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Blackrock (BLK)

Filed: 25 Feb 21, 3:55pm

 

 

 

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, 2020

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

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $.01 par value

 

BLK

 

New York Stock Exchange

1.250% Notes due 2025

 

BLK25

 

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 every Interactive Data File required to be submitted 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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

            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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    

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 held by nonaffiliates of the registrant as of June 30, 2020 was approximately $81.9 billion.

As of January 31, 2021, there were 152,633,854 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 2021 annual meeting of stockholders to be held on May 26, 2021 (“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

19

Item 1B

Unresolved Staff Comments

31

Item 2

Properties

31

Item 3

Legal Proceedings

31

Item 4

Mine Safety Disclosures

31

 

 

PART II

 

 

 

 

Item 5

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

32

Item 6

Removed and Reserved

32

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 $8.68 trillion of assets under management (“AUM”) at December 31, 2020. With approximately 16,500 employees in more than 30 countries who serve clients in over 100 countries across the globe, BlackRock provides a broad range of investment management and technology services to institutional and retail clients worldwide.

BlackRock’s 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. 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 trust funds and other pooled investment vehicles. BlackRock also offers technology services, including the investment and risk management technology platform, Aladdin®, Aladdin Wealth, eFront, Cachematrix and FutureAdvisor, as well as advisory 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. The Company does not engage in proprietary trading activities that could conflict with the interests of its 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 intermediaries.

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 85% of its Board of Directors consisting of independent directors.

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 50% 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, factors, systematic active, traditional fundamental active, high conviction alpha and illiquid alternative product offerings, which enhance its ability to tailor whole-portfolio 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, increasing demand for sustainable investment strategies and barbelling using index, active and illiquid alternatives products; and

 

the Company’s longstanding commitment to innovation, technology services and the continued development of, and increased interest in, BlackRock technology products and solutions, including Aladdin, Aladdin Wealth, eFront, Cachematrix, and FutureAdvisor. This commitment is further extended by minority investments in distribution technologies including Envestnet, Scalable Capital, iCapital, Acorns and Embark. In January 2021, BlackRock also announced a minority investment in Clarity AI, a sustainability analytics and data science platform.

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, to deliver excellent client service and to innovate in technology to serve clients’ evolving needs. 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:

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Total revenue

 

$

16,205

 

 

$

14,539

 

 

$

14,198

 

 

$

13,600

 

 

$

12,261

 

Operating income

 

$

5,695

 

 

$

5,551

 

 

$

5,457

 

 

$

5,254

 

 

$

4,565

 

Operating margin

 

 

35.1

%

 

 

38.2

%

 

 

38.4

%

 

 

38.6

%

 

 

37.2

%

Nonoperating income (expense)(1)

 

$

475

 

 

$

186

 

 

$

(76

)

 

$

(32

)

 

$

(108

)

Net income attributable to BlackRock, Inc.

 

$

4,932

 

 

$

4,476

 

 

$

4,305

 

 

$

4,952

 

 

$

3,168

 

Diluted earnings per common share

 

$

31.85

 

 

$

28.43

 

 

$

26.58

 

 

$

30.12

 

 

$

19.02

 

 

(in millions, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As adjusted(2):

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Operating income

 

$

6,284

 

 

$

5,551

 

 

$

5,531

 

 

$

5,269

 

 

$

4,669

 

Operating margin

 

 

44.9

%

 

 

43.7

%

 

 

44.3

%

 

 

44.1

%

 

 

43.8

%

Nonoperating income (expense)(1)

 

$

353

 

 

$

186

 

 

$

(76

)

 

$

(32

)

 

$

(108

)

Net income attributable to BlackRock, Inc.(3)

 

$

5,237

 

 

$

4,484

 

 

$

4,361

 

 

$

3,698

 

 

$

3,210

 

Diluted earnings per common share(3)

 

$

33.82

 

 

$

28.48

 

 

$

26.93

 

 

$

22.49

 

 

$

19.27

 

 

(1)

Net of net income (loss) attributable to noncontrolling interests (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 2020 and 2019.

In 2018 and 2016, a restructuring charge, primarily comprised of severance and accelerated amortization expense of previously granted compensation awards, has been excluded to provide more meaningful analysis of BlackRock’s ongoing operations and to ensure comparability among periods presented. In 2018, 2017 and 2016, the portion of compensation expense associated with certain long-term incentive plans 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.

(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 exclude the effect on deferred income tax expense resulting from certain income tax matters. In 2017, $1.2 billion of net tax benefit related to The 2017 Tax Cuts and Jobs Act was excluded from net income attributable to BlackRock, Inc., as adjusted, and diluted earnings per common share, as adjusted.

 

 

Assets Under Management

The Company’s AUM by product type for the years 2016 through 2020 is presented below.

 

 

December 31,

 

 

 

 

 

(in millions)

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

 

5-Year

CAGR(1)

 

Equity

$

4,419,806

 

 

$

3,820,329

 

 

$

3,035,825

 

 

$

3,371,641

 

 

$

2,657,176

 

 

 

13

%

Fixed income

 

2,674,488

 

 

 

2,315,392

 

 

 

1,884,417

 

 

 

1,855,465

 

 

 

1,572,365

 

 

 

13

%

Multi-asset

 

658,733

 

 

 

568,121

 

 

 

461,884

 

 

 

480,278

 

 

 

395,007

 

 

 

12

%

Alternatives

 

235,042

 

 

 

178,072

 

 

 

143,358

 

 

 

129,347

 

 

 

116,938

 

 

 

16

%

Long-term

 

7,988,069

 

 

 

6,881,914

 

 

 

5,525,484

 

 

 

5,836,731

 

 

 

4,741,486

 

 

 

13

%

Cash management

 

666,252

 

 

 

545,949

 

 

 

448,565

 

 

 

449,949

 

 

 

403,584

 

 

 

17

%

Advisory

 

22,359

 

 

 

1,770

 

 

 

1,769

 

 

 

1,515

 

 

 

2,782

 

 

 

17

%

Total

$

8,676,680

 

 

$

7,429,633

 

 

$

5,975,818

 

 

$

6,288,195

 

 

$

5,147,852

 

 

 

13

%

 

(1)

Percentage represents CAGR over a five-year period (December 31, 2015 – December 31, 2020).

Component changes in AUM by product type for the five years ended December 31, 2020 are presented below.

 

(in millions)

December 31,

2015

 

 

Net inflows

(outflows)

 

 

Acquisitions and dispositions(1)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2020

 

 

5-Year

CAGR(2)

 

Equity

$

2,423,772

 

 

$

274,083

 

 

$

2,590

 

 

$

1,677,581

 

 

$

41,780

 

 

$

4,419,806

 

 

 

13

%

Fixed income

 

1,422,368

 

 

 

799,393

 

 

 

18,539

 

 

 

399,477

 

 

 

34,711

 

 

 

2,674,488

 

 

 

13

%

Multi-asset

 

376,336

 

 

 

73,572

 

 

 

683

 

 

 

196,244

 

 

 

11,898

 

 

 

658,733

 

 

 

12

%

Alternatives

 

112,839

 

 

 

80,090

 

 

 

8,267

 

 

 

31,762

 

 

 

2,084

 

 

 

235,042

 

 

 

16

%

Long-term

 

4,335,315

 

 

 

1,227,138

 

 

 

30,079

 

 

 

2,305,064

 

 

 

90,473

 

 

 

7,988,069

 

 

 

13

%

Cash management

 

299,884

 

 

 

273,890

 

 

 

81,321

 

 

 

6,253

 

 

 

4,904

 

 

 

666,252

 

 

 

17

%

Advisory

 

10,213

 

 

 

11,622

 

 

 

 

 

 

157

 

 

 

367

 

 

 

22,359

 

 

 

17

%

Total

$

4,645,412

 

 

$

1,512,650

 

 

$

111,400

 

 

$

2,311,474

 

 

$

95,744

 

 

$

8,676,680

 

 

 

13

%

 

(1)

Amounts include AUM acquired in the BofA® Global Capital Management transaction in April 2016, AUM acquired in the acquisition of the equity infrastructure franchise of First Reserve (“First Reserve Transaction”) in June 2017, net AUM from the acquisitions of Tennenbaum Capital Partners in August 2018 (“TCP Transaction”) and the asset management business of Citibanamex in September 2018 (“Citibanamex Transaction”), AUM reclassifications and net dispositions related to the transfer of BlackRock’s UK Defined Contribution Administration and Platform business to Aegon N.V. in July 2018 (“Aegon Transaction”), and net AUM dispositions related to the sale of BlackRock’s minority interest in DSP BlackRock Investment Managers Pvt. Ltd. to the DSP Group in August 2018 (“DSP Transaction”).

(2)

Percentage represents CAGR over a five-year period (December 31, 2015 – December 31, 2020).

 

2


 

AUM represents the broad range of financial assets managed for clients on a discretionary basis pursuant to investment management and trust 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 BlackRock provides risk management or other forms of nondiscretionary advice, or assets that the Company is retained to manage on a short-term, temporary basis.

Investment management fees are typically earned as a percentage of AUM. BlackRock also earns performance fees on certain portfolios relative to an agreed-upon benchmark or return hurdle. On some products, the Company 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, implementation go-lives, software solution delivery and support, and hosting services.

At December 31, 2020, total AUM was $8.68 trillion, representing a CAGR of 13% 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 BofA Global Capital Management, which added $80.6 billion of AUM in 2016, the First Reserve Transaction, which added $3.3 billion of AUM in 2017 and the net AUM impact from the TCP Transaction, the Citibanamex Transaction, the Aegon Transaction and the DSP Transaction, which added $27.5 billion of AUM in 2018. 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 intermediaries.

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, 2020 is presented below.

 

(in millions)

Retail

 

 

iShares ETFs

 

 

Institutional

 

 

Total

 

Active

$

726,424

 

 

$

 

 

$

1,524,462

 

 

$

2,250,886

 

Non-ETF Index

 

119,493

 

 

 

 

 

 

2,948,683

 

 

 

3,068,176

 

iShares ETFs

 

 

 

 

2,669,007

 

 

 

 

 

 

2,669,007

 

Long-term

 

845,917

 

 

 

2,669,007

 

 

 

4,473,145

 

 

 

7,988,069

 

Cash management

 

11,702

 

 

 

 

 

 

654,550

 

 

 

666,252

 

Advisory

 

 

 

 

 

 

 

22,359

 

 

 

22,359

 

Total

$

857,619

 

 

$

2,669,007

 

 

$

5,150,054

 

 

$

8,676,680

 

 

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, digital distribution tools and a shift toward portfolio construction are increasing the number of financial advisors and end-retail clients using BlackRock products.

Retail represented 11% of long-term AUM at December 31, 2020 and 31% of long-term investment advisory, administration fees and securities lending revenue (collectively “base fees”) for 2020.

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 $694.9 billion, or 82%, of retail long-term AUM at year-end, with the remainder invested in private investment funds and separately managed accounts. 86% of retail long-term AUM is invested in active products.

3


 

Component changes in retail long-term AUM for 2020 are presented below.

 

(in millions)

December 31,

2019

 

 

Net inflows

(outflows)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2020

 

Equity

$

252,413

 

 

$

39,341

 

 

$

42,545

 

 

$

4,135

 

 

$

338,434

 

Fixed income

 

305,265

 

 

 

22,784

 

 

 

9,725

 

 

 

2,694

 

 

 

340,468

 

Multi-asset

 

120,439

 

 

 

(481

)

 

 

12,262

 

 

 

404

 

 

 

132,624

 

Alternatives

 

25,180

 

 

 

7,912

 

 

 

929

 

 

 

370

 

 

 

34,391

 

Total

$

703,297

 

 

$

69,556

 

 

$

65,461

 

 

$

7,603

 

 

$

845,917

 

The retail client base is diversified geographically, with 66% of long-term AUM managed for investors based in the Americas, 29% in EMEA and 5% in Asia-Pacific at year-end 2020.

 

US retail long-term net inflows of $24.6 billion were led by fixed income net inflows of $10.1 billion. Fixed income net inflows were diversified across exposures and products, with strong flows into high yield, total return and core bond offerings. Equity net inflows of $7.5 billion were led by flows into high-performing technology, health sciences and US growth equities franchises. Alternatives net inflows of $4.2 billion were driven by flows into the BlackRock Alternative Capital Strategies and Global Event Driven funds. Multi-asset net inflows  of $2.8 billion included the successful close of the $2.2 billion BlackRock Capital Allocation Trust.

In the fourth quarter of 2020, BlackRock announced the acquisition of Aperio, a pioneer in customizing tax-optimized index equity separately managed accounts (“SMA”), to enhance our wealth platform and provide whole-portfolio solutions to ultra-high net worth advisors. By combining Aperio with BlackRock’s existing SMA franchise the Company plans to expand the breadth of personalization capabilities available to wealth managers from BlackRock via tax-managed strategies across factors, broad market indexing, and investor Environmental, Social, and Governance preferences across all asset classes. The transaction closed in February of 2021 and Aperio will operate as part of BlackRock’s US Wealth Advisory business.

 

International retail long-term net inflows of $45.0 billion were led by equity net inflows of $31.9 billion, reflecting strong flows into index equity mutual funds, and high-performing technology and health sciences active equity franchises. Fixed income net inflows of $12.6 billion were driven by flows into index fixed income mutual funds and Asian bond strategies. Alternatives net inflows of $3.7 billion reflected demand for European Absolute Alpha and Global Event Driven funds. Multi-asset net outflows of $3.2 billion were primarily due to outflows from world allocation strategies.

iShares ETFs

iShares is the leading ETF provider in the world with $2.7 trillion of AUM at December 31, 2020, and generated net inflows of $184.9 billion in 2020. iShares fixed income net inflows of $88.9 billion were diversified across exposures, led by flows into US investment grade corporate, core and high yield bond funds. The resilience and performance of iShares fixed income ETFs in periods of market disruption during the year drove increased confidence among investors that ETFs are valuable tools for liquidity, price transparency and market exposure, leading to strong inflows throughout 2020.  iShares equity net inflows of $76.3 billion were driven by flows into sustainable and core equity ETFs. iShares Sustainable ETFs saw net inflows of $43.8 billion in 2020, primarily into equities, with AUM tripling to nearly $80 billion.  iShares multi-asset and alternative ETFs contributed a combined $19.7 billion of net inflows, primarily into commodities funds.

iShares ETFs represented 33% of long-term AUM at December 31, 2020 and 40% of long-term base fees for 2020.

Component changes in iShares ETFs AUM for 2020 are presented below.

 

(in millions)

December 31,

2019

 

 

Net inflows

(outflows)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2020

 

Equity

$

1,632,972

 

 

$

76,307

 

 

$

186,918

 

 

$

8,904

 

 

$

1,905,101

 

Fixed income

 

565,790

 

 

 

88,894

 

 

 

28,009

 

 

 

7,340

 

 

 

690,033

 

Multi-asset

 

5,210

 

 

 

646

 

 

 

388

 

 

 

24

 

 

 

6,268

 

Alternatives(1)

 

36,093

 

 

 

19,038

 

 

 

12,331

 

 

 

143

 

 

 

67,605

 

Total

$

2,240,065

 

 

$

184,885

 

 

$

227,646

 

 

$

16,411

 

 

$

2,669,007

 

 

(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.

 

US iShares ETF1 AUM ended 2020 at $2.0 trillion with $114.8 billion of net inflows driven by strong demand for a diverse range of fixed income, sustainable, core equity and commodities ETFs.

 

International iShares ETF1 AUM ended 2020 at $678.8 billion with net inflows of $70.1 billion, similarly reflecting strong flows into fixed income, sustainable and core equity ETFs.

1Regional iShares ETF amounts based on jurisdiction of product, not underlying client.

4


 

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.

Component changes in institutional long-term AUM for 2020 are presented below.

 

(in millions)

December 31,

2019

 

 

Net inflows

(outflows)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2020

 

Active:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

$

141,118

 

 

$

1,890

 

 

$

24,045

 

 

$

2,469

 

 

$

169,522

 

Fixed income

 

651,368

 

 

 

6,598

 

 

 

49,712

 

 

 

8,591

 

 

 

716,269

 

Multi-asset

 

434,233

 

 

 

13,639

 

 

 

52,365

 

 

 

11,005

 

 

 

511,242

 

Alternatives

 

111,951

 

 

 

9,497

 

 

 

3,861

 

 

 

2,120

 

 

 

127,429

 

Active subtotal

 

1,338,670

 

 

 

31,624

 

 

 

129,983

 

 

 

24,185

 

 

 

1,524,462

 

Index:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

1,793,826

 

 

 

(68,543

)

 

 

254,475

 

 

 

26,991

 

 

 

2,006,749

 

Fixed income

 

792,969

 

 

 

39,685

 

 

 

67,623

 

 

 

27,441

 

 

 

927,718

 

Multi-asset

 

8,239

 

 

 

(591

)

 

 

749

 

 

 

202

 

 

 

8,599

 

Alternatives

 

4,848

 

 

 

732

 

 

 

(50

)

 

 

87

 

 

 

5,617

 

Index subtotal

 

2,599,882

 

 

 

(28,717

)

 

 

322,797

 

 

 

54,721

 

 

 

2,948,683

 

Total

$

3,938,552

 

 

$

2,907

 

 

$

452,780

 

 

$

78,906

 

 

$

4,473,145

 

 

Institutional active AUM ended 2020 at $1.5 trillion, reflecting $31.6 billion of net inflows, positive across all asset classes. Multi-asset strategies saw continued growth, with net inflows of $13.6 billion reflecting ongoing demand for solutions offerings and the LifePath® target-date suite.  

 

Alternatives net inflows of $9.5 billion were led by inflows into infrastructure, private equity and private credit. Excluding return of capital and investment of $7.5 billion, alternatives net inflows were $17.0 billion. In addition, 2020 was another strong fundraising year for illiquid alternatives, and at year-end 2020 BlackRock had approximately $24 billion of non-fee-earning committed capital to deploy for institutional clients, which is not included in AUM.

 

Institutional active represented 19% of long-term AUM and 20% of long-term base fees for 2020.

Institutional index AUM totaled $2.9 trillion at December 31, 2020, reflecting $28.7 billion of net outflows. Equity net outflows of $68.5 billion partially resulted from clients rebalancing portfolios after significant equity market gains, or tactically shifting assets to fixed income and cash. Fixed income net inflows of $39.7 billion were driven by demand for liability-driven investment solutions.

Institutional index represented 37% of long-term AUM and 9% of long-term base fees for 2020.

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 $3.0 trillion, or 66%, of long-term institutional AUM managed for defined benefit, defined contribution and other pension plans for corporations, governments and unions at December 31, 2020. The market landscape continues to shift from defined benefit to defined contribution, and our defined contribution channel represented $1.2 trillion of total pension AUM. BlackRock remains well positioned to capitalize on the on-going evolution of the defined contribution market and demand for outcome-oriented investments. An additional $76.9 billion, or 2%, of long-term institutional AUM was managed for other tax-exempt investors, including charities, foundations and endowments.

 

Official Institutions. BlackRock managed $275.4 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 2020. 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 $450.3 billion, or 10%, of long-term institutional AUM at year-end 2020. Assets managed for other taxable institutions, including corporations, banks and third-party fund sponsors for which the Company provides sub-advisory services, totaled $696.6 billion, or 16%, of long-term institutional AUM at year-end.

 

5


 

Client Type and Product Type

Component changes in AUM by client type and product type for 2020 are presented below.

 

(in millions)

December 31,

2019

 

 

Net inflows

(outflows)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2020

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

$

252,413

 

 

$

39,341

 

 

$

42,545

 

 

$

4,135

 

 

$

338,434

 

Fixed income

 

305,265

 

 

 

22,784

 

 

 

9,725

 

 

 

2,694

 

 

 

340,468

 

Multi-asset

 

120,439

 

 

 

(481

)

 

 

12,262

 

 

 

404

 

 

 

132,624

 

Alternatives

 

25,180

 

 

 

7,912

 

 

 

929

 

 

 

370

 

 

 

34,391

 

Retail subtotal

 

703,297

 

 

 

69,556

 

 

 

65,461

 

 

 

7,603

 

 

 

845,917

 

iShares ETFs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

1,632,972

 

 

 

76,307

 

 

 

186,918

 

 

 

8,904

 

 

 

1,905,101

 

Fixed income

 

565,790

 

 

 

88,894

 

 

 

28,009

 

 

 

7,340

 

 

 

690,033

 

Multi-asset

 

5,210

 

 

 

646

 

 

 

388

 

 

 

24

 

 

 

6,268

 

Alternatives

 

36,093

 

 

 

19,038

 

 

 

12,331

 

 

 

143

 

 

 

67,605

 

iShares ETFs subtotal

 

2,240,065

 

 

 

184,885

 

 

 

227,646

 

 

 

16,411

 

 

 

2,669,007

 

Institutional:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

141,118

 

 

 

1,890

 

 

 

24,045

 

 

 

2,469

 

 

 

169,522

 

Fixed income

 

651,368

 

 

 

6,598

 

 

 

49,712

 

 

 

8,591

 

 

 

716,269

 

Multi-asset

 

434,233

 

 

 

13,639

 

 

 

52,365

 

 

 

11,005

 

 

 

511,242

 

Alternatives

 

111,951

 

 

 

9,497

 

 

 

3,861

 

 

 

2,120

 

 

 

127,429

 

Active subtotal

 

1,338,670

 

 

 

31,624

 

 

 

129,983

 

 

 

24,185

 

 

 

1,524,462

 

Index:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

1,793,826

 

 

 

(68,543

)

 

 

254,475

 

 

 

26,991

 

 

 

2,006,749

 

Fixed income

 

792,969

 

 

 

39,685

 

 

 

67,623

 

 

 

27,441

 

 

 

927,718

 

Multi-asset

 

8,239

 

 

 

(591

)

 

 

749

 

 

 

202

 

 

 

8,599

 

Alternatives

 

4,848

 

 

 

732

 

 

 

(50

)

 

 

87

 

 

 

5,617

 

Index subtotal

 

2,599,882

 

 

 

(28,717

)

 

 

322,797

 

 

 

54,721

 

 

 

2,948,683

 

Institutional subtotal

 

3,938,552

 

 

 

2,907

 

 

 

452,780

 

 

 

78,906

 

 

 

4,473,145

 

Long-term

 

6,881,914

 

 

 

257,348

 

 

 

745,887

 

 

 

102,920

 

 

 

7,988,069

 

Cash management

 

545,949

 

 

 

113,349

 

 

 

(63

)

 

 

7,017

 

 

 

666,252

 

Advisory

 

1,770

 

 

 

20,141

 

 

 

445

 

 

 

3

 

 

 

22,359

 

Total

$

7,429,633

 

 

$

390,838

 

 

$

746,269

 

 

$

109,940

 

 

$

8,676,680

 

 

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 2020 equity AUM totaled $4.4 trillion, reflecting net inflows of $49.0 billion. Net inflows included $76.3 billion and $30.2 billion into iShares ETFs and active, respectively, partially offset by non-ETF index net outflows of $57.5 billion. Record active equity net inflows were driven by flows into high-performing technology, health sciences and US growth fundamental equities franchises, as well as flows into quantitative strategies.

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 US equity strategies. Accordingly, fluctuations in international equity markets, which may not consistently move in tandem with US markets, have a greater impact on BlackRock’s equity revenues and effective fee rate.

Equity represented 55% of long-term AUM and 50% of long-term base fees for 2020.

Fixed Income

Fixed income AUM ended 2020 at $2.7 trillion, reflecting net inflows of $158.0 billion. iShares ETFs net inflows of $89.0 billion were led by flows into US investment grade corporate, core and high yield bond funds. Non-ETF index net inflows of $42.1 billion were driven by demand for liability-driven investment solutions and index mutual funds. Active net inflows of $26.9 billion reflected strong flows in high yield, Asian, total return and core bond offerings.

Fixed income represented 34% of long-term AUM and 30% of long-term base fees for 2020.

6


 

Multi-Asset

BlackRock manages a variety of multi-asset 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.

Multi-asset represented 8% of long-term AUM and 10% of long-term base fees for 2020.

Component changes in multi-asset AUM for 2020 are presented below.

 

(in millions)

December 31,

2019

 

 

Net inflows

(outflows)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2020

 

Target date/risk

$

277,078

 

 

$

21,261

 

 

$

39,143

 

 

$

1,236

 

 

$

338,718

 

Asset allocation and balanced

 

185,454

 

 

 

(9,578

)

 

 

12,693

 

 

 

2,632

 

 

 

191,201

 

Fiduciary

 

105,589

 

 

 

1,530

 

 

 

13,928

 

 

 

7,767

 

 

 

128,814

 

Total

$

568,121

 

 

$

13,213

 

 

$

65,764

 

 

$

11,635

 

 

$

658,733

 

Multi-asset net inflows reflected ongoing institutional demand for our solutions-based advice with $13.0 billion of net inflows coming from institutional clients. Defined contribution plans of institutional clients remained a significant driver of flows and contributed $14.8 billion to institutional multi-asset net inflows in 2020, primarily into target date and target risk product offerings.

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

 

Target date and target risk products generated net inflows of $21.3 billion. Institutional investors represented 90% of target date and target risk AUM, with defined contribution plans representing 84% 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.

 

Asset allocation and balanced products represented 29% 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 include our Global Allocation and Multi-Asset Income fund families. This category also includes FutureAdvisor, a digital wealth management platform that provides financial institutions with technology-enabled investment advisory capabilities to manage their clients’ investments.

 

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, often with BlackRock acting as outsourced chief investment officer. 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.

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 three main categories — 1) illiquid alternatives, 2) liquid alternatives, and 3) currency and commodities. Illiquid alternatives include offerings in alternative solutions, private equity, opportunistic and credit, real estate and infrastructure. Liquid alternatives include offerings in direct hedge funds and hedge fund solutions (funds of funds).

In 2020, liquid and illiquid alternatives generated a combined $17.4 billion of net inflows, or $25.7 billion excluding return of capital/investment of $8.3 billion. The largest contributors to return of capital/investment were private equity solutions, infrastructure and opportunistic and credit strategies. Net inflows were driven by direct hedge funds, infrastructure, private equity and opportunistic and credit strategies. At year-end, BlackRock had approximately $24 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. Currency and commodities saw $19.8 billion of net inflows, primarily into commodities iShares ETFs.

BlackRock believes 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. BlackRock’s highly diversified alternatives franchise is well positioned to continue to meet growing demand from both institutional and retail investors.

Alternatives represented 3% of long-term AUM and 10% of long-term base fees for 2020.

7


 

Component changes in alternatives AUM for 2020 are presented in the table below.

(in millions)

December 31,

2019

 

 

Net inflows

(outflows)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2020

 

 

Memo:

return of

capital/

investment(1)

 

Memo:

committed capital(2)

 

Illiquid alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alternative solutions

$

3,980

 

 

$

179

 

 

$

72

 

 

$

37

 

 

$

4,268

 

 

$

(623

)

$

3,919

 

Private equity and opportunistic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Private equity solutions

 

14,374

 

 

 

2,644

 

 

 

(171

)

 

 

98

 

 

 

16,945

 

 

 

(2,960

)

 

4,975

 

Opportunistic and credit

   strategies

 

11,109

 

 

 

1,750

 

 

 

47

 

 

 

144

 

 

 

13,050

 

 

 

(1,727

)

 

4,965

 

Long Term Private Capital

 

2,430

 

 

 

1,029

 

 

 

 

 

 

 

 

 

3,459

 

 

 

 

 

 

Private equity and opportunistic subtotal

 

27,913

 

 

 

5,423

 

 

 

(124

)

 

 

242

 

 

 

33,454

 

 

 

(4,687

)

 

9,940

 

Real assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate

 

24,430

 

 

 

691

 

 

 

(1,140

)

 

 

469

 

 

 

24,450

 

 

 

(696

)

 

1,029

 

Infrastructure

 

19,026

 

 

 

4,590

 

 

 

(320

)

 

 

302

 

 

 

23,598

 

 

 

(1,849

)

 

9,066

 

Real assets subtotal

 

43,456

 

 

 

5,281

 

 

 

(1,460

)

 

 

771

 

 

 

48,048

 

 

 

(2,545

)

 

10,095

 

Total illiquid alternatives

 

75,349

 

 

 

10,883

 

 

 

(1,512

)

 

 

1,050

 

 

 

85,770

 

 

 

(7,855

)

 

23,954

 

Liquid alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct hedge fund strategies

 

36,234

 

 

 

5,734

 

 

 

4,570

 

 

 

1,275

 

 

 

47,813

 

 

 

 

 

 

Hedge fund solutions

 

22,814

 

 

 

811

 

 

 

1,725

 

 

 

55

 

 

 

25,405

 

 

 

(415

)

 

431

 

Total Liquid alternatives

 

59,048

 

 

 

6,545

 

 

 

6,295

 

 

 

1,330

 

 

 

73,218

 

 

 

(415

)

 

431

 

Currency and commodities

 

43,675

 

 

 

19,751

 

 

 

12,288

 

 

 

340

 

 

 

76,054

 

 

 

 

 

 

Total

$

178,072

 

 

$

37,179

 

 

$

17,071

 

 

$

2,720

 

 

$

235,042

 

 

$

(8,270

)

$

24,385

 

 

(1)

Return of capital/investment is included in outflows.

(2)

Amount represents client assets that are uninvested commitments, which are currently non-fee paying and are not included in AUM. These commitments are expected to generate fees and will be counted in AUM and flows as the capital is deployed over time.

Illiquid Alternatives

The Company’s illiquid alternatives strategies include the following:

 

Alternative Solutions represents highly customized portfolios of alternative investments. In 2020, alternative solutions portfolios had $4.3 billion in AUM.

 

Private Equity and Opportunistic included AUM of $16.9 billion in private equity solutions, $13.0 billion in opportunistic and credit offerings, and $3.5 billion in Long Term Private Capital (“LTPC”). Net inflows of $5.4 billion into private equity and opportunistic strategies included $2.6 billion of net inflows into private equity solutions, $1.8 billion of net inflows into opportunistic and credit offerings and $1.0 billion of net inflows into LTPC.

 

Real Assets, which includes infrastructure and real estate, totaled $48.0 billion in AUM, reflecting net inflows of $5.3 billion, led by infrastructure deployments.

Liquid Alternatives

The Company’s liquid alternatives products’ net inflows of $6.5 billion reflected net inflows of $5.7 billion and $0.8 billion from direct hedge funds and hedge fund solutions, respectively. Direct hedge fund AUM includes a variety of single- and multi-strategy offerings.

Currency and Commodities

The Company’s currency and commodities products include a range of active and index products.

Currency and commodities products had $19.8 billion of net inflows, primarily driven by iShares ETFs. iShares ETFs commodities products represented $67.6 billion of AUM and are not eligible for performance fees.

Cash Management

Cash management AUM totaled $666.3 billion at December 31, 2020, reflecting a record $113.3 billion of net inflows. Cash management products include taxable and tax-exempt money market funds, short term investment funds and customized separate accounts. Portfolios are denominated in US dollars, Canadian dollars, Australian dollars, Euros, Swiss Francs, New Taiwan Dollars or British pounds. Strong growth in cash management reflects BlackRock’s success in leveraging scale for clients and delivering innovative digital distribution and risk management solutions.

BlackRock is currently voluntarily waiving a portion of its management fees on certain money market funds to ensure that they maintain a minimum level of daily net investment income. During 2020, these waivers resulted in a reduction of management fees of approximately $35 million, which was partially offset by a reduction of BlackRock’s distribution and servicing costs paid to financial intermediaries. BlackRock has provided voluntary yield support waivers in prior periods and may increase or decrease the level of yield support waivers in future periods. For more information see Note 2, Significant Accounting Policies, in the notes to the consolidated financial statements included in Part II, Item 8 of this filing.

8


 

Client Region

Our footprints in the Americas, EMEA and Asia-Pacific regions reflect strong relationships with intermediaries and an established ability to deliver our global investment expertise in funds and other products tailored to local regulations and requirements.

AUM by product type and client region at December 31, 2020 is presented below.

 

(in millions)

Americas

 

 

EMEA

 

 

Asia-Pacific

 

 

Total

 

Equity

$

3,068,910

 

 

$

1,089,684

 

 

$

261,212

 

 

$

4,419,806

 

Fixed income

 

1,491,874

 

 

 

866,455

 

 

 

316,159

 

 

 

2,674,488

 

Multi-asset

 

451,374

 

 

 

182,119

 

 

 

25,240

 

 

 

658,733

 

Alternatives

 

125,271

 

 

 

80,114

 

 

 

29,657

 

 

 

235,042

 

Long-term

 

5,137,429

 

 

 

2,218,372

 

 

 

632,268

 

 

 

7,988,069

 

Cash management

 

484,751

 

 

 

172,191

 

 

 

9,310

 

 

 

666,252

 

Advisory

 

22,359

 

 

 

 

 

 

 

 

 

22,359

 

Total

$

5,644,539

 

 

$

2,390,563

 

 

$

641,578

 

 

$

8,676,680

 

 

Component changes in AUM by client region for 2020 are presented below.

 

(in millions)

December 31,

2019

 

 

Net inflows

(outflows)

 

 

Market

change

 

 

FX

impact

 

 

December 31,

2020

 

Americas

$

4,910,954

 

 

$

196,608

 

 

$

535,633

 

 

$

1,344

 

 

$

5,644,539

 

EMEA

 

2,001,917

 

 

 

128,581

 

 

 

173,104

 

 

 

86,961

 

 

 

2,390,563

 

Asia-Pacific

 

516,762

 

 

 

65,650

 

 

 

37,531

 

 

 

21,635

 

 

 

641,578

 

Total

$

7,429,633

 

 

$

390,839

 

 

$

746,268

 

 

$

109,940

 

 

$

8,676,680

 

 

Americas

Net inflows of $196.6 billion reflected net inflows into fixed income, cash, equity, alternatives, advisory and multi-asset of $88.2 billion, $80.4 billion, $22.5 billion, $20.4 billion and $13.3 billion, respectively. Equity net outflows of $28.2 billion were primarily due to low-fee institutional index outflows. Advisory net inflows were primarily linked to asset purchases managed by our Financial Markets Advisory group.  Revenue linked to these assignments is primarily reflected in the “Advisory and other revenue” line item of the Income Statement. During the year, BlackRock served clients through offices in 35 states in the United States as well as Canada, Mexico, Brazil, Colombia, Chile and the Dominican Republic.

The Americas represented 65% of total AUM and 66% of total base fees for 2020.

EMEA

EMEA net inflows of $128.6 billion were led by equity, cash and alternatives net inflows of $81.3 billion, $32.2 billion and $11.5 billion, respectively. Offerings include fund families in the United Kingdom, the Netherlands, Luxembourg and Dublin and iShares ETFs listed on stock exchanges throughout Europe, as well as separate accounts and pooled investment products.

EMEA represented 28% of total AUM and base fees for 2020.

Asia-Pacific

Asia-Pacific net inflows of $65.7 billion were primarily due to fixed income net inflows of $68.5 billion. Clients in the Asia-Pacific region are served through offices in Japan, Australia, Hong Kong, Singapore, Taiwan, Korea, China, and India.

Asia-Pacific represented 7% of total AUM and 6% of total base fees for 2020.

 

Investment Performance

Investment performance across active and index products as of December 31, 2020 was as follows:

 

 

 

One-year

period

 

 

Three-year

period

 

 

Five-year

period

 

Fixed income:

 

 

 

 

 

 

 

 

 

 

 

 

Actively managed AUM above benchmark or peer median

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

86%

 

 

87%

 

 

88%

 

Tax-exempt

 

36%

 

 

56%

 

 

78%

 

Index AUM within or above applicable tolerance

 

87%

 

 

96%

 

 

95%

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

 

Actively managed AUM above benchmark or peer median

 

 

 

 

 

 

 

 

 

 

 

 

Fundamental

 

78%

 

 

85%

 

 

85%

 

Systematic

 

61%

 

 

46%

 

 

88%

 

Index AUM within or above applicable tolerance

 

92%

 

 

98%

 

 

99%

 

 

Performance Notes. Past performance is not indicative of future results. Except as specified, the performance information shown is as of December 31, 2020 and is based on preliminary data available at that time. The performance data shown reflects information for all actively and passively managed equity and fixed income accounts, including US registered investment companies, European-domiciled retail funds and separate accounts for which performance data is available, including performance data for high net worth accounts available as of November 30, 2020. The performance data does not include accounts terminated prior to December 31, 2020 and accounts for which data has not yet been verified. If such accounts had been included, the performance data provided may have substantially differed from that shown.

Performance comparisons shown are gross-of-fees for institutional and high net worth separate accounts, and net-of-fees for retail funds. The performance tracking shown for index accounts is based on gross-of-fees performance and includes all institutional accounts and all iShares funds globally using an index strategy. AUM information is based on AUM available as of December 31, 2020 for each account or fund in the asset class shown without adjustment for overlapping management of the same account or fund. Fund performance reflects the reinvestment of dividends and distributions.

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Performance shown is derived from applicable benchmarks or peer median information, as selected by BlackRock, Inc. Peer medians are based in part on data either from Lipper, Inc. or Morningstar, Inc. for each included product.

TECHNOLOGY SERVICES

BlackRock offers investment management technology systems, risk management services, wealth management and digital distribution tools on a fee basis. Aladdin is our proprietary technology platform, which serves as the investment and risk management system for both BlackRock and a growing number of institutional investors around the world. BlackRock offers risk reporting capabilities via Aladdin Risk, as well as investment accounting capabilities. Aladdin Provider is a tool used by BlackRock’s custodial partners, connecting them to the platform to add operational efficiency. In 2020, BlackRock launched Aladdin Climate, a software application offering investors measures of both the physical risk of climate change and the transition risk to a low-carbon economy on portfolios with climate-adjusted security valuations and risk metrics. In 2019, BlackRock acquired eFront, a leading end-to-end alternative investment management software and solutions provider to enable clients to manage portfolios and risk across public and private asset classes on a single platform. Through our Cachematrix platform, BlackRock is also a leading provider of financial technology which simplifies the cash management process for banks and their corporate clients in a streamlined, open-architecture platform.

BlackRock offers a number of wealth management technology tools offering digital advice, portfolio construction capabilities and risk analytics for retail distributors. These tools include Aladdin Wealth, which provides wealth management firms and their financial professionals with institutional-quality business management, portfolio construction, modeling and risk analytics capabilities, and FutureAdvisor, a digital wealth management platform that provides financial institutions with technology-enabled investment advisory capabilities to manage their clients’ investments.

Technology services revenue of $1.1 billion was up 17% year-over-year, reflecting the impact of the eFront acquisition and continued growth in Aladdin. Aladdin, which represented the majority of technology services revenue for the year, continues to benefit from trends favoring global investment platform consolidation and multi-asset risk solutions. Aladdin assignments are typically long-term contracts that provide recurring revenue.

At year-end, BlackRock technology services clients included banks, insurance companies, official institutions, pension funds, asset managers, asset servicers, retail distributors and other investors across North America, South America, Europe, Asia and Australia.

In addition, BlackRock has made minority investments in the digital distribution companies Envestnet, Scalable Capital, iCapital, Acorns and Embark. In January 2021, BlackRock also announced a minority investment in Clarity AI, a sustainability analytics and data science platform. BlackRock records its share of income related to minority investments accounted for under the equity method in other revenue and records gains and losses related to changes in value of other minority investments in nonoperating income (expense).

Securities Lending

Securities lending is managed by a dedicated team, supported by quantitative analysis, proprietary technology and disciplined risk management. BlackRock receives both cash (primarily for US domiciled portfolios) and noncash collateral under securities lending arrangements. The cash management team invests the cash received as collateral for securities on loan in other portfolios. Fees for securities lending for US domiciled portfolios can be structured as a share of earnings, or as a management fee based on a percentage of the value of the cash collateral or both. The value of the securities on loan and the revenue earned are captured in the corresponding asset class being managed. The value of the collateral is not included in AUM.

Outstanding loan balances ended the year at approximately $352 billion, up from $290 billion at year-end 2019. Continued asset gathering in lending products and strong market performance resulted in higher balances compared to 2019. On average, relative to 2019, intrinsic lending spreads were lower, while average cash reinvestment spreads increased. Cash reinvestment spreads increased significantly in the second quarter, primarily as a result of cuts to the Federal Funds Target rate band in March and market dislocations during the period.

BlackRock employs a conservative investment style for cash and securities lending collateral that emphasizes quality, liquidity and interest rate risk management. Disciplined risk management, including a rigorous credit surveillance process, is an integral part of the investment process. BlackRock’s Cash Management Credit Committee has established risk limits, such as aggregate issuer exposure limits and maturity limits, across many of the products BlackRock manages, including over all of its cash management products. In the ordinary course of our business, there may be instances when a portfolio may exceed an internal risk limit or when an internal risk limit may be changed. No such instances, individually or in the aggregate, have been material to the Company. To the extent that daily evaluation and reporting of the profile of the portfolios identify that a limit has been exceeded, the relevant portfolio will be adjusted. To the extent a portfolio manager would like to obtain a temporary waiver of a risk limit, the portfolio manager must obtain approval from the credit research team, which is independent from the cash management portfolio managers. While a risk limit may be waived temporarily, such waivers are infrequent.

Risk & Quantitative Analysis

Across all asset classes, in addition to the efforts of the portfolio management teams, the Risk & Quantitative Analysis (“RQA”) group at BlackRock draws on extensive analytical systems and proprietary and third-party data to identify, measure and manage a wide range of risks. RQA provides risk management advice and independent risk oversight of the investment management processes, identifies and helps manage counterparty and enterprise risks, coordinates standards for firm wide investment performance measurement and determines risk management-related analytical and information requirements. Where appropriate, RQA will work with portfolio managers and developers to facilitate the development or improvement of risk models and analytics.

 

 

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COMPETITION

BlackRock competes with investment management firms, mutual fund complexes, insurance companies, banks, brokerage firms and other financial institutions that offer products that are similar to, or alternatives to, those offered by BlackRock. In order to grow its business, BlackRock must be able to compete effectively for AUM. Key competitive factors include investment performance track records, the efficient delivery of beta for index products, investment style and discipline, price, client service and brand name recognition. Historically, the Company has competed principally on the basis of its long-term investment performance track record, its investment process, its risk management and analytic capabilities and the quality of its client service.

HUMAN CAPITAL

With approximately 16,500 employees in more than 30 countries, BlackRock provides a broad range of investment and technology services to institutional and retail clients in more than 100 countries across the globe. As an asset manager, BlackRock’s long-term sustainability depends on its people and how it manages its workforce.

Culture and Principles

BlackRock believes that developing a strong corporate culture is an important component of its human capital management practices and critical to the firm’s long-term success. BlackRock’s culture is underpinned by five core principles that unify its workforce: (1) We are a fiduciary to our clients; (2) We are One BlackRock; (3) We are passionate about performance; (4) We take emotional ownership; and (5) We are committed to a better future.

Diversity, Equity and Inclusion (“DEI”)

BlackRock believes a diverse workforce and an equitable and inclusive working environment are key factors in achieving better outcomes across all levels of its business. BlackRock has made a long-term commitment to cultivating diversity in its workforce and leadership team, through its hiring, retention, promotion and development practices. As part of its long-term commitment, BlackRock has instituted a multi-year DEI strategy that it believes is actionable, measurable and designed to apply across the many countries in which the firm operates. The Company has aligned its DEI strategy with the firm’s business priorities and long-term objectives and expects that it will evolve as the firm learns and adapts to a changing macro environment.  

A key goal of BlackRock’s DEI strategy is developing a diverse talent pipeline through ongoing investment in recruiting, retention and engagement. In connection with this goal, the Company has: (1) expanded partnerships with external organizations and developed strategies to increase the diversity of its applicant pool; (2) strengthened talent acquisition and management processes in an effort to eliminate bias; and (3) implemented leadership development, sponsorship and coaching initiatives to engage and develop diverse talent. Another focus of BlackRock’s DEI strategy is to cultivate an inclusive work environment in which employees feel connected to BlackRock’s culture and supported in pursuit of their goals. To this end, BlackRock has committed to raising awareness of racial equity issues and resetting behavioral expectations for employees, as well as to holding firm leaders and managers accountable for continued progress against the firm’s goals.

BlackRock views transparency and accountability as a critical part of its DEI strategy, including as a means to inform, measure and improve its human capital management practices. To that end, in 2020 the firm published its first SASB-aligned disclosure, which includes information regarding workforce diversity that BlackRock plans to update annually. During 2020, it also set goals for increasing the overall workplace representation of Black and Latinx employees and growing the number of female, and US Black and Latinx, leaders (Director and above).  

Board Oversight of Human Capital Management

BlackRock’s Board of Directors (the “Board”) plays an important role in the oversight of human capital management at BlackRock and devotes one full Board meeting annually to an in-depth review of BlackRock’s culture, talent development, retention and recruiting initiatives, DEI strategy, leadership and succession planning and employee feedback. Moreover, year-end business assessments, which include a review of the progress that is being made against the firm’s DEI goals, influence individual compensation outcomes that are reviewed and approved by the Board’s Management Development and Compensation Committee.

Succession planning for BlackRock’s Chief Executive Officer and other senior executives is a key part of the Board’s annual review of human capital management issues. As part of this review, the Board focuses on whether BlackRock has the right people in place to execute the Company’s long-term strategic plans, and on BlackRock’s ability to identify, attract, develop and retain future senior executives. An important element of the succession planning across the organization is a commitment to building leadership from within and increasing diversity in leadership roles.

Employee Engagement

BlackRock prioritizes continuous dialogue with its employees about their experiences at the firm in order to understand employee expectations and assess the efficacy of its human capital management practices. The Company uses several employee feedback mechanisms, including: (i) employee opinion surveys; (ii) interactive townhalls and communications; and (iii) the sponsorship of employee, professional and social impact networks.  These employee engagement mechanisms provide BlackRock with actionable feedback for each team and for BlackRock as a whole.  BlackRock’s employee, professional and social impact networks also provide additional forums and opportunities for employees with diverse backgrounds to connect with one another and shape the firm’s culture. More recently, these networks played an active role in BlackRock’s response to COVID-19, including by instituting programs to combat isolation and more deeply understand the employee experience during the pandemic. The networks, which continue to grow in number, are sponsored by senior leaders and designed by employees, for employees.

Compensation, Wellness and Benefits

BlackRock is committed to responsible business practices and believes that investing in the physical, emotional, mental and financial well-being of its employees is a critical component of the firm’s human capital management strategy. To that end, the Company designs its compensation and benefits practices to: (i) attract and retain employees; (ii) align employee incentives and risk taking with that of the firm’s and the interests of its clients; and (iii) support employees across many aspects of their lives. The Company has a strong pay-for-performance culture and an

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annual compensation process that takes into consideration firmwide results, individual business results and employee performance, as well as market benchmarks. BlackRock also offers a wide range of benefits that it regularly reviews in accordance with industry best practices and the local requirements of its offices, including retirement savings plans, a Flexible Time Off (“FTO”) policy and flexible working arrangements, and parental leave and family support benefits, including fertility benefits, adoption and surrogacy assistance, and backup elder and childcare benefits. The Company provides comprehensive healthcare and mental-health benefits to eligible employees, including medical, dental and vision coverage, health savings and spending accounts, counseling services, an employee assistance program and access to telemedicine services.

BlackRock prioritizes protecting the rights of its workforce and the equitable treatment of its employees. The Company has implemented policies related to harassment prevention and compliance with equal employment opportunity and overtime regulations. BlackRock is also committed to providing a safe and healthy working environment for its workforce. To do this, it designs global programs, including environmental and occupational health and safety programs, to meet or exceed local requirements. Moreover, BlackRock encourages all of its employees to raise issues of concern and assures employees that they may do so without fear of retaliation.  

The COVID-19 pandemic has further highlighted the importance of keeping employees safe and healthy and, following its onset, BlackRock implemented several initiatives to support employees. The Company prioritized communication about the telemedicine and digital health resources it makes available, including mental, emotional and physical health offerings. In addition, BlackRock extended cross-border healthcare coverage and support to employees and their dependents temporarily working, or on FTO, outside of their home country as a result of the pandemic.

Training, Innovation and Development

BlackRock is committed to innovation, learning  and reinvention in all areas of its business and believes that developing the capabilities of its employees is integral to delivering long-term value. To that end, the Company’s human capital management practices are designed to provide opportunities for employees to learn, innovate and enhance their skillsets at every stage of their career. These opportunities, which include the firm’s comprehensive online suite of interactive resources and courses (BlackRock Academies), play an important role in engaging BlackRock’s employees.

In addition, BlackRock believes that developing strong leaders is a driver of the firm’s success. Select employees are invited to participate in leadership programs to help accelerate their growth, which include executive coaching, in-person and virtual learning, and senior management sponsorship.

REGULATION

Virtually all aspects of BlackRock’s business are subject to various laws and regulations around the world, some of which are summarized below. These laws and regulations are primarily intended to protect investment advisory clients, investors in registered and unregistered investment companies, and trust and other fiduciary clients of BlackRock Institutional Trust Company, N.A. (“BTC”). Under these laws and regulations, agencies that regulate investment advisers, investment funds and trust banks and other individuals and entities have broad administrative powers, including the power to limit, restrict or prohibit the regulated entity or person from carrying on business if it fails to comply with such laws and regulations. Possible sanctions for significant compliance failures include the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser and other registrations or bank charters, censures and fines both for individuals and BlackRock.

The rules governing the regulation of financial institutions and their holding companies and subsidiaries are very detailed and technical. Accordingly, the discussion below is general in nature, does not purport to be complete and is current only as of the date of this report.

GLOBAL REGULATORY REFORM

BlackRock’s business may be impacted by numerous regulatory reform initiatives occurring around the world. Any such initiative, or any new laws or regulations or changes to, or in the enforcement of, existing laws or regulations, could materially and adversely impact the scope or profitability of BlackRock’s business activities, lead to business disruptions, require BlackRock to alter its business or operating activities and expose BlackRock to additional costs (including compliance and legal costs) as well as reputational harm. BlackRock’s profitability also could be materially and adversely affected by modification of the rules and regulations that impact the business and financial communities in general, including changes to the laws governing banking, taxation, antitrust regulation and electronic commerce.

Systemically Important Financial Institution (“SIFI”) Review

The Financial Stability Oversight Council (“FSOC”) has the authority to designate nonbank financial institutions as SIFIs in the United States under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”). In July 2014, the FSOC pivoted from its previous entity-specific approach to designation and indicated that it would focus on a products and activities-based approach to designation in connection with addressing potential risks in the financial system related to asset management. In December 2019, the FSOC re-affirmed this approach when it voted to change its methodology for assessing financial stability to a products and activities-based approach. This reduces the risk of entity-level designation, however it remains too early to predict the direction of the forthcoming regulatory environment and the FSOC retains the authority to designate an entity if an activities-based approach does not adequately address potential risks. In the event that BlackRock is designated as a SIFI, it could become subject to enhanced regulatory requirements and direct supervision by the Board of Governors of the Federal Reserve (the “Federal Reserve”).

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Federal Trade Commission Proposal

In September 2020, the Federal Trade Commission (“FTC”) released a Notice of Proposed Rulemaking proposing updates to premerger notification rules enacted under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR”) that require parties to certain transactions to provide the FTC and the Antitrust Division of the Department of Justice prior notice and observe a waiting period before consummation of such transactions. The proposals would: (i) require that investors aggregate holdings in an issuer across all associated funds when assessing HSR filing and exemption thresholds and (ii) create a new exemption for acquisitions resulting in aggregate holdings of up to 10% of an issuer, which would be unavailable to investors holding interests of more than 1% in competing firms. If enacted as drafted, the proposal requiring aggregation across associated funds could, absent exemptions for index-funds or certain types of registered funds, substantially increase BlackRock’s pre-merger notification obligations, which may be costly, impair funds’ ability to trade freely, require the implementation of monitoring tools and introduce additional compliance burdens for both BlackRock and the companies in which it invests. In instances where making a pre-merger notification may not be practicable, the proposed changes may serve to limit the size of BlackRock’s aggregate position in certain issuers.

Taxation

BlackRock’s businesses may be directly or indirectly affected by tax legislation and regulation, or the modification of existing tax laws, by US or non-US tax authorities. In the US, legislation at both the federal and state level has been previously proposed to enact a financial transaction tax (“FTT”) on stocks, bonds and a broad range of financial instruments and derivative transactions. In the European Union (“EU”), certain Member States have also enacted similar FTTs and the European Commission (“EC”) has proposed legislation to harmonize these taxes and provide for the adoption of EU-level legislation applicable to some (but not all) EU Member States. If enacted as proposed, FTTs could have an adverse effect on BlackRock’s financial results and clients’ performance results.

The application of tax regulations involves numerous uncertainties and, in the normal course of business, US and non-US tax authorities may review and challenge tax positions adopted by BlackRock. These challenges may result in adjustments to, or impact the timing or amount of, taxable income, deductions or other tax allocations, which may adversely affect BlackRock’s effective tax rate and overall financial condition. Similarly, the Company manages assets in products and accounts that have investment objectives which may conform to tax positions adopted by BlackRock or to specific tax rules. To the extent there are changes in tax law or policy, or regulatory challenges to tax positions adopted by BlackRock, the value or attractiveness of such investments may be diminished and BlackRock may suffer financial or reputational harm.

Regulation of Swaps and Derivatives

The Securities and Exchange Commission (“SEC”), Federal Reserve, the Internal Revenue Service and the Commodity Futures Trading Commission (“CFTC”) each continue to review practices and regulations relating to the use of futures, swaps and other derivatives. Such reviews could result in regulations that restrict or limit the use of such products by funds or accounts. If adopted, any such limitations or restrictions could require BlackRock to change certain business practices or implement new compliance processes, which could result in additional costs and/or restrictions.

In October 2020, the SEC adopted new regulations governing the use of derivatives by registered investment companies (“RICs”), including mutual funds (other than money market funds), ETFs and closed-end funds, as well as business development companies. RICs will be required to implement and comply with the new rule by the third quarter of 2022. Once implemented, the rule will, among other things, impose limits on the amount of derivatives transactions a RIC can enter into, eliminate the current asset segregation compliance framework and introduce new compliance requirements for funds, including the establishment of comprehensive risk management programs. The rule may impact certain RICs’ usage of derivatives and investment strategy.

Jurisdictions outside the US in which BlackRock operates have adopted and implemented, or are in the process of considering, adopting or implementing, more pervasive regulation of many elements of the financial services industry, which could further impact BlackRock and the broader markets. For example, various global rules and regulations applicable to the use of financial products by funds, accounts and counterparties that have been adopted or proposed will require BlackRock to build and implement new compliance monitoring procedures to address the enhanced level of oversight to which it and its clients will be subject. These rules impose requirements such as mandatory central clearing of certain swaps transactions, requiring execution of certain swaps transactions on or through registered electronic trading venues (as opposed to over the phone or other execution methods), reporting transactions to central data repositories, mandating certain documentation standards, requiring the posting and collection of initial and/or variation margin for bilateral swap transactions and subjecting certain types of listed and/or over-the-counter transactions to position limit or position reporting requirements.

In the US, certain interest rate swaps and certain index credit default swaps are subject to Dodd-Frank central clearing and trading venue execution requirements, with additional products and asset classes potentially becoming subject to these requirements in the future. In the EU, central clearing and trading venue requirements for certain swap transactions have become effective for certain types of BlackRock funds and accounts. On March 1, 2017, most derivatives transactions that are not centrally cleared, including non-deliverable foreign exchange forward transactions and currency option transactions, became subject to requirements in the US, EU and numerous other jurisdictions to post or collect mark-to-market margin payments. For certain BlackRock funds and accounts, initial margin requirements may apply in the future in addition to such mark-to-market margin payments. These rules and regulations have the potential to increase the complexity and cost of trading non-cleared derivatives for BlackRock's clients, and may produce regulatory inconsistencies in global derivatives trading rules and increase BlackRock’s operational and legal risks.

Regulation of Exchange-Traded Funds

As part of a focus on financial stability issues and due to the significant growth of this product class over the last few years, regulators globally are examining the implications of an increased presence of ETFs in the markets, including those related to transparency, liquidity and structural resiliency. BlackRock and other sponsors of ETFs are working with market participants and regulators to address certain of these issues but there can be no assurance that structural or regulatory reforms will be implemented in a manner favorable to BlackRock, or at all. Depending on the outcome of this renewed regulatory analysis, or any associated structural reforms, ETF products may become subject to increased

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regulatory scrutiny or restrictions, which may require BlackRock to incur additional compliance and reporting expenses and adversely affect the Company’s business.

Regulation of Money Market Funds

In October 2016, rules were implemented to reform the regulatory structure governing US money market funds to address perceived systemic risks of money market funds. The rules require institutional prime and institutional municipal money market funds to employ a floating net asset value per share method of pricing, which allows the daily share prices of these funds to fluctuate along with changes in the market-based value of fund assets. Retail money market funds continue operating with a constant net asset value per share. The rules additionally provide for tools for institutional and retail money market funds’ boards designed to address market shocks, including the ability to impose liquidity fees and redemption gates under certain circumstances.

In addition, following market liquidity issues that arose in March 2020 in connection with the spread of the COVID-19 pandemic, regulatory authorities are focused on the need for further regulation for certain money market funds. In December 2020, the President’s Working Group on Financial Markets issued a report outlining ten potential policy measures for consideration to improve the resiliency of money market funds and the broader short-term funding markets. Although it remains too early to accurately predict the forthcoming regulatory environment, including with respect to regulation of money market funds, certain of these reforms, if ever adopted, could significantly impact money market funds and the money market fund industry.

Standards of Conduct Rulemaking

In June 2019, the SEC adopted a package of rulemakings and interpretations addressing investment adviser and broker-dealer standards of conduct. The package includes new rules requiring registered advisers and registered broker-dealers to provide a relationship summary to retail investors, a new rule establishing a standard of conduct for broker-dealers when making recommendations to retail customers and two new interpretations under the Investment Advisers Act of 1940 (the “Advisers Act”). These rulemakings and interpretations could increase BlackRock’s disclosure obligations, impact distribution arrangements between BlackRock and its distribution partners, create compliance and operational challenges for BlackRock’s distribution partners and limit BlackRock’s ability to provide certain other services to its clients.

Securities and Exchange Commission Rulemakings for US Registered Funds and Investment Advisers

BlackRock’s business may also be impacted by SEC regulatory initiatives. The SEC and its staff recently have engaged in various initiatives and reviews that seek to improve and modernize the regulatory structure governing the asset management industry, and registered investment companies in particular. These efforts relate to, among other things, embedded leverage through the use of derivatives and other trading practices, cybersecurity, liquidity, enhanced regulatory and public reporting requirements and the evaluation of systemic risks. Over the past year, the SEC has adopted rules that include among other things: (i) a new regulatory framework for fund of funds structures; and (ii) updated eligibility requirements for submitting shareholder proposals under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These rules, and any additional rules or regulatory initiatives resulting from the SEC's efforts, may increase BlackRock’s regulatory compliance requirements as well as disclosure requirements, which could be costly and may impede BlackRock’s growth.

Financial Crimes Enforcement Network Proposed Rulemaking for Registered Investment Advisers

In 2015, the Financial Crime Enforcement Network (“FinCEN”) issued a Notice of Proposed Rulemaking (“Proposed Rule”) that would extend to a number of BlackRock’s subsidiaries, which are registered or required to be registered as investment advisers with the SEC under the Advisers Act, the requirement to establish written risk-based anti-money laundering programs and report suspicious activity to FinCEN under the Bank Secrecy Act of 1970 (the “Bank Secrecy Act”). The Proposed Rule would include investment advisers within the Bank Secrecy Act’s definition of “financial institutions”, which would require them to comply with the Bank Secrecy Act reporting and recordkeeping requirements. If adopted in its current form, the Proposed Rule would expose BlackRock to additional compliance costs.

British Exit from the EU

On December 31, 2020, the United Kingdom (“UK”) left the EU, and the UK and EU reverted to being distinct regulatory, legal and customs territories. Although an “EU-UK Trade and Cooperation Agreement” was agreed to in connection with the UK’s departure from the EU, it does not include any substantive provisions with respect to financial services. As a result, from January 1, 2021, cross-border financial services trade between the UK and the EU will be governed by their respective financial services regulations and market access regimes. BlackRock has implemented a number of steps to prepare for this outcome. These steps, which are and have been time consuming and costly and may add complexity to BlackRock’s future European operations, include effecting organizational, governance and operational changes, applying for and receiving additional licenses and permissions in the EU, and engaging in client communications. In addition, depending on how the future relationship between the UK and the EU develops, BlackRock may experience further organizational and operational challenges and incur additional costs in connection with its European operations, particularly with regards to delegation and outsourcing, which may impede the Company’s growth or impact its financial performance.

UK Overseas Funds Regime

As part of its post-EU membership regulatory review, the Financial Conduct Authority (“FCA”) is reviewing the requirements it will impose on EU-domiciled funds offered into the UK. Any new requirements could introduce cost and complexity to BlackRock’s cross-border business model.

Enhanced Regulatory Scrutiny of Technology Service Providers to Financial Services Firms

There has been growing regulatory scrutiny of technology service providers on which financial services firms are reliant, including the Digital Operational Resilience Act (“DORA”), which was proposed by the EC in September 2020 and focuses on direct regulation of providers and users of technology- and data services. If enacted as proposed, DORA may, among other things: (i) introduce additional governance, risk management, incident reporting, testing and information sharing requirements to a number of BlackRock’s European entities and certain Aladdin clients; and (ii) subject Aladdin to broad additional oversight. Separately, in November 2020, the Financial Stability Board (“FSB”)

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released a Consultation on Regulatory and Supervisory Issues Relating to Outsourcing and Third-Party Relationships, which explores direct supervision of technology service providers to financial services firms, in addition to detailing concerns around the potential for systemic risk in the provision of such services.

Reform of Investment Markets

BlackRock is subject to numerous regulatory reform initiatives that may affect the Company’s provision of investment services globally. In Europe, the Markets in Financial Instruments Directive (“MiFID”) governing the provision of investment services has been revised and is accompanied by an associated Regulation (together with certain secondary regulation, “MiFID II”). The Regulation’s requirements generally apply consistently across the EU. The MiFID II reforms, which came into force in January 2018, were substantive, materially changing market transparency requirements, enhancing protections afforded to investors, and increasing operational complexity for the Company. Forthcoming proposals to review the operation of MiFID II and to develop a new EU Retail Investment Strategy may affect the European market structure and impact BlackRock’s ability to operate in European markets. The broad nature of the MiFID II means future reforms could also affect product development, client servicing and distribution models. Similar reforms have been introduced in Switzerland and Australia.

Macroprudential Policies for Asset Managers

Certain policymakers continue to raise long-standing concerns about liquidity and leverage risks in the asset management industry and wider market-based finance sector. The COVID-19 pandemic has heightened concerns and prompted a broad review of existing financial market regulations by international standard setters and regulators across the Americas, Europe and Asia, including an assessment of the adequacy of certain structural components of current markets in mitigating risks. In the event that either the longer-standing concerns or recent broad review result in regulatory or policy action, macroprudential tools may begin to apply to open-ended investment funds broadly. BlackRock may also be required to make changes to structural features of certain open-ended investment funds. Either eventuality could limit BlackRock’s ability to offer products to certain clients and/or result in clients altering their investment strategies or allocations in a manner that is adverse to BlackRock.

Revised Capital Requirements for Investment Firms

In December 2017, the EC published a proposal for a new Directive and Regulation on prudential requirements for MiFID investment firms. The proposal passed the EU legislative process and the final texts of the Regulation and Directive were published in December 2019. The new legislative package, which comes into effect in 2021, will result in changes to the amount of regulatory capital BlackRock is required to hold in the EU and how such capital is calculated, as well as introduce revised disclosure obligations for large investment firms. The UK is also proposing the adoption of comparable rules, which will apply to UK-based investment firms from 2022.

EU Market Access

The EC and certain EU Member States have recently advanced a more restrictive approach to the need for a third country (i.e. non-EU country) to obtain “equivalence,” which is the process by which the legal, regulatory, and/or supervisory system in non-EU Member States is recognised by the EC as comparably effective to that in the EU, thereby allowing firms established in such non-EU Member States a degree of access to the EU single market in financial services. In addition, in 2019, the EC commenced a review of the Alternative Investment Fund Managers Directive (“AIFMD”) to assess, among other things, the conditions for delegating portfolio management mandates to third countries, the effectiveness of regulation on third country fund marketing passports and the continuation of national private placement regimes. To the extent the review results in formal legislation that limits the scope of existing permitted activities and EU market access rights for asset management firms with non-EU operations, or extends more stringent rules to the Directive on Undertakings for Collective Investment in Transferable Securities (“UCITS”), BlackRock’s ability to offer collective investment funds and certain investment services to EU-based clients may be adversely affected.

Senior Managers and Certification Regime (“SMCR”)

In the UK, the FCA extended the SMCR to all financial services firms in December 2019. The regime imposes greater accountability and responsibility across the senior management of UK financial services firms by making individuals in impacted firms more accountable for conduct and competence. SMCR impacts nearly all staff of the Company in the UK, and requires extensive documentation to support senior managers and evidence the discharge of their responsibilities.

UK Asset Management Market Study

The FCA has adopted requirements for UK fund managers to assess whether the retail collective investments they manage offer “value” to investors. In 2020, the Company initiated the provision of an annual assessment based upon various factors including cost, performance and comparable services. If “value” has not been provided to consumers, the Company will need to address any identified deficiencies. The FCA also requested that the UK’s Competition and Markets Authority (“CMA”) assess the investment consultant and fiduciary markets. The CMA’s final report identified a number of competition issues in such markets and the UK regulatory regime was revised in 2020 to introduce mandatory tendering of investment consultancy and fiduciary management services, and new standards of disclosure of fees and performance. The CMA’s remedies could have a significant impact on the Company’s ability to enter into fiduciary and investment management mandates with UK pension fund clients.

Sustainability Regulation

In 2018, EC introduced a number of regulatory proposals to underpin sustainable investment products; require disclosure of sustainability-related information by market participants, investments products, and issuers; and require the integration of sustainability considerations into the investment and risk management processes of asset managers and other institutional investors. Rules arising from the reform proposals will take effect in March 2021. Regulators in Asia have been similarly focused on sustainability reform initiatives. In December 2020, the Monetary Authority of Singapore finalized its Guidelines on Environmental Risk Management for the asset management industry. The guidelines set forth enhanced environmental risk assessment, monitoring and oversight practices that certain funds registered or licensed in

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Singapore will be required to implement over an 18-month transition period. The Hong Kong Securities and Futures Commission proposed similar enhancements to sustainability risk management practices and disclosure requirements for funds in a Consultation Paper it issued in October 2020.

Securities Financing Transaction Regulation (“SFTR”)

In November 2015, the EU introduced a regulation on the reporting and transparency of securities financing transactions and total return swaps. The SFTR aims to improve the transparency surrounding securities financing transactions and total return swaps by, among other things, requiring reporting of securities financing transactions to a trade repository and requiring disclosure of the use of securities financing transactions and total return swaps to investors. During 2020, additional obligations became effective under the SFTR that require BlackRock to submit additional transaction reports with substantive details of trading activity to authorities. Compliance with the SFTR may subject BlackRock to additional expenses and could lead to modifications in BlackRock’s securities financing transaction activities.

Central Securities Depository Regulation (“CSDR”)

A settlement discipline regime introduced by the CSDR will become effective in February 2022. The regime includes measures to address settlement failures including rules for trade allocation and confirmation processing, along with cash penalties for failed transactions and mandatory buy-in requirements. To the extent left unchanged by a review that is scheduled to take place during 2021, the regime will require BlackRock to introduce operational mechanisms to facilitate the mandatory buy-in of securities in instances where the seller fails to deliver securities in a timely manner which, if not complied with, may subject BlackRock to penalty.

Cessation of LIBOR

The FCA, which regulates the administrator of the London Interbank Offered Rate (LIBOR) has announced that it will no longer compel panel banks to submit rates for LIBOR after year-end 2021. As a result, sterling LIBOR and certain other indices which are utilized as benchmarks may no longer be published. The disappearance, or change in the manner of administration, of these benchmarks could result in adverse consequences to the return on, value of and market for any BlackRock investments in instruments and securities linked to such benchmarks. BlackRock may also face operational challenges adopting successor benchmarks.

EXISTING US REGULATION - OVERVIEW

BlackRock and certain of its US subsidiaries are currently subject to extensive regulation, primarily at the federal level, by the SEC, the Department of Labor (“DoL”), the Federal Reserve, the Office of the Comptroller of the Currency (“OCC”), the Financial Industry Regulatory Authority (“FINRA”), the National Futures Association (“NFA”), the FTC, the Department of Justice, the CFTC and other federal government agencies and regulatory bodies.

Certain of BlackRock’s US subsidiaries are also subject to various anti-terrorist financing, privacy, anti-money laundering and economic sanctions laws and regulations established by various agencies. In addition, the Advisers Act imposes numerous obligations on registered investment advisers such as BlackRock, including record-keeping, operational and marketing requirements, disclosure obligations and prohibitions on fraudulent activities. State level regulation through Attorneys General, Insurance Commissioners and other state level agencies also applies to certain BlackRock activities.

The Investment Company Act of 1940 (the “Investment Company Act”) imposes stringent governance, compliance, operational, disclosure and related obligations on registered investment companies and their investment advisers and distributors, such as BlackRock and its affiliates. The SEC is authorized to institute proceedings and impose sanctions for violations of the Advisers Act and the Investment Company Act, ranging from fines and censure to termination of an investment adviser’s registration. Investment advisers also are subject to certain state securities laws and regulations. Non-compliance with the Advisers Act, the Investment Company Act or other federal and state securities laws and regulations could result in investigations, sanctions, disgorgement, fines and reputational damage.

BlackRock’s trading and investment activities for client accounts are regulated under the Exchange Act, as well as the rules of various securities exchanges and self-regulatory organizations, including laws governing trading on inside information, market manipulation and a broad number of technical requirements (e.g., short sale limits, volume limitations and reporting obligations) and market regulation policies. Violation of any of these laws and regulations could result in fines or sanctions, as well as restrictions on BlackRock’s activities and damage to its reputation. Furthermore, Dodd-Frank requires one of BlackRock’s subsidiaries, BTC, to register as a municipal advisor (as that term is defined in the Exchange Act) with the SEC and Municipal Securities Rulemaking Board (“MSRB”). The rules subject BTC to additional regulation by the SEC and MSRB.

BlackRock manages a variety of private pools of capital, including hedge funds, funds of hedge funds, private equity funds, collateralized debt obligations, collateralized loan obligations, real estate funds, collective trust funds, managed futures funds and hybrid funds. Congress, regulators, tax authorities and others continue to explore, on their own and in response to demands from the investment community and the public, increased regulation related to private pools of capital, including changes with respect to investor eligibility, certain limitations on trading activities, record-keeping and reporting, the scope of anti-fraud protections, safekeeping of client assets and a variety of other matters. BlackRock may be materially and adversely affected by new legislation, rule-making or changes in the interpretation or enforcement of existing rules and regulations imposed by various regulators in this area.

Certain BlackRock subsidiaries are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and to regulations promulgated thereunder by the DoL, insofar as they act as a “fiduciary” under ERISA with respect to benefit plan clients that are subject to ERISA. ERISA and applicable provisions of the Internal Revenue Code impose certain duties on persons who are fiduciaries under ERISA, prohibit certain transactions involving ERISA plan clients and impose excise taxes for violations of these prohibitions, mandate certain required periodic reporting and disclosures and require certain BlackRock entities to carry bonds insuring against losses caused by fraud or dishonesty. ERISA also imposes additional compliance, reporting and operational requirements on BlackRock that otherwise are not applicable to clients that are not subject to ERISA.

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BlackRock has seven subsidiaries that are registered as commodity pool operators and/or commodity trading advisors with the CFTC and are members of the NFA. The CFTC and NFA each administer a comparable regulatory system covering futures contracts and various other financial instruments, including swaps as a result of Dodd-Frank, in which certain BlackRock clients may invest. In addition, two of BlackRock’s subsidiaries are registered with the SEC as broker-dealers and are member-firms of FINRA. Each broker-dealer has a membership agreement with FINRA that limits the scope of such broker-dealer’s permitted activities. One of the broker-dealers is also a member of the MSRB and is subject to MSRB rules.

In July 2020, BlackRock’s business activity in California that involves the processing of personal information became subject to the California Consumer Privacy Act (“CCPA”), which provides for enhanced consumer protections for California residents. The CCPA imposes obligations on BlackRock for the handling, disclosure and deletion of personal information for California residents. Any failure by BlackRock to comply with the CCPA may result in fines, heightened regulatory scrutiny and/or reputational harm.

US Banking Regulation

One of BlackRock’s subsidiaries, BTC, is organized as a nationally-chartered limited purpose trust company that does not accept deposits or make commercial loans. Accordingly, BTC is examined and supervised by the OCC and is subject to various banking laws and regulations enforced by the OCC, such as laws and regulations governing capital adequacy, fiduciary activities, conflicts of interest, self-dealing, and the prevention of financial crime, including money laundering. BTC is also a member of the Federal Reserve System and is subject to various Federal Reserve regulations applicable to member institutions, such as regulations restricting transactions with affiliates. Many of these laws and regulations are meant for the protection of BTC and/or BTC’s customers rather than BlackRock, its affiliates or stockholders.

US Regulation of Securities Financing Transactions

In its 2014 Annual Report, FSOC identified securities lending indemnification by asset managers who act as lending agents as a potential systemic risk that required further review and monitoring. The Federal Reserve is also considering whether to impose specific margin or minimum haircut requirements for securities financing transactions.

EXISTING INTERNATIONAL REGULATION — OVERVIEW

BlackRock’s international operations are subject to the laws and regulations of a number of international jurisdictions, as well as oversight by numerous regulatory agencies and bodies in those jurisdictions. In some instances, these operations are also affected by US laws and regulations that have extra-territorial application.

Below is a summary of certain international regulatory standards to which BlackRock is subject. It is not meant to be comprehensive as there are parallel legal and regulatory arrangements in force in many jurisdictions where BlackRock’s subsidiaries conduct business.

Of note among the various other international regulations to which BlackRock is subject, are the extensive and complex regulatory reporting requirements that necessitate the monitoring and reporting of issuer exposure levels (thresholds) across the holdings of managed funds and accounts and those of the Company.

European Regulation

The FCA currently regulates certain BlackRock subsidiaries in the UK. It is also responsible for the conduct of business regulation of the UK branches of certain of BlackRock’s US subsidiaries. In addition, the Prudential Regulation Authority (“PRA”) regulates one BlackRock UK insurance subsidiary. Authorization by the FCA and (where relevant) the PRA is required to conduct certain financial services-related business in the UK under the Financial Services and Markets Act 2000 (the “FSMA”). The FCA’s rules adopted under the FSMA govern the majority of a firm’s capital resources requirements, senior management arrangements, conduct of business requirements, interaction with clients, and systems and controls, whereas the rules of the PRA focus solely on the prudential requirements that apply to BlackRock’s UK-based insurance subsidiary. The FCA supervises BlackRock’s UK-regulated subsidiaries through a combination of proactive engagement, event-driven and reactive supervision and theme-based reviews in order to monitor BlackRock’s compliance with regulatory requirements. Breaches of the FCA’s rules may result in a wide range of disciplinary actions against BlackRock’s UK-regulated subsidiaries and/or its employees.

In addition, BlackRock has regulated entities in France, Germany, Ireland, Jersey, Luxembourg, the Netherlands and Switzerland. Each of these entities is required to comply with regulatory rules in the country in which it has been established, including the branches of the Netherlands entity which operate across the EU.

BlackRock’s EU-subsidiaries and branches must comply with the pan-European regulatory regime established by MiFID and its accompanying Regulation. BlackRock’s UK-regulated subsidiaries must comply with the UK version of MiFID II, which regulates the provision of investment services and activities in the UK. MiFID II, and the UK equivalent of MiFID II, sets out detailed requirements governing the organization and conduct of business of investment firms and regulated markets. The legislation also includes pre- and post-trade transparency requirements for equity and non-equity markets and extensive transaction reporting requirements. Certain BlackRock UK subsidiaries must also comply with the UK regulation which implements the Consolidated Life Directive and Insurance Distribution Directive. In addition, relevant entities must comply with revised obligations on capital resources for banks and certain investment firms. These include requirements on capital, as well as matters of governance and remuneration. Relevant BlackRock entities must also comply with the requirements of the UCITS Directive and the AIFMD, as implemented in the relevant EU jurisdictions or in the UK, which impose obligations on the authorization and capital, conduct of business, organization, transparency and marketing of retail and alternative investment funds respectively that are sold in, or marketed to, the EU. The obligations introduced through these regulations and directives will affect certain of BlackRock’s European operations. Compliance with the UCITS Directives and the AIFMD may subject BlackRock to additional expenses associated with depositary oversight and other organizational requirements.

 

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BlackRock’s European-regulated subsidiaries are also subject to the European Market Infrastructure Regulation (or the UK equivalent regulation in the case of BlackRock’s UK-regulated subsidiaries), an EU regulation governing derivatives, central counterparties and trade repositories, which requires (i) the central clearing of certain over-the-counter (“OTC”) derivatives; (ii) the application of risk-mitigation techniques to non-centrally cleared OTC derivatives (including the exchange of collateral with certain counterparties); and (iii) the reporting of all derivative contracts to an European Securities and Markets Authority (“ESMA”) registered or recognized derivatives trade repository (or a UK authorized trade repository in the case of the UK version of EMIR).

The EU has seen an increase in Common Supervisory Actions by ESMA to coordinate supervisory action by national EU regulators, most notably in areas such as product governance, liquidity management and fund costs and charges. BlackRock’s European operations may be affected to the extent this initiative results in formal legislation or action.  

EU Member States and many other non-US jurisdictions have adopted statutes and/or regulations concerning privacy and data protection and requiring notification of data breaches. For example, in May 2018, the EU Data Protection Directive was replaced by a more extensive General Data Protection Regulation (“GDPR”). In addition, the UK incorporated GDPR into an equivalent UK law (“UK GDPR”) that became effective when it left the EU on January 1, 2021. GDPR and UK GDPR, as well as other statutes and/or regulations concerning data privacy and security, increase compliance obligations, affect BlackRock’s collection, processing and retention of personal data and reporting of data breaches, and provide for increased penalties for non-compliance.

Regulation in the Asia-Pacific Region

In Japan, a BlackRock subsidiary is subject to the Financial Instruments and Exchange Act (“FIEA”) and the Act on Investment Trusts and Investment Corporations. These laws are administered and enforced by the Japanese Financial Services Agency (“JFSA”), which establishes standards for compliance, including capital adequacy and financial soundness requirements, customer protection requirements and conduct of business rules. The JFSA is empowered to conduct administrative proceedings that can result in censure, fines, cease and desist orders or the suspension or revocation of registrations and licenses granted under the FIEA. This Japanese subsidiary also holds a license for real estate brokerage activities which subjects it to the regulations set forth in the Real Estate Brokerage Act.  

In Australia, BlackRock’s subsidiaries are subject to various Australian federal and state laws, and certain subsidiaries are regulated by the Australian Securities and Investments Commission (“ASIC”). ASIC regulates companies and financial services activities in Australia and is responsible for promoting investor, creditor and consumer protection.

The activities of certain BlackRock subsidiaries in Hong Kong are subject to the Securities and Futures Ordinance (“SFO”), which governs the securities and futures markets and regulates, among others, offers of investments to the public and provides for the licensing of intermediaries. The SFO is administered by the Securities and Futures Commission (“SFC”). The SFC is also empowered to establish standards for compliance as well as codes and guidelines. The relevant BlackRock subsidiaries and the employees conducting any of the regulated activities specified in the SFO are required to be licensed with the SFC, and are subject to the rules, codes and guidelines issued by the SFC. BlackRock’s operations in Taiwan are regulated by the Taiwan Financial Supervisory Commission, which is responsible for regulating securities markets (including the Taiwan Stock Exchange and the Taiwan Futures Exchange), the banking industry and the insurance sector.

BlackRock has obtained the approval from the China Securities Regulatory Commission for setting up a Fund Management Company (“FMC”) and approval from the China Banking and Insurance Regulatory Commission for setting up a Wealth Management Joint Venture Company (“WMC”) with Temasek Holdings (Pte) Ltd and China Construction Bank Corp in China. BlackRock is preparing for the next stages of the regulatory license applications process prior to being issued with final regulatory approvals and the launch of its first investment products for both the FMC and WMC.

Other financial regulators oversee BlackRock subsidiaries, branches and representative offices across the Asia-Pacific region, including in Singapore and South Korea. Regulators in all of these jurisdictions have authority with respect to financial services including, among other things, the authority to grant, suspend or cancel required licenses or registrations. In addition, these regulators may subject certain BlackRock subsidiaries to net capital requirements.

AVAILABLE INFORMATION

BlackRock files annual, quarterly and current reports, proxy statements and all amendments to these reports and other information with the SEC. BlackRock makes available free-of-charge, on or through its website at http://www.blackrock.com, the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and all amendments to those filings, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The Company also makes available on its website the charters for the Audit Committee, Management Development and Compensation Committee, Nominating and Governance Committee and Risk Committee of the Board of Directors, its Code of Business Conduct and Ethics, its Code of Ethics for Chief Executive and Senior Financial Officers and its Corporate Governance Guidelines. Further, BlackRock will provide, without charge, upon written request, a copy of the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and all amendments to those filings as well as the committee charters, its Code of Business Conduct and Ethics, its Code of Ethics for Chief Executive and Senior Financial Officers and its Corporate Governance Guidelines. Requests for copies should be addressed to Investor Relations, BlackRock, Inc., 55 East 52nd Street, New York, New York 10055. Reports, proxy statements and other information regarding issuers that file electronically with the SEC, including BlackRock’s filings, are also available to the public from the SEC’s website at http://www.sec.gov.

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Item 1A. Risk Factors

As a global investment management firm, risk is an inherent part of BlackRock’s business. Global markets, by their nature, are prone to uncertainty and subject participants to a variety of risks. While BlackRock devotes significant resources across all of its operations to identify, measure, monitor, manage and analyze market, operating, legal, compliance, reputational, fiduciary and investment risks, BlackRock’s business, financial condition, operating results and nonoperating results could be materially adversely affected and the Company’s stock price could decline as a result of any of these risks and uncertainties, including the ones discussed below.

MARKET AND COMPETITION RISKS

Changes in the value levels of equity, debt, real assets, commodities, foreign exchange or other asset markets, as well as the impact of global trade policies and tariffs, may cause assets under management (“AUM”), revenue and earnings to decline.

BlackRock’s investment management revenue is primarily comprised of fees based on a percentage of the value of AUM and, in some cases, performance fees which are normally expressed as a percentage of returns to the client. Numerous factors, including price movements in the equity, debt or currency markets, or in the price of real assets, commodities or alternative investments in which BlackRock invests, as well as the impact of global trade policies and tariffs, could cause:

 

the value of AUM, or the returns BlackRock realizes on AUM, to decrease;

 

the withdrawal of funds from BlackRock’s products in favor of products offered by competitors;

 

the rebalancing or reallocating of assets into BlackRock products that yield lower fees;

 

an impairment to the value of intangible assets and goodwill; or

 

a decrease in the value of seed or co-investment capital.

The occurrence of any of these events may cause the Company’s AUM, revenue and earnings to decline.

Changes in interest or foreign exchange rates and/or divergent beta may cause BlackRock’s AUM and base fees to fluctuate and introduce volatility to the Company’s net income and operating cash flows.

In recent years, there have been prolonged periods of historically low interest rates, interspersed with periods in which certain central banks globally began increasing rates. BlackRock’s business is directly and indirectly affected by changes in global interest rates. Similarly, due to the global nature of BlackRock’s operations, a portion of its business is conducted in currencies other than the US dollar. Any failure by BlackRock to manage movements in foreign exchange rates relative to the US dollar or its exposure to interest rates may cause BlackRock’s AUM to fluctuate and introduce volatility to the Company’s base fees, net income and operating cash flows.

In addition, beta divergence between equity markets, where certain markets perform differently than others, may lead to an increase in the proportion of BlackRock AUM weighted toward lower fee equity products, resulting in a decline in BlackRock’s effective fee rate. Divergent market factors may also erode the correlation between the growth rates of AUM and base fees.

BlackRock’s investment advisory contracts may be terminated or may not be renewed by clients or fund boards on favorable terms and the liquidation of certain funds may be accelerated at the option of investors.

BlackRock derives a substantial portion of its revenue from providing investment advisory services. The advisory or management contracts BlackRock has entered into with its clients, including the agreements that govern many of BlackRock’s investment funds, provide investors or, in some cases, the independent directors of applicable investment funds, with significant latitude to terminate such contracts, withdraw funds or liquidate funds by simple majority vote with limited notice or penalty, or to remove BlackRock as a fund’s investment advisor (or equivalent). BlackRock also manages its US mutual funds, closed-end and exchange-traded funds under management contracts that must be renewed and approved annually by the funds’ respective boards of directors, a majority of whom are independent from the Company. BlackRock’s fee arrangements under any of its advisory or management contracts may be reduced (including at the behest of a fund’s board of directors). In addition, if a number of BlackRock’s clients terminate their contracts, or otherwise remove BlackRock from its advisory roles, liquidate funds or fail to renew management contracts on favorable terms, the fees or carried interest BlackRock earns could be reduced, which may cause BlackRock’s AUM, revenue and earnings to decline.

The failure or negative performance of products offered by competitors may cause AUM in similar BlackRock products to decline irrespective of BlackRock’s performance.

 

Many competitors offer similar products to those offered by BlackRock and the failure or negative performance of competitors’ products could lead to a loss of confidence in similar BlackRock products, irrespective of the performance of such products. Any loss of confidence in a product type could lead to withdrawals, redemptions and liquidity issues in such products, which may cause the Company’s AUM, revenue and earnings to decline.

 

Increased competition may cause BlackRock’s AUM, revenue and earnings to decline.

The investment management industry is highly competitive and BlackRock competes based on a number of factors including: investment performance, its technology and portfolio construction offerings, the level of fees charged, the quality and breadth of services and products provided, name recognition and reputation, and its ability to develop new investment strategies and products to meet the changing needs of investors. In addition, over the past several years there has been significant consolidation in the asset management and financial services industries as investors increasingly seek out firms that have the capacity to deliver broad multi-asset investment capabilities and technological expertise, including in a manner that is responsive to ever more localized needs. This consolidation, together with the introduction of new technologies, as well as regulatory changes, continues to alter the competitive landscape for investment managers, which may lead to additional fee compression or require BlackRock to invest more to modify or adapt its product offerings to attract and retain customers and

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remain competitive with the products, services and geographic diversity offered by other financial institutions, technology companies, trading, advisory or asset management firms. Increased competition on the basis of any of these factors, including competition leading to fee reductions on existing or new business, may cause the Company’s AUM, revenue and earnings to decline.

Failure to maintain Aladdin’s competitive position in a dynamic market could lead to a loss of clients and could impede BlackRock’s productivity and growth.

The sophisticated risk analytics, portfolio management, trade execution and investment operations that BlackRock provides via its technology platform to support investment advisory and Aladdin clients are important elements of BlackRock’s competitive success. Aladdin’s competitive position is based in part on its ability to combine risk analytics with portfolio management, trading and operations tools on a single platform. Increased competition from risk analytics and investment management technology providers, including as a result of growing industry consolidation giving rise to competitors with increasingly sophisticated and comprehensive product offerings, or a shift in client demand away to standalone or internally developed solutions, whether due to price competition, perceived client market share, platform flexibility or market-based or regulatory factors, may weaken Aladdin’s competitive position and may cause the Company’s revenue and earnings to decline. In addition, to the extent that Aladdin competitors are able to innovate more effectively than BlackRock or leverage delivery models that provide clients faster time to market, lower costs or the ability to more seamlessly combine or bundle with other service offerings, BlackRock may lose existing clients or fail to capture future market share, which may impede its productivity and growth. Moreover, although BlackRock takes steps to safeguard against infringements of its intellectual property, there can be no assurance that the Company will be able to effectively protect and enforce its intellectual property rights in Aladdin.

BlackRock may be unable to develop new products and services and the development of new products and services may expose BlackRock to reputational harm, additional costs or operational risk.

BlackRock’s financial performance depends, in part, on its ability to react to changes in the asset management industry, respond to evolving client demands and develop, market and manage new investment products and services. Conversely, the development and introduction of new products and services, including the creation of products with a focus on environmental, social and governance matters, requires continued innovative effort on the part of BlackRock and may require significant time and resources as well as ongoing support and investment. Substantial risk and uncertainties are associated with the introduction of new products and services, including the implementation of new and appropriate operational controls and procedures, shifting client and market preferences, the introduction of competing products or services and compliance with regulatory requirements. There can be no assurance that BlackRock will be able to innovate effectively in order to develop new products or services that address the needs of its clients on the timescale they require. Any failure to develop new products and services, or successfully manage associated operational risks, could harm BlackRock’s reputation and expose the Company to additional costs, which may cause its AUM, revenue and earnings to decline.

Changes in the value of seed and co-investments that BlackRock owns could affect its income and could increase the volatility of its earnings.

At December 31, 2020, BlackRock’s net economic investment exposure of approximately $2.9 billion in its investments (see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations-Investments) primarily resulted from co-investments and seed investments in its sponsored investment funds. Movements in the equity, debt or currency markets, or in the price of real assets, commodities or other alternative investments, could lower the value of these investments as well as other minority investments, increase the volatility of BlackRock’s earnings and cause earnings to decline.

BlackRock indemnifies certain securities lending clients for specified losses as a result of a borrower default.

BlackRock provides borrower default indemnification to certain of its securities lending clients. In the event of a borrower default, BlackRock would use the collateral pledged by the borrower to repurchase securities out on loan in order to replace them in a client’s account. Borrower default indemnification is limited to the shortfall that occurs in the event the collateral available at the time of the borrower’s default is insufficient to repurchase those securities out on loan. BlackRock requires all borrowers to mark to market their pledged collateral daily to levels in excess of the value of the securities out on loan to mitigate the likelihood of the indemnity being triggered. Where the collateral is in the form of cash, the indemnities BlackRock provides do not guarantee, assume or otherwise insure the investment performance or return of any cash collateral vehicle into which that cash collateral is invested. The amount of securities on loan as of December 31, 2020 and subject to this type of indemnification was $270 billion. In the Company’s capacity as lending agent, cash and securities totaling $289 billion was held as collateral for indemnified securities on loan at December 31, 2020. Significant borrower defaults occurring simultaneously with rapid declines in the value of collateral pledged and/or increases in the value of the securities loaned may create collateral shortfalls, which could result in material liabilities under these indemnities and may cause the Company’s revenue and earnings to decline.

BlackRock’s decision to provide support to particular products from time to time, or the inability to provide support, may cause AUM, revenue and earnings to decline.

While not legally mandated, BlackRock may, at its option, from time to time choose to support investment products through capital or credit support for commercial or other reasons. Any decision by BlackRock to support products may utilize capital and liquidity that would otherwise be available for other corporate purposes. BlackRock’s ability to support certain products may be restricted by regulation or by the Company’s failure to have or make available sufficient capital or liquidity. Moreover, inherent constraints arising from the business models of certain asset managers, including BlackRock, may during periods of market volatility result in BlackRock having fewer options for accessing liquidity than asset managers with alternate business models, which may adversely impact its ability to support certain products. Any decision by BlackRock to support particular products, or the inability to provide such support, may result in losses, which may cause AUM, revenue and earnings to decline.

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Increased geopolitical unrest and other events outside of BlackRock’s control could adversely affect the global economy or specific international, regional and domestic markets, which may cause BlackRock’s AUM, revenue and earnings to decline.

Geopolitical risks, including those arising from trade tension and/or the imposition of trade tariffs, European fragmentation, unrest in the Middle East and terrorist activity, as well as acts of civil or international hostility, are increasing. Similarly, other events outside of BlackRock’s control, including natural disasters, pandemics (such as the COVID-19 pandemic) or health crises may arise from time to time and be accompanied by governmental actions that may increase international tension. Any such events, and responses thereto, may cause significant volatility and declines in the global markets, disruptions to commerce (including to economic activity, travel and supply chains), loss of life and property damage, and may adversely affect the global economy or capital markets, as well as the Company’s products, clients, vendors and employees, which may cause BlackRock’s AUM, revenue and earnings to decline. BlackRock’s exposure to geopolitical risks may be heightened to the extent such risks arise in countries in which BlackRock currently operates or is seeking to expand its presence.

Risks Related to INVESTMENT PERFORMANCE

Poor investment performance could lead to the loss of clients and may cause AUM, revenue and earnings to decline.

The Company’s management believes that investment performance, including the efficient delivery of beta, is one of the most important factors for the growth and retention of AUM. Poor investment performance relative to applicable portfolio benchmarks, aggregate fee levels or competitors may cause AUM, revenue and earnings to decline as a result of:

 

client withdrawals in favor of better performing products offered by competitors;

 

client shifts to products that charge lower fees;

 

the diminishing ability to attract additional funds from existing and new clients;

 

reduced, minimal or no performance fees;

 

an impairment to the value of intangible assets and goodwill; or

 

a decrease in the valuations of seed and co-investment capital.

Performance fees may increase volatility of both revenue and earnings.

A portion of BlackRock’s revenue is derived from performance fees on investment advisory assignments. Performance fees represented $1.1 billion, or 7%, of total revenue for the year ended December 31, 2020. Generally, the Company is entitled to a performance fee only if the agreement under which it is managing the assets provides for one and if returns on the related portfolio exceed agreed-upon periodic or cumulative return targets. If these targets are not exceeded, a performance fee for that period will not be earned and, if targets are based on cumulative returns, the Company may not earn performance fees in future periods. The volatility of the Company’s future revenue and earnings may also be affected due to illiquid alternatives becoming an increasing component of the overall composition of the Company’s performance fee generating assets. In particular, as BlackRock takes on more advisory assignments for illiquid investments, performance fees will generally be recognized over substantially longer multi-year periods than those associated with more liquid products.

Failure to identify errors in the quantitative models BlackRock utilizes to manage its business could adversely affect product performance and client relationships.

BlackRock employs various quantitative models to support its investment processes, including those related to risk assessment, portfolio management, trading and hedging activities and product valuations. Any errors in the underlying models or model assumptions, as well as any failure of BlackRock’s governance, approval, testing and validation standards in respect of such models or model assumptions, could have unanticipated and adverse consequences on BlackRock’s business and reputation.

RISKS RELATED TO THE COVID-19 Pandemic

The COVID-19 pandemic may adversely affect BlackRock’s business, operations and financial condition which may cause its AUM, revenue and earnings to decline.  

The COVID-19 pandemic has caused and is causing significant harm to the global economy and may adversely affect BlackRock’s business, including its operations and financial condition, and may cause the Company’s AUM, revenue and earnings to decline. The COVID-19 pandemic continues to result in governmental authorities taking numerous measures to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders, and limitations on business activity, including closures. These measures may continue to, among other things, severely restrict global economic activity, which can disrupt supply chains, lower asset valuations, significantly increase unemployment and underemployment levels, decrease liquidity in markets for certain securities and cause significant volatility and disruption in the financial markets.

Towards the end of the first quarter of 2020 the pandemic began to impact BlackRock’s business. While global markets have significantly recovered since then, the effects of the pandemic are ongoing, and such impact may continue in future quarters if conditions persist or worsen. Should current economic conditions persist or deteriorate, there may be an ongoing adverse effect on BlackRock’s business, including its operations and financial condition, as a result of, among other things:

reduced AUM, resulting in lower base fees, as well as a reduction in the value of BlackRock’s investment portfolio, including its coinvestments and seed investments in sponsored investment funds;

lower alpha generation which may adversely affect future organic growth and BlackRock’s ability to generate performance fees;

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reduced client and prospective client demand for BlackRock products and services and/or changing client risk preferences which may adversely affect future organic growth;

a decline in technology revenue growth as a result of extended sales cycles and longer implementation periods as clients work remotely;

negative impact of the pandemic on BlackRock’s clients, and key vendors (such as pricing providers), market participants and other third-parties with whom it does business;

the negative operational effects of an extended remote working environment, including strain on Aladdin and/or BlackRock’s other internal and external technology resources leveraged at the firm, as well as the potential for heightened operational risks, such as cybersecurity and fraud risks;

the possibility that prolonged periods away from physical office locations and daily in-person interactions with colleagues may cause members of BlackRock’s workforce to become disconnected with corporate culture and policies, which may increase operational issues arising from human error and/or individual attempts to circumvent controls due to distractions, fatigue or a lack of oversight; and

the disruption to BlackRock’s workforce due to illness and health concerns, potential limitations of its remote work environment (including any complications associated with hiring and onboarding new employees remotely), and government-imposed restrictions, laws and regulations.

The aggregate extent to which COVID-19, and the related global economic crisis, affect BlackRock’s business, results of operations and financial condition, will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties (including new financial regulation and other regulatory reform) in response to the pandemic, and the effects on BlackRock’s products, clients, vendors and employees and may exacerbate the other risks described herein.

TECHNOLOGY AND OPERATIONAL RISKS

A failure in, or disruption to, BlackRock’s operational systems or infrastructure, including business continuity plans, could adversely affect operations, damage the Company’s reputation and cause BlackRock’s AUM, revenue and earnings to decline.

BlackRock’s infrastructure, including its technological capacity, data centers and office space, is vital to the competitiveness of its business. Moreover, a significant portion of BlackRock’s critical business operations are concentrated in a limited number of geographic areas, including San Francisco, New York, London, Budapest, Atlanta and Gurgaon. The failure to maintain an infrastructure commensurate with the size and scope of BlackRock’s business, or the occurrence of a business outage or event outside BlackRock’s control, including a major earthquake, hurricane, fire, terrorist act, pandemic (such as the COVID-19 pandemic), health crisis or other catastrophic event, or the actions of individuals or groups seeking to disrupt BlackRock’s operations in any location at which BlackRock maintains a major presence, could materially impact operations, result in disruption to the business or impede its growth.

In addition, despite BlackRock’s efforts to ensure business continuity, if it fails to keep business continuity plans up-to-date or if such plans, including secure back-up facilities and systems and the availability of back-up employees, are improperly implemented or deployed during a disruption, the Company’s ability to operate could be adversely impacted which may cause AUM, revenue and earnings to decline or impact the Company’s ability to comply with regulatory obligations leading to reputational harm, regulatory fines and/or sanctions.

A cyber-attack or a failure to implement effective information and cybersecurity policies, procedures and capabilities could disrupt operations and lead to financial losses and reputational harm, which may cause BlackRock’s AUM, revenue and earnings to decline.

BlackRock is dependent on the effectiveness of the information and cybersecurity policies, procedures and capabilities it maintains to protect its computer and telecommunications systems and the data that resides on or is transmitted through them. An externally caused information security incident, such as a cyber-attack including a phishing scam, business email compromise, malware, or denial-of-service or ransomware attack, or an internally caused incident, such as failure to control access to sensitive systems, could materially interrupt business operations or cause disclosure or modification of sensitive or confidential client or competitive information. Moreover, developments in BlackRock’s use of process automation, as well as the increased use of remote access by employees and mobile and cloud technologies, could heighten these and other operational risks, as certain aspects of the security of such technologies may be complex, unpredictable or beyond BlackRock’s control. BlackRock’s growing exposure to the public Internet, as well as reliance on mobile or cloud technology or any failure by mobile technology and cloud service providers to adequately safeguard their systems and prevent cyber-attacks, could disrupt BlackRock’s operations and result in misappropriation, corruption or loss of personal, confidential or proprietary information. In addition, there is a risk that encryption and other protective measures may be circumvented, particularly to the extent that new computing technologies increase the speed and computing power available.

There have been a number of recent highly publicized cases involving financial services and consumer-based companies reporting the unauthorized disclosure of client or customer information and the unauthorized transfer of customer funds, as well as cyber-attacks involving the dissemination, theft and destruction of corporate information or other assets, as a result of failure to follow procedures by employees or contractors or as a result of actions by third parties, including nation state actors and terrorist organizations. BlackRock has been the target of attempted cyber-attacks, as well as the co-opting of its brand, and must monitor and develop its systems to protect its technology infrastructure and data from misappropriation or corruption, as the failure to do so could disrupt BlackRock’s operations and cause financial losses. Although BlackRock has implemented policies and controls, and takes protective measures involving significant expense, to strengthen its computer systems, processes, software, technology assets and networks to prevent and address potential data breaches, inadvertent disclosures, increasingly sophisticated cyber-attacks and cyber-related fraud, there can be no assurance that any of these measures prove effective. Moreover, due to the complexity and interconnectedness of BlackRock’s systems, the process of upgrading or patching the Company’s protective measures could itself create a risk of security issues or system disruptions for the Company, as well as for clients who rely upon, or have exposure to, BlackRock’s systems.

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In addition, due to BlackRock’s interconnectivity with third-party vendors, advisors, central agents, exchanges, clearing houses and other financial institutions, BlackRock may be adversely affected if any of them is subject to a successful cyber-attack or other information security event, including those arising due to the use of mobile technology or a third-party cloud environment. BlackRock also routinely transmits and receives personal, confidential or proprietary information by email and other electronic means. The Company collaborates with clients, vendors and other third parties to develop secure transmission capabilities and protect against cyber-attacks. However, BlackRock cannot ensure that it or such third parties have all appropriate controls in place to protect the confidentiality of such information.

Any information security incident or cyber-attack against BlackRock or third parties with whom it is connected, including any interception, mishandling or misuse of personal, confidential or proprietary information, could result in material financial loss, loss of competitive position, regulatory fines and/or sanctions, breach of client contracts, reputational harm or legal liability, which, in turn, may cause BlackRock’s AUM, revenue and earnings to decline.

Failure or unavailability of third-party dependencies may adversely affect Aladdin operations, which could cause reputational harm, lead to a loss of clients and impede BlackRock’s productivity and growth.

BlackRock must maintain effective infrastructure, including a robust and secure technological framework, in order to maximize the benefit of the Aladdin platform. In so doing, it relies in part on certain third-party service providers. For example, Aladdin’s data architecture depends on third-party providers of technology solutions, including the ability of such parties to scale and perform in response to Aladdin’s growth. In addition, the analytical capabilities of Aladdin depend on the ability of a number of third parties to provide data and other information as inputs into Aladdin’s analytical calculations. Although BlackRock has implemented internal controls and procedures, and maintains a robust vendor management program designed to perform diligence and monitor third parties that support the Aladdin platform, there can be no assurance that these measures will prove effective. Any failure by third parties to maintain infrastructure that is commensurate with Aladdin’s size and growth, or provide the data or information required to support its varying capabilities, could compromise Aladdin’s resilience, result in operational difficulties, cause reputational harm and adversely impact BlackRock’s ability to provide services to its investment advisory and Aladdin clients.

 

Continuing enhancements to Aladdin’s capabilities, as well as the expansion of the Aladdin platform into new markets and geographies, have led to significant growth in Aladdin’s processing scale, which may expose BlackRock to reputational harm, increased regulatory scrutiny and heightened operational, data management, cyber- and information-security risks.

 

The operation of BlackRock’s Aladdin platform routinely involves updating existing capabilities, configuration change management, developing, testing and rolling out new functionalities and expanding coverage into new markets and geographies, including in connection with inorganic transactions or to address client or regulatory requirements. These updates and expansion initiatives, which have led to significant growth in Aladdin’s processing scale, frequently occur on accelerated time frames and may expose BlackRock to additional cyber- and information-security risks, as well as increased execution, operational and data management risks. If BlackRock is unable to manage the pace of, or provide the operational resiliency and stability for, the expansion of Aladdin and associated growth of its processing scale, BlackRock may experience client attrition, reduced business, reputational harm or regulatory fines and/or sanctions, which may cause BlackRock’s AUM, revenue and earnings to decline.

 

In addition, the highly regulated business activities of many Aladdin clients may expose BlackRock to heightened regulatory scrutiny. For example, the changing political and regulatory environment in certain jurisdictions in which Aladdin clients are based has required BlackRock to open new data centers in those jurisdictions in order to host client data in the client’s home location. Operating new data centers in foreign jurisdictions may expose BlackRock to increased operational complexity, as well as additional regulatory risks associated with the compliance requirements of such jurisdictions.

Failure to maintain adequate corporate and contingent liquidity may cause BlackRock’s AUM, liquidity and earnings to decline, as well as harm its prospects for growth.

BlackRock’s ability to meet anticipated cash needs depends upon a number of factors, including its creditworthiness and ability to generate operating cash flows. In addition, while BlackRock, Inc. is not subject to regulatory capital or liquidity requirements, certain of its subsidiaries are subject to regulatory capital and liquidity frameworks as well as certain other prudential requirements and standards, which require them to maintain certain levels of capital and liquidity. Failure to maintain adequate liquidity could lead to unanticipated costs and force BlackRock to revise existing strategic and business initiatives. BlackRock’s access to equity and debt markets and its ability to issue public or private debt, or secure lines of credit or commercial paper back-up lines, on reasonable terms may be limited by adverse market conditions, a reduction in its long- or short-term credit ratings, or changes in government regulations, including tax and interest rates. Failure to obtain funds and/or financing, or any adverse change to the cost of obtaining such funds and/or financing, may cause BlackRock’s AUM, liquidity and earnings to decline, curtail its operations and limit or impede its prospects for growth.

Operating risks associated with BlackRock’s securities lending program may result in client losses.

BlackRock lends securities to banks and broker-dealers on behalf of certain of its clients. In these securities lending transactions, the borrower is required to provide and maintain collateral at or above regulatory minimums. Securities on loan are marked to market daily to determine if the borrower is required to pledge additional collateral. BlackRock must manage this process and is charged with mitigating the associated operational risks. The failure of BlackRock’s controls to mitigate such operational risks could result in financial losses for the Company’s clients that participate in its securities lending programs (separate from the risks of collateral investments), and BlackRock may be held liable for any failure to manage such risks.

Inorganic transactions may harm the Company’s competitive or financial position if they are not successful.

 

BlackRock employs a variety of organic and inorganic strategies intended to enhance earnings, increase product offerings, deliver whole-portfolio solutions, access new clients, leverage advances in technology and expand into new geographies. Inorganic strategies have included hiring smaller-sized investment teams, making minority investments in early- to mid-stage technological and other ventures, entering into

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strategic joint ventures and acquiring investment management and technology businesses. Inorganic transactions involve a number of financial, accounting, tax, regulatory, geographical and operational challenges and uncertainties, including in some cases the assumption of pre-existing liabilities, which must be managed in order for BlackRock to realize the benefit of such transactions. The success of BlackRock’s inorganic strategy also depends in large part on its ability to integrate the workforce, operations, strategies, technologies and other components of a target business following the completion of an acquisition. BlackRock may be required to commit significant management time, as well as create new, or grow existing, operational and support functions, to facilitate the integration of acquired businesses, manage combined future growth and maintain a cohesive corporate culture. There can be no assurance that BlackRock will be able to successfully integrate acquired businesses, retain associated talent, scale support functions or realize other intended benefits of its inorganic strategy. Moreover, the challenges associated with BlackRock’s inorganic strategy may be heightened when inorganic transactions are in new geographic locations, involve new markets, products or business lines or are delivered via technology that differs from that employed by BlackRock. In addition, in the case of minority investments and joint ventures, BlackRock may be subject to risks due to reputational harm, liability or loss resulting from, or relating to operating systems, risk management controls, and employees that are outside of BlackRock’s control. Any failure to identify and mitigate the risks associated with acquisitions, joint ventures or minority investments through due diligence, indemnification provisions and/or operational expertise, or to manage the integration of acquisitions effectively, could have an adverse effect on BlackRock’s reputation or cause its AUM, revenue and earnings to decline, which may harm the Company’s competitive position in the investment management industry.

Client investments in real assets, such as real estate, infrastructure and energy assets, may expose BlackRock and its funds and accounts to new or increased risks and liabilities, as well as reputational harm.

BlackRock makes investments on behalf of its clients in real assets, including real estate, infrastructure and energy assets, that may expose BlackRock and its funds and accounts to increased risks and liabilities that are inherent in the ownership and management of such assets. These may include:

 

construction risks, including as a result of force majeure, labor disputes or work stoppages, shortages of material or interruptions to the availability of necessary equipment;

 

accidents, pandemics (such as the COVID-19 pandemic), health crises or catastrophic events, such as explosions, fires or terrorist activity beyond BlackRock’s control;

 

risks associated with global climate change, including the greater frequency or intensity of adverse weather and natural disasters;

 

personal injury or property damage;

 

failures on the part of third-party managers or sub-contractors appointed in connection with investments or projects to adequately perform their contractual duties or operate in accordance with applicable laws;

 

exposure to stringent and complex foreign, federal, state and local laws, ordinances and regulations, including those related to financial crime, permits, government contracting, conservation, exploration and production, tenancy, occupational health and safety, foreign investment and environmental protection;

 

environmental hazards, such as natural gas leaks, product and waste spills, pipeline and tank ruptures, and unauthorized discharges of products, wastes and other pollutants;

 

changes to the supply and demand for properties and/or tenancies or fluctuations in the price of commodities;

 

the financial resources of tenants; and

 

contingent liabilities on disposition of assets.

The above risks may expose BlackRock’s funds and accounts to additional expenses and liabilities, including costs associated with delays or remediation costs, and increased legal or regulatory costs, all of which could impact the returns earned by BlackRock’s clients. These risks could also result in direct liability for BlackRock by exposing BlackRock to losses, regulatory sanction or litigation, including claims for compensatory or punitive damages. Similarly, market conditions may change during the course of developments or projects in which BlackRock invests that make such development or project less attractive than at the time it was commenced and potentially harm the investment returns of BlackRock’s clients. The occurrence of any such events may expose BlackRock to reputational harm, divert management’s attention away from BlackRock’s other business activities or cause its AUM, revenue and earnings to decline.

Operating in international markets increases BlackRock’s operational, political, regulatory and other risks.

As a result of BlackRock’s extensive international operations, the Company faces associated operational, regulatory, reputational, political and foreign exchange rate risks, many of which are outside of the Company’s control. Operating outside the United States (“US”) may also expose BlackRock to increased compliance risks, as well as higher compliance costs to comply with US and non-US anti-corruption, anti-money laundering and sanctions laws and regulations. Similarly, certain jurisdictions in which BlackRock operates may not have comparable levels of protection for corporate assets, such as intellectual property, and client information and records, as the US. As a result, there may also be heightened information security or privacy risks in those jurisdictions. Any theft of data, technology or intellectual property may negatively impact BlackRock’s business operations and reputation. The failure of the Company’s systems of internal control to mitigate such risks, or of its operating infrastructure to support its global activities, could result in operational failures and regulatory fines and/or sanctions, which may cause the Company’s AUM, revenue and earnings to decline.

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RISKS RELATED TO HUMAN CAPITAL

The potential for human error in connection with BlackRock’s operational systems could disrupt operations, cause losses, lead to regulatory fines or damage the Company’s reputation and may cause BlackRock’s AUM, revenue and earnings to decline.

Many of BlackRock’s operations are highly complex and are dependent on the Company’s ability to process and monitor a large number of transactions, many of which occur across numerous markets and currencies at high volumes and frequencies. Although BlackRock expends considerable resources on systemic controls, supervision, technology and training in an effort to ensure that such transactions do not violate client guidelines and applicable rules and regulations or adversely affect clients, counterparties or the Company, BlackRock’s operations are dependent on its employees. From time-to-time, employees make mistakes that are not always immediately detected by systems, controls, policies and procedures intended to prevent and detect such errors. These can include calculation errors, errors in software implementation or development, failure to ensure data security, follow processes, patch systems or report issues, or errors in judgment. Human errors, even if promptly discovered and remediated, may disrupt operations or result in regulatory fines and/or sanctions, breach of client contracts, reputational harm or legal liability, which, in turn, may cause BlackRock’s AUM, revenue and earnings to decline.

Fraud, the circumvention of controls or the violation of risk management and workplace policies could have an adverse effect on BlackRock’s reputation, which may cause the Company’s AUM, revenue and earnings to decline.

BlackRock seeks to foster a positive workplace culture, has adopted a comprehensive risk management process and continues to enhance various controls, procedures, policies and systems to monitor and manage risks. Notwithstanding these measures, BlackRock cannot ensure that its workplace culture or such controls, procedures, policies and systems will successfully identify and manage internal and external risks and BlackRock employees have in the past engaged in improper conduct. In addition, BlackRock is subject to the risk that its employees, contractors or other third parties may in the future deliberately or recklessly seek to circumvent established controls to commit fraud, pay or solicit bribes or otherwise act in ways that are inconsistent with the Company’s controls, policies, procedures, workplace culture or principles. This risk may be heightened as BlackRock expands into new markets and increases the breadth of its business offerings, both of which introduce additional complexity to its risk management program. Persistent attempts to circumvent policies and controls or repeated incidents involving fraud, conflicts of interests or transgressions of policies and controls could have an adverse effect on BlackRock’s reputation, cause adverse publicity, and result in litigation, regulatory inquiries, fines and/or sanctions, which may cause the Company’s AUM, revenue and earnings to decline.

The failure to recruit and retain employees and develop and implement effective executive succession could lead to the loss of clients and may cause AUM, revenue and earnings to decline.

BlackRock’s success is largely dependent on the talents and efforts of its highly skilled workforce and the Company’s ability to plan for the future long-term growth of the business by identifying and developing those employees who can ultimately transition into key roles within BlackRock. The global market for qualified fund managers, investment analysts, technology and risk specialists and other professionals is competitive, and factors that affect BlackRock’s ability to attract and retain such employees include the Company’s reputation and workplace culture, the immigration policies in the jurisdictions in which BlackRock has offices, the compensation and benefits it provides, and its commitment to effectively managing executive succession, including the development and training of qualified individuals.

In addition, a percentage of the deferred compensation that BlackRock pays to its employees is tied to the Company’s share price. As such, if BlackRock’s share price were to decrease, the retention value of such deferred compensation would decrease. There can be no assurance that the Company will continue to be successful in its efforts to recruit and retain employees and effectively manage executive succession. If BlackRock is unable to offer competitive compensation or otherwise attract and retain talented individuals, or if it fails to effectively manage executive succession, the Company’s ability to compete effectively and retain its existing clients may be materially impacted.

Risks Related to KEY THIRD-PARTY Relationships

The impairment or failure of third parties may negatively impact the performance of products and accounts that BlackRock manages, which may cause BlackRock’s AUM, revenue and earnings to decline.

BlackRock’s investment management activities expose the products and accounts it manages for its clients to many different industries and counterparties, including distributors, brokers and dealers, commercial and investment banks, clearing organizations, mutual and hedge funds, and other institutional clients. Transactions with counterparties expose BlackRock’s clients to credit risk in the event the applicable counterparty defaults. Although BlackRock maintains a robust vendor management program and regularly assesses risks posed by its counterparties, such counterparties may be subject to sudden swings in the financial and credit markets that may impair their ability to perform or they may fail to meet their obligations. Counterparties may also experience lapses in their internal controls or risk management systems or expose BlackRock and/or its clients to losses on account of employee malfeasance, negligence or human error. In addition, the concentration of certain financial institutions that BlackRock uses to facilitate securities and derivatives transactions for its clients, including clearing organizations, exchanges and central agents, increases the risk that a technical or operational issue at, or default by, one such institution could introduce operational issues or delays impacting multiple BlackRock clients. Any such operational issue, impairment or failure could negatively impact the performance of products or accounts that BlackRock manages for its clients, which may lead to client attrition and, in turn, cause BlackRock’s AUM, revenue and earnings to decline.

The failure of a key vendor to BlackRock to fulfill its obligations or a failure by BlackRock to maintain its relationships with key vendors could have a material adverse effect on BlackRock’s growth, reputation or business, which may cause the Company’s AUM, revenue and earnings to decline.

BlackRock depends on a number of key vendors for various fund administration, accounting, custody, market data, market indices, technology and transfer agent roles and other distribution and operational needs. BlackRock relies upon a relatively concentrated group of third-party index providers to deliver services that are integral to its clients’ investment decisions. The index provider industry is characterized by large vendors and the use of long-term contracts remains the market standard. This industry structure may limit BlackRock’s ability to renegotiate its index provider contracts on favorable terms or at all. While BlackRock performs focused diligence on its vendors in an effort to ensure they operate in accordance with expectations, to the extent any significant deficiencies are uncovered, there may be few, or no, alternative vendors available. Moreover, in situations where BlackRock has limited access to alternative vendors, or where the nature of BlackRock’s arrangement with a

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vendor requires a long term-commitment, BlackRock may be dependent on such vendor for continuous operational reliability and may be unable to avoid incurring costs if such vendor introduces required upgrades to its services.

BlackRock may from time to time transfer key contracts from one vendor to another. Key contract transfers may be costly and complex, and expose BlackRock to heightened operational risks. Any failure to mitigate such risks could result in reputational harm, as well as financial losses to BlackRock and its clients. The failure or inability of BlackRock to diversify its sources for key services or the failure of any key vendor to fulfill its obligations could result in activities inconsistent with clients’ investment management or other agreements, have an adverse financial impact on BlackRock products or lead to operational and regulatory issues for the Company, which could result in reputational harm or legal liability, fines and/or sanctions and may cause BlackRock’s AUM, revenue and earnings to decline.

Any disruption to the Company’s distribution channels may cause BlackRock’s AUM, revenue and earnings to decline.

BlackRock relies on a number of third parties to provide distribution, portfolio administration and servicing for certain BlackRock investment management products and services through their various distribution channels. BlackRock’s ability to maintain strong relationships with its distributors may impact the Company’s future performance, and its relationships with distributors are subject to periodic renegotiation that may result in increased distribution costs and/or reductions in the amount of BlackRock products and services being marketed or distributed. Moreover, new fiduciary regulations could lead to significant shifts in distributors' business models and more limited product offerings, potentially resulting in reduced distribution and/or marketing of certain of the Company’s products and services and fee compression. If BlackRock is unable to distribute its products and services successfully or if it is unable to replace or renew existing distribution arrangements, BlackRock’s AUM, revenue and earnings may decline. In addition, improper activities, as well as inadequate anti-money laundering diligence conducted by third-party distributors, could create reputational and regulatory harm to BlackRock.

Key technology partnerships may expose BlackRock to increased regulatory oversight, as well as migration, execution, technology and operational risks.

In April 2020, BlackRock announced a strategic partnership to host Aladdin infrastructure on the Microsoft Azure cloud and commenced a multi-year plan to migrate the Aladdin environments for BlackRock and its external Aladdin clients to the cloud. The benefits of a cloud-based platform are significant and BlackRock has adopted a robust risk-based approach to its migration strategy; however the partnership also introduces new risks, including: (i) risks associated with relying on a third-party for aspects of the reliability and stability of Aladdin’s infrastructure; (ii) software and information security risks arising from the use of cloud technology; (iii) operational and execution risks, including those related to migration; and (iv) risks related to increased regulatory oversight and new compliance obligations. Any failure by BlackRock to manage these risks, and/or risks associated with future potential technology partnerships, may result in escalating costs, financial loss, client dissatisfaction or attrition, regulatory fines and/or sanctions, reputational harm or legal liability, which, in turn, may cause BlackRock’s AUM, revenue and earnings to decline.

Disruption to the operations of third parties whose functions are integral to BlackRock’s Exchange-Traded Fund (“ETF”) platform may adversely affect the prices at which ETFs trade, particularly during periods of market volatility.

BlackRock is the largest provider of ETFs globally. Shares of ETFs trade on stock exchanges at prices at, above or below the ETF’s most recent net asset value (“NAV”). The NAV of an ETF is calculated at the end of each business day and fluctuates with changes in the market value of the ETF’s holdings. The trading price of the ETF’s shares fluctuates continuously throughout trading hours. The creation/redemption feature and arbitrage mechanism of an ETF are designed to make it more likely that the ETF’s shares normally will trade at prices close to the NAV. Notwithstanding these features, exchange prices have in the past deviated measurably from the NAV of certain ETFs and may under certain circumstances do so in the future. ETF market prices are subject to numerous potential risks, including trading halts invoked by a stock exchange, and the inability or unwillingness of market makers, authorized participants, settlement systems or other market participants to perform functions necessary for an ETF’s arbitrage mechanism to function effectively. These risks may be heightened as a result of significant market volatility, the accelerating growth of the ETF industry combined with increased market activity, as well as the complexity associated with the growing demand for product customization. Although certain structural improvements have contributed to the increasing resilience, stability and transparency of ETF markets, including during periods of volatility, and despite BlackRock’s continuing work with regulators and other third parties to implement additional ETF reforms, there can be no assurance that any such reforms will be implemented in a timely or effective fashion, or at all. Moreover, if market events lead to incidences where ETFs trade at prices that deviate meaningfully from an ETF’s NAV, or trading halts are invoked by the relevant stock exchange or market, investors may lose confidence in ETF products and redeem their holdings, which may cause BlackRock’s AUM, revenue and earnings to decline.

Legal, Regulatory and reputationAL Risks

BlackRock is subject to extensive regulation around the world.

 

BlackRock’s business is subject to extensive regulation around the world. These regulations subject BlackRock’s business activities to an array of increasingly detailed operational requirements, compliance with which is costly and complex. In addition, many of BlackRock’s legal entities may be subject to laws and regulations aimed at preventing corruption, money laundering, inappropriate employment practices, illegal payments and engaging in business activities with certain individuals, countries or groups, including but not limited to the US Foreign Corrupt Practices Act, the USA PATRIOT Act, the Bank Secrecy Act, the UK Bribery Act, sanctions imposed by the US Treasury’s Office of Foreign Assets Control, the United Nations and the European Union (“EU”) and its member states, as well as those imposed by other countries in which BlackRock operates, such as Her Majesty’s Treasury’s Office of Financial Sanctions Implementation. BlackRock is also subject to certain risk retention rules and regulation, as well as regulatory capital requirements, which require the Company to maintain capital to support certain of its businesses. Furthermore, many jurisdictions in which BlackRock operates have laws and regulations relating to data privacy, cybersecurity and protection of personal information, including the General Data Protection Regulation, which expands data protection rules for individuals within the EU and for personal data exported outside the EU. BlackRock is additionally subject to scrutiny from various government agencies that focus on antitrust and competition laws and regulations within the US and internationally, including in connection with merger control proceedings and proposed investments. Any determination of a failure to comply with any such laws or regulations could result in fines and/or

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sanctions against the Company, as well as reputational harm. Moreover, to the extent that these laws and regulations become more stringent, or if BlackRock is required to hold increased levels of capital to support its businesses, the Company’s financial performance or plans for growth may be adversely impacted.

 

BlackRock may also be adversely affected by a failure to comply with existing laws and regulations or by changes in the interpretation or enforcement of such laws and regulations, including those discussed above. Challenges associated with interpreting regulations issued in numerous countries in a globally consistent manner may add to such risks, if regulators in different jurisdictions have inconsistent views or provide only limited regulatory guidance. In particular, violation of applicable laws or regulations could result in fines and/or sanctions, temporary or permanent prohibition of certain activities, reputational harm and related client terminations, suspensions of employees or revocation of their licenses, suspension or termination of investment adviser, broker-dealer or other registrations, or suspension or termination of BlackRock’s bank charter or other sanctions, which could have a material adverse effect on BlackRock’s reputation or business and may cause the Company’s AUM, revenue and earnings to decline. For a more extensive discussion of the laws, regulations and regulators to which BlackRock is subject and regulated by, see Item 1, Business – Regulation.

 

Regulatory reforms in the United States expose BlackRock to increasing regulatory scrutiny, as well as regulatory uncertainty.

In recent years a number of regulatory reforms have been proposed or fully or partially implemented in the United States, and the level of regulatory scrutiny to which BlackRock is subject has increased. BlackRock, as well as its clients, vendors and distributors, have expended resources and altered certain of their business or operating activities to prepare for, address and meet the requirements that such regulatory reforms impose. While BlackRock is, or may become, subject to numerous reform initiatives in the United States, see Item 1, Business – Regulation, key regulatory reforms that may impact the Company include:

 

Designation as a systemically important financial institution (“SIFI”): The Financial Stability Oversight Council (“FSOC”) has the authority to designate nonbank financial institutions as SIFIs in the United States under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. In July 2014, the FSOC pivoted from its previous entity-specific approach to designation and indicated that it would focus on a products and activities-based approach to designation in connection with addressing potential risks in the financial system related to asset management. In December 2019, the FSOC re-affirmed this approach when it voted to change its methodology for assessing financial stability to a products and activities-based approach. This reduces the risk of an entity-level designation, however it remains too early to predict the direction of the forthcoming regulatory environment and the FSOC retains the authority to designate an entity if an activities-based approach does not adequately address potential risks. In the event that BlackRock is designated as a SIFI, it could become subject to enhanced regulatory requirements and direct supervision by the Federal Reserve.

 

Federal Trade Commission Proposal: In September 2020, the Federal Trade Commission (“FTC”) released a Notice of Proposed Rulemaking proposing updates to premerger notification rules enacted under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (“HSR”) that require parties to certain transactions to provide the FTC and the Antitrust Division of the Department of Justice prior notice and observe a waiting period before consummation of such transactions. The proposals would: (i) require that investors aggregate holdings in an issuer across all associated funds when assessing HSR filing and exemption thresholds and (ii) create a new exemption for acquisitions resulting in aggregate holdings of up to 10% of an issuer, which would be unavailable to investors holding interests of more than 1% in competing firms. If enacted as drafted, the proposal requiring aggregation across associated funds could, absent exemptions for index-funds or certain types of registered funds, substantially increase BlackRock’s pre-merger notification obligations, which may be costly, impair funds’ ability to trade freely, require the implementation of monitoring tools and introduce additional compliance burdens for both BlackRock and the companies in which it invests. In instances where making a pre-merger notification may not be practicable, the proposed changes may serve to limit the size of BlackRock’s aggregate position in certain issuers.

 

Securities and Exchange Commission (“SEC”) Rulemakings for US Registered Funds and Investment Advisers: The SEC and its staff recently have engaged in various initiatives and reviews that seek to improve and modernize the regulatory structure governing the asset management industry, and registered investment companies in particular. These efforts relate to, among other things, embedded leverage through the use of derivatives and other trading practices, cybersecurity, liquidity, enhanced regulatory and public reporting requirements and the evaluation of systemic risks. Over the past year, the SEC has adopted rules that include among other things: (i) the regulation of the use of derivatives; (ii) a new regulatory framework for fund of funds structures; and (iii) updated eligibility requirements for submitting shareholder proposals under the Securities Exchange Act of 1934, as amended. These rules, and any additional rules or regulatory initiatives resulting from the SEC's efforts, may increase BlackRock’s regulatory compliance requirements as well as disclosure requirements, which could be costly and may impede BlackRock’s growth.

 

Standards of Conduct Rulemaking: In June 2019, the SEC adopted a package of rulemakings and interpretations addressing investment adviser and broker-dealer standards of conduct. The package included new rules requiring registered advisers and registered broker-dealers to provide a relationship summary to retail investors, a new rule establishing a standard of conduct for broker-dealers when making recommendations to retail customers, and two new interpretations under the Investment Advisers Act of 1940. These rulemakings and interpretations could increase BlackRock’s disclosure obligations, impact distribution arrangements between BlackRock and its distribution partners, create compliance and operational challenges for BlackRock’s distribution partners and limit BlackRock’s ability to provide certain other services to its clients.

 

Money Market Reform: Following market liquidity issues that arose in March 2020 in connection with the spread of the COVID-19 pandemic, regulatory authorities are focused on the need for further regulation for certain money market funds. In December 2020, the President’s Working Group on Financial Markets issued a report outlining ten potential policy measures for consideration to improve the resiliency of money market funds and the broader short-term funding markets. Although it remains too early to accurately predict the forthcoming regulatory environment, including with respect to regulation of money market funds, certain of these reforms, if ever adopted, could significantly impact money market funds and the money market fund industry.

27


 

Regulatory reforms in the United States could require BlackRock to alter its future business or operating activities, which could be costly, impede the Company’s growth and cause its AUM, revenue and earnings to decline. Regulatory reform may also impact BlackRock’s banking, insurance company and pension fund clients, which could cause them to change their investment strategies or allocations in manners that may be adverse to BlackRock.

International regulatory reforms expose BlackRock and its clients to increasing regulatory scrutiny, as well as regulatory uncertainty.

BlackRock’s business and operating activities are subject to increasing regulatory oversight outside of the United States and the Company may be affected by a number of proposed or fully or partially implemented reform initiatives in EMEA and the Asia-Pacific region, as well as volatility associated with international regulatory uncertainty, including:

 

British Exit from the EU: On December 31, 2020, the United Kingdom (“UK”) left the EU, and the UK and EU reverted to being distinct regulatory, legal and customs territories. Although an “EU-UK Trade and Cooperation Agreement” was agreed to in connection with the UK’s departure from the EU, it does not include any substantive provisions with respect to financial services. As a result, from January 1, 2021, cross-border financial services trade between the UK and the EU will be governed by their respective financial services regulations and market access regimes. BlackRock has implemented a number of steps to prepare for this outcome. These steps, which are and have been time consuming and costly and may add complexity to BlackRock’s future European operations, include effecting organizational, governance and operational changes, applying for and receiving additional licenses and permissions in the EU, and engaging in client communications. In addition, depending on how the future relationship between the UK and the EU develops, BlackRock may experience further organizational and operational challenges and incur additional costs in connection with its European operations, particularly with regards to delegation and outsourcing, which may impede the Company’s growth or impact its financial performance.

 

UK Overseas Funds Regime: As part of its post-EU membership regulatory review, the Financial Conduct Authority (“FCA”) is reviewing the requirements it will impose on EU-domiciled funds offered into the UK. Any new requirements could introduce cost and complexity to BlackRock’s cross-border business model.

 

Enhanced regulatory scrutiny of technology service providers to financial services firms: There has been growing regulatory scrutiny of technology service providers on which financial services firms are reliant, including the Digital Operational Resilience Act (“DORA”), which was proposed by the EC in September 2020 and focuses on direct regulation of providers and users of technology and data services. If enacted as proposed, DORA may, among other things: (i) introduce additional governance, risk management, incident reporting, testing and information sharing requirements to a number of BlackRock’s European entities and certain Aladdin clients; and (ii) subject Aladdin to broad additional oversight. Separately, in November 2020, the Financial Stability Board released a Consultation on Regulatory and Supervisory Issues Relating to Outsourcing and Third-Party Relationships, which explores direct supervision of technology service providers to financial services firms, in addition to detailing concerns around the potential for systemic risk in the provision of such services.

 

 

Macroprudential policies for asset managers: Certain policymakers continue to raise long-standing concerns about liquidity and leverage risks in the asset management industry and wider market-based finance sector. The COVID-19 pandemic has heightened concerns and prompted a broad review of existing financial market regulations by international standard setters and regulators across the Americas, Europe and Asia, including an assessment of the adequacy of certain structural components of current markets in mitigating risks. In the event that either the longer-standing concerns or recent broad review result in regulatory or policy action, macroprudential tools may begin to apply to open-ended investment funds broadly. BlackRock may also be required to make changes to structural features of certain open-ended investment funds. Either eventuality could limit BlackRock’s ability to offer products to certain clients and/or result in clients altering their investment strategies or allocations in a manner that is adverse to BlackRock.

 

Revised capital requirements for investment firms: In December 2017, the European Commission (“EC”) published a proposal for a new Directive and Regulation on prudential requirements for Markets in Financial Instruments Directive investment firms. The proposal passed the EU legislative process and the final texts of the Regulation and Directive were published in December 2019. The new legislative package, which comes into effect in 2021, will result in changes to the amount of regulatory capital BlackRock is required to hold in the EU and how such capital is calculated, as well as introduce revised disclosure obligations for large investment firms. The UK is also proposing the adoption of comparable rules, which will apply to UK-based investment firms from 2022.

 

EU market access: In 2019, the EC commenced a review of the Alternative Investment Fund Managers Directive to assess, among other things, the conditions for delegating portfolio management mandates to third countries, the effectiveness of regulation on third country fund marketing passports and the continuation of national private placement regimes. To the extent the review results in formal legislation that limits the scope of existing permitted activities and EU market access rights for asset management firms with non-EU operations, or extends more stringent rules to the Directive on Undertakings for Collective Investment in Transferable Securities (“UCITS”), BlackRock’s ability to offer collective investment funds and certain investment services to EU-based clients may be adversely affected.

 

Senior Managers and Certification Regime: In the UK, the FCA extended the Senior Managers and Certification Regime (“SMCR”) to all financial services firms in December 2019. The regime imposes greater accountability and responsibility across the senior management of UK financial services firms by making individuals in impacted firms more accountable for conduct and competence. SMCR impacts nearly all staff of the Company in the UK, and requires extensive documentation to support senior managers and evidence the discharge of their responsibilities.

 

UK asset management market study: The FCA has adopted requirements for UK fund managers to assess whether the retail collective investments they manage offer “value” to investors. In 2020, the Company initiated the provision of an annual assessment based upon various factors including cost, performance and comparable services. If “value” has not been provided to consumers, the Company will need to address any identified deficiencies. The FCA also requested that the UK’s Competition and Markets Authority (“CMA”) assess the investment consultant and fiduciary markets. The CMA’s final report identified a number of competition

28


 

 

issues in such markets and the UK regulatory regime was revised in 2020 to introduce mandatory tendering of investment consultancy and fiduciary management services, and new standards of disclosure of fees and performance. The CMA’s remedies could have a significant impact on the Company’s ability to enter into fiduciary and investment management mandates with UK pension fund clients.

 

Sustainability Regulation: In 2018, the EC introduced a number of regulatory proposals to underpin sustainable investment products; require disclosure of sustainability-related information by market participants, investments products, and issuers; and require the integration of sustainability considerations into the investment and risk management processes of asset managers and other institutional investors. Rules arising from the reform proposals will take effect in March 2021. Regulators in Asia have been similarly focused on sustainability reform initiatives. In December 2020, the Monetary Authority of Singapore finalized its Guidelines on Environmental Risk Management for the asset management industry. The guidelines set forth enhanced environmental risk assessment, monitoring and oversight practices that certain funds registered or licensed in Singapore will be required to implement over an 18-month transition period. The Hong Kong Securities and Futures Commission proposed similar enhancements to sustainability risk management practices and disclosure requirements for funds in a Consultation Paper it issued in October 2020.

 

Securities Financing Transaction Regulation (“SFTR”): In November 2015, the EU introduced a regulation on the reporting and transparency of securities financing transactions and total return swaps. The SFTR aims to improve the transparency surrounding securities financing transactions and total return swaps by, among other things, requiring reporting of securities financing transactions to a trade repository and requiring disclosure of the use of securities financing transactions and total return swaps to investors. During 2020, additional obligations became effective under the SFTR that require BlackRock to submit additional transaction reports with substantive details of trading activity to authorities. Compliance with the SFTR may subject BlackRock to additional expenses and could lead to modifications in BlackRock’s securities financing transaction activities.

 

Central Securities Depository Regulation: A settlement discipline regime introduced by the Central Securities Depository Regulation will become effective in February 2022. The regime includes measures to address settlement failures including rules for trade allocation and confirmation processing, along with cash penalties for failed transactions and mandatory buy-in requirements. To the extent left unchanged by a review that is scheduled to take place during 2021, the regime will require BlackRock to introduce operational mechanisms to facilitate the mandatory buy-in of securities in instances where the seller fails to deliver securities in a timely manner which, if not complied with, may subject BlackRock to penalty.

International regulatory reforms could require BlackRock to alter its future business or operating activities, which could be time-consuming and costly, impede the Company’s growth and cause its AUM, revenue and earnings to decline. Regulatory reform may also impact BlackRock’s internationally-based clients, which could cause them to change their investment strategies or allocations in manners that may be adverse to BlackRock.

Legal proceedings may cause the Company’s AUM, revenue and earnings to decline.

BlackRock is subject to a number of sources of potential legal liability and the Company, certain of the investment funds it manages and certain of its subsidiaries and employees have been named as defendants in various legal actions, including arbitrations, class actions and other litigation arising in connection with BlackRock’s activities. Certain of BlackRock’s subsidiaries and employees are also subject to periodic examination, special inquiries and potential proceedings by regulatory authorities, including the Securities and Exchange Commission, Office of the Comptroller of the Currency (“OCC”), Department of Labor, Commodity Futures Trading Commission, Financial Conduct Authority, Commission de Surveillance du Secteur Financial and Federal Reserve. Similarly, from time to time, BlackRock receives subpoenas or other requests for information from various US and non-US governmental and regulatory authorities in connection with certain industry-wide, company-specific or other investigations, proceedings or litigations. These examinations, inquiries and proceedings have in the past and could in the future, if compliance failures or other violations are found, cause the relevant governmental or regulatory authority to institute proceedings and/or impose sanctions for violations. Any such action may also result in litigation by investors in BlackRock’s funds, other BlackRock clients or BlackRock’s shareholders, which could harm the Company’s reputation and may cause its AUM, revenue and earnings to decline, potentially harm the investment returns of the applicable fund, or result in the Company being liable for damages.

In addition, when clients retain BlackRock to manage their assets or provide them with products or services, they typically specify contractual requirements or guidelines that BlackRock must observe in the provision of its services. A failure to comply with these guidelines or requirements could expose BlackRock to lawsuits, harm its reputation or cause clients to withdraw assets or terminate contracts.

Damage to BlackRock’s reputation may harm its business.

 BlackRock’s reputation is critical to its relationships with its clients, employees, shareholders and business partners. BlackRock’s reputation may be harmed by, among other factors, regulatory or enforcement actions, technology or operational failures, poor investment performance, ineffective management or monitoring of key third-party relationships, cyber-security or other privacy incidents, employee errors or misconduct, a failure to manage environmental, social, and governance risks, or a failure to manage conflicts of interest. In addition, BlackRock’s business, scale and investments subject it to significant media coverage and increasing attention from a broad range of stakeholders. This heightened scrutiny has resulted in negative publicity for BlackRock in the past and may do so in the future. In addition, the increasing popularity of social media and non-mainstream Internet news sources may lead to faster and wider dissemination of any adverse publicity or inaccurate information about BlackRock, making effective remediation more difficult. Damage to BlackRock’s reputation may impact BlackRock’s ability to attract and retain clients, employees, shareholders and business partners, which may cause its AUM, revenue and earnings to decline.

A failure to effectively manage potential conflicts of interest could result in litigation or enforcement actions and/or adversely affect BlackRock’s business and reputation, which may cause BlackRock’s AUM, revenue and earnings to decline.

As a global investment management firm that provides investment and technology services to a diverse range of clients, the Company must routinely address and manage conflicts of interest, as well as the perception of conflicts of interest, between itself and its clients, employees or vendors. While BlackRock has policies, controls and disclosure protocols in place to manage and address potential conflicts of interest, identifying and mitigating conflicts of interest can be complex and is the subject of increasing regulatory and media scrutiny. It is possible that

29


 

actual, potential or perceived conflicts could give rise to investor or client dissatisfaction, adverse publicity, litigation or enforcement actions. In particular, BlackRock’s broad range of investment, advisory and technology offerings, and its focus on providing clients with whole portfolio solutions, may result in clients working with multiple BlackRock businesses and/or BlackRock being engaged by institutions that have a nexus to industries or jurisdictions in which BlackRock operates, which may increase the potential for actual or perceived conflicts of interest and improper information sharing. To the extent that BlackRock fails, or appears to fail, to deal appropriately with any conflict of interest, it may face adverse publicity, reputational damage, litigation, regulatory proceedings, client attrition, penalties, fines and/or sanctions, any of which may cause BlackRock’s AUM, revenue and earnings to decline.

BlackRock is subject to US banking regulations that may limit its business activities.

BlackRock’s trust bank subsidiary, which is a national banking association chartered by the OCC, is subject to OCC regulation and capital requirements. The OCC has broad supervisory and enforcement authority over BlackRock’s trust bank. Being subject to banking regulation may put BlackRock at a competitive disadvantage because certain of its competitors are not subject to these limitations.

The implications of complying with threshold limits and/or any failure to comply with ownership reporting requirements could result in harm to BlackRock’s reputation, impact the performance of certain BlackRock funds and may cause its AUM, revenue and earnings to decline.

Of note among the various international regulations to which BlackRock is subject are the extensive and increasingly stringent regulatory reporting requirements that necessitate the monitoring and reporting of issuer exposure levels (thresholds) across the holdings of managed funds and accounts and those of the Company. The specific triggers and the reporting methods that these threshold filings entail vary significantly by regulator and across jurisdictions. BlackRock continues to invest in technology, training and its employees to further enhance its monitoring and reporting functions. Despite these investments, the complexity of the various threshold reporting requirements combined with the breadth of the assets managed by the Company and high volume of securities trading have caused errors and omissions to occur in the past, and pose a risk that errors or omissions may occur in the future. Any such errors may expose BlackRock to monetary penalties or other sanctions, which could have an adverse effect on BlackRock’s reputation and may cause its AUM, revenue and earnings to decline.

Moreover, as BlackRock’s business grows it is becoming subject to a greater number of regulatory, industry-level or issuer-specific threshold limits that may prevent BlackRock from holding positions in certain equity securities, securities convertible into equity securities or futures contracts in excess of certain thresholds. Although BlackRock is actively engaged in regulatory, issuer-specific and structural initiatives to create additional investment capacity, threshold limits may nonetheless prevent the purchase of certain securities which may, in turn, impact the performance of certain BlackRock index funds by increasing tracking error relative to the funds’ benchmarks and impact the performance of certain BlackRock actively managed funds by preventing them from taking advantage of alpha generating opportunities.

BlackRock has been the subject of commentary citing concerns about index investing and common ownership.

As a leader in the index investing and asset management industry, BlackRock has been the subject of commentary citing concerns about the growth of index investing, as well as perceived competition issues associated with asset managers managing stakes in multiple companies within certain industries, known as “common ownership”. The commentators argue that index funds have the potential to distort investment flows, create stock price bubbles, or conversely, exacerbate a decline in market prices. Additional commentary focuses on competition issues associated with common ownership and purports to link aggregated equity positions in certain concentrated industries with higher consumer prices and executive compensation, among other things. In the US, the FTC during 2018 held hearings on Competition and Consumer Protection in the 21st Century, which included a discussion of common ownership, and in 2020, common ownership was cited as a disqualifying factor in a newly proposed exemption from the FTC’s pre-merger notification rules. Common ownership was also cited as a consideration underlying the FTC’s consultation on the rules that apply to acquisitions of voting securities by investment entities. Although the FTC acknowledged that the common ownership debate remains unsettled, it is expected that common ownership may be given greater consideration in connection with FTC rule proposals, policy decisions and/or the scrutiny of mergers. In the EU, both the EC and the European Parliament released reports in 2020 on common ownership. Neither report took a position that common ownership had an adverse impact on competition. It is expected that common ownership will continue to be a focus for the EC, among others, including in the assessment of mergers and investigations. There is substantial literature highlighting the benefits of index investing, as well as casting doubt on the assumptions, data, methodology and conclusions associated with common ownership arguments. Nevertheless, some commentators have proposed remedies, including limits on stakes managed by asset managers that, if enacted into policy, could have a negative impact on the capital markets, increase transaction costs and limit the availability of products for investors. This may, in turn, adversely affect BlackRock.

New tax legislation or changes to existing US and non-US tax laws, treaties and regulations or challenges to BlackRock’s historical taxation practices may adversely affect BlackRock’s effective tax rate, business and overall financial condition.

BlackRock’s businesses may be directly or indirectly affected by tax legislation and regulation, or the modification of existing tax laws, by US or non-US tax authorities. In the US, legislation at both the federal and state level has been previously proposed to enact a financial transaction tax (“FTT”) on stocks, bonds and a broad range of financial instruments and derivative transactions. In the EU, certain Member States have also enacted similar FTTs and the EC has proposed legislation to harmonize these taxes and provide for the adoption of EU-level legislation applicable to some (but not all) EU Member States. If enacted as proposed, FTTs could have an adverse effect on BlackRock’s financial results and clients’ performance results.

The application of tax regulations involves numerous uncertainties, and in the normal course of business US and non-US tax authorities may review and challenge tax positions adopted by BlackRock. These challenges may result in adjustments to, or impact the timing or amount of, taxable income, deductions or other tax allocations, which may adversely affect BlackRock’s effective tax rate and overall financial condition. Similarly, the Company manages assets in products and accounts that have investment objectives which may conform to tax positions adopted by BlackRock or to specific tax rules. To the extent there are changes in tax law or policy, or regulatory challenges to tax positions adopted by BlackRock, the value or attractiveness of such investments may be diminished and BlackRock may suffer financial or reputational harm.

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Item 1B. Unresolved Staff Comments

The Company has no unresolved comments from the Securities and Exchange Commission (“SEC”) staff relating to BlackRock’s periodic or current reports filed with the SEC pursuant to the Exchange Act.

 

Item 2. Properties

BlackRock’s principal office, which is leased, is located at 55 East 52nd Street, New York, New York. BlackRock leases additional office space in New York City at 40 East 52nd Street and 49 East 52nd Street, and throughout the world, including Atlanta, Belgrade (Serbia), Boston, Edinburgh, Mumbai (India), Gurgaon (India), Hong Kong, London, Melbourne (Australia), Mexico City, Munich, Paris, Princeton (New Jersey), San Francisco, Seattle, Frankfurt (Germany), Santa Monica, Budapest, Singapore, Sydney, Taipei and Tokyo. The Company also owns an 84,500 square foot office building in Wilmington (Delaware) and a 43,000 square foot data center in Amherst (New York).

 

For a discussion of the Company’s legal proceedings, see Note 16, Commitments and Contingencies, in the notes to the consolidated financial statements contained in Part II, Item 8.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

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Part II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

BlackRock’s common stock is listed on the NYSE and is traded under the symbol “BLK”. At the close of business on January 31, 2021, there were 209 common stockholders of record. Common stockholders include institutional or omnibus accounts that hold common stock for many underlying investors.

The following table sets forth for the periods indicated the dividends declared per share for the common stock as reported on the NYSE:

 

 

 

Cash

Dividend

 

 

 

Declared

 

2020

 

 

 

 

First Quarter

 

$

3.63

 

Second Quarter

 

$

3.63

 

Third Quarter

 

$

3.63

 

Fourth Quarter

 

$

3.63

 

2019

 

 

 

 

First Quarter

 

$

3.30

 

Second Quarter

 

$

3.30

 

Third Quarter

 

$

3.30

 

Fourth Quarter

 

$

3.30

 

 

BlackRock’s closing common stock price as of February 24, 2021 was $712.10.

Dividends

On January 21, 2021, the Board of Directors approved BlackRock’s quarterly dividend of $4.13 per share to be paid on March 23, 2021 to stockholders of record at the close of business on March 5, 2021.

Issuer Purchases of Equity Securities

During the three months ended December 31, 2020, the Company made the following purchases of its common stock, which is registered pursuant to Section 12(b) of the Exchange Act.

 

 

 

Total

Number of

Shares

Purchased(1)

 

 

Average

Price Paid

per Share

 

 

Total Number of

Shares Purchased

as Part of Publicly

Announced Plans

or Programs

 

 

Maximum

Number of

Shares That

May Yet Be

Purchased

Under the

Plans or

Programs

 

October 1, 2020 through October 31, 2020

 

 

4,031

 

 

$

554.85

 

 

 

 

 

 

5,041,968

 

November 1, 2020 through November 30, 2020

 

 

3,697

 

 

$

599.21

 

 

 

 

 

 

5,041,968

 

December 1, 2020 through December 31, 2020

 

 

16,713

 

 

$

709.12

 

 

 

 

 

 

5,041,968

 

Total

 

 

24,441

 

 

$

667.05

 

 

 

 

 

 

 

 

 

(1)

Consists of purchases made by the Company primarily to satisfy income tax withholding obligations of employees and members of the Company’s Board of Directors related to the vesting of certain restricted stock or restricted stock unit awards.

 

 

Item 6. Removed and Reserved


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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-looking Statements

This report, and other statements that BlackRock may make, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act, with respect to BlackRock’s future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as “trend,” “potential,” “opportunity,” “pipeline,” “believe,” “comfortable,” “expect,” “anticipate,” “current,” “intention,” “estimate,” “position,” “assume,” “outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,” “achieve,” and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “may” and similar expressions.

BlackRock cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and BlackRock assumes no duty to and does not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

BlackRock has previously disclosed risk factors in its Securities and Exchange Commission (“SEC”) reports. These risk factors and those identified elsewhere in this report, among others, could cause actual results to differ materially from forward-looking statements or historical performance and include: (1) a pandemic or health crisis, including the COVID-19 pandemic, and its continued impact on financial institutions, the global economy or capital markets, as well as BlackRock’s products, clients, vendors and employees, and BlackRock’s results of operations, the full extent of which may be unknown; (2) the introduction, withdrawal, success and timing of business initiatives and strategies; (3) changes and volatility in political, economic or industry conditions, the interest rate environment, foreign exchange rates or financial and capital markets, which could result in changes in demand for products or services or in the value of assets under management (“AUM”); (4) the relative and absolute investment performance of BlackRock’s investment products; (5) BlackRock’s ability to develop new products and services that address client preferences; (6) the impact of increased competition; (7) the impact of future acquisitions or divestitures; (8) BlackRock’s ability to integrate acquired businesses successfully; (9) the unfavorable resolution of legal proceedings; (10) the extent and timing of any share repurchases; (11) the impact, extent and timing of technological changes and the adequacy of intellectual property, information and cyber security protection; (12) attempts to circumvent BlackRock’s operational control environment or the potential for human error in connection with BlackRock’s operational systems; (13) the impact of legislative and regulatory actions and reforms and regulatory, supervisory or enforcement actions of government agencies relating to BlackRock; (14) changes in law and policy and uncertainty pending any such changes; (15) any failure to effectively manage conflicts of interest; (16) damage to BlackRock’s reputation; (17) terrorist activities, civil unrest, international hostilities and natural disasters, which may adversely affect the general economy, domestic and local financial and capital markets, specific industries or BlackRock; (18) the ability to attract and retain highly talented professionals; (19) fluctuations in the carrying value of BlackRock’s economic investments; (20) the impact of changes to tax legislation, including income, payroll and transaction taxes, and taxation on products or transactions, which could affect the value proposition to clients and, generally, the tax position of the Company; (21) BlackRock’s success in negotiating distribution arrangements and maintaining distribution channels for its products; (22) the failure by a key vendor of BlackRock to fulfill its obligations to the Company; (23) operational, technological and regulatory risks associated with BlackRock’s major technology partnerships; (24) any disruption to the operations of third parties whose functions are integral to BlackRock’s exchange-traded funds (“ETF”) platform; (25) the impact of BlackRock electing to provide support to its products from time to time and any potential liabilities related to securities lending or other indemnification obligations; and (26) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions.

 

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 $8.68 trillion of AUM at December 31, 2020. With approximately 16,500 employees in more than 30 countries, BlackRock provides a broad range of investment and technology services to institutional and retail clients in more than 100 countries across the globe. For further information see Note 1, Business Overview, and Note 27, Segment Information, in the notes to the consolidated financial statements contained in Part II, Item 8.

The following discussion includes a comparison of BlackRock’s results for 2020 and 2019. For a discussion of BlackRock’s results for 2018 and a comparison of results for 2019 and 2018, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on February 28, 2020.

On May 15, 2020, a subsidiary of The PNC Financial Services Group, Inc. (“PNC”) completed the secondary offering of 31,628,573 shares of the Company’s common stock at a price of $420 per share, which included 823,188 shares of common stock issued upon the conversion of the Company’s Series B Convertible Participating Preferred Stock and 2,875,325 shares of common stock under the fully exercised underwriters’ option to purchase additional shares. Also on May 15, 2020, PNC completed the sale of 2,650,857 shares to the Company at a price of $414.96 per share. The shares repurchased by the Company were in addition to the share repurchase authorization under the Company’s existing share repurchase program. The secondary offering and the Company’s share repurchase resulted in PNC’s exit of its entire ownership position in the Company.

Certain prior period presentations and disclosures, while not required to be recast, were reclassified to ensure comparability with current period classifications.

 

33


 

United Kingdom Exit from European Union

 

On December 31, 2020, the United Kingdom (“UK”) left the European Union (“EU”), and the UK and EU reverted to being distinct regulatory, legal and customs territories. Although an “EU-UK Trade and Cooperation Agreement” was agreed to in connection with the UK’s departure from the EU, it does not include any substantive provisions with respect to financial services. As a result, from January 1, 2021, cross-border financial services trade between the UK and the EU will be governed by their respective financial services regulations and market access regimes. BlackRock has implemented a number of steps to prepare for this outcome. These steps, which are and have been time consuming and costly and may add complexity to BlackRock’s future European operations, include effecting organizational, governance and operational changes, applying for and receiving additional licenses and permissions in the EU, and engaging in client communications. In addition, depending on how the future relationship between the UK and the EU develops, BlackRock may experience further organizational and operational challenges and incur additional costs in connection with its European operations, particularly with regards to delegation and outsourcing, which may impede the Company’s growth or impact its financial performance.

 

Other Development

On February 13, 2020, BlackRock announced the establishment of The BlackRock Foundation (the “Foundation”) and the contribution of its remaining 20% stake in PennyMac Financial Services, Inc. (“PennyMac”) to the Foundation and the BlackRock Charitable Fund, which BlackRock established in 2013 (together, the “Charitable Contribution”). The Charitable Contribution resulted in an operating expense of $589 million, which was offset by a $122 million noncash, nonoperating pre-tax gain on the contributed shares and a tax benefit of $241 million in the consolidated statement of income for the year ended December 31, 2020. The Charitable Contribution provides long-term funding for BlackRock’s philanthropic investments and partnerships. The general and administration expense, nonoperating gain and associated tax benefit related to the Charitable Contribution have been excluded from as adjusted results.

Business Outlook

BlackRock's framework for long-term value creation is predicated on generating differentiated organic growth, leveraging scale to increase operating margins over time, and returning capital to shareholders on a consistent basis. BlackRock's diversified platform, in terms of style, product, client and geography, enables it to generate more stable cash flows through market cycles, positioning BlackRock to invest for the long-term by striking an appropriate balance between investing for future growth and prudent discretionary expense management.

 

The COVID-19 pandemic continues to result in governmental authorities taking numerous measures to contain the spread and impact of COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders, and limitations on business activity, including closures. These measures may continue to, among other things, severely restrict global economic activity, which can disrupt supply chains, lower asset valuations, significantly increase unemployment and underemployment levels, decrease liquidity in markets for certain securities and cause significant volatility and disruption in the financial markets.

Towards the end of the first quarter of 2020 the pandemic began to impact BlackRock’s business. While global markets have significantly recovered since then, the effects of the pandemic are ongoing, and such impact may continue in future quarters if conditions persist or worsen.

The aggregate extent to which COVID-19, and the related global economic crisis, affect BlackRock’s business, results of operations and financial condition, will depend on future developments that are highly uncertain and cannot be predicted, including the scope and duration of the pandemic and any recovery period, future actions taken by governmental authorities, central banks and other third parties (including new financial regulation and other regulatory reform) in response to the pandemic, and the effects on BlackRock’s products, clients, vendors and employees. See Part I, Item 1A - Risk Factors herein for information on the possible future effects of the COVID-19 pandemic on our results.

In addition, although the forthcoming environment remains uncertain, BlackRock’s business may be impacted by governmental changes, as well as potential regulations, foreign and trade policies and fiscal spending that may arise as a result of such changes.

BlackRock’s investment management revenue is primarily comprised of fees earned as a percentage of AUM and, in some cases, performance fees, which are normally expressed as a percentage of fund returns to the client. Numerous factors, including price movements in the equity, debt or currency markets, or in the price of real assets, commodities or alternative investments in which BlackRock invests on behalf of clients, could impact BlackRock’s AUM, revenue and earnings.

BlackRock is currently voluntarily waiving a portion of its management fees on certain money market funds to ensure that they maintain a minimum level of daily net investment income. These waivers result in a reduction of management fees, a portion of which is partially offset by a reduction of BlackRock’s distribution and servicing costs paid to financial intermediaries. BlackRock has provided voluntary yield support waivers in prior periods and may increase or decrease the level of fee waivers in future periods.

BlackRock manages $4.4 trillion of equity assets across markets globally. Beta divergence between equity markets, where certain markets perform differently than others, may lead to an increase in the proportion of BlackRock AUM weighted toward lower fee equity products, resulting in a decline in BlackRock’s effective fee rate. Divergent market factors may also erode the correlation between the growth rates of AUM and investment advisory, administration fees and securities lending revenue (collectively “base fees”).

BlackRock’s highly diversified multi-product platform was created to meet client needs in all market environments. BlackRock is positioned to provide alpha-seeking active, index and cash management investment strategies across asset classes and geographies. In addition, BlackRock leverages its world-class risk management, analytics and technology capabilities, including the Aladdin platform, on behalf of clients. BlackRock serves a diverse mix of institutional and retail clients across the globe, including investors in iShares ETFs, maintaining differentiated client relationships and a fiduciary focus. The diversity of BlackRock’s platform facilitates the generation of organic growth in various market environments, and as client preferences evolve. Client demand continues for ETFs and illiquid alternatives, which are two areas of focus for BlackRock.

The index investing industry has been growing rapidly – with ETFs as a major beneficiary – driven by structural tailwinds including the migration from commission-based to fee-based wealth management, clients’ focus on value for money, the use of ETFs as alpha tools and the growth of all-to-all networked trading. iShares ETFs’ growth strategy is centered on increasing scale and pursuing global growth themes in client and

34


 

product segments, including Core, Strategic, which includes Fixed Income, Factors, Sustainable and Megatrends ETFs, and Precision Exposures.

As the wealth management landscape shifts globally from individual product selection to a whole-portfolio approach, BlackRock’s retail strategy is focused on creating outcome-oriented client solutions. This includes having a diverse platform of alpha-seeking active, index and alternative products, as well as enhanced distribution and portfolio construction technology offerings. Digital wealth tools are an important component of BlackRock’s retail strategy, as BlackRock scales and customizes model portfolios, extends Aladdin Wealth and digital wealth partnerships globally, and helps advisors build better portfolios through portfolio construction and risk management, powered by Aladdin. In February 2021, BlackRock acquired Aperio, a pioneer in customizing tax-optimized index equity SMAs, to enhance our wealth platform and provide whole-portfolio solutions to ultra-high net worth advisors. By combining Aperio with BlackRock’s existing SMA franchise, the Company plans to expand the breadth of personalization capabilities available to wealth managers from BlackRock via tax-managed strategies across factors, broad market indexing, and investor Environmental, Social, and Governance preferences across all asset classes.

BlackRock continues to invest in technology services offerings, which enhance the ability to manage portfolios and risk, effectively serve clients and operate efficiently. Anticipated industry consolidation and regulatory requirements should continue to drive demand for holistic and flexible technology solutions. BlackRock’s Aladdin platform provides clients with an ability to manage portfolios and risk across public and private asset classes on a single platform.

Across BlackRock, more clients are focusing on the impact of sustainability on their portfolios. This shift has been driven by an increased understanding of how sustainability-related factors can affect economic growth, asset values, and financial markets as a whole. As a fiduciary, BlackRock is committed to helping clients build more resilient portfolios. Since sustainable investment options have the potential to offer clients better outcomes, the Company is making sustainability integral to the way BlackRock manages risk, constructs portfolios, designs products, and engages with companies. Over the past several years, BlackRock has been deepening the integration of sustainability into technology, risk management, and product choice across BlackRock, and plans to accelerate those efforts.

 

 

35


 

Executive Summary

 

(in millions, except shares and per share data)

 

2020

 

 

2019

 

 

GAAP basis:

 

 

 

 

 

 

 

 

 

Total revenue

 

$

16,205

 

 

$

14,539

 

 

Total expense

 

 

10,510

 

 

 

8,988

 

 

Operating income

 

$

5,695

 

 

$

5,551

 

 

Operating margin

 

 

35.1

%

 

 

38.2

%

 

Nonoperating income (expense), less net income (loss) attributable to noncontrolling

   interests

 

 

475

 

 

 

186

 

 

Income tax expense

 

 

(1,238

)

 

 

(1,261

)

 

Net income attributable to BlackRock

 

$

4,932

 

 

$

4,476

 

 

Diluted earnings per common share

 

$

31.85

 

 

$

28.43

 

 

Effective tax rate

 

 

20.1

%

 

 

22.0

%

 

As adjusted(1):

 

 

 

 

 

 

 

 

 

Operating income

 

$

6,284

 

 

$

5,551

 

 

Operating margin

 

 

44.9

%

 

 

43.7

%

 

Nonoperating income (expense), less net income (loss) attributable to noncontrolling

   interests

 

$

353

 

 

$

186

 

 

Net income attributable to BlackRock

 

$

5,237

 

 

$

4,484

 

 

Diluted earnings per common share

 

$

33.82

 

 

$

28.48

 

 

Effective tax rate

 

 

21.1

%

 

 

21.9

%

 

Other:

 

 

 

 

 

 

 

 

 

Assets under management (end of period)

 

$

8,676,680

 

 

$

7,429,633

 

 

Diluted weighted-average common shares outstanding(2)

 

 

154,840,582

 

 

 

157,459,546

 

 

Shares outstanding (end of period)

 

 

152,532,885

 

 

 

155,198,968

 

 

Book value per share(3)

 

$

231.31

 

 

$

216.15

 

 

Cash dividends declared and paid per share

 

$

14.52

 

 

$

13.20

 

 

 

(1)

As adjusted items are described in more detail in Non-GAAP Financial Measures.

(2)

Nonvoting participating preferred shares are considered to be common stock equivalents for purposes of determining basic and diluted earnings per share calculations. As of December 31, 2020, there were no shares of preferred stock outstanding.

(3)

Total BlackRock stockholders’ equity, divided by total shares outstanding at December 31 of the respective year-end.

2020 Compared with 2019

GAAP.  Operating income of $5,695 million increased $144 million and operating margin of 35.1% decreased 310 bps from 2019. Operating income and operating margin reflected higher base fees, performance fees and technology services revenue, which were more than offset by higher expense, including the impact of $589 million related to the Charitable Contribution, higher compensation and benefits expense, and higher product launch costs in 2020. Product launch costs in 2020 included $87 million and $83 million associated with the close of the $2.3 billion BlackRock Health Sciences Trust II and the $2 billion BlackRock Capital Allocation Trust, respectively. Product launch costs for 2019 included $61 million associated with the close of the $1.4 billion BlackRock Science and Technology Trust II.

Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests (“NCI”), increased $289 million from 2019 driven by the impact of a pre-tax gain of approximately $240 million in connection with a recapitalization of iCapital Network, Inc. (“iCapital”) and $122 million pre-tax gain related to the Charitable Contribution, partially offset by lower mark-to-market gains on un-hedged seed capital investments and lower interest income.

Income tax expense for 2020 included a discrete tax benefit of $241 million recognized in connection with the Charitable Contribution, partially offset by a noncash net expense of approximately $79 million associated with the revaluation of certain deferred income tax assets and liabilities related to the legislation enacted in the United Kingdom increasing its corporate tax rate and state and local income tax changes. Income tax expense for 2020 also included $139 million of net discrete tax benefits, including benefits related to changes in the Company’s organizational entity structure and stock-based compensation awards. Income tax expense for 2019 included $28 million of discrete tax benefits, primarily related to stock-based compensation awards.

Diluted earnings per common share increased $3.42, or 12%, from 2019, reflecting higher revenue and nonoperating income and a lower diluted share count, partially offset by the impact of the Charitable Contribution and higher product launch costs for 2020.

As Adjusted.  Operating income of $6,284 million increased $733 million and operating margin of 44.9% increased 120 bps from 2019. Diluted earnings per common share increased $5.34, or 19%, from 2019, primarily due to higher operating and nonoperating income and a lower diluted share count in 2020. The financial impact related to the Charitable Contribution and the noncash net tax expense associated with the revaluation of certain deferred income tax assets and liabilities described above has been excluded from as adjusted results.

See Non-GAAP Financial Measures for further information on as adjusted items.

For further discussion of BlackRock’s revenue, expense, nonoperating results and income tax expense, see Discussion of Financial Results herein.

36


 

Non-GAAP Financial Measures

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. Management reviews non-GAAP financial measures to assess ongoing operations and considers them to be helpful, for both management and investors, in evaluating BlackRock’s financial performance over time. Management also uses non-GAAP financial measures as a benchmark to compare its performance with other companies and to enhance the comparability of this information for the reporting periods presented. Non-GAAP measures may pose limitations because they do not include all of BlackRock’s revenue and expense. BlackRock’s management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Non-GAAP measures may not be comparable to other similarly titled measures of other companies.

Management uses both GAAP and non-GAAP financial measures in evaluating BlackRock’s financial performance. Adjustments to GAAP financial measures (“non-GAAP adjustments”) include certain items management deems nonrecurring or that occur infrequently, transactions that ultimately will not impact BlackRock’s book value or certain tax items that do not impact cash flow.

Computations for all periods are derived from the consolidated statements of income as follows:

(1) Operating income, as adjusted, and operating margin, as adjusted:

 

(in millions)

 

2020

 

 

2019

 

Operating income, GAAP basis

 

$

5,695

 

 

$

5,551

 

Non-GAAP expense adjustments:

 

 

 

 

 

 

 

 

Charitable Contribution

 

 

589

 

 

 

 

Operating income, as adjusted

 

 

6,284

 

 

 

5,551

 

Product launch costs and commissions

 

 

172

 

 

 

61

 

Operating income used for operating margin measurement

 

$

6,456

 

 

$

5,612

 

Revenue, GAAP basis

 

$

16,205

 

 

$

14,539

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

Distribution fees

 

 

(1,131

)

 

 

(1,069

)

Investment advisory fees

 

 

(704

)

 

 

(616

)

Revenue used for operating margin measurement

 

$

14,370

 

 

$

12,854

 

Operating margin, GAAP basis

 

 

35.1

%

 

 

38.2

%

Operating margin, as adjusted

 

 

44.9

%

 

 

43.7

%

 

Management believes operating income, as adjusted, and operating margin, as adjusted, are effective indicators of BlackRock’s financial performance over time and, therefore, provide useful disclosure to investors. Management believes that operating margin, as adjusted, reflects the Company’s long-term ability to manage ongoing costs in relation to its revenues. The Company uses operating margin, as adjusted, to assess the Company’s financial performance and to determine the long-term and annual compensation of the Company’s senior-level employees. Furthermore, this metric is used to evaluate the Company’s relative performance against industry peers, as it eliminates margin variability arising from the accounting of revenues and expenses related to distributing different product structures in multiple distribution channels utilized by asset managers.

 

 

Operating income, as adjusted, includes non-GAAP expense adjustments. In 2020, the Charitable Contribution expense of $589 million has been excluded from operating income, as adjusted, due to its nonrecurring nature.

 

Operating income used for measuring operating margin, as adjusted, is equal to operating income, as adjusted, excluding the impact of product launch costs (e.g. closed-end fund launch costs) and related commissions. Management believes the exclusion of such costs and related commissions is useful because these costs can fluctuate considerably and revenue associated with the expenditure of these costs will not fully impact BlackRock’s results until future periods.

 

Revenue used for calculating operating margin, as adjusted, is reduced to exclude all of the Company’s distribution fees, which are recorded as a separate line item on the consolidated statements of income, as well as a portion of investment advisory fees received that is used to pay distribution and servicing costs. For certain products, based on distinct arrangements, distribution fees are collected by the Company and then passed-through to third-party client intermediaries. For other products, investment advisory fees are collected by the Company and a portion is passed-through to third-party client intermediaries. However, in both structures, the third-party client intermediary similarly owns the relationship with the retail client and is responsible for distributing the product and servicing the client. The amount of distribution and investment advisory fees fluctuates each period primarily based on a predetermined percentage of the value of AUM during the period. These fees also vary based on the type of investment product sold and the geographic location where it is sold. In addition, the Company may waive fees on certain products that could result in the reduction of payments to the third-party intermediaries.

 

(2) Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted:

 

(in millions)

 

2020

 

 

2019

 

Nonoperating income (expense), GAAP basis

 

$

829

 

 

$

236

 

Less: Net income (loss) attributable to NCI

 

354

 

 

 

50

 

Nonoperating income (expense), net of NCI

 

 

475

 

 

 

186

 

Less: Gain related to the Charitable Contribution

 

 

122

 

 

 

 

Nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted

 

$

353

 

 

$

186

 

Management believes nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, is an effective measure for reviewing BlackRock’s nonoperating contribution to its results and provides comparability of this information among reporting periods. Management believes nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, provides a useful measure, for both management and investors, of BlackRock’s nonoperating results, which ultimately impact BlackRock’s book value. In 2020, the noncash,

37


 

nonoperating pre-tax gain of $122 million related to the Charitable Contribution has been excluded from nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted, due to its nonrecurring nature.

 

(3) Net income attributable to BlackRock, Inc., as adjusted:

 

(in millions, except per share data)

 

2020

 

 

2019

 

Net income attributable to BlackRock, Inc., GAAP basis

 

$

4,932

 

 

$

4,476

 

Non-GAAP adjustments:

 

 

 

 

 

 

 

 

Charitable Contribution, net of tax

 

 

226

 

 

 

 

Income tax matters

 

 

79

 

 

 

8

 

Net income attributable to BlackRock, Inc., as adjusted

 

$

5,237

 

 

$

4,484

 

Diluted weighted-average common shares outstanding (4)

��

 

154.8

 

 

 

157.5

 

Diluted earnings per common share, GAAP basis (4)

 

$

31.85

 

 

$

28.43

 

Diluted earnings per common share, as adjusted (4)

 

$

33.82

 

 

$

28.48

 

 

Management believes net income attributable to BlackRock, Inc., as adjusted, and diluted earnings per common share, as adjusted, are useful measures of BlackRock’s profitability and financial performance. Net income attributable to BlackRock, Inc., as adjusted, equals net income attributable to BlackRock, Inc., GAAP basis, adjusted for significant nonrecurring items, charges that ultimately will not impact BlackRock’s book value or certain tax items that do not impact cash flow.

See aforementioned discussion regarding operating income, as adjusted, operating margin, as adjusted, and nonoperating income (expense), less net income (loss) attributable to NCI, as adjusted for information on the Charitable Contribution.

In 2020, a discrete tax benefit of $241 million was recognized in connection with the Charitable Contribution. The discrete tax benefit has been excluded from as adjusted results due to the non-recurring nature of the Charitable Contribution. Amounts for income tax matters represent net noncash (benefits) expense primarily associated with the revaluation of certain deferred tax liabilities related to intangible assets and goodwill as a result of tax rate changes. The amount for 2020 included a $79 million net noncash expense related to the impact of legislation enacted in the United Kingdom increasing its corporate tax rate and state and local income tax changes. These amounts have been excluded from the as adjusted results as these items will not have a cash flow impact and to ensure comparability among periods presented.

Per share amounts reflect net income attributable to BlackRock, Inc., as adjusted divided by diluted weighted-average common shares outstanding.

(4) Nonvoting participating preferred stock is considered to be a common stock equivalent for purposes of determining basic and diluted earnings per share calculations. As of December 31, 2020, there were no shares of preferred stock outstanding.

 

 

38


 

Assets Under Management

AUM for reporting purposes generally is based upon how investment advisory and administration fees are calculated for each portfolio. Net asset values, total assets, committed assets or other measures may be used to determine portfolio AUM.

 

AUM and Net Inflows (Outflows) by Client Type and Product Type

 

 

AUM

 

 

Net inflows (outflows)

 

(in millions)

2020

 

 

2019

 

 

2020

 

 

2019

 

Retail

$

845,917

 

 

$

703,297

 

 

$

69,556

 

 

$

15,810

 

iShares ETFs

 

2,669,007

 

 

 

2,240,065

 

 

 

184,885

 

 

 

183,492

 

Institutional:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active

 

1,524,462

 

 

 

1,338,670

 

 

 

31,624

 

 

 

99,456

 

Index

 

2,948,683

 

 

 

2,599,882

 

 

 

(28,717

)

 

 

36,902

 

Institutional subtotal

 

4,473,145

 

 

 

3,938,552

 

 

 

2,907

 

 

 

136,358

 

Long-term

 

7,988,069

 

 

 

6,881,914

 

 

 

257,348

 

 

 

335,660

 

Cash management

 

666,252

 

 

 

545,949

 

 

 

113,349

 

 

 

93,074

 

Advisory(1)

 

22,359

 

 

 

1,770

 

 

 

20,141

 

 

 

2

 

Total

$

8,676,680

 

 

$

7,429,633

 

 

$

390,838

 

 

$

428,736

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AUM and Net Inflows (Outflows) by Investment Style and Product Type

 

 

AUM

 

 

Net inflows (outflows)

 

(in millions)

2020

 

 

2019

 

 

2020

 

 

2019

 

Active

$

2,250,887

 

 

$

1,947,222

 

 

$

87,737

 

 

$

109,892

 

Index and iShares ETFs

 

5,737,182

 

 

 

4,934,692

 

 

 

169,611

 

 

 

225,768

 

Long-term

 

7,988,069

 

 

 

6,881,914

 

 

 

257,348

 

 

 

335,660

 

Cash management

 

666,252

 

 

 

545,949

 

 

 

113,349

 

 

 

93,074

 

Advisory(1)

 

22,359

 

 

 

1,770

 

 

 

20,141

 

 

 

2

 

Total

$

8,676,680

 

 

$

7,429,633

 

 

$

390,838

 

 

$

428,736

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AUM and Net Inflows (Outflows) by Product Type

 

 

AUM

 

 

Net inflows (outflows)

 

(in millions)

2020

 

 

2019

 

 

2020

 

 

2019

 

Equity

$

4,419,806

 

 

$

3,820,329

 

 

$

48,995

 

 

$

28,353

 

Fixed income

 

2,674,488

 

 

 

2,315,392

 

 

 

157,961

 

 

 

263,579

 

Multi-asset

 

658,733

 

 

 

568,121

 

 

 

13,213

 

 

 

18,889

 

Alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Illiquid alternatives

 

85,770

 

 

 

75,349

 

 

 

10,883

 

 

 

14,103

 

Liquid alternatives

 

73,218

 

 

 

59,048

 

 

 

6,545

 

 

 

3,957

 

Currency and commodities(2)

 

76,054

 

 

 

43,675

 

 

 

19,751

 

 

 

6,779

 

Alternatives subtotal

 

235,042

 

 

 

178,072

 

 

 

37,179

 

 

 

24,839

 

Long-term

 

7,988,069

 

 

 

6,881,914

 

 

 

257,348

 

 

 

335,660

 

Cash management

 

666,252

 

 

 

545,949

 

 

 

113,349

 

 

 

93,074

 

Advisory(1)

 

22,359

 

 

 

1,770

 

 

 

20,141

 

 

 

2

 

Total

$

8,676,680

 

 

$

7,429,633

 

 

$

390,838

 

 

$

428,736

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)

Advisory AUM represents mandates linked to purchases and disposition of assets and portfolios on behalf of official institutions and long-term portfolio liquidation assignments. Approximately $4.3 billion of iShares ETFs AUM held in advisory accounts associated with the Federal Reserve Bank of New York (“FRBNY”) assignment as of December 31, 2020 (disclosed via FRBNY reporting as of January 11, 2021) are included within Fixed Income iShares ETFs AUM or Fixed Income AUM above. These holdings are excluded from Advisory AUM.

(2)

Amounts include commodity iShares ETFs.

39


 

The following table presents the component changes in BlackRock’s AUM for 2020 and 2019.

 

(in millions)

2020

 

 

2019

 

Beginning AUM

$

7,429,633

 

 

$

5,975,818

 

Net inflows (outflows):

 

 

 

 

 

 

 

Long-term

 

257,348

 

 

 

335,660

 

Cash management

 

113,349

 

 

 

93,074

 

Advisory(1)

 

20,141

 

 

 

2

 

Total net inflows (outflows)

 

390,838

 

 

 

428,736

 

Market change

 

746,269

 

 

 

994,076

 

FX impact(2)

 

109,940

 

 

 

31,003

 

Total change

 

1,247,047

 

 

 

1,453,815

 

Ending AUM

$

8,676,680

 

 

$

7,429,633

 

 

(1)

Advisory AUM represents mandates linked to purchases and disposition of assets and portfolios on behalf of official institutions and long-term portfolio liquidation assignments. Approximately $4.3 billion of iShares ETFs AUM held in advisory accounts associated with the FRBNY assignment as of December 31, 2020 (disclosed via FRBNY reporting as of January 11, 2021) are included within Fixed Income iShares ETFs AUM or Fixed Income AUM above. These holdings are excluded from Advisory AUM.

(2)

Foreign exchange reflects the impact of translating non-US dollar denominated AUM into US dollars for reporting purposes.

BlackRock has historically grown AUM through organic growth and acquisitions. Management believes that the Company will be able to continue to grow AUM organically by focusing on strong investment performance, efficient delivery of beta for index products, client service, developing new products and optimizing distribution capabilities.

Component Changes in AUM for 2020

The following table presents the component changes in AUM by client type and product type for 2020.

 

 

 

December 31,

 

 

Net

inflows

 

 

Market

 

 

FX

 

 

December 31,

 

 

Full year

average

 

(in millions)

 

2019

 

 

(outflows)

 

 

change

 

 

impact(1)

 

 

2020

 

 

AUM(2)

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

$

252,413

 

 

$

39,341

 

 

$

42,545

 

 

$

4,135

 

 

$

338,434

 

 

$

265,433

 

Fixed income

 

 

305,265

 

 

 

22,784

 

 

 

9,725

 

 

 

2,694

 

 

 

340,468

 

 

 

309,723

 

Multi-asset

 

 

120,439

 

 

 

(481

)

 

 

12,262

 

 

 

404

 

 

 

132,624

 

 

 

117,195

 

Alternatives

 

 

25,180

 

 

 

7,912

 

 

 

929

 

 

 

370

 

 

 

34,391

 

 

 

28,839

 

Retail subtotal

 

 

703,297

 

 

 

69,556

 

 

 

65,461

 

 

 

7,603

 

 

 

845,917

 

 

 

721,190

 

iShares ETFs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

1,632,972

 

 

 

76,307

 

 

 

186,918

 

 

 

8,904

 

 

 

1,905,101

 

 

 

1,561,970

 

Fixed income

 

 

565,790

 

 

 

88,894

 

 

 

28,009

 

 

 

7,340

 

 

 

690,033

 

 

 

627,039

 

Multi-asset

 

 

5,210

 

 

 

646

 

 

 

388

 

 

 

24

 

 

 

6,268

 

 

 

5,287

 

Alternatives

 

 

36,093

 

 

 

19,038

 

 

 

12,331

 

 

 

143

 

 

 

67,605

 

 

 

53,845

 

iShares ETFs subtotal

 

 

2,240,065

 

 

 

184,885

 

 

 

227,646

 

 

 

16,411

 

 

 

2,669,007

 

 

 

2,248,141

 

Institutional:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

141,118

 

 

 

1,890

 

 

 

24,045

 

 

 

2,469

 

 

 

169,522

 

 

 

141,059

 

Fixed income

 

 

651,368

 

 

 

6,598

 

 

 

49,712

 

 

 

8,591

 

 

 

716,269

 

 

 

673,043

 

Multi-asset

 

 

434,233

 

 

 

13,639

 

 

 

52,365

 

 

 

11,005

 

 

 

511,242

 

 

 

443,913

 

Alternatives

 

 

111,951

 

 

 

9,497

 

 

 

3,861

 

 

 

2,120

 

 

 

127,429

 

 

 

116,557

 

Active subtotal

 

 

1,338,670

 

 

 

31,624

 

 

 

129,983

 

 

 

24,185

 

 

 

1,524,462

 

 

 

1,374,572

 

Index:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

1,793,826

 

 

 

(68,543

)

 

 

254,475

 

 

 

26,991

 

 

 

2,006,749

 

 

 

1,723,674

 

Fixed income

 

 

792,969

 

 

 

39,685

 

 

 

67,623

 

 

 

27,441

 

 

 

927,718

 

 

 

837,469

 

Multi-asset

 

 

8,239

 

 

 

(591

)

 

 

749

 

 

 

202

 

 

 

8,599

 

 

 

8,157

 

Alternatives

 

 

4,848

 

 

 

732

 

 

 

(50

)

 

 

87

 

 

 

5,617

 

 

 

4,675

 

Index subtotal

 

 

2,599,882

 

 

 

(28,717

)

 

 

322,797

 

 

 

54,721

 

 

 

2,948,683

 

 

 

2,573,975

 

Institutional subtotal

 

 

3,938,552

 

 

 

2,907

 

 

 

452,780

 

 

 

78,906

 

 

 

4,473,145

 

 

 

3,948,547

 

Long-term

 

 

6,881,914

 

 

 

257,348

 

 

 

745,887

 

 

 

102,920

 

 

 

7,988,069

 

 

 

6,917,878

 

Cash management

 

 

545,949

 

 

 

113,349

 

 

 

(63

)

 

 

7,017

 

 

 

666,252

 

 

 

617,989

 

Advisory(3)

 

 

1,770

 

 

 

20,141

 

 

 

445

 

 

 

3

 

 

 

22,359

 

 

 

13,236

 

Total

 

$

7,429,633

 

 

$

390,838

 

 

$

746,269

 

 

$

109,940

 

 

$

8,676,680

 

 

$

7,549,103

 

 

(1)

Foreign exchange reflects the impact of translating non-US dollar denominated AUM into US dollars for reporting purposes.

(2)

Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.

(3)

Advisory AUM represents mandates linked to purchases and disposition of assets and portfolios on behalf of official institutions and long-term portfolio liquidation assignments. Approximately $4.3 billion of iShares ETFs AUM held in advisory accounts associated with the FRBNY assignment as of December 31, 2020 (disclosed via FRBNY reporting as of January 11, 2021) are included within Fixed Income iShares ETFs AUM or Fixed Income AUM above. These holdings are excluded from Advisory AUM.

40


 

The following table presents component changes in AUM by investment style and product type for 2020.

 

 

December 31,

 

 

Net

inflows

 

 

Market

 

 

FX

 

 

December 31,

 

 

Full year

average

 

(in millions)

2019

 

 

(outflows)

 

 

change

 

 

impact(1)

 

 

2020

 

 

AUM(2)

 

Active:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

$

316,145

 

 

$

30,241

 

 

$

58,922

 

 

$

4,881

 

 

$

410,189

 

 

$

327,403

 

Fixed income

 

939,275

 

 

 

26,934

 

 

 

58,153

 

 

 

10,653

 

 

 

1,035,015

 

 

 

964,153

 

Multi-asset

 

554,672

 

 

 

13,154

 

 

 

64,629

 

 

 

11,409

 

 

 

643,864

 

 

 

561,107

 

Alternatives

 

137,130

 

 

 

17,408

 

 

 

4,791

 

 

 

2,490

 

 

 

161,819

 

 

 

145,395

 

Active subtotal

 

1,947,222

 

 

 

87,737

 

 

 

186,495

 

 

 

29,433

 

 

 

2,250,887

 

 

 

1,998,058

 

Index and iShares ETFs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

iShares ETFs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

1,632,972

 

 

 

76,307

 

 

 

186,918

 

 

 

8,904

 

 

 

1,905,101

 

 

 

1,561,970

 

Fixed income

 

565,790

 

 

 

88,894

 

 

 

28,009

 

 

 

7,340

 

 

 

690,033

 

 

 

627,039

 

Multi-asset

 

5,210

 

 

 

646

 

 

 

388

 

 

 

24

 

 

 

6,268

 

 

 

5,287

 

Alternatives

 

36,093

 

 

 

19,038

 

 

 

12,331

 

 

 

143

 

 

 

67,605

 

 

 

53,845

 

iShares ETFs subtotal

 

2,240,065

 

 

 

184,885

 

 

 

227,646

 

 

 

16,411

 

 

 

2,669,007

 

 

 

2,248,141

 

Non-ETF Index:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

1,871,212

 

 

 

(57,553

)

 

 

262,143

 

 

 

28,714

 

 

 

2,104,516

 

 

 

1,802,763

 

Fixed income

 

810,327

 

 

 

42,133

 

 

 

68,907

 

 

 

28,073

 

 

 

949,440

 

 

 

856,082

 

Multi-asset

 

8,239

 

 

 

(587

)

 

 

747

 

 

 

202

 

 

 

8,601

 

 

 

8,158

 

Alternatives

 

4,849

 

 

 

733

 

 

 

(51

)

 

 

87

 

 

 

5,618

 

 

 

4,676

 

Non-ETF Index subtotal

 

2,694,627

 

 

 

(15,274

)

 

 

331,746

 

 

 

57,076

 

 

 

3,068,175

 

 

 

2,671,679

 

Index & iShares ETFs subtotal

 

4,934,692

 

 

 

169,611

 

 

 

559,392

 

 

 

73,487

 

 

 

5,737,182

 

 

 

4,919,820

 

Long-term

 

6,881,914

 

 

 

257,348

 

 

 

745,887

 

 

 

102,920

 

 

 

7,988,069

 

 

 

6,917,878

 

Cash management

 

545,949

 

 

 

113,349

 

 

 

(63

)

 

 

7,017

 

 

 

666,252

 

 

 

617,989

 

Advisory(3)

 

1,770

 

 

 

20,141

 

 

 

445

 

 

 

3

 

 

 

22,359

 

 

 

13,236

 

Total

$

7,429,633

 

 

$

390,838

 

 

$

746,269

 

 

$

109,940

 

 

$

8,676,680

 

 

$

7,549,103

 

 

 

The following table presents component changes in AUM by product type for 2020.

 

 

December 31,

 

 

Net

inflows

 

 

Market

 

 

FX

 

 

December 31,

 

 

Full year

average

 

(in millions)

2019

 

 

(outflows)

 

 

change

 

 

impact(1)

 

 

2020

 

 

AUM(2)

 

Equity

$

3,820,329

 

 

$

48,995

 

 

$

507,983

 

 

$

42,499

 

 

$

4,419,806

 

 

$

3,692,136

 

Fixed income

 

2,315,392

 

 

 

157,961

 

 

 

155,069

 

 

 

46,066

 

 

 

2,674,488

 

 

 

2,447,274

 

Multi-asset

 

568,121

 

 

 

13,213

 

 

 

65,764

 

 

 

11,635

 

 

 

658,733

 

 

 

574,552

 

Alternatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Illiquid alternatives

 

75,349

 

 

 

10,883

 

 

 

(1,512

)

 

 

1,050

 

 

 

85,770

 

 

 

78,166

 

Liquid alternatives

 

59,048

 

 

 

6,545

 

 

 

6,295

 

 

 

1,330

 

 

 

73,218

 

 

 

64,522

 

Currency and commodities(4)

 

43,675

 

 

 

19,751

 

 

 

12,288

 

 

 

340

 

 

 

76,054

 

 

 

61,228

 

Alternatives subtotal

 

178,072

 

 

 

37,179

 

 

 

17,071

 

 

 

2,720

 

 

 

235,042

 

 

 

203,916

 

Long-term

 

6,881,914

 

 

 

257,348

 

 

 

745,887

 

 

 

102,920

 

 

 

7,988,069

 

 

 

6,917,878

 

Cash management

 

545,949

 

 

 

113,349

 

 

 

(63

)

 

 

7,017

 

 

 

666,252

 

 

 

617,989

 

Advisory(3)

 

1,770

 

 

 

20,141

 

 

 

445

 

 

 

3

 

 

 

22,359

 

 

 

13,236

 

Total

$

7,429,633

 

 

$

390,838

 

 

$

746,269

 

 

$

109,940

 

 

$

8,676,680

 

 

$

7,549,103

 

 

(1)

Foreign exchange reflects the impact of translating non-US dollar denominated AUM into US dollars for reporting purposes.

(2)

Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.

(3)

Advisory AUM represents mandates linked to purchases and disposition of assets and portfolios on behalf of official institutions and long-term portfolio liquidation assignments. Approximately $4.3 billion of iShares ETFs AUM held in advisory accounts associated with the FRBNY assignment as of December 31, 2020 (disclosed via FRBNY reporting as of January 11, 2021) are included within Fixed Income iShares ETFs AUM or Fixed Income AUM above. These holdings are excluded from Advisory AUM.

(4)

Amounts include commodity iShares ETFs.

AUM increased $1.25 trillion to $8.68 trillion at December 31, 2020 from $7.43 trillion at December 31, 2019 driven primarily by net market appreciation and positive net flows across all investment styles and product types.

Net market appreciation of $746.3 billion was driven primarily by higher global equity and fixed income markets.

AUM increased $109.9 billion due to the impact of foreign exchange movements, primarily due to the weakening of the US dollar, largely against the Euro, the British pound and the Japanese yen.  

For further discussion on AUM, see Part I, Item 1 – Business Assets Under Management.

41


 

Component Changes in AUM for 2019

The following table presents component changes in AUM by client type and product type for 2019.

 

 

December 31,

 

 

Net

inflows

 

 

Market

 

 

FX

 

 

December 31,

 

 

Full year

average

 

(in millions)

2018

 

 

(outflows)

 

 

change

 

 

impact(1)

 

 

2019

 

 

AUM(2)

 

Retail:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

$

205,714

 

 

$

(652

)

 

$

45,820

 

 

$

1,531

 

 

$

252,413

 

 

$

229,688

 

Fixed income

 

271,588

 

 

 

21,222

 

 

 

11,882

 

 

 

573

 

 

 

305,265

 

 

 

289,632

 

Multi-asset

 

113,417

 

 

 

(9,291

)

 

 

16,138

 

 

 

175

 

 

 

120,439

 

 

 

117,366

 

Alternatives

 

20,131

 

 

 

4,531

 

 

 

506

 

 

 

12

 

 

 

25,180

 

 

 

22,384

 

Retail subtotal

 

610,850

 

 

 

15,810

 

 

 

74,346

 

 

 

2,291

 

 

 

703,297

 

 

 

659,070

 

iShares ETFs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

1,274,262

 

 

 

64,705

 

 

 

292,840

 

 

 

1,165

 

 

 

1,632,972

 

 

 

1,453,395

 

Fixed income

 

427,596

 

 

 

112,345

 

 

 

25,878

 

 

 

(29

)

 

 

565,790

 

 

 

503,266

 

Multi-asset

 

4,485

 

 

 

113

 

 

 

601

 

 

 

11

 

 

 

5,210

 

 

 

4,489

 

Alternatives

 

25,082

 

 

 

6,329

 

 

 

4,664

 

 

 

18

 

 

 

36,093

 

 

 

29,767

 

iShares ETFs subtotal

 

1,731,425

 

 

 

183,492

 

 

 

323,983

 

 

 

1,165

 

 

 

2,240,065

 

 

 

1,990,917

 

Institutional:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Active:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

110,976

 

 

 

1,852

 

 

 

27,547

 

 

 

743

 

 

 

141,118

 

 

 

124,722

 

Fixed income

 

538,961

 

 

 

55,006

 

 

 

55,358

 

 

 

2,043

 

 

 

651,368

 

 

 

611,383

 

Multi-asset

 

336,237

 

 

 

28,785

 

 

 

68,410

 

 

 

801

 

 

 

434,233

 

 

 

385,495

 

Alternatives

 

93,805

 

 

 

13,813

 

 

 

3,852

 

 

 

481

 

 

 

111,951

 

 

 

103,369

 

Active subtotal

 

1,079,979

 

 

 

99,456

 

 

 

155,167

 

 

 

4,068

 

 

 

1,338,670

 

 

 

1,224,969

 

Index:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

1,444,873

 

 

 

(37,552

)

 

 

380,101

 

 

 

6,404

 

 

 

1,793,826

 

 

 

1,640,715

 

Fixed income

 

646,272

 

 

 

75,006

 

 

 

55,969

 

 

 

15,722

 

 

 

792,969

 

 

 

733,371

 

Multi-asset

 

7,745

 

 

 

(718

)

 

 

1,203

 

 

 

9

 

 

 

8,239

 

 

 

8,095

 

Alternatives

 

4,340

 

 

 

166

 

 

 

272

 

 

 

70

 

 

 

4,848

 

 

 

4,580

 

Index subtotal

 

2,103,230

 

 

 

36,902

 

 

 

437,545

 

 

 

22,205

 

 

 

2,599,882

 

 

 

2,386,761

 

Institutional subtotal

 

3,183,209

 

 

 

136,358

 

 

 

592,712

 

 

 

26,273

 

 

 

3,938,552

 

 

 

3,611,730

 

Long-term

 

5,525,484

 

 

 

335,660

 

 

 

991,041

 

 

 

29,729

 

 

 

6,881,914

 

 

 

6,261,717

 

Cash management

 

448,565

 

 

 

93,074

 

 

 

3,054

 

 

 

1,256

 

 

 

545,949

 

 

 

486,636

 

Advisory(3)

 

1,769

 

 

 

2

 

 

 

(19

)

 

 

18

 

 

 

1,770

 

 

 

1,766

 

Total

$

5,975,818

 

 

$

428,736

 

 

$

994,076

 

 

$

31,003

 

 

$

7,429,633

 

 

$

6,750,119

 

 

(1)

Foreign exchange reflects the impact of translating non-US dollar denominated AUM into US dollars for reporting purposes.

(2)

Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.

(3)

Advisory AUM represents long-term portfolio liquidation assignments.

42


 

The following table presents component changes in AUM by investment style and product type for 2019.

 

 

December 31,

 

 

Net

inflows

 

 

Market

 

 

FX

 

 

December 31,

 

 

Full year

average

 

(in millions)

2018

 

 

(outflows)

 

 

change

 

 

impact(1)

 

 

2019

 

 

AUM(2)

 

Active:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

$

258,205

 

 

$

(2,918

)

 

$

59,701

 

 

$

1,157

 

 

$

316,145

 

 

$

286,461

 

Fixed income

 

795,985

 

 

 

74,972

 

 

 

66,150

 

 

 

2,168

 

 

 

939,275

 

 

 

885,170

 

Multi-asset

 

449,654

 

 

 

19,494

 

 

 

84,549

 

 

 

975