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 Fourth Quarter and Full Year 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] Mr. Mallow, you may begin your conference.

Thanks very much. Good morning everyone. I'm Matt Mallow, the General Counsel of BlackRock and before Larry and Gary make their remarks, I want to remind you that during the course of this call, we may make a number of forward-looking statements and 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 say today. And additionally, BlackRock assumes no duty and does not undertake to update any forward-looking statements. So with that, let's begin the call. Gary?

Thank you, Matt, and good morning everyone. My pleasure to be here to present our fourth quarter and full year 2014 as adjusted results. Overall 2014 was another strong year for BlackRock's clients, shareholders and employees. We continue to drive shareholder value by generating consistent organic growth; demonstrating the benefits of scale through our operating leverage, and systematically returning excess cash to our shareholders, even in an increasingly volatile macro environment. As Larry will discuss in more detail, our 2014 results highlight the stability and diversification of our business model and evidence the significant investments we've made in recent years to enhance the depth and breadth of our global platform. For the fourth quarter BlackRock delivered earnings per share of $4.82 and operating income of $1.2 billion. Full year earnings per share of $19.34 was up 17% compared to 2013, and operating income of $4.6 billion was 13% higher. Non-operating results for the quarter reflected a $2 million decrease in the market value of our seed and co-investments, down $63 million year-over-year driven primarily by a reduced economic investment portfolio and lower gains from investments in our hedge funds and fund to funds vehicles. Our 25.4% as adjusted tax rate for the fourth quarter benefited from $39 million of non recurring items. While we continue to estimate that 30% remains a reasonable projected tax rate for 2015, the actual effective tax rate may differ as a consequence of additional non-recurring items that arise during the year. BlackRock's fourth quarter results were driven by $88 billion of long term net new business, our highest ever quarterly net flows representing an annualized organic growth rate of 8.3%. For the full year 2014, BlackRock generated total long term net new business of $181 billion, representing an organic growth rate of 4.5% together with…

Thanks Gary. Good morning everyone and thank you for joining the call. 2014 closed with heightened volatility due to political and social instability. And that volatility obviously is continuing today and in the New Year. However, markets proved resilient in 2014 and the fourth quarter marked the 8th straight quarterly rise for the S&P 500 with data suggesting a rebound for the U.S. economy. As Gary discussed, the U.S. equity markets outperformed emerging European and Asian markets, and certainly outperformed natural resource markets and the U.S. dollar continued to appreciate relative to other currencies. This market divergence is likely to persist in 2015, creating both large challenges and large opportunities for our investors. Anemic global growth has led to an overdependence on politicians to implement reforms to rebuild the global economies. But we have seen limited action globally from politicians and as a result, we continue to rely on accommodative central bank policies whether we’re talking about Europe, China, Japan, and even at this moment even the United States. This will also put more pressure on the U.S. dollar, as it will rise higher, as well as the mixture of regional policy successes and failures, again increasing more global volatility. The technology revolution that most people always underestimate is so evident in the oil industry, and through this technology the growth and supply of oil is outpacing demand which has led to a period of volatile price discovery in the petroleum markets with greater than a 50% drop in oil prices. This is leading to a global redistribution of wealth, which people underestimate how this is going to transform the world. With the high cost of energy production economies experiencing major headwinds, countries like the U.S., like China, like India, will be seeing huge benefits in stimulus. In countries that…

[Operator Instructions] Your first question comes from Luke Montgomery with Bernstein.

I think obviously some unusual dynamics have been helping the institutional fixed-income ETF usage but it is a question really about the long-term opportunity. You have been adding talent to the sales force there. I think given the need for customized portfolios and immunization of specific liabilities in that context, how do you envision fixed-income ETF shares fitting into institutional portfolio construction? I think it's a question about how you characterize the value proposition rather than any liquidity challenge they might help address in the fixed-income market.

That's a good question. I'm going to let Rob Kapito answer that.

So, the fixed income ETFs have been in increased demand as people are learning about the product. We're still in the early stages not only of institutions using the product but retail using the product as well. So there are three segments - there are the buy and hold segment where people are using ETFs as a part of their fixed income portfolio for the beta and fixed income, and we have products that are focused on that. The second thing is that as the financial markets change, ETFs are a surrogate for many financial instruments that have because of regulatory reasons and liquidity reasons become very expensive and they are surrogates for example in swaps and futures where ETFs are now being used, in fact more than futures are being used. And as people learn about that, they add that into their portfolios. On the other side of that, there also being used as we call it precision instruments where people are looking for a specific allocation and ETFs provide that specific precision tool for them to be investing it. So, this is just a beginning of where fixed income ETFs go and as you know that the fixed income markets are much larger than the equity markets are. So we just see continued growth in that. So for retail we’re attacking that by adding on to our core series where we are adding products that can offer the full suite to what our retail investor would need over the long term in ETFs whether that be in high yield, in corporates, in treasuries, or just generic fixed income. And then on institutions, because they’re looking for more of a trading vehicle and they’re looking for the transparency and they’re looking for the liquidity, we’re adding more specific type of precision instruments for them. So, I would tell you that the demand to learn about ETFs grows and grows and we’re just - we just think this is a market that we're very positive on going forward. And also for portfolio managers that are managing large portfolios, getting the beta exposure from ETFs is cheaper, it’s more diversified and it’s more liquid than the alternative, and I might add that's really important when you’re in a low interest rate environment like we're in. So, we look forward to more growth in the fixed income and to be the leader in the ETFs in that area.

And one other point, fixing ETF utilization is far less than equity utilization and the opportunity for that to converge quite a bit.

Okay. Thank you very much.

Your next question comes from Dan Fannon with Jefferies.

Good morning. I guess kind of building upon that and just thinking about your comment about substantial momentum in the institutional business heading into 2015, outside of what we just talked about there with the fixed-income ETF can you get a little more specific about where you see that demand and kind of maybe a way to characterize it versus previous periods in terms of either size or opportunity?

Well, the momentum is as I said carrying on into 2015. We’re seeing – I think much of it has to do with the continuation of performance that we have generated with some top decile performance in our core business, our leading performance in our unconstrained fixed income, our top quartile maybe top decile performance in high yield. So across the board the performance in all the different fixed income products continues to be quite large and we’re seeing more and more clients are just also using beta products for fixed income. So, across the board we're seeing that but in terms of where we’re seeing clients looking to put more money to work, we're seeing increased activity in the client contribution area where we’ve had some rather substantial wins. We continue to see in terms of insurance companies, always at the beginning of the year, they get big infusions of cash, this is one of the fundamental reasons why we thought that rates would be going down in the first part of the year, obviously we didn’t expect some of the activities that occurred but fundamentally you always see some very large activities from insurance companies because of the beginning of the year. So, it's across the board and it’s geographically diverse too. So we think this is going to continue but I must say with where rates are at this moment more and more clients are going to be looking for different types of expressions of exposure that I do believe with where rates are it's going to lead to more and more clients searching things like infrastructure debt, other activities like that and this is one of the reasons why we’re so heavily invested in our infrastructure teams. We will continue to see clients reaching for yield and high yield whether that's a good strategy or a bad strategy. I specifically believe, rates are going to stay lower longer and I think the activities that you’re seeing in Europe whether the court's approval of the OMT for the ECB and the greater possibility of QE from the ECB but continual easing in Japan and importantly as Chairwoman Yellen has said, she's going to be very data-dependent related to what the Federal Reserve does. So, I actually believe this just creates more money in motion and more opportunity for BlackRock especially with our flows.

Great. That's helpful. And then Gary, if you could please just characterize the budget and how your outlook for 2015 with regards to kind of core expense growth.

I would say, let’s break it down. I think that in terms of G&A, I think when we look at the fourth quarter on G&A obviously it was slightly elevated by virtue of some closed end fund launch cost, and obviously some FX measurement. But I think once you kind of exclude those two items, I think the fourth quarter is generally a decent run rate for the year in terms of G&A. And then more broadly as we think about margins, obviously notwithstanding some of the seasonality that we have in our own margins especially in the first quarter, margins more broadly are dependent on lots of things, especially the beta environment, the future business mix, the various reinvestment opportunities that we see in our business and obviously the competitive compensation environment. So I don’t - our margin guidance really hasn’t changed, as you know, we don’t manage the business to a specific margin target and we remain ever committed to generating operating leverage, we’re also reinvesting in the business.

Great. Thank you.

Your next question comes from Craig Siegenthaler with Credit Suisse.

First, I was wondering if you could provide a quick update on SIFI? Found new commentary from both the SEC and FSOC, especially related to some of the activities that it seems like they are targeting like ETFs, alternatives, derivatives, securities lending with those being pretty relevant for you guys.

I don’t think they’re targeting any one product. I think you’re investigating products where there is obviously large growth and where there is areas where you may have mismatches of liquidity and or you may have need for greater disclosure. So, there is nothing new from our point. We are - if a regulator asks us to provide information we do that worldwide. We are embracing in a very positive way the movement towards the review of activities. We will be the largest beneficiary if the market is perceived to be stronger or transparent, easier to understand by more investors we will be one of the largest beneficiaries of that event and so we are embracing the concept of better financial ecosystem for our clients and if that means greater disclosure, greater transparency, we will embrace that. But I think it’s incorrect to say they are targeting because I don’t think they are targeting at all, the conversations we’re having - there are open dialogues, they’re expressive. We are providing information as asked. Obviously the dialogues are one dimensional asked, why can’t we provide information - and that’s all we know. We presume these questions are being asked by dozens of dozens of different managers and - but we’re up in this process and we will all wait and see alongside with you what the outcomes will be. And I think this will be quite granular, I think we will see how this plays out and - but unquestionably you’re going to see probably different disclosure requirements or different liquidity issues in some products and by enlarge we're into more of that.

Thanks, Larry. Very clear. Second question, 2014 was a year where we saw big pickup in pension risk transfers, pension closeouts. I was wondering if you have any thoughts on how this could trend in 2015 given some of the drivers like the change in the mortality tables? And given that BlackRock is a large manager of assets for clients on both sides of the aisle, pension plans, insurance companies, really maybe share some perspective here.

I don’t know how this is going to play out with where rates are today going forward. I think it’s very hard in most cases to be closing up pension funds, but let’s step back and why have we seen elevated pension closeouts because you’ve had significant rallies in U.S. equities over the last five years. Companies have been closer to meeting their liabilities and they have a desire to minimize income statement volatility because of the issues related to the pension fund. So, we are in dialogues with many people. Some of the firms have used annuities and working with insurance companies. As you said, we are in dialogue with many organization, some of the organizations are transforming the DB plans to DC. As I said, we’re seeing elevated growth in our DC business in the fourth quarter and we expect that in the first quarter, and we are having dialogues with many, many institutions worldwide about the possibility. But I would just caution that with rates being so low, unless you see significant equity rallies it becomes a little harder to do that or the companies are going to have to infuse some type of money to making sure that they’re matched. But I would say unquestionably BlackRock’s global platform, the ability of having our strength in target date and in terms of DC plans and having like path on the DC side, we have a lot of components working with our clients whether it’s LDI products which obviously will create a derisking and obviously we could help quite a bit in helping them think about how can a pension fund ultimately transfer some of the risks. But I don't want to call it unified across the board, I do believe depending on where each company is related to the liability. And as you suggested quite correctly about the elongation of age, these are all big issues. We've actually had conversations with organizations that did LDI years ago and now how do they factor in this elongated aging process and are they properly matched. So, but one thing is very clear to companies that have done the derisking, it is not a static one time event, they have to be constantly monitoring as depended on how the liabilities are changing. And as I said earlier, we are very involved in these dialogues, and I do believe this plays really well with our global platform of having great analytics and helping company think about it. We have long period of time of being involved with insurance companies and doing a lot of liability matching type of products for insurance companies that plays really well into LDI and other areas for us.

Thanks Larry.

You next question comes from Robert Lee with KBW.

I guess my first question is I am just going to capital management. You guys have certainly been very clear on how you think about capital management and you had the dividend increase that you just announced. But I'm just curious, if we look at the 250 commitment to share repurchase per quarter, that has been in place since the beginning of 2013 and I think since the end of 2012 GAAP earnings are up maybe about 35% or so. So is it reasonable to be thinking that that kind of 250 base commitment may be subject to some upward revision, too, as you continue to scale the Company?

Let see if Gary can answer this question.

So I think broadly we remain committed to consisting capital management. I think that we spoke last year a little bit about some of the uncertainty in the environment which I think, clearly still out there I think Larry commented more broadly on it. So consistent with that and as we've seen the earnings trajectory increase, we did obviously increase the dividend at our Board meeting yesterday by 13% to $2.18. Our buyback program is clearly a function of a number of things. We've already mentioned beta and other reinvestment opportunities that we see, as Larry likes to say, it's data-dependent I think you mentioned that earlier. But our expectation more broadly is for the year of the buyback program would be greater than the billion dollars that we repurchased last year, obviously we’re going to watch markets as they evolve during the year and plan accordingly.

Great. Thank you. And maybe just a follow-up, and Larry I know you did mention you've had some nice wins in the DC space and this is the inevitable question about money in motion and fixed-income, but where do you think we are in the DC replacement cycle? I know you had talked about that in the past given strong performance you guys have had and how well entrenched or ubiquitous maybe one of your competitors has been. Do you feel that that is still in the early stages of that 401(k) replacement cycle, or is that kind of well underway?

Well, I truly believe the successes we had in 2014, will continue in 2015. The composition of our successes in fixed income across so many different products whether it’s unconstrained, high yield, total return, MIA, is a great indication of the rest of our platform and importantly where we believe continue flows will be. On DC specifically, I think we're in the early component of that. We're in dialogue with many different contribution platforms and I do believe in the DC side, one of the reasons why we have the dialogue is there to strengthen our data products in fixed income, our strength in our index equities, our target date products, and because of the large and in depth conversations we have with our clients it’s giving us a great avenue to help them think about how they’re going to be thinking about the DC business. As I said, our total return business - total return product in DC is in the top 3% for one, three, and five. So, you come across whether as I said, target date or other products we’re in a very good position to win or clients pull the money as that money remains in motion.

Great. Thanks for taking my questions guys.

Your next question comes from Bill Katz with Citi.

Larry, you went through just a ton of things that are working very well for BlackRock. But one area that seemed to not get that much attention was active equity. I am sort of curious just stepping back maybe for BlackRock and for the industry at large, where are we in terms of investor appetite for coming back into that type of product versus as you mentioned earlier the barbell dynamic?

Well, the one area that I had a large amount of dialogue most recently is in factor based equity investing. That’s the biggest most recent type of dialogue. So the one area where we’ve done quite well is in the model base equities and we’re still not seeing really any flows but we’ve had now five years of great success there. I do believe the traditional fundamental equity business is alive, it’s not well, it had poor performance as an industry, I think that’s where you’re alluding to. We’ve seen great movement as an industry, movement out of maybe more of the fundamental investing into index. But I would say now, Bill, if you believe in a greater divergent market, a more volatile market - I've been asked many times questions related, should I be in an indexed product with a great divergence because I can't capture some of the great opportunities that are going to be masked by the great failures. So when you think about the energy market, if you think about an emerging market world context, China, India, is going to be hugely benefited by this. Countries like Russia, Nigeria, potentially Brazil, are going to be harmed by this, how do you play that. And so this is why more and more of our clients are asking about things about smart beta, factors, and I do believe we're going to need to capture different ways of finding alpha, but importantly in our actions related to fundamental equities, we’ve always said this is a five year project, 2015 begins the third year. We are committed to this and if you do believe in the world of great divergence, if you believe in a world that one day you will have - whenever that day will be, higher rates, it generally means - historically you would think this is a better environment for stock picking in fundamental equities. So our model is purposely built and positioned to benefit on this active and passive world, but the one thing that I am going to be pretty loud about, I do believe the most neglected component of the equity investing is basically model or factor based investing where we have a great platform, we’ve had great returns specially overseas. And I am very bullish on building this out as a component of our active equity area and I am quite frustrated to be frank that we haven’t seen the momentum that I thought we would, but this is an area where in my most recent meetings, last week in Asia, every client asked about factor based investing in a divergent world. So we’ll see how that plays out, Bill. But I do believe in this divergent world and the way we are built the model of BlackRock will be a beneficiary of that.

Okay. That's helpful. Thank you.

Our last question comes from Brian Bedell with Deutsche Bank.

Larry, if you can just comment on the inflow situation from the money in motion and PIMCO and other competitors in terms of your fixed-income franchise and do you think a lot of that went into the ETF component and might shift over as those investors reallocate throughout the year? And do you still see that as a tens of billions opportunity next year?

We see because of where rates are and the expectation where rates might go, I think people are focused on having a higher allocation to a fixed income ETFs and the R&D generics. And there is a lot of money in motion because of people's plans for fixed income and rate of use for fixed income this year. And certainly because some money is flowing from various competitors and I think that’s money because of the rates are, because of the fees are in general in the asset management business that EPS will see a larger percentage of [indiscernible].

I just had one thing. There is so much noise about our West Coast friend and competitor. Much of the money in motion is totally in related to what's going on there. I think there is more dialogue going on because of this low rate environment and how should that be played out. And I think that's the compelling story. How does an income oriented investor whether it’s an insurance company, a retiree who is struggling to meet the income needs of the – this is where we are in much greater dialogue. I have had great dialogue on where interest rates are and what does it mean for some of the largest suburban wealth funds. So, I think the dialogue start with the macro environment and how to play it. And that is the most forceful reason why there is so much money in motion. Obviously you have cyclical changes in one manager versus another but that's always evident in the marketplace. And I think it is just weighing too much commentary related to that and its masking what lower rates are doing related to client's needs.

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

Yeah, let me just touch on one more thing. Our fourth quarter and full year results as I think we have kind of expressed in our formatted speeches and in the Q&A, truly highlight the diversity and the differentiated platform of BlackRock. We are seeing the impact of our large scale investing that we made over a year and we are continuing to make those large scale investing in infrastructure and equities. We're going to continue to make these investments and those investments are going to pay-off in the next few years. And I think it’s vital to understand that we believe this differentiated platform is the key component of what is been delivering, this type of compounded growth that we have had on behalf of our clients for our shareholders. And I think that will continue and most importantly what I'm proud of as an organization we were able to deliver these investments and I'm not here to tell you all investments paid off, but we’ve been to continue to deliver these investments. And at the same time as Gary discussed, we saw a consistent increase in our margins over the course of the last five year. I think this is what differentiates BlackRock and I'm certainly not suggesting that we’ll continue forever. But I do believe that continual investment in people, I have to remind people, three years ago we only had – we had less than 10,000 employees. Today, we have 12,000 employees. This is just an investing in our platform, investing in our client connectivity, and investing in products and in most cases we're delivering. And this is something that really has given us that differentiated business model. And I do believe it's going to continue to drive our future at BlackRock. So, I just want to thank you everyone for taking the time this morning. And thank you for your interest at BlackRock. Have a good quarter and hopefully the next few weeks are going to be little less volatile than the last few weeks. So enjoy.