Good morning. My name is Maria and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated Third Quarter 2020 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'm Chris Meade, the General Counsel of BlackRock. Before we begin, I'd like to remind you that, during the course of this call, we may make a number of forward-looking statements. We call your attention to the fact that BlackRock's actual results may, of course, differ from these statements. As you know, BlackRock has filed reports with the SEC, which list some of the factors that may cause the results of BlackRock to differ materially from what we say 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. And good morning, everyone. It's my pleasure to present results for the third quarter of 2020. And I hope everyone and their families are remaining safe and healthy in the current environment. Before I turn it over to Larry to offer his comments, I'll review our financial performance and business results. While our earnings release discloses both GAAP and as adjusted financial results, I will be focusing primarily on our as adjusted results. BlackRock's steadfast focus on serving clients, employees, shareholders and the communities in which we operate continued in the third quarter. Our strong performance during the quarter and throughout the year amid unprecedented market uncertainty is a testament to the investments we've made over time to build a diverse and resilient business model, the strength of our BlackRock brand, and the commitment of our amazing employees to always deliver for clients. Our broad-based platform, pairing diverse investment capabilities with best-in-class technology and rigorous risk management, has now generated almost $400 billion of total net inflows over the last 12 months, representing 7% organic base fee growth. Our voice is resonating with clients more than ever, and our ability to address their current challenges to whole portfolio solutions, no matter the market environment, is a direct result of the strategic vision we embraced well over a decade ago and grounded in the strength of our one BlackRock culture. BlackRock generated $129 billion of total net inflows in the third quarter, representing 7% annualized organic asset growth and 9% annualized organic base fee growth. As markets strengthened during the third quarter, BlackRock leverage the entirety of its global platform to help clients meet long-term needs. Not only did we see positive flows across all asset classes, investment styles and regions for the quarter, we have also generated positive…

Thanks, Gary. Good morning, everyone. And thank you for joining the call. I hope you and all your loved ones are staying healthy and safe. We're reporting earnings this quarter from BlackRock's New York office once again. I've been back in the office about three days per week since last month, and has been very productive and incredibly energizing as we are working diligently to help more and more clients and more and more people, both in this environment and certainly over the long run. As investors around the world continue to deal with the pandemic and the uncertainty about the future, BlackRock is doing everything we can to help clients navigate the challenges that come with it. Clients are looking for strategic insights on the economy and markets, including the impact of inflationary pressures and sustainability risks and opportunity across their entire portfolios. They want guidance on how to navigate market rotation and volatility. They need solutions that make their portfolios more resilient for their long-term needs and their long-term aspirations. BlackRock is better positioned than ever before to deliver our comprehensive global investment platforms across actives and index, across asset classes and geographies and across all exposures. All of this is unified by one culture and unified by one technology platform, all to serve our clients better. We have purposely built our business model over the last 32 years both organically and through historic transformational acquisitions to be centered around client needs. This positioning, coupled with our strong fiduciary culture, has differentiated BlackRock in the asset management industry. Clients are entrusting us with a greater share of their assets and developing deeper partnerships with BlackRock across their whole portfolios. And this has been reflected in our results. We generated $129 billion in total net inflows in the third…

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

The strength in active flows was better than expected and better than what you are seeing industrywide? I'm just curious, what are you seeing as the driver specific to BlackRock, whether it's client, product specific. And then, based on conversations, either you see more follow through for this demand going forward? Thanks.

Let me have Rob answer that question. And I may do a color backdrop after that.

Mike, I think that you would agree that, in the environment that we are experiencing this year, every single bit of alpha generation is critical to our clients. I think Larry said it well. We're very proud of the strong active performance that we have across all asset classes. And I think this is a result of our investments to build a platform. And this platform now has global reach, the interconnectivity across the teams and regions, unparalleled access to data and insights through the creation of the BlackRock Investment Institute. We have now fully integrated our technology and risk management and we have very scalable processes. So, this platform is really enabling our teams, and I would say our strong teams, to deliver much more consistent outcomes over the long term for our clients when they need it the most. And if we generate alpha and we have that performance, then assets will come in because the clients need them. Anything to add, Larry?

Let me just add another thing. Obviously, performance matters. And I believe the most important characteristic of our active inflows, both in fixed income and equities, is a function of our whole portfolio approach. As more and more retail moves to fee based, it is much more of a solution orientation, it's much more about a whole portfolio approach. And under COVID now, with the connection with the financial advisor and the RIAs to their clients is now done remotely, the need for investment technology, like Aladdin for Wealth, is even more important. And so, having BlackRock play a role and building deeper relationships between the advisor and their clients, providing better risk analytics, it allows us to have, in our models, our products in front of that too. And it's a combination of performance, but also over a 15-year horizon of building this enterprise to do that connectedness and then using that enterprise and all the culture of interconnectedness among portfolio teams, I believe it's driving better alpha and driving a better connectivity with those leading towards more consistent inflows across active and index type of strategies.

Our next question comes from the line of Craig Siegenthaler of Credit Suisse.

I want to circle back on the strong flows across all client segments in fixed income. And I think we know part of this is driven by overall risk aversion and also heavy rebalancing. But just given where rates are today, do you think some of this strong fixed income migration is eventually diverted into other areas like alternatives and equities? And then, within fixed income, maybe into more higher yielding segments like structured credit, loans and high yield?

Craig, even in the face of sustained low rates, clients are going to need fixed income in their portfolios to meet their long-term goals, to match their liabilities. And I think in a period like this, what you might find is people stretching for yield. And we try to make sure that they're not overextending and taking too much risk for that yield. But I think, clearly, what you will see is a migration from low yielding government securities to corporates and high yield, which took place, to private credit which is taking place and for alternatives which have become less alternative to have a stronger and larger percentage of a client's portfolio. So, that is why, as Larry has mentioned, it's important to have the breadth of products that we have across fixed income, so that people can migrate to capture that higher yield. And it extends from cash to short duration fixed income, to illiquid alternative allocations. And it really is the full spectrum. It also will move into multi-asset flows. And that's why our business, in creating multi asset products, are helping those clients to capture that additional yield, which is so critical right now, without taking too much risk.

I would just add. There's no question, Craig, government bonds are going to play less and less of a role for most retirement portfolios. They still play a big role in bank portfolios and other regulated institutions. But unquestionably, you would own government bonds for liquidity purposes, you certainly would not use government bonds for income purposes. And so, you are going to have a migration across to different asset classes and different asset categories. And so, as Rob suggested, I believe our comprehensive platform within fixed income, having a strong, purposeful ETF platform in fixed income, which we've been advocating since 2012, a historical strong fixed income organization since the beginning of our firm has allowed us to have a differentiation in flows. And as I said, I certainly believe fixed income ETFs are going to play a bigger and larger component over the entire fixed income market. And with our positioning and with our constant educating clients worldwide on how can they use fixed income ETFs for their portfolio composition needs in fixed income is going to continue to drive our, I would say, above-industry trends in fixed income.

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

Larry, just to focus on your comments on sustainable investing a little bit more deeply. Obviously, you showed a lot of leadership here with, I believe, $125 billion in AUM. And you cited the iShares franchise, it's over $50 billion in AUM, if I'm not mistaken, with $8 billion in flows. Could you possibly update us on what you think flows were in sustainable product outside of the iShares in the quarter? I think the goal was to get to $1 trillion eventually by the end of the decade. Maybe just thoughts on how active management can play a role in your product lineup in addition to the passive side in ETFs? And maybe just also on the – weaving that ESG into the technology side, if you can comment on that on Aladdin and Aladdin for Wealth as well.

As I said in my 2020 CEO letter, we believe climate risk is investment risk. And I do believe that – when I wrote the letter, obviously, the pandemic was not top of mind at all. It was some virus that was in China that we didn't really understand as much. And obviously, now, it changed the course of the book. The pandemic, in many cases, created an existential health risk. And I do believe, at the same time, we are seeing more and more climate change impact, and that is an existential risk. So, I think what we are witnessing and what we're hearing from clients, COVID has made climate change more top of mind. We're having more dialogues worldwide than ever before. And more dialogues here even in the United States. In the United States, we have to operate as a fiduciary in the law of this land. Our labor department has required all investments as a fiduciary to ensure that everything you do is about maximization of return. We need to continue to drive technology and information to show how climate change is investment risk, and this is why we are so focused on Aladdinizing data for climate change. And as I said earlier, we are creating Aladdin Climate as one of the components of Aladdin, and we hope to be rolling that out. We're working with many different sustainable data providers to put that on Aladdin. And so, as a result of it, we need to as a fiduciary to show why climate risk for [indiscernible] why it is investment risk. But we're seeing across the board, whether it's individual investors, whether it is family offices, that they don't need as much data or documentation that they believe that climate change is investment risk. I would…

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

Just on consolidation, it seems to be picking up across the industry. And if that does continue and if we see larger mergers and mergers across the value chain, I guess, how do you think this could impact the competitive dynamics and industry structure? And in what scenario would BlackRock participate in? And what could make sense for BlackRock here?

Well, since my CFO is an investment banker who is responsible for a lot of historical M&A in the industry, let's have Gary respond.

Transformed investment banker. Maybe just a few observations on what we're seeing today. I think I would characterize that there's very little surprise from our standpoint by the recent acceleration and consolidation in the industry. If you think a couple of the trends that are out there, we're seeing obviously revenue and expense pressures increasing. And that was even before the pandemic. We've talked about the importance of multi asset investment capabilities and how critical they are to addressing whole portfolio solutions. We've talked about technology expertise, whether to support operational infrastructure, risk management, portfolio construction, or even digital distribution, that is really becoming a need-to-have and not a nice-to-have. And whether or not you are a global firm or not, you need to have global insights to be able to give your clients the best advice. If you think about those last three trends, in particular, BlackRock really identified those last three trends well over a decade ago and we began the evolution to really purposely build the firm to what it is today. And in many cases, see today's consolidation activity as a validation of the strength of the business model that we've created. And so, while we see the industry continue to consolidate really in the hopes of creating what we already have – think about global reach, scale, best-in-class technology and risk management, diverse investment capabilities, from passive to active, the ability to build whole portfolio solutions – our intention is really to maintain our focus on our existing strategy, and effectively, to just be a beacon of stability in a world that's going to be ever consolidating. And as consolidation accelerates, I think we feel more strongly than ever that we're going to benefit from the disruption that it's going to create, and we'll likely…

Very good. I like that word beacon.

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

I wanted to ask you guys around some of the operational lessons learned from the COVID environment for the last, call it, six months or so. On the one hand, it sounds like opportunities for Aladdin could accelerate, given the challenges faced by the financial advisor community. But also, I was curious if you guys are rethinking some of your own G&A footprint and how that could sort of evolve once the world normalizes. Thanks.

Look, I think the biggest lesson learned, obviously, was that we were able to very quickly migrate from 16,000 people in 60 offices to 16,000 people in 16,000 offices. And I think, obviously, our commitment to a single technology operating system was absolutely crucial to our ability to migrate that way. Obviously, we had some early bumps in terms of just trying to get people the technology, they necessarily need at home, but I think we transitioned seamlessly into that environment. And I think, frankly, the performance, whether financially or operationally, over the last six plus months is certainly evidence for that. I think that, as it relates to the broader pandemic, I think that we have seen, frankly, an acceleration in almost every single strategic trend that we were guiding the business towards pre-pandemic post-pandemic. And so, I think the pandemic has really accelerated our growth opportunities and everything that we were focused on before, if you think about it, whether it was ETFs and the performance of fixed income ETFs through the pandemic, we talked about technology, Larry mentioned how important it's going to be to get private assets into whole portfolio solutions we were investing there, whole portfolio solutions more broadly, sustainability which we kicked off before the pandemic was a reality. It's obviously been accelerating incredibly strongly. So, I think in many cases, that pandemic has really driven for us many more of the themes that we were pointing the business towards, and we feel will clearly accelerate growth as a result. As it relates to getting back to the office, I'll have Larry jump back in there. I think that we are doing the call from the New York office today. There's no question that employee wellbeing remains our priority and we'll be following all the official guidance and putting the health and safety of our employees first always as we look to return to the office. And we are continuing to operate on a split operations basis. But, look, we're still operating with only about 6% to 7% of our employees back in the office. Well, I think we can get through that today operationally. I think, over time, I think the culture of BlackRock is still an office type of culture where innovation has always been driven by having people working together. And I think longer term, we're going to hope that we get back there as quickly as we can.

I would just add. There are many lesson that we're learning from the horrificness of the pandemic and the health concerns. I don't think any of us thought we could operate as efficiently remotely. As Gary said, now we're operating in 16,000 offices. I believe that was one of the great fears, could we actually accomplish that, can we have the operational efficiencies working remotely. And by and large, many large companies, including BlackRock, have learned that, yes, we can work remotely without much in terms of degradation of operational efficiencies. We still have some of the cultural issues that I'm particularly worried about. But let's be clear, I don't believe we will have 100% back in office even when we have 100% solutions related to the virus. I believe this will become a blessing. I believe this is going to be considered a benefit if we could have –30%, 40% of our workforce that they can work remotely at periods of time during the year. Can you imagine how each city will have reduced congestion? Think about what that would do to the environment. Think about it, your average employee commutes on average an hour each way that we free up for a portion of the year, two hours of their day. They can spend that two hours doing more work, they could spend two hours improving their health by exercising, they could spend two hours more in building a deeper, stronger, more resilient family. And so, there are many blessings through this. And I think we're all going to be adapting doing this. And I do believe society will be better off through these processes. And so, this is what we're talking about related to BlackRock. We have to stay in front of our clients' needs. We have to adapt. And I think one of the great adaptations that we're going to learn from the horrificness of COVID is working remotely and having a – but having still some core part of your enterprise working in office. And I think this is all going to be a real positive lesson. And it will create another dynamism for all our economies. And so, I look at this as a great learning experience. We're benefiting from this and our clients could benefit from this also.

Your next question comes from Dan Fannon of Jefferies.

The question on flows, the 50% of flows coming from Europe and Asia. Curious if that's a record and whether that was reflective of a surge in gross sales, lower redemptions, or any kind of outsize mandate wins. And then just thinking about the momentum in that business, how we should think about the contribution from these regions going forward?

Dan, great question. Obviously, one quarter is always hard to basically make any significant trends. And so, I think we always have to think about this more broadly. Obviously, we're seeing institutional wealth clients facing a variety of complex challenges. We're seeing pensions are underfunded. We're seeing insurers dealing with, obviously, sharp increases in payouts and declining asset values. We're seeing financial advisors adapt to new ways of interacting with their clients, and obviously, individuals who are more dependent on retirement savings, which obviously are more challenging. Clients globally are reacting to all of those things. And they're allocating to a variety of different countries and sectors and growth areas, whether it's US tech or underappreciated areas like emerging markets. And everybody is considering their own specific challenges at one point in time. But I think the more broad point for us is that, while there's unique issues related to each of those geographic areas, clients in all the regions and all types are really turning to us. And we've talked about the positive flows we've seen across the board delivering alpha and the fact that we had, in this particular quarter, a number of flows coming from clients in Europe and Asia. But I think we are obviously a global firm. We're investing globally, we're spending a lot of time and energy investing in our European franchise, as well as our Asian franchise. Larry has talked before about our commitment to becoming local in each of the countries in which we operate, which I think is reinforcing the commonality and the uniqueness of BlackRock brand, but trying to be specifically local to each of those countries and basically pushing a lot of the decision making closer to where the clients are more broadly as a firm. And I think trends around sustainability as well are obviously critically important as we see countries outside of the US adapting to that much more quickly than we are. So, I think it's just indicative of our global footprint and the fact that we're trying to basically invest all around the world to make sure that we can deliver for our clients.

Dan, I would just add to what Gary said. I think it speaks very loudly of our comprehensive platform worldwide and our commitment to be local in every community we operate. I would say the other thing is us really helping clients understand the utilization of ETFs. The US was years ahead of Europe and Asia. And Europe is slowly catching up. ETF adaptation in Europe and Asia is accelerating. And I would also say we are seeing more consistent retail flows in EMEA across all products. And so, I think this is – some of it is a new trend, but I think the trend towards ETFs is just the beginning of a big macro trend. I also believe as more financial advisors worldwide are moving to fee base and are moving to more of a fiduciary relationship, it means more whole portfolio solutions. And no firm is better positioned because of our emphasis of being local, our comprehensiveness and our ability to work with our clients worldwide on the adaptation of more products and different products.

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

Thank you, operator. I want to thank all of you for joining us this morning and for your continued interest in BlackRock. Hopefully you could hear from all of us, we're very proud of the progress we made to help our clients navigate this turbulent investment landscape and building for our clients a more resilient portfolio. I am more convinced than ever before of BlackRock's ability to meet our clients' challenges will continue to drive our growth in the future. I've always said that companies with long-term visions and purpose at the center of their strategies are those that will succeed over the long run. BlackRock's long-term vision to build a platform that is centered around our clients is resonating. Our focus on the long term is fueling our investments in BlackRock's people, in all the communities where we operate and in our platform as we continue to evolve ahead of our clients' needs. I can assure you, we will continue to invest and innovate in the years to come and to serve all our stakeholders, our clients, our employees, our communities, and obviously, our shareholders. This is still our purpose in helping more and more people experience financial wellbeing and a better hope for a better future. And I wish all of you a safe and healthy fourth quarter. Thank you.

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