Good morning. My name is Javale (ph), and I will be your conference facilitator today. At this time. I would like to welcome everyone to the BlackRock Incorporated Third Quarter 2021 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] [Operator Instructions] Thank you. Mr. Meade, you may begin your conference.

Thank you. 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 the results for the third quarter of 2021. 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 adjusted financial results, I will be focusing primarily on our adjusted results. BlackRock's proven track record of delivering to stakeholders reflects our ongoing commitment to anticipate change before it happens and continually invest for the long term. Our globally integrated investment in technology platforms enables us to construct resilient whole portfolios for clients. We rely on thought leadership, global investment insights, and state-of-the-art risk management tools to help clients navigate ever-changing and increasingly volatile market environments. Our approach is resonating more than ever. And is reflected in the continued strong momentum we're seeing across our entire platform. BlackRock generated total net inflows of $75 billion in the third quarter, $98 billion of long-term net inflows representing approximately 4% annualized organic asset growth were partially offset by net outflows from lower feed cash and advisory AUM. In addition, strong net inflows from ETFs and our active franchise once again contributed to this quarter's 9% annualized organic base fee growth. Over the last 12 months, our differentiated investment management platform, which pairs active and index capabilities across the entire range of traditional and alternative products has now generated over $450 billion of total net inflows, representing 13% organic base fee growth, well in excess of our 5% long-term target. Third-quarter revenue of $5.1 billion increased 16% year-over-year while operating income of $1.9 billion rose 11% and reflected the impact of approximately $96 million of fund launch costs primarily associated with the successful launch of a $2 billion closed-end fund in late September. Earnings per share of…

Thanks, Gary. Good morning, everyone and thank you for joining the call. I truly hope that all of you are staying healthy and safe. Fortunately, I've been traveling again. And in recent months to see clients worldwide. It's great to be back on the road meeting face-to-face with our clients. And I found our clients actually more engaged, more interested in our conversations than ever before. As investors continue to navigate uncertainty in the markets and in the broader global economic outlook, BlackRock is partnering more closely with our clients to help them achieve long-term -- their long-term goals and helping them seeking new opportunities. BlackRock is providing insights into the global economy, guidance on how to navigate the market volatility, and providing solutions for their entire portfolio. Our comprehensive unified investment in technology platform combined with our steadfast client-centric approach is enabling us to deliver constantly and consistently strong results for our stakeholders. Long-term net inflows of $98 billion in the third quarter represented 9% organic base fee growth was driven by continued strength in our strategic growth opportunities that we spoke to you about in the past. Our consecutive quarters of strong growth are the direct result of these investments that we've made over time to enhance and evolve our business and to be more prepared for the needs of our clients. We have now delivered organic base fee growth in excess of our 5% target for six consecutive quarters, including 13% growth over the last 12 months. We also generated 30% year-over-year growth in Technology Services revenues, as more clients are turning to Aladdin to execute on their growth aspirations and helping them scale their business. At our promising global economic restart earlier this year, we saw certain countries and markets take a step back in recent…

At this time I would like to remind everyone. [Operator Instructions] To limit yourself, please limit yourself to one question. If you have a follow-up, please re-enter the keys. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Michael Cyprys with Morgan Stanley. Your line is open.

Hey, good morning. Thanks for taking the question. Just wanted to ask about alternatives given prospects here for rising yields and interest rates. There is some fear in the marketplace that this could soften flows into alternatives products. So just would be curious to hear your perspective and how you see potential for investor allocations to alternative products to evolve in a rising rate scenario. And then as you look across your alternatives franchise today, maybe you could just touch upon some of your recent initiatives on illiquids and just any sort of views on which you think could be the largest contributor to growth at BlackRock amongst your illiquid products. Thank you.

First of all, hi, Michael. I'm going to let Rob Kapito to answer that question.

So my question, now that we have been involved in the alternatives business in one way or another for a pretty long time, especially in the retail sector since 1988, and our goal has been to access the retail area for alternatives by keeping our promises over a long period of time on performance. So to start with, the growth in retail alternatives is certainly compelling as part of our strategy to serve advisors ' whole portfolios. And what we chose to do is bring a diversified product line-up to the retail alternative investor. So our job is to bring the appropriate wrappers for those products to provide the solutions to help reshape their portfolio at a period of time when rates and returns have been very low. And what we've seen them do is move from 1% to 2% of their portfolio to allocations up to 20 %. So year-to-date, just in that sector, we've raised over 24 billion of net inflows. And that's at approximately 85 basis point average fee rate across what we'll call our retail liquid alternatives and credit vehicles, and our public-private closed-end fund offerings. So our recent launch of alternatives portfolio analytics for financial advisors on the web-based BlackRock Advisors center and the continued product expansion is going to help us grow with those clients. And in the recent years, we expanded our retail alternatives to include private credit and private equity per year-to-year access to growth equity through closed-end funds. And we're working to expand our retail alternatives offerings now across real assets, sustainable, and co-investment opportunities. So just in the closed-end funds alone, we provide a wrapper that will enable us to provide up to $3 billion in alternatives in them. And just in a summary form, in total, we manage about 180 billion across liquid and alter -- illiquid [Indiscernible]. 29 billion right now in dry powder to invest and deploy, approximately 210 million of future annual base fees. And including liquid and liquid credit, our platform is now over 310 billion, we're the top 5 manager in that. And we've built up alternatives platforms and raised another 100 billion of gross capital over the last five years and we expect to raise a 100 billion more in the next 3 years. Just for September year-to-date, we have raised 25 billion of gross capital and deployed 10 billion. And because there is some expectation that rates can rise, still, these are longer-term investments that have enough spread in it that I believe that the demand is going to continue for quite a long period of time. And I think Larry's rate scenario, which he said in the beginning, is rates low for longer, will only enhance the ability for people to want more alternatives.

And your next question comes from Alex Blostein, with Goldman Sachs. Your line is open.

Hi, Alex.

Great. Good morning. Hi, Larry. Thank you for taking the question. SO inflation concerns are clearly everywhere and Larry, as you highlighted in your prepared remarks, that's something you guys are clearly focused on as well so maybe two-part question here. One, when it comes to BlackRock's own cost structure, where are you seeing expense growth and margins heading into 22. We, obviously, make changes on the salary from last quarter, but curious if this is becoming a bigger issue for total comp and G&A, as you think forward. And then secondly, from a product perspective, what are the strategies you're advising clients to lean into more aggressively into 2022 to protect their portfolios against the upside inflation risk? Thank you.

And I'll take the expense first. Hey, Alex, it's Gary, how are you? So we're obviously we have seen some expense growth, which I think is expected in the context of the outsized organic-based growth we're delivering on the top-line. For the third quarter, our margin obviously was down about a 120 basis points versus a year ago. And I'd say there were a couple of things there that clouded what would've been some operating leverage in the business, really three things in particular. One was lower performance fees year-over-year. If you recall, we had this discussion last year that performance fees in general hit the P&L at a much higher margin than the rest of the business because there's only really compensation associated with it and no other operating cost in the business. And so when we see performance fees decline, as they did year-over-year, that has an impact on the margin. Secondly, we had higher contingent consideration fair value adjustments or non-core expense this quarter, which was related to the Citibanamex final payment. And we have higher intangible amortization. So if you look at those three things, those three things really more than offset our margin on a year-over-year basis where you would have seen some operating leverage improvement. In terms of just looking at those individual costs, when you look at comp, comp is up about 8% year-over-year. Again, that was highly driven by base salaries, but not just the mid-year that you saw. And remember, comparing it to a year ago, we have normal base salary increases at the beginning of the year. We have the mid-year headcounts a little higher. We obviously have Aperio this year versus when we didn't have it last year, and FX has basically increased the dollar cost of some of…

And on the products in a more inflationary environment, I would just clearly tell you that our platform is large, it's diverse. We're having conversations with clients globally where they should be allocating. I do believe you're seeing higher allocation towards equities over the last year across our client's portfolios. As equities rally, they did less in terms of rebalancing. The bigger question is, how do you allocate across equities? What is a roll-up of emerging markets? But I don't think inflation is playing a dominant role in the conversations. Even in fixed thinking, we're obviously -- it's very obvious long-duration assets are going to be the impact ed the most. And so those clients in fixed income who are worried about their duration risk that could go down into a low-duration product, they could go into various different products with less convexity and less issues. They could go in some type of inflationary protected type of notes too. That's not going to be that large. But the resiliency of our platform really allows us to have that conversation, whether it's in a deflationary world or in an inflationary world. And I do believe the -- if you look at the geographic dispersion of our growth, The conversations worldwide represent these types of conversation, which, when we think about inflation, what role should we play? What is the role of alternatives in an inflationary environment? What is the role of equities across fixed income? So I actually believe it's the volatility of a global economy is allowing us to have these robust, deep conversations. And I don't think there's one global trend to going in and out of one product because inflationary fears and some clients don't believe in that, some people actually believe it's transitory. That's the -- I would look at this -- when there is uncertainty and when we're in a transition period, more clients come to BlackRock than ever before because they are asking those questions. And I think because of the robustness of our platform, whether it's an index-oriented strategies or active strategies across the spectrum. We have the ability to work with them across all economic environments.

Your next question comes from Bryan Gadow with Deutsche. Your line is open.

Great. Thank you. Hey. Good morning everyone. Just switch gears to the sustainable investing growth. I think Larry, you made some comments at a conference on the path to net 0 that at the current rate we're not there yet. Maybe if you can talk about how you think the demand and the capacity for BlackRock to offer impact fund products, more [Indiscernible] from the readiness and the time to fix GV going forward. And is that going to be -- should we be thinking of that as a pretty strong --

Yeah.

-- organic growth path going forward?

The flows in this COVID world that accelerated into sustainable products. Let me give you the context, I think, with global capital markets. Public institutions are moving very rapidly to adapt more disclosures related to sustainability. More clients, including our hydrocarbon clients, are looking to adapt how to continue to provide hydrocarbons to fit the current needs of our society, but also to slowly adapt in a more sustainable platform too. So across the board, we are having very deep conversations. I must say the conversations we're having with our hydrocarbon companies and the hydrocarbon, from chemicals to oil, they are more robust than ever. They're deeper, they're broader than any other time. And -- but our flows continued to grow and dominate where we continue to be a dominant leader. Year-to-date we had about $80 billion of sustainable inflows, we had $32 billion of those inflows in the third quarter. When I talked about the shift in finance, we're seeing that. Now, specifically on your question related to impact, this is one of the reasons why we wanted to be a partner in Breakthrough Energy. We want to learn more of the science and the new technology. This is why we partnered in our decarbonization fund with Temasek. The demand is growing precipitously in terms of clients interested in finding new -- being part of this transition. And so the capital is there. What is not as prevalent are projects or the opportunities. We are having conversations with the universities. We're having conversations with governments across the board on how can we provide capital? And one of the more dynamic conversation we're having with the traditional hydrocarbon companies across the board is, how can we partner with them in terms of moving -- helping them move forward on their…

Your next question comes from the line of Bill Katz with Citigroup. Your line's open.

Okay. Thank you very much.

Hey Bill.

Good morning, everybody and thank you so much for taking the questions today. I appreciate all the discussion. Maybe a two-part question, just keeping the line with that. One is, can you maybe peel back a little bit on why you're so successful in the retirement business and where you see the Paycheck opportunity gaining scale and share and then completely unrelated. But maybe for Gary, how do you think about the exit fee rate, base fee rate, just given the divergent beta versus the very strong flow mix dynamics? Thank you.

So Bill, the story is, we're able to look at a client's portfolio holistic over the long term and the focus is to have our clients be able to retire in dignity. It's not a one-off situation. It's a constant look at a portfolio over a period of interest rates and solve the problem with the appropriate wrappers and products. We have the scale of products, we have the performance, we have the wrappers. So honestly, it is the focus. A significant portion of all of BlackRock's assets are dedicated to retirement. This is what we do and when we dovetail that into the analytics that we could provide,

we really can't fulfill the entire gamut of retirement. So it's product, performance, and technology, and focus on what we think is the most important business that there is in the world, is keeping our promises to clients so they can retire in dignity.

[Indiscernible] I would add one more thing that Rob is talking about. I think our consistency of messaging to our clients across many, many years, we've developed -- built a deep relationship with our -- with the clients and I don't believe our 9% growth rate is a one-time thing. I think we continue to be growing our presence in this market. We continue to try to be an innovator, whether it's the LifePath Paycheck or anything which, now LifePath Paycheck is about $340 billion. I'm sorry, that's our target date, and LifePath Paycheck, our most recent growth. I look -- I think conversations have never been broader, more robust, and we continue to drive these conversations. I believe more and more of the large plans are looking to BlackRock for that type of advice, that type of hand-holding. And I believe more than ever before, especially in this world of need for more employees, the need to build deeper relationship with your employees. I believe the conversations that every corporation now in how to create better connectivity with their employees is becoming a broader conversation than we've ever seen in the last 20 years. I think the companies that have deeper connections, a better retirement plan, better healthcare plans, are the companies that are driving more consistency with their employees, led to higher retention rates. So I truly believe this is going -- this is one of those transitory things that are happening. And I think it's catching a lot of organizations by surprise now, the fluidity of employees moving from one economy to another economy, moving to one business to another business. And I truly believe this refocus on the needs of the employees and retirement is a major component of that refocus is going to be a…

And Bill, on your second question, which I think was about fee rate going into the fourth quarter. We generally don't provide a lot of guidance on that; we'll leave that to you guys. But I will say a couple of things on that. Obviously, you will see that the spot rate entering the fourth quarter was moderately lower, but not a big deal in average assets for the third quarter. So I think we're probably about the same. But I would direct you towards page 5 of our supplement. I think obviously a lot of things go into the fee rate. And in fact, I would say that from an organic growth perspective, every month of the third quarter was generally was very consistent. So it wasn't like we saw a lot of volatility in terms of our organic growth. But clearly, you do see some differences in the spot rates in terms of markets relative to the average rates. And you'll clearly see there's that as we've talked about in terms of diversion equity data, we did see an acceleration in terms of the decline of certain emerging markets as we got to the end of the third quarter. And I think you'll see that on the supplement, where some of our higher fee markets in Asia, the emerging markets and commodities in particular are all down roughly somewhere around mid to high single digits with actually the BlackRock equity index on the spot basis down about 3%. So no question that we did see diversion beta accelerate into the end of the quarter. But again, given some of the other stuff, I think that might have a moderate, very moderate impact on the fee rate, but I don't think anything significant.

Thank you. And last question comes from Robert Lee with KBW. Your line's open.

Hey, Robert.

Good morning, everyone. Hope everyone's doing well. Maybe we'll produce those back to maybe alternatives business. And I was interested on the 50 billion [Indiscernible] is obviously about the strategy, but a big win. But can you maybe talk about what you're seeing and how you feel in their position in the insurance market in terms of [Indiscernible] a big clients, where you see more CIOs [Indiscernible]. And do feel you have the right products set as the insurance industry, as they look to expand their [Indiscernible] credit and whatnot. Just trying to get a better feel for how you're tapping into that upfront.

So Gary and I will barbell this. We're saying that insurance portfolios have always had an allocation to what we're all calling alternatives. But as the alternative packages have become much more complicated, certainly the technology and the management of those has not really caught up. So we're being asked by insurance companies who have determined that in many cases, it would be better, cheaper, faster with the technology to outsource many of those investments. And of course, that's a very, very big part of our platform. And we are being called in more and more to be a partner with insurance companies on their portfolio overall and it's a huge growth area for us with Aladdin because the technology has not kept place. We're seeing a lot of interest from the insurance companies. And it spans the growth from private credit, especially real estate, and infrastructure. And those are 3 areas that we've spent a lot of time developing. And certainly in Aladdin, our ability there is second to none, so it's become a bigger opportunity for us in the last year or so.

I couldn't agree more. So our big business today obviously is in excess of $450 plus billion. You mentioned AEL, which is -- which will fund in the fourth quarter, very significant mandate. And I think Rob is right, portfolio resilience, diversification, portfolio construction, which takes advantage of our great performance in core fixed income are increasing momentum and capabilities across the breadth of private markets and leveraging technology. I think there's no question. I would say it's resonating well beyond just insurance companies because we're seeing yet -- obviously, we've seen the British Air Pension, we've seen a number of outsourced wealth solutions in Europe where I think all of these things has strong applicability and we're seeing them obviously increased momentum in our broad-based multi-asset capabilities figures did come through in our quarterly results. Thanks for the question, Rob.

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 interest at BlackRock. Our third-quarter results, again, is a direct result of our steadfast commitment in serving our clients, listening to our clients, responding to our clients, and hopefully staying in front of our client's needs so we could be with them as they evolve and change. I see a large opportunity ahead of BlackRock than ever. And BlackRock 's focus remains on investing in our people, on our communities, where we operate across the world, and in our platform. Most importantly, as we continue to stay ahead of our client future needs, we will continue to be driving excellence on behalf of our -- all of our shareholders. With that, thank you. Hopefully, everyone have a safe and healthy fourth quarter.

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