BlackRock Earnings Call Nuggets: Reengagement and Retail Demand for ETFs
Kenneth Worthington – JPMorgan: I have got two questions that are kind of related. One, there is widespread belief that investors will reengage in equities and you said in your prepared remarks about re-risking. I’d love to hear – and we think re-risking is more tactical in short-term, but love to hear your latest thoughts on reengage, which we think is more longer term and strategic. So, when accounting for the fiscal cliff, are there indications of reengagement in either the retail or institutional investors, and maybe if so, what are you seeing differently in the beginning of this year even the end of last year that may have been different than what we saw in either early 2011 or even early 2010?
Laurence D. Fink – Chairman and CEO: Ken, I was trying to talk about that. I agree with you. Re-risking is a tactical trade. Obviously, in some areas that maybe happening, but the flows that we’re seeing institutionally through iShares and mutual funds, it appears to me that people – the Federal Reserve’s actions in terms of persistent low rates are now making in my mind fixed income much riskier. It’s hard for me to say moving from fixed income products to equity is a re-risky trade. It’s more of a diversification of risk trade maybe, and we are seeing – we are beginning to see some large-scale, what I will call, systematic changes in behavior. Since the beginning of the year we have one large institutional client currently oriented towards fixed income. They warded us about $6.5 billion entirely in equities, mostly in index, but in our conversation with the client it is a reorientation of risk, how we think about it. As I said, this investor has predominantly been a fixed income investor and they are diversifying their portfolios accordingly. So, I think these are – the movements we’re beginning to see is, it’s not tactical anymore, it is much more of a secular movement and I think that will even in the ETF flows you are seeing a consistent flow. If you look at the flows year-to-date, and I’m talking about the first 15, 16 days in ETF, the flows I think as an industry are more than 80% in fixed income. This doesn’t feel to me that it’s a risk-on tactical movement, it’s people are looking for exposure in more equity like products.
Retail Demand for ETFs
Robert Lee – KBW: I have a quick question maybe following-up to Ken’s a little bit just on this topic. I mean, you gave that example where the one institutional client is looking at shifting the allocation towards equities. In your view, I mean, how – if we see that more broadly or if you’re seeing them more broadly, do you – outside maybe dividend strategies, I mean, how do you think – do you think most of that will actually flow to beta strategies like your index products or more to EPS and to what extent do you think or the fact that tax rates have gone up at least on individuals and taxable accounts if that may even accelerate demand for ETFs and index products at least in the retail world?
Laurence D. Fink – Chairman and CEO: This one client is a non-U.S. client so tax rate has nothing to do with this one client there was global client. I think everyone are looking at different strategies. As you said, I think, there is a strong movement towards dividend-oriented products. There is strong movement into beta products as you barbell. First, those clients who were barbelling risk are going into beta products and maybe a 20% allocation in the higher alpha products, but it is our view and this is why we are making these large investments. There is going to be great opportunities in the alpha products. So, I think what you are going to see over the course of secular trend which may take one to three years maybe longer you are going to see people as you get comfortable in equities maybe through beta products they are going to start navigating and seeing opportunities in alpha products as long as the risk reward total return after expenses are greater than the beta products. So, to me we believe that will be the trend, we are betting on it, we are investing in it and quite frankly I am happy we are not seeing this today because we are building our track record with lot of our fundamental teams right now and if the re-risking was going on or the secular change in the active equities today, I miss a lot of it because I don’t have the duration of time and performance with the new teams. We benefit in some of our teams, but not all our teams. So, we’re pretty pleased with the reorientation into equities, chiefly going into beta products and as we build those relationship with our clients and this is – when we did the BGI transaction, I said, from the very beginning to a lot of people’s skepticism, that having beta and alpha side-by-side is a very strong position. Most people never thought, they can be side-by-side, but we believe by working with our clients, we’re agnostic whether they’re going to beta or alpha. We want to have a relationship by having our clients right now going to beta, we know what their emphasis of doing, we know what they’re thinking about and then we now have time as we think to relook at alpha products that we could have that dialog. So, this is playing totally into our strategy.
Robert Lee – KBW: Maybe just a follow-up on the money fund business. Just kind of curious, I mean yourselves and a bunch of your peers have announced just in the past week or so about reporting daily NAVs, you know it’s general – my general sense is, I guess the industry is kind of yourselves including maybe come to the conclusion that at this point may not be perfect, but maybe floating NAVs is the best solution for some products at least. Can you maybe talk a little bit about your client reaction to that to the extent you’ve had interactions about it?
Laurence D. Fink – Chairman and CEO: Sure, yeah. Let me just be pretty precise at it. We have always had a constructive positioning in this. We always believe that we needed to change the money market industry to make it much safer with less systemic risks. We always believe that we need to create a sounder product for our clients and users of the product. So, I’ve always believed that we needed to have a constructive dialog with the regulators in Europe and in the United States. So we have taken a much more constructive approach in some of our peers over the years on this point. I am very pleased with the movement that we made in this industry. This was led by Goldman Sachs, but I do believe daily NAV is a good step by providing more transparency, which we’ve always said at BlackRock, we’re prepared to do this. We may disagree with the outcomes what ultimately comes in and how do we navigate risks, but we’re having a constructive dialogue. I do believe the net result will be a safer money market fund industry and I believe the product will be sound for investors. I’m not here to suggest that we’re a 100% supporting floating rate NAV. We believe there’s other approaches that probably get achieve the same results without a float, but I’m not – we’re going to be constructive on this, but the key element is to make this a product in which our investors see opportunities to invest to make excess return at the same time making sure as an industry we don’t represent real risk for the industry and for society.
A Closer Look: BlackRock Earnings Cheat Sheet>>