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Section 1: 10-K (10-K)

blk-10k_20161231.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from               to             .

Commission File No. 001-33099

 

 

BlackRock, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

32-0174431

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

55 East 52nd Street, New York, NY 10055

(Address of Principal Executive Offices)

(212) 810-5300

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class 

Name of each exchange on which registered 

Common Stock, $.01 par value

1.250% Notes due 2025

 

New York Stock Exchange

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known, seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The aggregate market value of the voting common stock and nonvoting common stock equivalents held by nonaffiliates of the registrant as of June 30, 2016 was approximately $55.2 billion.

As of January 31, 2017, there were 162,250,955 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference herein:

Portions of the definitive Proxy Statement of BlackRock, Inc. to be filed pursuant to Regulation 14A of the general rules and regulations under the Securities Exchange Act of 1934, as amended, for the 2017 annual meeting of stockholders to be held on May 25, 2017 (“Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.

 

 

 


BlackRock, Inc.

Table of Contents

 

PART I

 

 

 

 

Item 1

Business

1

Item 1A

Risk Factors

18

Item 1B

Unresolved Staff Comments

27

Item 2

Properties

27

Item 3

Legal Proceedings

27

Item 4

Mine Safety Disclosures

28

 

 

PART II

 

 

 

 

Item 5

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

28

Item 6

Selected Financial Data

29

Item 7

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 7A

Quantitative and Qualitative Disclosures About Market Risk

54

Item 8

Financial Statements and Supplemental Data

55

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

55

Item 9A

Controls and Procedures

55

Item 9B

Other Information

58

 

 

PART III

 

 

 

 

Item 10

Directors, Executive Officers and Corporate Governance

58

Item 11

Executive Compensation

58

Item 12

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

58

Item 13

Certain Relationships and Related Transactions, and Director Independence

58

Item 14

Principal Accountant Fees and Services

58

 

 

PART IV

 

 

 

 

Item 15

Exhibits and Financial Statement Schedules

58

 

Signatures

61

 

 


Part I

Item 1. Business

Overview

BlackRock, Inc. (together, with its subsidiaries, unless the context otherwise indicates, “BlackRock” or the “Company”) is a leading publicly traded investment management firm with $5.1 trillion of assets under management (“AUM”) at December 31, 2016. With employees in more than 30 countries who serve clients in over 100 countries across the globe, BlackRock provides a broad range of investment and risk management services to institutional and retail clients worldwide.

Our diverse platform of active (alpha) and index (beta) investment strategies across asset classes enables the Company to tailor investment outcomes and asset allocation solutions for clients. Our product offerings include single- and multi-asset portfolios investing in equities, fixed income, alternatives and money market instruments. Products are offered directly and through intermediaries in a variety of vehicles, including open-end and closed-end mutual funds, iShares® exchange-traded funds (“ETFs”), separate accounts, collective investment funds and other pooled investment vehicles. We also offer our BlackRock Solutions® investment and risk management technology platform, Aladdin®, risk analytics, advisory and technology services and solutions to a broad base of institutional and wealth management investors. The Company is highly regulated and serves its clients as a fiduciary. We do not engage in proprietary trading activities that could conflict with the interests of our clients.

BlackRock serves a diverse mix of institutional and retail clients across the globe. Clients include tax-exempt institutions, such as defined benefit and defined contribution pension plans, charities, foundations and endowments; official institutions, such as central banks, sovereign wealth funds, supranationals and other government entities; taxable institutions, including insurance companies, financial institutions, corporations and third-party fund sponsors, and retail investors.

BlackRock maintains a significant global sales and marketing presence that is focused on establishing and maintaining retail and institutional investment management relationships by marketing its services to investors directly and through financial professionals and pension consultants, and establishing third-party distribution relationships.

BlackRock is an independent, publicly traded company, with no single majority shareholder and over two-thirds of its Board of Directors consisting of independent directors. At December 31, 2016, The PNC Financial Services Group, Inc. (“PNC”) held 21.3% of BlackRock’s voting common stock and 22.0% of BlackRock’s capital stock, which includes outstanding common stock and nonvoting preferred stock.

Management seeks to achieve attractive returns for stockholders over time by, among other things, capitalizing on the following factors:

 

the Company’s focus on strong performance providing alpha for active products and limited or no tracking error for index products;

 

the Company’s global reach and commitment to best practices around the world, with approximately 48% of employees outside the United States supporting local investment capabilities and serving clients, and approximately 40% of total AUM managed for clients domiciled outside the United States;

 

the Company’s diversified active and index product offerings, which enhance its ability to offer a variety of traditional and alternative investment products across the risk spectrum and to tailor single- and multi-asset investment solutions to address specific client needs;

 

the Company’s differentiated client relationships and fiduciary focus, which enable effective positioning toward changing client needs and macro trends including the secular shift to passive investing and ETFs, a focus on income and retirement, and barbelling of risk using index and active products, including alternatives; and

 

the Company’s longstanding commitment to technology and risk management and the continued development of, and increased interest in, BRS products and services.

BlackRock operates in a global marketplace characterized by a high degree of market volatility and economic uncertainty, factors that can significantly affect earnings and stockholder returns in any given period.

The Company’s ability to increase revenue, earnings and stockholder value over time is predicated on its ability to generate new business, including business in BRS products and services. New business efforts depend on BlackRock’s ability to achieve clients’ investment objectives in a manner consistent with their risk preferences and to deliver excellent client service. All of these efforts require the commitment and contributions of BlackRock employees. Accordingly, the ability to attract, develop and retain talented professionals is critical to the Company’s long-term success.

 

 

 

1


Financial Highlights

 

(in millions, except per share data)

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

 

5-Year

CAGR(4)

 

Total revenue

 

$

11,155

 

 

$

11,401

 

 

$

11,081

 

 

$

10,180

 

 

$

9,337

 

 

 

4

%

Operating income

 

$

4,570

 

 

$

4,664

 

 

$

4,474

 

 

$

3,857

 

 

$

3,524

 

 

 

7

%

Operating margin

 

 

41.0

%

 

 

40.9

%

 

 

40.4

%

 

 

37.9

%

 

 

37.7

%

 

 

3

%

Nonoperating income (expense)(1)

 

$

(108

)

 

$

(69

)

 

$

(49

)

 

$

97

 

 

$

(36

)

 

N/A

 

Net income attributable to BlackRock, Inc.

 

$

3,172

 

 

$

3,345

 

 

$

3,294

 

 

$

2,932

 

 

$

2,458

 

 

 

6

%

Diluted earnings per common share

 

$

19.04

 

 

$

19.79

 

 

$

19.25

 

 

$

16.87

 

 

$

13.79

 

 

 

9

%

 

(in millions, except per share data)

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

 

5-Year

CAGR(4)

 

As adjusted(2):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

$

4,674

 

 

$

4,695

 

 

$

4,563

 

 

$

4,024

 

 

$

3,574

 

 

 

7

%

Operating margin(2)

 

 

43.7

%

 

 

42.9

%

 

 

42.9

%

 

 

41.4

%

 

 

40.4

%

 

 

2

%

Nonoperating income (expense)(1)

 

$

(108

)

 

$

(70

)

 

$

(56

)

 

$

7

 

 

$

(42

)

 

N/A

 

Net income attributable to BlackRock, Inc.(3)

 

$

3,214

 

 

$

3,313

 

 

$

3,310

 

 

$

2,882

 

 

$

2,438

 

 

 

7

%

Diluted earnings per common share(3)

 

$

19.29

 

 

$

19.60

 

 

$

19.34

 

 

$

16.58

 

 

$

13.68

 

 

 

10

%

 

N/A

— not applicable

(1)

Net of net income (loss) attributable to noncontrolling interests (“NCI”) (redeemable and nonredeemable).

(2)

BlackRock reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”); however, management believes evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-GAAP financial measures.

See “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures”, for further information on non-GAAP financial measures and for as adjusted items for 2016, 2015, and 2014. In 2013, the Company made a charitable contribution of approximately six million units of the Company’s investment in PennyMac Financial Services, Inc. (“PennyMac”) to a donor advised fund.  The expense related to the charitable contribution was excluded from operating income, as adjusted, due to its nonrecurring nature and because the noncash, nonoperating pre-tax gain directly related to the contributed PennyMac investment was reported in nonoperating income (expense).  In 2012, operating income, as adjusted, included an adjustment related to estimated lease exit costs initially recorded in 2011 and the contribution to certain of the Company’s bank-managed short-term investment funds.  In 2013 and 2012, the portion of compensation expense associated with certain long-term incentive plans (“LTIP”) funded, or to be funded, through share distributions to participants of BlackRock stock held by PNC has been excluded because it ultimately did not impact BlackRock’s book value. Compensation expense associated with appreciation (depreciation) on investments related to certain BlackRock deferred compensation plans has been excluded as returns on investments set aside for these plans, which substantially offset this expense, are reported in nonoperating income (expense).

(3)

Net income attributable to BlackRock, Inc., as adjusted, and diluted earnings per common share, as adjusted exclude the after-tax impact of the items listed above and also include the effect on deferred income tax expense resulting from certain income tax matters.

(4)

Percentage represents compounded annual growth rate (“CAGR”) over a five-year period (2011-2016).

 

 

Assets Under Management

The Company’s AUM by product type for the years 2012 through 2016 is presented below.

 

 

 

December 31,

 

 

 

 

 

(in millions)

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

2012

 

 

5-Year

CAGR(1)

 

Equity

 

$

2,657,176

 

 

$

2,423,772

 

 

$

2,451,111

 

 

$

2,317,695

 

 

$

1,845,501

 

 

 

11

%

Fixed income

 

 

1,572,365

 

 

 

1,422,368

 

 

 

1,393,653

 

 

 

1,242,186

 

 

 

1,259,322

 

 

 

5

%

Multi-asset

 

 

395,007

 

 

 

376,336

 

 

 

377,837

 

 

 

341,214

 

 

 

267,748

 

 

 

12

%

Alternatives

 

 

116,938

 

 

 

112,839

 

 

 

111,240

 

 

 

111,114

 

 

 

109,795

 

 

 

2

%

Long-term

 

 

4,741,486

 

 

 

4,335,315

 

 

 

4,333,841

 

 

 

4,012,209

 

 

 

3,482,366

 

 

 

9

%

Cash management

 

 

403,584

 

 

 

299,884

 

 

 

296,353

 

 

 

275,554

 

 

 

263,743

 

 

 

10

%

Advisory

 

 

2,782

 

 

 

10,213

 

 

 

21,701

 

 

 

36,325

 

 

 

45,479

 

 

 

(53

)%

Total

 

$

5,147,852

 

 

$

4,645,412

 

 

$

4,651,895

 

 

$

4,324,088

 

 

$

3,791,588

 

 

 

8

%

 

(1)

Percentage represents CAGR over a five-year period (2011-2016).

Component changes in AUM by product type for the five years ended December 31, 2016 are presented below.

 

(in millions)

 

December 31,

2011

 

 

Net inflows

(outflows)

 

 

Adjustment/

acquisitions(1)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2016

 

 

5-Year

CAGR(2)

 

Equity

 

$

1,560,106

 

 

$

279,876

 

 

$

11,461

 

 

$

952,669

 

 

$

(146,936

)

 

$

2,657,176

 

 

 

11

%

Fixed income

 

 

1,247,722

 

 

 

238,004

 

 

 

3,494

 

 

 

212,383

 

 

 

(129,238

)

 

 

1,572,365

 

 

 

5

%

Multi-asset

 

 

225,170

 

 

 

108,411

 

 

 

6,442

 

 

 

85,031

 

 

 

(30,047

)

 

 

395,007

 

 

 

12

%

Alternatives

 

 

104,948

 

 

 

2,187

 

 

 

21,497

 

 

 

(3,398

)

 

 

(8,296

)

 

 

116,938

 

 

 

2

%

Long-term

 

 

3,137,946

 

 

 

628,478

 

 

 

42,894

 

 

 

1,246,685

 

 

 

(314,517

)

 

 

4,741,486

 

 

 

9

%

Cash management

 

 

254,665

 

 

 

77,538

 

 

 

80,635

 

 

 

3,789

 

 

 

(13,043

)

 

 

403,584

 

 

 

10

%

Advisory

 

 

120,070

 

 

 

(112,384

)

 

 

 

 

 

160

 

 

 

(5,064

)

 

 

2,782

 

 

 

(53

)%

Total

 

$

3,512,681

 

 

$

593,632

 

 

$

123,529

 

 

$

1,250,634

 

 

$

(332,624

)

 

$

5,147,852

 

 

 

8

%

 

(1)

Amounts include AUM acquired from Claymore Investments, Inc. (“Claymore”) in March 2012, Swiss Re Private Equity Partners (“SRPEP”) in September 2012, Credit Suisse’s ETF franchise (“Credit Suisse ETF Transaction”) in July 2013 and MGPA in October 2013. Amounts also include AUM acquired in the acquisition of certain assets of BlackRock Kelso Capital Advisors LLC (“BKCA”) in March 2015, AUM acquired from Infraestructura Institucional and FutureAdvisor in October 2015 and AUM

2


acquired in the BofA® Global Capital Management transaction in April 2016.  In addition, amounts include other reclassifications to conform to current period combined AUM policy and presentation.

(2)

Percentage represents CAGR over a five-year period (2011-2016).

 

AUM represents the broad range of financial assets we manage for clients on a discretionary basis pursuant to investment management agreements that are expected to continue for at least 12 months. In general, reported AUM reflects the valuation methodology that corresponds to the basis used for determining revenue (for example, net asset value). Reported AUM does not include assets for which we provide risk management or other forms of nondiscretionary advice, or assets that we are retained to manage on a short-term, temporary basis.

Investment management fees are typically expressed as a percentage of AUM. We also earn performance fees on certain portfolios relative to an agreed-upon benchmark or return hurdle. On some products, we also may earn securities lending revenue. In addition, BlackRock offers its proprietary Aladdin investment system as well as risk management, outsourcing, advisory and technology services, to institutional investors and wealth management intermediaries under the BlackRock Solutions name. Revenue for these services may be based on several criteria including value of positions, number of users, accomplishment of specific deliverables or other objectives.

At December 31, 2016, total AUM was $5.1 trillion, representing a CAGR of 8% over the last five years. AUM growth during the period was achieved through the combination of net market valuation gains, net inflows and acquisitions, including Claymore and SRPEP, which collectively added $13.7 billion of AUM in 2012, Credit Suisse and MGPA, which collectively added $26.9 billion of AUM in 2013, BKCA, Infraestructura Institucional and FutureAdvisor, which collectively added $2.2 billion of AUM in 2015 and BofA Global Capital Management which added $80.6 billion of AUM in 2016. Our AUM mix encompasses a broadly diversified product range, as described below.

The Company considers the categorization of its AUM by client type, product type, investment style and client region useful to understanding its business. The following discussion of the Company’s AUM will be organized as follows:

 

Client Type

Product Type

Investment Style

Client Region

Retail

Equity

Active

Americas

iShares

Fixed Income

Index and iShares

 Europe, the Middle East and Africa  (“EMEA”)

Institutional

Multi-asset

 

 Asia-Pacific

 

Alternatives

 

 

 

 Cash Management

 

 

 

Client Type

Our organizational structure was designed to ensure that strong investment performance is our highest priority, and that we best align with our clients’ needs to capitalize on broader industry trends. Furthermore, our structure facilitates strong teamwork globally across both functions and regions in order to enhance our ability to leverage best practices to serve our clients and continue to develop our talent.  Specifically, our investments functions are split into distinct strategies: Active Equity and Fixed Income, Beta, Multi-Asset, Alternatives and Trading/Liquidity.  

We serve a diverse mix of institutional and retail clients across the globe. Clients include tax-exempt institutions, such as defined benefit and defined contribution pension plans, charities, foundations and endowments; official institutions, such as central banks, sovereign wealth funds, supranationals and other government entities; taxable institutions, including insurance companies, financial institutions, corporations and third-party fund sponsors, and retail investors. iShares is presented as a separate client type below, with investments in iShares by institutions and retail clients excluded from figures and discussions in their respective sections below.

AUM by investment style and client type at December 31, 2016 is presented below.

 

(in millions)

 

Retail

 

 

iShares

 

 

Institutional

 

 

Total

 

Active

 

$

491,078

 

 

$

 

 

$

1,009,974

 

 

$

1,501,052

 

Non-ETF Index

 

 

50,874

 

 

 

 

 

 

1,901,681

 

 

 

1,952,555

 

iShares

 

 

 

 

 

1,287,879

 

 

 

 

 

 

1,287,879

 

Long-term

 

 

541,952

 

 

 

1,287,879

 

 

 

2,911,655

 

 

 

4,741,486

 

Cash management

 

 

26,222

 

 

 

 

 

 

377,362

 

 

 

403,584

 

Advisory

 

 

 

 

 

 

 

 

2,782

 

 

 

2,782

 

Total

 

$

568,174

 

 

$

1,287,879

 

 

$

3,291,799

 

 

$

5,147,852

 

 

Retail

BlackRock serves retail investors globally through a wide array of vehicles across the active and passive spectrum, including separate accounts, open-end and closed-end funds, unit trusts and private investment funds. Retail investors are served principally through intermediaries, including broker-dealers, banks, trust companies, insurance companies and independent financial advisors. Clients invest primarily in mutual funds, which totaled $443.0 billion, or 82%, of retail long-term AUM at year-end, with the remainder invested in private investment funds and separately managed accounts (“SMAs”). 91% of long-term retail AUM is invested in active products, although this is impacted by iShares, which has a significant retail component, and is shown separately. Retail represented 12% of long-term AUM at December 31, 2016 and 34% of long-term base fees for 2016.

3


Component changes in retail long-term AUM for 2016 are presented below.

 

(in millions)

 

December 31,

2015

 

 

Net inflows

(outflows)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2016

 

Equity

 

$

193,755

 

 

$

(7,429

)

 

$

15,456

 

 

$

(5,561

)

 

$

196,221

 

Fixed income

 

 

212,653

 

 

 

8,407

 

 

 

3,130

 

 

 

(1,934

)

 

 

222,256

 

Multi-asset

 

 

115,307

 

 

 

(9,367

)

 

 

3,100

 

 

 

(1,043

)

 

 

107,997

 

Alternatives

 

 

19,410

 

 

 

(2,935

)

 

 

(835

)

 

 

(162

)

 

 

15,478

 

Total

 

$

541,125

 

 

$

(11,324

)

 

$

20,851

 

 

$

(8,700

)

 

$

541,952

 

 

The retail client base is diversified geographically, with 71% of long-term AUM managed for investors based in the Americas, 23% in EMEA and 6% in Asia-Pacific at year-end 2016.

 

U.S. retail long-term net outflows of $5.3 billion reflected net outflows from equity, multi-asset and alternatives, partially offset by fixed income net inflows of $3.9 billion. Fixed income net inflows were diversified across exposures and products, with strong flows into our municipal, total return and high yield bond offerings. Equity net outflows of $1.1 billion were driven by outflows in U.S. equity funds, in what was a challenged year for the U.S. active mutual fund industry.  Multi-asset net outflows of $5.7 billion were primarily due to outflows from world allocation strategies.

 

International retail long-term net outflows of $6.0 billion were due to net outflows from equity, multi-asset and alternatives, partially offset by fixed income net inflows of $4.5 billion. Fixed income net inflows were led by emerging market and Asia debt offerings, as well as inflows into index fixed income mutual funds. Equity net outflows of $6.3 billion were primarily due to outflows from European and U.K. equities, with political and market uncertainty contributing to a risk-off environment in the region. Multi-asset net outflows of $3.7 billion reflected net outflows from world allocation strategies.

iShares

iShares is the leading ETF provider in the world, with $1.3 trillion of AUM at December 31, 2016 and was the top asset gatherer globally in 20161 with record net inflows of $140.5 billion resulting in an organic growth rate of 13%. Equity net inflows of $74.9 billion were driven by flows into the Core range and into funds with U.S. and broad developed market equity exposures. Record fixed income net inflows of $59.9 billion were diversified across exposures and product lines, led by flows into the Core range, corporate and high yield bond funds. iShares multi-asset and alternatives funds contributed a combined $5.7 billion of net inflows, primarily into commodities funds. iShares represented 27% of long-term AUM at December 31, 2016 and 36% of long-term base fees for 2016.

Component changes in iShares AUM for 2016 are presented below.

 

(in millions)

 

December 31,

2015

 

 

Net

inflows

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2016

 

Equity

 

$

823,156

 

 

$

74,914

 

 

$

56,469

 

 

$

(3,287

)

 

$

951,252

 

Fixed income

 

 

254,190

 

 

 

59,913

 

 

 

3,782

 

 

 

(3,178

)

 

 

314,707

 

Multi-asset

 

 

2,730

 

 

 

354

 

 

 

61

 

 

 

4

 

 

 

3,149

 

Alternatives(1)

 

 

12,485

 

 

 

5,298

 

 

 

1,055

 

 

 

(67

)

 

 

18,771

 

Total

 

$

1,092,561

 

 

$

140,479

 

 

$

61,367

 

 

$

(6,528

)

 

$

1,287,879

 

 

(1)

Amounts include commodity iShares.

Our broad iShares product range offers investors a precise, transparent and efficient way to tap market returns and gain access to a full range of asset classes and global markets that have been difficult for many investors to access, as well as the liquidity required to make adjustments to their exposures quickly and cost-efficiently.

 

U.S. iShares AUM ended 2016 at $967.3 billion with $106.9 billion of net inflows driven by strong demand for the Core range and U.S. and broad developed market equities as well as a diverse range of fixed income products.2 In 2016, we saw increased investor focus on risk-aware, “smart beta” products, which saw $20.2 billion of net inflows.

 

International iShares AUM ended 2016 at $320.5 billion with net inflows of $33.6 billion led by fixed income net inflows of $21.9 billion, diversified across high yield, emerging market and investment grade corporate bond funds.2 Our international Core ranges in Canada and Europe demonstrated solid results in their third year, raising a combined $11.6 billion in net inflows as we continue to expand our international presence among buy-and-hold investors.

Institutional

BlackRock’s institutional AUM is well diversified by both product and region, and we serve institutional investors on six continents in sub-categories including: pensions, endowments and foundations, official institutions, and financial institutions.

1

Source: BlackRock; Bloomberg

2

Regional iShares amounts based on jurisdiction of product, not underlying client

4


Component changes in Institutional long-term AUM for 2016 are presented below.

 

(in millions)

 

December 31,

2015

 

 

Net inflows

(outflows)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2016

 

Active:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

$

121,442

 

 

$

(7,449

)

 

$

11,112

 

 

$

(4,406

)

 

$

120,699

 

Fixed income

 

 

514,428

 

 

 

10,234

 

 

 

20,242

 

 

 

(8,177

)

 

 

536,727

 

Multi-asset

 

 

252,041

 

 

 

13,322

 

 

 

18,516

 

 

 

(6,946

)

 

 

276,933

 

Alternatives

 

 

74,941

 

 

 

1,811

 

 

 

619

 

 

 

(1,756

)

 

 

75,615

 

Active subtotal

 

 

962,852

 

 

 

17,918

 

 

 

50,489

 

 

 

(21,285

)

 

 

1,009,974

 

Index:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

1,285,419

 

 

 

(8,612

)

 

 

135,997

 

 

 

(23,800

)

 

 

1,389,004

 

Fixed income

 

 

441,097

 

 

 

41,401

 

 

 

55,665

 

 

 

(39,488

)

 

 

498,675

 

Multi-asset

 

 

6,258

 

 

 

(82

)

 

 

843

 

 

 

(91

)

 

 

6,928

 

Alternatives

 

 

6,003

 

 

 

784

 

 

 

790

 

 

 

(503

)

 

 

7,074

 

Index subtotal

 

 

1,738,777

 

 

 

33,491

 

 

 

193,295

 

 

 

(63,882

)

 

 

1,901,681

 

Total

 

$

2,701,629

 

 

$

51,409

 

 

$

243,784

 

 

$

(85,167

)

 

$

2,911,655

 

 

Institutional active AUM ended 2016 at $1.0 trillion, reflecting $17.9 billion of net inflows. Institutional active represented 21% of long-term AUM and 20% of long-term base fees. Growth in AUM reflected continued strength in multi-asset products with net inflows of $13.3 billion reflecting ongoing demand for solutions offerings and the LifePath® target-date suite. Our top-performing fixed income platform generated net inflows of $10.2 billion, diversified across exposures. Alternatives net inflows of $1.8 billion were led by inflows into infrastructure and alternatives solutions offerings. In addition, 2016 was another strong fundraising year for illiquid alternatives, and we raised $5.0 billion in new commitments, which will be a source of future net inflows. Equity net outflows of $7.4 billion reflected fundamental and scientific net outflows of $5.0 billion and $2.4 billion, respectively.  

Institutional index AUM totaled $1.9 trillion at December 31, 2016, reflecting net inflows of $33.5 billion. Fixed income net inflows of $41.4 billion were driven by demand for liability-driven investment solutions, particularly in Europe. Equity net outflows of $8.6 billion were primarily due to low-fee regional index equity outflows as clients looked to re-allocate, re-balance or meet their cash needs. Institutional index represented 40% of long-term AUM at December 31, 2016 and accounted for 10% of long-term base fees for 2016.

The Company’s institutional clients consist of the following:

 

Pensions, Foundations and Endowments. BlackRock is among the world’s largest managers of pension plan assets with $1.989 trillion, or 68%, of long-term institutional AUM managed for defined benefit, defined contribution and other pension plans for corporations, governments and unions at December 31, 2016. The market landscape continues to shift from defined benefit to defined contribution, driving strong flows in our defined contribution channel, which had $18.5 billion of long-term net inflows for the year, driven by continued demand for our LifePath target-date suite. Defined contribution represented $703.5 billion of total pension AUM, and we remain well positioned to capitalize on the on-going evolution of the defined contribution market and demand for outcome-oriented investments. An additional $61.0 billion, or 2%, of long-term institutional AUM was managed for other tax-exempt investors, including charities, foundations and endowments.

 

Official Institutions. BlackRock manages $181.9 billion, or 6%, of long-term institutional AUM for official institutions, including central banks, sovereign wealth funds, supranationals, multilateral entities and government ministries and agencies at year-end 2016. These clients often require specialized investment advice, the use of customized benchmarks and training support.  Outflows from official institutions clients of $14.6 billion were primarily from index mandates, linked to clients’ asset allocation, re-balancing and cash needs.

 

Financial and Other Institutions. BlackRock is a top independent manager of assets for insurance companies, which accounted for $272.8 billion, or 10%, of institutional long-term AUM at year-end 2016. Long-term net inflows from insurance clients totaled $30.9 billion, driven by demand for highly customized solutions.  Assets managed for other taxable institutions, including corporations, banks and third-party fund sponsors for which we provide sub-advisory services, totaled $406.5 billion, or 14%, of long-term institutional AUM at year-end.

5


Product Type and investment style

Component changes in AUM by product type and investment style for 2016 are presented below.

 

(in millions)

 

December 31,

2015

 

 

Net inflows

(outflows)

 

 

Acquisition(1)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2016

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

$

281,319

 

 

$

(20,230

)

 

$

 

 

$

21,045

 

 

$

(7,101

)

 

$

275,033

 

iShares

 

 

823,156

 

 

 

74,914

 

 

 

 

 

 

56,469

 

 

 

(3,287

)

 

 

951,252

 

Non-ETF index

 

 

1,319,297

 

 

 

(3,260

)

 

 

 

 

 

141,520

 

 

 

(26,666

)

 

 

1,430,891

 

Equity subtotal

 

 

2,423,772

 

 

 

51,424

 

 

 

 

 

 

219,034

 

 

 

(37,054

)

 

 

2,657,176

 

Fixed income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

719,653

 

 

 

16,625

 

 

 

 

 

 

22,742

 

 

 

(9,024

)

 

 

749,996

 

iShares

 

 

254,190

 

 

 

59,913

 

 

 

 

 

 

3,782

 

 

 

(3,178

)

 

 

314,707

 

Non-ETF index

 

 

448,525

 

 

 

43,417

 

 

 

 

 

 

56,295

 

 

 

(40,575

)

 

 

507,662

 

Fixed income subtotal

 

 

1,422,368

 

 

 

119,955

 

 

 

 

 

 

82,819

 

 

 

(52,777

)

 

 

1,572,365

 

Multi-asset

 

 

376,336

 

 

 

4,227

 

 

 

 

 

 

22,520

 

 

 

(8,076

)

 

 

395,007

 

Alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core

 

 

92,085

 

 

 

(1,165

)

 

 

 

 

 

(291

)

 

 

(1,999

)

 

 

88,630

 

Currency and commodities

 

 

20,754

 

 

 

6,123

 

 

 

 

 

 

1,920

 

 

 

(489

)

 

 

28,308

 

Alternatives subtotal

 

 

112,839

 

 

 

4,958

 

 

 

 

 

 

1,629

 

 

 

(2,488

)

 

 

116,938

 

Long-term

 

 

4,335,315

 

 

 

180,564

 

 

 

 

 

 

326,002

 

 

 

(100,395

)

 

 

4,741,486

 

Cash management

 

 

299,884

 

 

 

29,228

 

 

 

80,635

 

 

 

430

 

 

 

(6,593

)

 

 

403,584

 

Advisory

 

 

10,213

 

 

 

(7,601

)

 

 

 

 

 

(68

)

 

 

238

 

 

 

2,782

 

Total

 

$

4,645,412

 

 

$

202,191

 

 

$

80,635

 

 

$

326,364

 

 

$

(106,750

)

 

$

5,147,852

 

 

(1)

Amount represents AUM acquired in the BofA Global Capital Management transaction in April 2016.

Long-term product offerings include active and index strategies. Our active strategies seek to earn attractive returns in excess of a market benchmark or performance hurdle while maintaining an appropriate risk profile. We offer two types of active strategies: those that rely primarily on fundamental research and those that utilize primarily quantitative models to drive portfolio construction. In contrast, index strategies seek to closely track the returns of a corresponding index, generally by investing in substantially the same underlying securities within the index or in a subset of those securities selected to approximate a similar risk and return profile of the index. Index strategies include both our non-ETF index products and iShares ETFs.

Although many clients use both active and index strategies, the application of these strategies may differ. For example, clients may use index products to gain exposure to a market or asset class, or may use a combination of index strategies to target active returns. In addition, institutional non-ETF index assignments tend to be very large (multi-billion dollars) and typically reflect low fee rates. This has the potential to exaggerate the significance of net flows in institutional index products on BlackRock’s revenues and earnings.

Equity

Year-end 2016 equity AUM totaled $2.657 trillion, reflecting net inflows of $51.4 billion. Net inflows included $74.9 billion into iShares, driven by net inflows into the Core ranges and broad developed and emerging market equities. iShares net inflows were partially offset by active and non-ETF index net outflows of $20.2 billion and $3.3 billion, respectively.

BlackRock’s effective fee rates fluctuate due to changes in AUM mix. Approximately half of BlackRock’s equity AUM is tied to international markets, including emerging markets, which tend to have higher fee rates than U.S. equity strategies. Accordingly, fluctuations in international equity markets, which may not consistently move in tandem with U.S. markets, have a greater impact on BlackRock’s effective equity fee rates and revenues.

Fixed Income

Fixed income AUM ended 2016 at $1.572 trillion, reflecting net inflows of $120.0 billion. In 2016, active net inflows of $16.6 billion were diversified across fixed income offerings, and included strong inflows from insurance clients. Fixed income iShares net inflows of $59.9 billion were led by flows into the Core ranges, emerging market, high yield and corporate bond funds.  Non-ETF index net inflows of $43.4 billion were driven by demand for liability-driven investment solutions.

Multi-Asset

BlackRock’s multi-asset team manages a variety of balanced funds and bespoke mandates for a diversified client base that leverages our broad investment expertise in global equities, bonds, currencies and commodities, and our extensive risk management capabilities. Investment solutions might include a combination of long-only portfolios and alternative investments as well as tactical asset allocation overlays.

Component changes in multi-asset AUM for 2016 are presented below.

 

(in millions)

 

December 31,

2015

 

 

Net inflows

(outflows)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2016

 

Asset allocation and balanced

 

$

185,836

 

 

$

(10,332

)

 

$

6,705

 

 

$

(5,534

)

 

$

176,675

 

Target date/risk

 

 

125,664

 

 

 

13,500

 

 

 

10,189

 

 

 

79

 

 

 

149,432

 

Fiduciary

 

 

64,433

 

 

 

998

 

 

 

5,585

 

 

 

(2,621

)

 

 

68,395

 

FutureAdvisor(1)

 

 

403

 

 

 

61

 

 

 

41

 

 

 

 

 

 

505

 

Total

 

$

376,336

 

 

$

4,227

 

 

$

22,520

 

 

$

(8,076

)

 

$

395,007

 

 

(1)

The FutureAdvisor amount does not include AUM that was held in iShares holdings.

6


Multi-asset net inflows reflected ongoing institutional demand for our solutions-based advice with $13.2 billion of net inflows coming from institutional clients. Defined contribution plans of institutional clients remained a significant driver of flows, and contributed $11.3 billion to institutional multi-asset net inflows in 2016, primarily into target date and target risk product offerings. Retail net outflows of $9.4 billion were primarily due to outflows from world allocation strategies.

The Company’s multi-asset strategies include the following:

 

Asset allocation and balanced products represented 45% of multi-asset AUM at year-end. These strategies combine equity, fixed income and alternative components for investors seeking a tailored solution relative to a specific benchmark and within a risk budget. In certain cases, these strategies seek to minimize downside risk through diversification, derivatives strategies and tactical asset allocation decisions. Flagship products in this category include our Global Allocation and Multi-Asset Income fund families.  

 

Target date and target risk products grew 11% organically in 2016, with net inflows of $13.5 billion. Institutional investors represented 94% of target date and target risk AUM, with defined contribution plans accounting for 88% of AUM. Flows were driven by defined contribution investments in our LifePath and LifePath Retirement Income® offerings. LifePath products utilize a proprietary asset allocation model that seeks to balance risk and return over an investment horizon based on the investor’s expected retirement timing.

 

Fiduciary management services are complex mandates in which pension plan sponsors or endowments and foundations retain BlackRock to assume responsibility for some or all aspects of plan management. These customized services require strong partnership with the clients’ investment staff and trustees in order to tailor investment strategies to meet client-specific risk budgets and return objectives.

 

FutureAdvisor is a digital wealth management platform, acquired by BlackRock in October 2015. FutureAdvisor operates as a service within BlackRock Solutions, providing financial institutions with technology-enabled advice capabilities to improve their clients’ investment experience. As consumers increasingly engage with technology to invest, BlackRock and FutureAdvisor are positioned to empower distribution partners to better serve their clients by combining FutureAdvisor’s technology-enabled advice with BlackRock’s multi-asset investment capabilities, proprietary technology and risk analytics.

Alternatives

BlackRock alternatives focus on sourcing and managing high-alpha investments with lower correlation to public markets and developing a holistic approach to address client needs in alternatives investing. Our alternatives products fall into two main categories — 1) core alternatives, and 2) currency and commodities. Core includes alternative solutions, direct hedge funds, hedge fund and private equity solutions (funds of funds), opportunistic private equity and credit, real estate and infrastructure offerings. BlackRock alternatives products are described below.

In 2016, alternatives generated $5.0 billion of net inflows, driven by net inflows into currency and commodities and infrastructure.  BlackRock returned $6.1 billion of capital to investors upon the completion of investment periods, which is included in outflows. The largest contributors to return of capital were real estate and private equity solutions. In addition, we raised $5.0 billion of new commitments in 2016 across a variety of strategies, including private equity solutions, hedge fund solutions, opportunistic credit, alternative solutions, real estate and infrastructure. At year-end, we had $10.8 billion of non-fee paying, unfunded, uninvested commitments, which are expected to be deployed in future years; these commitments are not included in AUM or flows until they are invested.

We believe that as alternatives become more conventional and investors adapt their asset allocation strategies, investors will further increase their use of alternative investments to complement core holdings.  As a top ten alternative provider3 our highly diversified $116.9 billion alternatives franchise is well positioned to meet growing demand from both institutional and retail investors.

 

Component changes in alternatives AUM for 2016 are presented in the table below.

(in millions)

 

December 31,

2015

 

 

Net inflows

(outflows)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2016

 

 

Memo:

return of

capital(1)

 

Core alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alternative solutions

 

$

1,886

 

 

$

651

 

 

$

92

 

 

$

(1

)

 

$

2,628

 

 

$

(326

)

Hedge funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct hedge fund strategies

 

 

31,051

 

 

 

(2,868

)

 

 

(613

)

 

 

(599

)

 

 

26,971

 

 

 

 

Hedge fund solutions

 

 

20,117

 

 

 

133

 

 

 

142

 

 

 

(73

)

 

 

20,319