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Section 1: 10-K (10-K)

blk-10k_20171231.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, 2017

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer                Accelerated filer

       Non-accelerated filer (Do not check if a smaller reporting company)

            Smaller reporting company

            Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

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, 2017 was approximately $67.3 billion.

As of January 31, 2018, there were 160,718,719 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 2018 annual meeting of stockholders to be held on May 23, 2018 (“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

28

Item 2

Properties

28

Item 3

Legal Proceedings

28

Item 4

Mine Safety Disclosures

29

 

 

PART II

 

 

 

 

Item 5

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

30

Item 6

Selected Financial Data

31

Item 7

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

33

Item 7A

Quantitative and Qualitative Disclosures About Market Risk

58

Item 8

Financial Statements and Supplemental Data

59

Item 9

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

59

Item 9A

Controls and Procedures

59

Item 9B

Other Information

62

 

 

PART III

 

 

 

 

Item 10

Directors, Executive Officers and Corporate Governance

62

Item 11

Executive Compensation

62

Item 12

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

62

Item 13

Certain Relationships and Related Transactions, and Director Independence

62

Item 14

Principal Accountant Fees and Services

62

 

 

PART IV

 

 

 

 

Item 15

Exhibits and Financial Statement Schedules

62

 

Signatures

66

 

 


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 $6.288 trillion of assets under management (“AUM”) at December 31, 2017. With approximately 13,900 employees in more than 30 countries who serve clients in over 100 countries across the globe, BlackRock provides a broad range of investment, risk management and technology services to institutional and retail clients worldwide.

Our diverse platform of alpha-seeking active, index and cash management investment strategies across asset classes enables the Company to tailor investment outcomes and asset allocation solutions for clients. We offer single- and multi-asset class 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 trusts and other pooled investment vehicles. BlackRock also offers the investment and risk management technology platform, Aladdin®, risk analytics, advisory and technology services and solutions to a broad base of institutional and wealth management clients. The Company is highly regulated and manages its clients’ assets 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 and technology service relationships by marketing its services to investors directly and through third-party distribution relationships, including financial professionals and pension consultants.

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, 2017, The PNC Financial Services Group, Inc. (“PNC”) held 21.2% of BlackRock’s voting common stock and 21.7% of BlackRock’s capital stock, which includes outstanding common and nonvoting preferred stock.

Management seeks to deliver value for stockholders over time by, among other things, capitalizing on BlackRock’s differentiated competitive position, including:

 

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 49% of employees outside the United States serving clients locally and supporting local investment capabilities. Approximately 40% of total AUM is managed for clients domiciled outside the United States;

 

the Company’s breadth of investment strategies, including market-cap weighted index, smart beta and factor-based, high conviction alpha and liquid and illiquid alternative product offerings, which enhance its ability 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 index 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 innovation, technology and risk management and the continued development of, and increased interest in, BlackRock technology products and solutions, including Aladdin, Aladdin Risk for Wealth Management, Cachematrix, and FutureAdvisor, as well as Scalable Capital and iCapital, in which BlackRock has made minority investments.

BlackRock operates in a global marketplace impacted by changing market dynamics 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 Aladdin and other technology 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)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP:

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

5-Year

CAGR(4)

 

Total revenue

 

$

12,491

 

 

$

11,155

 

 

$

11,401

 

 

$

11,081

 

 

$

10,180

 

 

 

6

%

Operating income

 

$

5,272

 

 

$

4,570

 

 

$

4,664

 

 

$

4,474

 

 

$

3,857

 

 

 

8

%

Operating margin

 

 

42.2

%

 

 

41.0

%

 

 

40.9

%

 

 

40.4

%

 

 

37.9

%

 

 

2

%

Nonoperating income (expense)(1)

 

$

(32

)

 

$

(108

)

 

$

(69

)

 

$

(49

)

 

$

97

 

 

N/A

 

Net income attributable to BlackRock, Inc.

 

$

4,970

 

 

$

3,172

 

 

$

3,345

 

 

$

3,294

 

 

$

2,932

 

 

 

15

%

Diluted earnings per common share

 

$

30.23

 

 

$

19.04

 

 

$

19.79

 

 

$

19.25

 

 

$

16.87

 

 

 

17

%

 

(in millions, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As adjusted(2):

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

5-Year

CAGR(4)

 

Operating income

 

$

5,287

 

 

$

4,674

 

 

$

4,695

 

 

$

4,563

 

 

$

4,024

 

 

 

8

%

Operating margin

 

 

44.1

%

 

 

43.7

%

 

 

42.9

%

 

 

42.9

%

 

 

41.4

%

 

 

2

%

Nonoperating income (expense)(1)

 

$

(32

)

 

$

(108

)

 

$

(70

)

 

$

(56

)

 

$

7

 

 

N/A

 

Net income attributable to BlackRock, Inc.(3)

 

$

3,716

 

 

$

3,214

 

 

$

3,313

 

 

$

3,310

 

 

$

2,882

 

 

 

9

%

Diluted earnings per common share(3)

 

$

22.60

 

 

$

19.29

 

 

$

19.60

 

 

$

19.34

 

 

$

16.58

 

 

 

11

%

 

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 2017, 2016, and 2015.

In 2014, general and administration expense relating to the reduction of an indemnification asset has been excluded since it is directly offset by a tax benefit of the same amount and, consequently, did not impact BlackRock’s book value. In 2013, the Company made a charitable contribution 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 2014 and 2013, 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 referred to 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 (2012-2017).

 

 

Assets Under Management

The Company’s AUM by product type for the years 2013 through 2017 is presented below.

 

 

 

December 31,

 

 

 

 

 

(in millions)

 

2017

 

 

2016

 

 

2015

 

 

2014

 

 

2013

 

 

5-Year

CAGR(1)

 

Equity

 

$

3,371,641

 

 

$

2,657,176

 

 

$

2,423,772

 

 

$

2,451,111

 

 

$

2,317,695

 

 

 

13

%

Fixed income

 

 

1,855,465

 

 

 

1,572,365

 

 

 

1,422,368

 

 

 

1,393,653

 

 

 

1,242,186

 

 

 

8

%

Multi-asset

 

 

480,278

 

 

 

395,007

 

 

 

376,336

 

 

 

377,837

 

 

 

341,214

 

 

 

12

%

Alternatives

 

 

129,347

 

 

 

116,938

 

 

 

112,839

 

 

 

111,240

 

 

 

111,114

 

 

 

3

%

Long-term

 

 

5,836,731

 

 

 

4,741,486

 

 

 

4,335,315

 

 

 

4,333,841

 

 

 

4,012,209

 

 

 

11

%

Cash management

 

 

449,949

 

 

 

403,584

 

 

 

299,884

 

 

 

296,353

 

 

 

275,554

 

 

 

11

%

Advisory

 

 

1,515

 

 

 

2,782

 

 

 

10,213

 

 

 

21,701

 

 

 

36,325

 

 

 

(49

%)

Total

 

$

6,288,195

 

 

$

5,147,852

 

 

$

4,645,412

 

 

$

4,651,895

 

 

$

4,324,088

 

 

 

11

%

 

(1)

Percentage represents CAGR over a five-year period (2012-2017).

Component changes in AUM by product type for the five years ended December 31, 2017 are presented below.

 

(in millions)

 

December 31,

2012

 

 

Net inflows

(outflows)

 

 

Adjustment/

acquisitions(1)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2017

 

 

5-Year

CAGR(2)

 

Equity

 

$

1,845,501

 

 

$

356,005

 

 

$

7,849

 

 

$

1,254,390

 

 

$

(92,104

)

 

$

3,371,641

 

 

 

13

%

Fixed income

 

 

1,259,322

 

 

 

483,620

 

 

 

467

 

 

 

192,165

 

 

 

(80,109

)

 

 

1,855,465

 

 

 

8

%

Multi-asset

 

 

267,748

 

 

 

112,926

 

 

 

6,364

 

 

 

109,515

 

 

 

(16,275

)

 

 

480,278

 

 

 

12

%

Alternatives

 

 

109,795

 

 

 

8,634

 

 

 

17,736

 

 

 

(1,718

)

 

 

(5,100

)

 

 

129,347

 

 

 

3

%

Long-term

 

 

3,482,366

 

 

 

961,185

 

 

 

32,416

 

 

 

1,554,352

 

 

 

(193,588

)

 

 

5,836,731

 

 

 

11

%

Cash management

 

 

263,743

 

 

 

110,751

 

 

 

80,635

 

 

 

3,045

 

 

 

(8,225

)

 

 

449,949

 

 

 

11

%

Advisory

 

 

45,479

 

 

 

(39,090

)

 

-

 

 

 

759

 

 

 

(5,633

)

 

 

1,515

 

 

 

(49

%)

Total

 

$

3,791,588

 

 

$

1,032,846

 

 

$

113,051

 

 

$

1,558,156

 

 

$

(207,446

)

 

$

6,288,195

 

 

 

11

%

 

(1)

Amounts include AUM acquired from 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, AUM acquired in the BofA® Global Capital Management transaction in April 2016, and AUM acquired in the acquisition of the equity

2


infrastructure franchise of First Reserve (“First Reserve Transaction”) in June 2017. 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 (2012-2017).

 

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 earned 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 other technology services, to institutional investors and wealth management intermediaries. Revenue for these services may be based on several criteria including value of positions, number of users or accomplishment of specific deliverables.

At December 31, 2017, total AUM was $6.288 trillion, representing a CAGR of 11% 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 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, BofA Global Capital Management which added $80.6 billion of AUM in 2016 and First Reserve which added $3.3 billion of AUM in 2017. 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 ETFs

Fixed Income

Index and iShares ETFs

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

Institutional

Multi-asset

 

 Asia-Pacific

 

Alternatives

 

 

 

Cash Management

 

 

 

Client Type

BlackRock serves a diverse mix of institutional and retail clients across the globe, with a regionally focused business model.  BlackRock leverages the benefits of scale across global investment, risk and technology platforms while at the same time using local distribution presence to deliver solutions for clients. 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.  

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 ETFs are a growing component of both institutional and retail client portfolios. However, as iShares ETFs are traded on exchanges, complete transparency on the ultimate end-client is unavailable. Therefore, iShares ETFs are presented as a separate client type below, with investments in iShares ETFs by institutions and retail clients excluded from figures and discussions in their respective sections.

AUM by investment style and client type at December 31, 2017 is presented below.

 

(in millions)

 

Retail

 

 

iShares ETFs

 

 

Institutional

 

 

Total

 

Active

 

$

556,697

 

 

$

 

 

$

1,139,308

 

 

$

1,696,005

 

Non-ETF Index

 

 

71,680

 

 

 

 

 

2,316,807

 

 

 

2,388,487

 

iShares ETFs

 

 

 

 

1,752,239

 

 

 

 

 

1,752,239

 

Long-term

 

 

628,377

 

 

 

1,752,239

 

 

 

3,456,115

 

 

 

5,836,731

 

Cash management

 

 

24,354

 

 

 

 

 

425,595

 

 

 

449,949

 

Advisory

 

 

 

 

 

 

1,515

 

 

 

1,515

 

Total

 

$

652,731

 

 

$

1,752,239

 

 

$

3,883,225

 

 

$

6,288,195

 

 

Retail

BlackRock serves retail investors globally through a wide array of vehicles across the investment 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. Technology solutions and digital distribution tools are increasing the number of financial advisors and end-retail clients using BlackRock products. Retail represented 11% of long-term AUM at December 31, 2017 and 32% of long-term base fees for 2017.

iShares ETFs have a significant retail component, but is shown separately below. With the exclusion of iShares ETFs, retail AUM is predominantly comprised of active mutual funds. Mutual funds totaled $519.4 billion, or 83%, of retail long-term AUM at year-end, with the remainder invested in private investment funds and separately managed accounts (“SMAs”). 89% of retail long-term AUM is invested in active products.

3


Component changes in retail long-term AUM for 2017 are presented below.

 

(in millions)

 

December 31,

2016

 

 

Net inflows

(outflows)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2017

 

Equity

 

$

196,221

 

 

$

4,145

 

 

$

26,598

 

 

$

6,254

 

 

$

233,218

 

Fixed income

 

 

222,256

 

 

 

24,503

 

 

 

6,655

 

 

 

4,157

 

 

 

257,571

 

Multi-asset

 

 

107,997

 

 

 

1,143

 

 

 

10,687

 

 

 

1,028

 

 

 

120,855

 

Alternatives

 

 

15,478

 

 

 

101

 

 

 

708

 

 

 

446

 

 

 

16,733

 

Total

 

$

541,952

 

 

$

29,892

 

 

$

44,648

 

 

$

11,885

 

 

$

628,377

 

 

The retail client base is diversified geographically, with 68% of long-term AUM managed for investors based in the Americas, 26% in EMEA and 6% in Asia-Pacific at year-end 2017.

 

U.S. retail long-term net inflows of $13.7 billion were led by fixed income inflows of $13.1 billion. Fixed income net inflows were diversified across exposures and products, with strong flows into our municipal, unconstrained and total return bond offerings. Equity net inflows of $1.3 billion were driven by flows into our index mutual funds, and we continued to make progress on the repositioning of our active equity platform. Multi-asset net outflows of $0.9 billion were primarily due to outflows from world allocation strategies.

 

International retail long-term net inflows of $16.2 billion were positive across major regions and diversified across asset classes. Fixed income products generated net inflows of $11.4 billion, led by emerging markets debt, unconstrained and short duration strategies. Equity net inflows of $2.8 billion reflected strong flows into international equities. Multi-asset net inflows of $2.0 billion were driven by flows into the cross-border version of our Multi-Asset Income fund.

iShares ETFs

iShares is the leading ETF provider in the world, with $1.8 trillion of AUM at December 31, 2017 and was the top asset gatherer globally in 20171 with record net inflows of $245.3 billion resulting in an organic growth rate of 19%. Equity net inflows of $174.4 billion were driven by flows into Core funds and into products with U.S. and broad developed market equity exposures. Record fixed income net inflows of $67.5 billion were diversified across exposures and product lines, led by flows into Core, corporate and treasury bond funds. iShares ETF multi-asset and alternative funds contributed a combined $3.5 billion of net inflows, primarily into commodities funds. iShares ETFs represented 30% of long-term AUM at December 31, 2017 and 40% of long-term base fees for 2017.

Component changes in iShares ETFs AUM for 2017 are presented below.

 

(in millions)

 

December 31,

2016

 

 

Net

inflows

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2017

 

Equity

 

$

951,252

 

 

$

174,377

 

 

$

189,472

 

 

$

14,509

 

 

$

1,329,610

 

Fixed income

 

 

314,707

 

 

 

67,451

 

 

 

4,497

 

 

 

8,597

 

 

 

395,252

 

Multi-asset

 

 

3,149

 

 

 

322

 

 

 

280

 

 

 

10

 

 

 

3,761

 

Alternatives(1)

 

 

18,771

 

 

 

3,192

 

 

 

1,478

 

 

 

175

 

 

 

23,616

 

Total

 

$

1,287,879

 

 

$

245,342

 

 

$

195,727

 

 

$

23,291

 

 

$

1,752,239

 

 

(1)

Amounts include commodity iShares ETFs.

Our broad iShares ETF product range offers investors a precise, transparent and efficient way to gain exposure 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 ETF AUM ended 2017 at $1.3 trillion with $201.3 billion of net inflows driven by strong demand for Core funds and U.S. and broad developed market equities as well as a diverse range of fixed income products.2

 

International iShares ETF AUM ended 2017 at $424.7 billion with net inflows of $44.1 billion led by equity net inflows of $29.0 billion, which reflected strong flows into our international Core funds in Canada and Europe.

Institutional

BlackRock serves institutional investors on six continents in sub-categories including: pensions, endowments and foundations, official institutions, and financial institutions; institutional AUM is diversified across product and region.

1Source: BlackRock; Bloomberg

2Regional iShares ETF amounts based on jurisdiction of product, not underlying client.

4


Component changes in institutional long-term AUM for 2017 are presented below.

 

(in millions)

 

December 31,

2016

 

 

Net inflows

(outflows)

 

 

Acquisition(1)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2017

 

Active:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

$

120,699

 

 

$

(13,594

)

 

$

 

 

$

25,681

 

 

$

4,399

 

 

$

137,185

 

Fixed income

 

 

536,727

 

 

 

(654

)

 

 

 

 

 

22,537

 

 

 

11,440

 

 

 

570,050

 

Multi-asset

 

 

276,933

 

 

 

19,604

 

 

 

 

 

 

37,166

 

 

 

14,122

 

 

 

347,825

 

Alternatives

 

 

75,615

 

 

 

566

 

 

 

3,264

 

 

 

2,771

 

 

 

2,032

 

 

 

84,248

 

Active subtotal

 

 

1,009,974

 

 

 

5,922

 

 

 

3,264

 

 

 

88,155

 

 

 

31,993

 

 

 

1,139,308

 

Index:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

1,389,004

 

 

 

(34,782

)

 

 

 

 

 

283,684

 

 

 

33,722

 

 

 

1,671,628

 

Fixed income

 

 

498,675

 

 

 

87,487

 

 

 

 

 

 

13,932

 

 

 

32,498

 

 

 

632,592

 

Multi-asset

 

 

6,928

 

 

 

(739

)

 

 

 

 

 

1,427

 

 

 

221

 

 

 

7,837

 

Alternatives

 

 

7,074

 

 

 

(2,882

)

 

 

 

 

 

294

 

 

 

264

 

 

 

4,750

 

Index subtotal

 

 

1,901,681

 

 

 

49,084

 

 

 

 

 

 

299,337

 

 

 

66,705

 

 

 

2,316,807

 

Total

 

$

2,911,655

 

 

$

55,006

 

 

$

3,264

 

 

$

387,492

 

 

$

98,698

 

 

$

3,456,115

 

 

(1)

Amount represents AUM acquired in the First Reserve Transaction.

Institutional active AUM ended 2017 at $1.1 trillion, reflecting $5.9 billion of net inflows. Institutional active represented 19% of long-term AUM and 18% of long-term base fees. Growth in AUM reflected continued strength in multi-asset products with net inflows of $19.6 billion reflecting ongoing demand for solutions offerings and the LifePath® target-date suite. Alternatives net inflows of $0.6 billion were led by inflows into infrastructure, hedge fund solutions and alternatives solutions offerings. Excluding return of capital and investment of $6.0 billion, alternatives net inflows were $6.6 billion. In addition, 2017 was another strong fundraising year for illiquid alternatives, and we raised approximately $11 billion in new commitments, which will be a source of future net inflows. Equity and fixed income net outflows were $13.6 billion and $0.7 billion, respectively.  

Institutional index AUM totaled $2.3 trillion at December 31, 2017, reflecting net inflows of $49.1 billion. Fixed income net inflows of $87.5 billion were driven by demand for liability-driven investment solutions, particularly in Europe. Equity net outflows of $34.8 billion were primarily due to low-fee regional index equity outflows as clients looked to re-allocate, re-balance or meet their cash needs. Alternatives net outflows of $2.9 billion reflected outflows from passive currency overlays. Institutional index represented 40% of long-term AUM at December 31, 2017 and accounted for 10% of long-term base fees for 2017.

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 $2.403 trillion, or 69%, of long-term institutional AUM managed for defined benefit, defined contribution and other pension plans for corporations, governments and unions at December 31, 2017. The market landscape continues to shift from defined benefit to defined contribution, driving strong flows in our defined contribution channel, which had $46.5 billion of long-term net inflows for the year, driven by continued demand for our LifePath target-date suite. Defined contribution represented $887.1 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 $76.4 billion, or 2%, of long-term institutional AUM was managed for other tax-exempt investors, including charities, foundations and endowments.

 

Official Institutions. BlackRock managed $195.3 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 2017. These clients often require specialized investment advice, the use of customized benchmarks and training support.  

 

Financial and Other Institutions. BlackRock is a top independent manager of assets for insurance companies, which accounted for $274.3 billion, or 8%, of institutional long-term AUM at year-end 2017. Assets managed for other taxable institutions, including corporations, banks and third-party fund sponsors for which we provide sub-advisory services, totaled $506.9 billion, or 15%, 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 2017 are presented below.

 

(in millions)

 

December 31,

2016

 

 

Net inflows

(outflows)

 

 

Acquisition(1)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2017

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

$

275,033

 

 

$

(18,506

)

 

$

 

 

$

46,134

 

 

$

8,548

 

 

$

311,209

 

iShares ETFs

 

 

951,252

 

 

 

174,377

 

 

 

 

 

189,472

 

 

 

14,509

 

 

 

1,329,610

 

Non-ETF index

 

 

1,430,891

 

 

 

(25,725

)

 

 

 

 

289,829

 

 

 

35,827

 

 

 

1,730,822

 

Equity subtotal

 

 

2,657,176

 

 

 

130,146

 

 

 

 

 

 

525,435

 

 

 

58,884

 

 

 

3,371,641

 

Fixed income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

 

749,996

 

 

 

21,541

 

 

 

 

 

28,800

 

 

 

14,798

 

 

 

815,135

 

iShares ETFs

 

 

314,707

 

 

 

67,451

 

 

 

 

 

4,497

 

 

 

8,597

 

 

 

395,252

 

Non-ETF index

 

 

507,662

 

 

 

89,795

 

 

 

 

 

14,324

 

 

 

33,297

 

 

 

645,078

 

Fixed income subtotal

 

 

1,572,365

 

 

 

178,787

 

 

 

 

 

 

47,621

 

 

 

56,692

 

 

 

1,855,465

 

Multi-asset

 

 

395,007

 

 

 

20,330

 

 

 

 

 

49,560

 

 

 

15,381

 

 

 

480,278

 

Alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core

 

 

88,630

 

 

 

780

 

 

 

3,264

 

 

 

3,438

 

 

 

2,421

 

 

 

98,533

 

Currency and commodities

 

 

28,308

 

 

 

197

 

 

 

 

 

1,813

 

 

 

496

 

 

 

30,814

 

Alternatives subtotal

 

 

116,938

 

 

 

977

 

 

 

3,264

 

 

 

5,251

 

 

 

2,917

 

 

 

129,347

 

Long-term

 

 

4,741,486

 

 

 

330,240

 

 

 

3,264

 

 

 

627,867

 

 

 

133,874

 

 

 

5,836,731

 

Cash management

 

 

403,584

 

 

 

38,259

 

 

 

 

 

1,239

 

 

 

6,867

 

 

 

449,949

 

Advisory

 

 

2,782

 

 

 

(1,245

)

 

 

 

 

(205

)

 

 

183

 

 

 

1,515

 

Total

 

$

5,147,852

 

 

$

367,254

 

 

$

3,264

 

 

$

628,901

 

 

$

140,924

 

 

$

6,288,195

 

 

(1)

Amount represents AUM acquired in the First Reserve Transaction.

Long-term product offerings include alpha-seeking active and index strategies. Our alpha-seeking active strategies seek to earn attractive returns in excess of a market benchmark or performance hurdle while maintaining an appropriate risk profile, and leverage fundamental research and 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 alpha-seeking 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. Net flows in institutional index products generally have a small impact on BlackRock’s revenues and earnings.

Equity

Year-end 2017 equity AUM totaled $3.372 trillion, reflecting net inflows of $130.1 billion. Net inflows included $174.4 billion into iShares ETFs, driven by net inflows into Core funds and broad developed and emerging market equities, partially offset by non-ETF index and active net outflows of $25.7 billion and $18.5 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 equity revenues and effective fee rate.

Fixed Income

Fixed income AUM ended 2017 at $1.855 trillion, reflecting net inflows of $178.8 billion. In 2017, active net inflows of $21.5 billion were diversified across fixed income offerings, and included strong inflows into municipal, unconstrained and total return bond funds. iShares ETFs net inflows of $67.5 billion were led by flows into Core, corporate and treasury bond funds. Non-ETF index net inflows of $89.8 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 2017 are presented below.

 

(in millions)

 

December 31,

2016

 

 

Net inflows

(outflows)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2017

 

Asset allocation and balanced

 

$

176,675

 

 

$

(2,502

)

 

$

17,387

 

 

$

4,985

 

 

$

196,545

 

Target date/risk

 

 

149,432

 

 

 

23,925

 

 

 

24,532

 

 

 

1,577

 

 

 

199,466

 

Fiduciary

 

 

68,395

 

 

 

(1,047

)

 

 

7,522

 

 

 

8,819

 

 

 

83,689

 

FutureAdvisor(1)

 

 

505

 

 

 

(46

)

 

 

119

 

 

 

 

 

578

 

Total

 

$

395,007

 

 

$

20,330

 

 

$

49,560

 

 

$

15,381

 

 

$

480,278

 

 

(1)

FutureAdvisor amounts do not include AUM held in iShares ETFs.

6


Multi-asset net inflows reflected ongoing institutional demand for our solutions-based advice with $18.9 billion of net inflows coming from institutional clients. Defined contribution plans of institutional clients remained a significant driver of flows, and contributed $20.8 billion to institutional multi-asset net inflows in 2017, primarily into target date and target risk product offerings. Retail net inflows of $1.1 billion reflected demand for our Multi-Asset Income fund family, which raised $5.8 billion in 2017.

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

 

Asset allocation and balanced products represented 41% 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 16% organically in 2017, with net inflows of $23.9 billion. Institutional investors represented 93% of target date and target risk AUM, with defined contribution plans accounting for 87% of AUM. Flows were driven by defined contribution investments in our LifePath offerings. LifePath products utilize a proprietary active asset allocation overlay model that seeks to balance risk and return over an investment horizon based on the investor’s expected retirement timing. Underlying investments are primarily index products.

 

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 investment 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 provides financial institutions with technology-enabled investment advisory capabilities to manage their clients’ investments. 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. FutureAdvisor AUM does not include underlying iShares ETF investments.

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 liquid alternatives offerings in direct hedge funds and hedge fund solutions (funds of funds), as well as illiquid offerings in alternative solutions, private equity solutions (funds of funds), opportunistic private equity and credit, real estate and infrastructure. BlackRock alternatives products are described below.

In 2017, alternatives generated $1.0 billion of net inflows, or $7.8 billion excluding return of capital/investment of $6.8 billion. The largest contributors to return of capital were real estate and private equity solutions. Net inflows were driven by infrastructure, alternative solutions and hedge fund solutions.  In addition, we raised approximately $11 billion of new commitments in 2017 across a variety of strategies, led by infrastructure and private equity solutions. At year-end, we had approximately $17 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 fee-paying.

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 alternatives provider3 our highly diversified $129.3 billion alternatives franchise is well positioned to meet growing demand from both institutional and retail investors.

 

Component changes in alternatives AUM for 2017 are presented in the table below.

(in millions)

 

December 31,

2016

 

 

Net inflows

(outflows)

 

 

Acquisition(1)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2017

 

 

Memo:

return of

capital(2)

 

Core alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liquid alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedge funds:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

&nbs