funds and then maybe how sticky do you think these assets will be if things get a little bit more volatile in the market?

Well, as things get more volatile, in other words, if you have more volatility, which probably means higher interest rates, you’re going to be happier in an unconstrained product versus an intermediate duration target like a core product. So that is what clients are looking for. so they don’t have a tethering to a benchmark that has no connection to their liability. And that is one of the big issues that’s confronting a lot of investors. Investors are worried about those are in fixed income and if they are not in fixed income for immunization purposes, they are worried about the eventuality of higher rates. We are seeing growth in our global long/short credit products, which have zero duration. So do I think clients understand what they’re getting into one 100%, clients were looking to immunize, they are looking for as long a duration as they possibly can have. So we’re not going worse –we should be clear – we’re seeing movement across fixed income, we’re seeing some people who are worried about being tethered to a benchmark that has no connection to a liability. They are either looking more towards liability matching in fixed income, or they’re seeing a movement towards unconstrained. We’re seeing some clients who remain steadfast in credit and are looking to add to credit whether it is in the form of a CLO or in the form of high yield. There is not one single behavior but you’d ask me specifically related unconstrained, I believe our investors are investing in unconstrained for a reason, for a purpose. And the dialogues that we’ve had with clients year-to-date, validate my view that they understand what they’re doing related to the associated risk and the volatility that you discussed, I think, would be attached the higher rates. And that is one of the reasons why people are looking to unconstrained. So obviously, they have to perform in that environment, and they’re going to perform much better than a tethered core product that’s tethered to a four or five-year duration.

Ladies and gentlemen, we’ve reached the allotted time for question. Mr. Fink, if you have any closing remarks.

No, I hope everyone has a decent summer. Hopefully, the volatility doesn't begin this summer, so we can take this summer. I just want to thank all our shareholders for your interest in our company. And I would like to thank the employees of BlackRock for a good quarter. Have a good quarter. Thanks everyone.

This concludes today’s teleconference. You may now disconnect.