FIDUCIARY
noun | fi·du·cia·ry
FOR
YOU
2
0
1
7
A
N
N
U
A
L
R
E
P
O
R
T
WWW.BLACKROCK.COM
2017 ANNUAL REPORT
K
C
O
R
K
C
A
S
T
S
E
V
U
O
Y
R
O
F
L
B
N
I
YOU
E
R
U
T
U
F
R
U
O
Y
1988
INVESTING VS. SAVING
OUR MISSION
IS YOUR FUTURE
BlackRock invests for you
BlackRock’s business is to invest
your assets to help you achieve
your financial goals. Our leading
principle is that we are a fiduciary
to our clients — put simply, your
goals are our goals.
Whether you are a couple looking
to retire with dignity; a parent
planning to send your child to
college; a government looking
to build better cities for your
citizens — BlackRock invests for you.
We do our jobs each day with
the greater purpose of helping
more and more individuals achieve
well-being through the creation
of wealth.
We stay ahead of market dynamics,
changes in the regulatory
environment, geopolitical issues
and advancements in technology;
we study and manage risk; and we
build new innovative strategies — all
so that we can help you achieve
your long-term investment goals.
We invest in BlackRock with that
same focus on the future: we invest
in our platform, our people and our
technology so that we can continue
to deliver long-term value for our
clients and our shareholders.
2018
1
M
R
O
F
T
A
L
P
R
U
O
Y
Delivering a new
dimension of solutions
As an investor, you’re focused on
an outcome. You want to invest,
but you also want to manage
the amount of risk you take. You
need the right mix of investment
strategies to achieve your goals.
BlackRock offers a full spectrum
of investment strategies — diverse
across investment styles, asset
classes and regions — which allows
us to focus on you: what you need,
when you need it.
BlackRock’s combination of global
expertise, robust research and
Aladdin® technology gives us a
unique capability to understand,
analyze and address our clients’
most complex issues in a whole-
portfolio context. We use this
integrated investment and
technology platform to build
the right solutions for you.
Our diversified platform also
translates into more consistent
results for BlackRock across market
cycles, enabling us to continuously
invest in our business for the future.
We invest for the future so that we
can continue providing customized
solutions for clients and delivering
consistent earnings growth and
capital return for shareholders
over time.
$6.3 TRILLION
OF AUM
53% Equity
30% Fixed Income
8% Multi-Asset
7% Cash
2% Alternatives
27% Active
38% non-ETF Index
28% iShares®
7% Cash
Index Strategies:
Alpha-Seeking Strategies:
Strategies that track a benchmark and hold
Strategies that aim to deliver returns above
its underlying components to provide broad
a benchmark through fundamental human
diversification or targeted market exposure
insight and systematic machine intelligence
Alternative Strategies:
Cash Strategies:
Strategies, including hedge funds, private
Strategies that provide a return while
equity, real estate, infrastructure and
preserving the principal investment
commodities, that offer diversification and
and liquidity
aim to deliver higher returns than traditional
equity and fixed income markets
3
Aladdin:
Scale:
Asset Liability And Debt and Derivative
One of BlackRock’s differentiators that
Investment Network. BlackRock’s unified
enables us to create and deliver solutions
scaled investment and risk management
more efficiently to clients and optimize
system that enables us to better manage
growth for shareholders
clients’ assets and scale our operations
4
Technology to manage your
risks and drive your returns
BlackRock embraces the power of
technology to invest and generate
more durable alpha for you; to
manage risk across your portfolios;
to help our intermediary partners
manage risk, construct portfolios and
scale their distribution efforts; and
finally, to operate our own business
more efficiently.
We invested in technology from the
very beginning, building Aladdin,
BlackRock’s unifying investment
and risk management platform, and
continue to improve it every day.
The analytical capabilities of Aladdin
enable us to see risk clearer, construct
sophisticated outcome-oriented
portfolios for clients in an even more
complex world and run BlackRock’s
diverse, global business model on a
unifying platform.
In addition to investing in technology
to use as we invest, manage risk and
operate, we have a range of technology
offerings for our clients to use:
• We offer Aladdin to asset
managers, insurers and other
institutions to help them invest
and manage risk in their portfolios
• We offer technology to
intermediary distribution
partners to help them manage risk
• We offer technology to financial
advisors to help them build better
portfolios and spend more time
with more clients
• We offer technology to our
custodial bank partners to
increase their efficiency and
minimize risk
• We offer technology to banks to
help them provide their corporate
treasurer clients an easier way to
manage cash
Whether you are an individual,
an intermediary or a sophisticated
institution, BlackRock invests in
technology for you.
Y
G
O
L
O
N
H
C
E
T
R
U
O
Y
Your goals are our goals
BlackRock’s combination of
investment strategies and
technology capabilities uniquely
position us to help you attain your
financial goals. We help institutions
like pension funds and insurance
companies close their asset-liability
gaps; we help countries manage
their wealth and build infrastructure
for their citizens; and we help
individuals save for retirement.
Two-thirds of our assets are
managed on behalf of people
saving for retirement. With
individuals living longer than
ever before, we recognize
the responsibility we have in
helping them save for a dignified
retirement. We are focused on
leveraging our product breadth,
technology tools and global
insight to help people make
their savings last for the duration
of their retirement.
We built LifePath®, the industry’s
first target date funds, to make
investing for retirement easier
by creating a fund that adjusts
allocations to lower risk investments
as retirement nears. LifePath is
designed to help you close the
gap between your current savings
and the annual income you’ll need
to achieve the standard of living
you want in retirement.
We are creating digital tools to
help financial advisors better serve
their clients. iRetire®, for example,
leverages BlackRock’s Cost of
Retirement Index (“CoRI®”) to help
you illustrate retirement income
and develop a plan for closing the
income gap. Aladdin Risk for Wealth
Management helps financial
advisors manage risk across their
clients’ portfolios and access
multi-asset portfolio analytics.
BlackRock’s global thought
leadership platform, BlackRock
Retirement Institute (“BRI”), enables
our clients and broader community
to make better decisions about
retirement and longevity.
Target Date:
Making investing for retirement easier by
automatically adjusting allocations from
maximizing growth potential to managing
against downside risk as retirement nears
S
N
O
I
T
U
L
O
S
R
U
O
Y
At BlackRock, with 2/3
of the assets we manage
related to retirement, it is
our responsibility to assist
people all over the world
to live out their later years
with dignity and security.
7
S
R
E
N
T
R
A
P
R
U
O
Y
From left to right:
Larry Fink
Rob Kapito
David Blumer
Geraldine Buckingham
Frank Cooper III
Robert W. Fairbairn
Rob L. Goldstein
Ben Golub
Philipp Hildebrand
J. Richard Kushel
Richard Prager
Mark McCombe
Christopher J. Meade
Barbara G. Novick
Rachel Lord
Gary Shedlin
Jeffrey A. Smith, Ph.D.
Derek Stein
Ryan Stork
Mark K. Wiedman
Mark D. Wiseman
One BlackRock
for you
Our global investment and
technology platform is powered
and used by our employees,
who work tirelessly each day
to serve you.
Since our founding, we have
sought to attract talent from all
around the world because we
recognize the importance of
having employees who reflect the
clients we serve. Inclusion and
diversity are key to our success and
we believe the best solutions for
clients and outcomes for people
come from fully leveraging our
diverse experiences, backgrounds
and insights.
Our 14,000 employees work as
One BlackRock to better serve you.
• Aladdin, our technology
platform, enables all of us to
speak one common language
•
•
The BlackRock Investment
Institute (“BII”) harnesses the
power of collective intelligence
across the firm to build a
global knowledge-sharing
platform for ourselves, clients
and the broader public
In 2017, we launched a series
of “Knowing BlackRock”
academies for employees
to ensure that the firm’s
principles and culture are
institutionalized for the
next generation
9
14,000
fiduciaries to clients
14,000
people passionate
about performance
14,000
innovators
One BlackRock
working together to
fulfill our principles
each day
10
To deliver the best outcomes for
clients and shareholders, we must
focus on the long term
Our responsibility is to help you
achieve your goals. And that means
we are committed to a long-term
approach at the companies we
invest in on your behalf and at
BlackRock itself.
We advocate on your behalf for
companies to adopt robust business
practices to ensure sustainable
long-term performance.
And we operate and invest in
BlackRock with that same focus
on the future.
2017 Corporate
Responsibility
Highlights
Human Capital
45% of new hires and
36% of senior leader new
hires were female in 2017
Launched FTO, our flexible
time off program, so employees
are no longer held to a fixed
number of days off per year
Governance and Board
Global Public Policy Group:
5 female Directors
BlackRock advocates for public policies that
increase financial market transparency, protect
investors and drive confidence in capital markets
BlackRock Investment Institute:
BII provides connectivity between our portfolio
managers and insights to clients, policymakers
and the public to keep you informed on
macroeconomic, geopolitical and market events
17 / 20 Directors are independent
Environmental Sustainability
We will be using 100% renewable
energy in the US by the end of 2018
and globally by 2020
Total kWh (electricity) consumed
globally has decreased by 12%
since 2014 and has decreased
by 26% per employee over the
same period
Public Policy
Published 10 viewpoints on public
policy issues and the implications
for investors
Submitted nearly 50 comment
letters in 2017 to policy makers
Risk Management
Augmented resourcing and oversight
of Cyber Risk and Technology Risk
as well as Third Party Risk
Y
T
I
L
I
B
I
S
N
O
P
S
E
R
R
U
O
S
R
E
D
L
O
H
E
R
A
H
S
R
U
O
O
T
My earliest lessons on the importance of investing came
from my parents. My father owned a small business — a
shoe store — and my mother taught English at a local
university. They earned a solid income and their hard
work created many opportunities for us, but we certainly
weren’t rich. I remember all the times my brother and
sister and I would ask our parents whether we were
saving for a bigger house or a new car. My father would
just tell us we didn’t need those things. Instead, my
mother and father worked hard to save money — and
to consistently invest for our future.
When I was younger, I didn’t get
it — or at least I didn’t feel like I did.
But without even knowing it, I was
quietly absorbing these lessons
from my parents on a daily basis.
I started saving at a young age,
earning money helping my father
out at the shoe store. I bought my
first stock, DuPont, when I was
13 years old. I continued to work,
save and invest all throughout high
school, college and grad school.
And with each year, I grew to
understand the power of investing
in the markets. Looking back, the
lessons are as powerful as ever.
If my father had put $1,000 in a
bank account in 1952, the year
I was born, it would be worth
around $20,000 today. But he
knew there was a better way to
build for the future. Like millions
of other working Americans, he
became an investor. That same
$1,000, invested instead in the
S&P 500, would be worth about
$800,000 today.
By the time I moved to New York
to work in finance, I realized how
grateful I was to my father — and
how lucky I was that he taught
me such vital lessons about the
importance of investing and about
preparing for the future. He taught
me that investing isn’t just about
tomorrow — it’s about decades
of tomorrows.
Reflecting on 2017, it is easy to
get wrapped up in the remarkable
performance of markets. A lot
of people made a lot of money.
But much more importantly: a lot
of people didn’t. And that’s not
because they weren’t savvy enough
to invest in the “right things” — it’s
because they were not invested at all.
Around the world, savers are
struggling with low interest rates as
well as obstacles to better investing
behaviors. A culture of short-term
focus in markets and the media — an
obsession with second-by-second
movements and prices — drives fear
and discourages smart investing.
Talking heads may sweat with
excitement at each record market
close, but one day or even one
year of growth doesn’t build
a future. And so even as equity
indices tick higher, too many
individuals aren’t enjoying the
benefits. And that disconnect is
driving significant anger, frustration
and fear around the world.
BlackRock has a tremendous
responsibility to help solve this
challenge. We need to use our
role as a fiduciary, our expertise in
investing, markets and technology,
our knowledge of and ability
to empathize with investors’
needs — to drive action. And one of
those ways is to fulfill our purpose:
to help more and more people
experience well-being through
the creation of wealth — to promote
a system that helps more people
participate in financial markets and
build more secure futures. We are
in a position to achieve these goals
by using technology to drive better
investing behaviors; by developing
new investment solutions, and
by advocating for better, stronger
retirement systems. As an investor,
13
advisor, and innovator, I believe we
have a vital role to play in society.
We constantly strive to put ourselves
in the shoes of our diverse group
of clients — to understand their
priorities so that we can serve
them more effectively. Clients with
different backgrounds, levels of
wealth, time horizons, life goals. We
have to empathize with clients — no
matter who or where they are.
We must be Japanese in Japan,
Mexican in Mexico, and American
in the US, because if we are going
to fulfill our social purpose around
the world, we must respond to the
unique needs and objectives of
each client in their home market.
Wherever we operate, we must
deliver performance for our clients.
That’s why in 2017 — and over the
past 30 years — we have constantly
evolved our platform and approach
to deliver on our commitment
to our clients — to achieve the
expectations they have of us.
Today we are better prepared to
meet our clients’ needs than ever
before: The incredible cross-
fertilization of investment ideas
led by the BlackRock Investment
Institute. The deeper integration
of data science and artificial
intelligence across investment
processes. And strategies that help
investors achieve their objectives
in a low-return world, such as
infrastructure investments or the
new long-term private capital
vehicle we are developing. We
work every day to bring clients
the performance they demand
and deserve.
Our capacity to deliver this
performance — to embrace
technological change, constantly
improve our organization, and
deepen our relationships with
our clients — is rooted in our deep
commitment to our principles as
a firm. As BlackRock celebrates
its 30th anniversary, we’ve all had
a chance to reflect on what has
driven our success — and what
will continue to play a role over
the next year, the next five years,
and the next 30 years.
14
I believe that the single most
important driver of BlackRock’s
success has been our unwavering
commitment to our principles:
our fiduciary commitment to our
clients, our commitment to
performance and innovation,
and our One BlackRock approach
to everything we do.
Through the acquisitions we have
made, BlackRock has absorbed
a number of great heritages while
staying firmly committed to our
principles and firm culture. Each
addition enhanced our culture
and made it stronger.
WE ARE A FIDUCIARY
TO OUR CLIENTS
WE ARE PASSIONATE
ABOUT PERFORMANCE
WE ARE ONE BLACKROCK
WE ARE INNOVATORS
We were able to learn from
different individuals and different
experiences, while never forgetting
who we are and what we stand
for — and that has been vital to
our success.
Throughout it all, our commitment
to serving our clients and to staying
ahead of their needs has never
wavered. BlackRock has always
worked to anticipate and embrace
the changes affecting our clients,
the markets, and the financial
services industry itself. And I have
never felt better about our culture
than I do today. It is stronger today
than it has ever been — and I am
confident that it will drive the next
30 years of success for BlackRock.
Our commitment to these
principles — to living them every
day — is the brick and mortar
of BlackRock’s culture. Culture
isn’t an accident. It’s an action.
It has to be lived, and it has to
be constantly renewed.
Culture is what unifies us. Culture
reinforces ethical behavior and
our fiduciary commitment to our
clients, and it inhibits the improper
behavior that would undermine our
mission as a firm. Culture inspires
employees to go above and
beyond their responsibilities every
day, to solve the most difficult
problems, and to join together
as One BlackRock to help people
invest for retirement and achieve
their most important financial goals.
Our culture has helped us make
sure we never forget who we
are, even as the markets, our
industry, and even our firm
have experienced constant and
sometimes dramatic change.
BlackRock AUM since IPO ($bn)
$ 7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1999
2000
2002
2004
2006
2008
2010
2012
2014
2016
2017
30 YEARS OF
RESULTS
Since BlackRock’s founding in
1988, the assets we manage for
clients have grown from less than
$1 billion to more than $6 trillion;
our employees have grown from
8 to 14,000; we went from serving
a handful of clients in one country
to thousands of clients in more
than 100 countries. We operate in
71 cities around the world and most
recently opened offices in Budapest
and Palo Alto. Since our IPO in
1999, our stock price has increased
by forty times, delivering a 24%
compounded annual growth rate,
versus about 6% for the S&P 500.
We are able to create value for
our shareholders because of our
commitment to being a responsible
fiduciary for our clients. It’s our
clients’ trust in BlackRock and our
partnership with them that is the
foundation of our 2017 results.
• We generated record revenue,
driven by 7% organic base fee
growth, strong performance
fees and 14% technology and
risk management revenue
growth.
• We expanded our operating
margin by 40 basis points
to 44.1%, as adjusted, while
simultaneously investing
back into our business for
future growth.
• We returned $2.8 billion
to shareholders through
a combination of dividends
and share repurchases.
• All of which drove a 38% total
return for our shareholders
in 2017.
BlackRock generated $367 billion
of total net inflows, diversified
across client types, asset classes,
regions and investment styles.
And we continued to see
momentum across our platform.
We generated more than $1 billion
of net inflows in 13 individual
countries and 68 funds, reflecting
the breadth and diversification
of our global investment platform
and client relationships.
We increased our market share
with key intermediary partners.
We generated strong investment
performance for clients: 73%, 72%
and 87% of our taxable fixed
income, fundamental active equity
and systematic active equity assets,
respectively, have performed
above their benchmarks or peer
medians for the three-year period.
In iShares, we maintained our #1
market share of 2017 ETF inflows
globally, in the US and in Europe,
as well as within equities, fixed
income, core exposures and smart
beta. And we expect continued
growth in iShares to be driven by
the continued adoption of ETFs
both by new users and for new uses.
We are continuing to make
strategic investments to serve
our clients’ diverse needs,
while positioning BlackRock
for future growth.
% of Assets Performing Above
Benchmark or Peer Median
Taxable Fixed Income
90%
81%
73%
1 Year
3 Years
5 Years
Tax–exempt Fixed Income
68%
72%
52%
1 Year
3 Years
5 Years
Fundamental Active Equity
70%
72%
73%
1 Year
3 Years
5 Years
Systematic Active Equity
83%
87%
90%
1 Year
3 Years
5 Years
15
And we are using our scale to drive
better outcomes for our clients and
results for our shareholders.
to offer clients additional
outcome-based infrastructure
solutions.
• We expanded and unified
our portfolio construction
capabilities to ensure that we
are the leader in delivering
more rigorous portfolio- and
outcome-oriented advice
and investment solutions
for clients.
• We continue to invest in ways
to reach clients in fast growing
areas. We reaffirmed our
belief in the long-term growth
potential of the Mexican market
through our agreement to
acquire Citibanamex’s asset
management business. The
combined firm will broaden
BlackRock’s access to Mexico’s
wealth management market,
provide clients access to
BlackRock’s international
products, and build a
partnership to create innovative
multi-asset solutions.
• We also obtained our private
fund management registration
in China, which enables us to
manufacture and privately
distribute onshore funds in
China to qualified institutional
and high-net-worth Chinese
investors.
LONG-TERM
STRATEGY
Just as we advocate for the
importance and benefits of clients
consistently investing to create
better financial futures, we also
believe in investing in BlackRock
with that same long-term
approach. The first 30 years
of our history were about
building a unique and powerful
combination of components to
meet and anticipate our clients’
needs. The next 30 will be about
bringing those components ever
closer together and integrating
ourselves more deeply into our
clients’ ecosystems.
• We seeded or co-invested
$1.1 billion into products as
we built new and innovative
investment capabilities,
including alternative, ESG-
related, and self-indexed
offerings. We launched our
first-ever self-indexed, smart
beta fixed income funds in
2017, which deliver a strategy
to clients that wasn’t currently
available in the form of an
index before.
• We are using the powerful
combination of human
insights, technology and
scale to position our equity
investment platform for the
future of alpha generation.
We unified our active equity
team so that both fundamental
and systematic active equity
investors could share learnings
from their unique research
techniques.
• We launched the Advantage
Series to offer clients a lower
risk, lower cost systematically
managed alpha-seeking
strategy, which has already
seen momentum in net
inflows since its launch in
2017. These funds are another
example of BlackRock using
the benefits of our scale to
deliver sustainable alpha to
our clients; another step in the
buildout of our spectrum of
investment strategies; and our
first quantitative offering for
the wealth market.
• We bought Cachematrix
to enhance our scale in the
cash management industry
and build on our digital
distribution offerings. We
now manage $450 billion in
cash management strategies
and see future growth
opportunities in the current
environment.
• We acquired First Reserve’s
Energy Infrastructure funds
16
The steps we took in 2017 are
consistent with our firm’s long-
term strategy, which we reviewed
with our Board at the start of
2017. At the beginning of this year,
we again reviewed our long-term
strategy with our Board, including a
discussion of the evolving landscape
in which we are operating.
There are a variety of trends
reshaping the asset management
industry, including: rapid
advancements in technology,
heightened regulatory scrutiny,
and changing priorities of
investors, who are demanding
better performance and value for
the fees they pay. BlackRock is
uniquely positioned to respond
to these challenges and transform
them into opportunities by creating
solutions that meet our clients’
needs. That focus on clients
forms the foundation of our
two-pronged strategy to drive
the future growth of the business.
First, we are focused on being
a market leader in the areas of
greatest client demand — those
markets and investment
opportunities that will generate
the highest growth in the future.
Some of these areas of growth
are those in which we are already
a market leader and will need to
continue executing with our current
business, like ETFs and factor
investing, while others are areas in
which we have lower market share
today, but see tremendous growth
opportunities in the future, such as
illiquid alternatives.
Second, we seek to leverage the
full capabilities of our platform
with broader participation across
the investment ecosystem —
embedding ourselves more deeply
at different steps of the value chain.
In doing so, we will strengthen
our competitive advantages and
further differentiate BlackRock
in the eyes of our clients and
shareholders. This includes
continuing to invest in enhancing
efficiency between custodians
and asset managers, growing
our digital wealth presence, and
reaching more individual investors
through tech-enabled intermediary
relationships.
And as we execute against this
two-pronged strategy for growth,
we are also keenly focused on
several large-scale longer-term
ambitions that have the potential to
dramatically reshape our firm and
our industry over time: Retirement,
Technology and high-growth
markets such as China.
GLOBAL
RETIREMENT
CHALLENGE
Despite having a long and clear line
of sight into the escalating global
retirement crisis, governments,
employers, insurance companies,
and wealth and asset managers
have failed to widely implement
solutions that ensure access to
a safe and secure retirement for
everyone. While the challenges
vary around the globe, there are
a few key areas that impact a great
number of investors: insufficient
savings, lack of access, improper
investing, lack of guaranteed
income, and pension shortfalls.
Some individuals are partially
invested but hold too much cash.
Others aren’t invested at all — even if
they earn sufficient income — out of
fear, or because they lack the tools
or the advice to invest effectively.
And then there are those workers
who have no retirement savings
or have no access to retirement
plans at all — individuals who are
excluded from building a secure
retirement through investing.
For these individuals, national
pensions yielding 3% — such
as Social Security — simply will
never be sufficient to provide for
retirement. Even the strongest
systems, such as Australia’s,
face challenges around helping
workers manage their cash flows
in retirement.
Demographically, we are at the
beginning of a seismic shift.
Between 2017 and 2030, the
world’s population aged 60 years
or older is projected to grow by
46%, to 1.4 billion. As people live
longer and longer, the world’s
retirement systems come under
more and more pressure. And the
longer we wait, the deeper and
more complicated the problem
becomes. We are already at an
inflection point: the deep populist
sentiment around the world is
driven by frustration and fear about
the future — including the prospects
for a secure retirement. We must
find a solution. We cannot accept
a system that excludes so many
individuals from the benefits of
investing, and political lethargy
is not an acceptable excuse for
leaving billions of human beings
unprepared for retirement.
Though the specifics of each
market are different, the
combination of increased longevity,
weak retirement systems, and an
underappreciation of the benefits
of investing demands action.
We must continue to improve
education and sentiment around
investing so that older workers
can mitigate the pressures of
underinvestment, and so that
as younger workers enter the
workforce, they understand the
importance of compounding
returns and investing early in order
to prepare for retirement. At the
same time, we have to rebuild
public and private retirement
systems so that they cover more
individuals and maximize returns
more effectively. We should more
broadly incorporate behavioral
tools such as auto-enrollment,
which automatically enrolls
individuals in workplace retirement
plans, and auto-escalation, which
can help individuals enhance their
savings by periodically increasing
contribution levels.
A key goal is to help more people
begin investing — for example, by
building technology that makes
it easier for them learn about
and understand the virtues of
investing. We are also committed
to innovation in areas that span
both the accumulation and
decumulation components of
investing for the future, by building
more transparent and flexible
guaranteed-income products.
And we are focused on partnering
with companies and governments
to improve existing retirement
systems and, in particular, help
build solutions for workers without
access to retirement plans.
Technology will play a significant
role in those solutions.
TECHNOLOGY
EVOLUTION
Rapid changes in technology —
including the exponential growth
of data collection, the rise of
artificial intelligence, advances in
computing power and consumers’
greater interaction with technology
for daily tasks — have the potential
to transform the asset management
industry. In pursuit of technology-
enabled growth, BlackRock
continues to focus on opportunities
to accelerate internal innovations
and adopt external technologies.
BlackRock is committed to
being part of the solution.
17
As part of our tech2020 transformation, we are opening
the Aladdin platform to drive further development and
engagement, and we are simultaneously going beyond
Aladdin to leverage data science, machine learning
and artificial intelligence to find new sources of alpha
for investments, leverage BlackRock’s scale in our
operations, and build a more data-driven feedback
loop in the sales and product development process.
In the near-term, our ambition is to
bring the tremendous capabilities of
Aladdin to more investors and clients.
To enable this transformation,
we are systematically investing
in resources commensurate with
our ambitions — including growing
our population of technologists by
attracting, developing and retaining
top talent across the organization.
In early 2018, we also established
the BlackRock Lab for Artificial
Intelligence in Palo Alto. The
Lab will advance how BlackRock
uses artificial intelligence and
associated disciplines — machine
learning, data science, natural
language processing — to improve
outcomes and drive progress for
investors, clients, and the firm.
We also established Data Science
Core — a central hub to formalize
data science efforts already
under way and leverage artificial
intelligence to solve high priority
problems across the firm while
driving consistent standards,
best practices, and expanding
BlackRock’s data science community.
In recent years, BlackRock has taken
important strides to build our digital
wealth business — connecting
to distribution partners and
ultimately end investors through
technology that drives better
investing behaviors and outcomes.
Our digital products — iRetire,
FutureAdvisor, Aladdin Risk for
Wealth Management, and our
18
partners, iCapital and Scalable
Capital — have reached tens of
thousands of financial advisors and
millions of end investors. In 2017,
we established a Digital Wealth
group to build on this progress
and deepen our relationships
with wealth management
partners through technology,
as well as drive internal product
development and explore
investment opportunities.
OPPORTUNITIES
IN HIGH-GROWTH
MARKETS,
INCLUDING CHINA
One of the most critical priorities
for BlackRock today and into the
future is increasing our presence
and penetration in high-growth
markets around the world,
particularly in Asia and especially
China. Demographic, economic,
and regulatory shifts — including
high savings rates and rapid
growth in household financial
assets in these markets — will
create significant opportunities
for BlackRock over time.
Our current presence in
China has historically been
restricted. However, recent
developments — especially in the
regulatory environment — present
significant opportunities for future
growth. In November 2017, the
Chinese government announced
that foreign asset managers can
own up to 51% of a domestic Fund
Management Company, with the
option of 100% ownership after
three years (previously capped
at 49%). This latest regulatory
opening, together with other
recent market developments, could
significantly expand the prospect
to grow our footprint in the market.
BlackRock also obtained our Private
Fund Management registration
in 2017, which allows us to both
manufacture and privately distribute
investment products in China to
qualified onshore institutions and
high net worth individuals.
While we believe China is a
significant long-term opportunity
for BlackRock, it will require time
and patience as we continue to
watch this market evolve. In the
meantime, we are preparing to
bring our expertise in investing,
risk management and technology,
as well as our ability to understand
the needs of local clients, to
bear if and when the market
opens further.
Consistent with our approach
to date, we aim to have a truly
local presence and respond to
the unique needs, objectives,
and cultures of investors in each
market. By executing on our
strategy in high growth markets,
continuing to embed ourselves
in the investment ecosystem,
pressing our competitive
advantages and relentlessly
challenging ourselves to realize
our longer-term ambitions, we are
positioning ourselves to do more
for our clients than ever before.
We remain conscious that our
ecosystem will continue to evolve
and at times that will require us
to pivot, but we will remain true
to our mission to optimize the
solutions we can deliver to our
clients and position our business
for long-term growth.
In order to deliver on our firm
strategy for our clients, shareholders
and employees, we are committed
to operating BlackRock for the long
term, including maintaining a strong
corporate governance framework,
advocating for our clients’ long-term
interests, and constantly improving
the development of our employees
and our operations.
OPERATING
BLACKROCK FOR
THE LONG-TERM
STRONG GOVERNANCE
One of the key pillars of our
long-term strategy is a strong
corporate governance
framework, including an
effective and accountable Board
of Directors. BlackRock is very
fortunate to have such a passionate
and dynamic Board of Directors —
a group of Directors with true
independence of mind.
Much of BlackRock’s success can
be attributed to the Board’s robust
engagement with our management
team, our employees and our
clients. Between Board meetings,
BlackRock’s Directors remain
in close contact with me, our
President Rob Kapito, and other
senior leaders, offering guidance
and feedback throughout the
year. Each member of the Board is
involved in mentoring a member of
senior management. Additionally,
each member of BlackRock’s
Board has an employee keycard,
with full access to every location
and every BlackRock employee
around the world. This seemingly
small detail represents something
much greater: our belief that an
engaged, informed, and involved
Board is an essential component of
our success.
The diverse backgrounds of our
Directors also play a significant
role in their ability as a whole to
evaluate BlackRock’s management
and operations, assess risk and
opportunities for our business
and challenge our management
team. We make diversity in gender,
ethnicity, age, career experience,
and geographic location, as well as
diversity of mind, a priority when
considering Director candidates.
As of March 2018, BlackRock
has five female Directors, and
our Directors come from seven
different countries. This diversity
has enhanced our Board’s
involvement in our company’s
long-term strategy and inspired
deeper engagement with
management, employees and
clients around the world.
This year, Abdlatif Al-Hamad and
James Grosfeld will both be leaving
our Board. Abdlatif has given the
Board and BlackRock invaluable
wisdom and guidance as we have
grown in the Gulf region and as a
firm globally. Jimmy is someone
I first knew as a client, before we
even founded BlackRock. He was
involved from the day we started
the firm, and I have been learning
from him for close to 40 years.
His advice has always meant and
continues to mean a great deal
to me. Both Abdlatif and Jimmy
have been instrumental in guiding
the Board’s oversight, and I
want to sincerely thank them for
their passion and dedication to
BlackRock during their tenures.
Last month, we appointed three
new Directors to our Board:
Bill Ford, Peggy Johnson and
Mark Wilson, and we will benefit
greatly from their guidance and
advice. Peggy’s perspective on
19
technology and the innovation
economy, Bill’s understanding
of the changing financial services
landscape, particularly as it
relates to fin-tech and China,
and Mark’s deep experience in
Europe and Asia-Pacific will be a
tremendous benefit to BlackRock’s
management, shareholders and
clients, as they reflect BlackRock’s
current and future priorities.
ADVOCATING AS A
FIDUCIARY FOR OUR CLIENTS’
LONG-TERM INTERESTS
With BlackRock’s growth,
especially in our index business,
comes an evolving responsibility.
A crucial part of that responsibility
is advocating on behalf of our
clients for practices that we believe
enhance long-term returns. As
index investing continues to grow,
so does the importance of this
type of engagement. Since we
cannot sell the shares of companies
that our index clients are invested
in — even if we disagree with
management — our engagement
and proxy voting practices are
an essential component of how
we serve our clients.
Our Investment Stewardship
group engages extensively with
companies around the world
on issues that are material to
companies’ long-term financial
sustainability. Over the past several
years, we have written letters
to company CEOs emphasizing
the importance of a long-term
approach. We’ve asked them to
articulate their long-term growth
strategies; to ensure proper
governance; and to address other
material social and environmental
issues relevant to their business
models — all steps that we believe
indicate the good management
that drives long-term growth.
The team’s 2018 priorities include:
corporate strategy, governance
(including Board diversity), climate
risk disclosure, compensation, and
human capital management policies.
We also announced in early 2018
that Barbara Novick, Vice Chairman
of the firm and one of my fellow
20
Another pillar of our long-term
strategy is to operate the firm itself
in a sustainable manner — so that
we can continue to deliver value
to clients, shareholders, employees
and the communities in which
we operate.
co-founders, would oversee our
Investment Stewardship group.
We will double the size of our
team in order to drive deeper and
more productive conversations
with companies, which will help
drive the long-term value of
our clients’ investments. We
continue to learn from our clients,
company management teams
and the industry, as we work
towards leading best practices
in stewardship activities and
promoting strong corporate
governance.
The issues that our investment
stewardship team focuses on
can provide valuable insight
for investors on the quality of
corporate management. In our
investment processes, we examine
business-relevant sustainability
issues that can contribute to a
company’s long-term financial
performance. For all of our
investment professionals, this
means we are expanding access
to data, insights and learnings
on sustainability-related risks
and opportunities to keep them
well-informed in their decision-
making process.
We also manage a broad suite of
dedicated sustainable investment
solutions to meet increasing
client demand. We do not view
sustainable investment solutions
as an exercise in trading return
for social outcomes. Instead, by
identifying scalable, sustainable
investment solutions that can
enhance long-term returns,
we can improve financial outcomes
for our clients and accelerate the
adoption of sustainable business
practices globally.
OUR PEOPLE AND
OUR OPERATIONS
BlackRock’s business model is
not carbon intensive, but we are
committed to managing our
impact on the environment,
pursuing a sustainability strategy
that decouples our growth
from environmental impact.
Throughout our offices, we focus
on reducing carbon emissions by
decreasing energy consumption
through demand reduction and
infrastructure investments, and
by diverting waste from landfills.
We prioritize high utilization rates
of our offices; we invest in LED
technology and green buildings;
and our consolidated data centers
are among the most energy
efficient, in addition to being
hydro-powered. We also continue
to expand our use of renewable
energy. I am proud to report that
by the end of 2018, in the US, we
will be at 100% renewable energy
and by 2020, we will achieve that
globally through working with our
local utilities and entering into
power purchase agreements to
cover the areas for which we do
not have operational control.
As a human capital intensive
business, our long-term
sustainability depends on
our people. And as BlackRock
grows, the importance of our
talent strategy has only intensified.
We operate as a global firm, with
14,000 employees in 30 different
countries who speak more than
100 languages. We also serve
millions of clients from different
cultures around the world. We
are committed to cultivating
and advancing diversity and
inclusion in all forms across our
organization because we believe
a wide range of perspectives and
talent is crucial to creating a richer
culture for our employees and a
better experience for our clients.
We hired 390 talented new
individuals into our analyst class
of 2017, 53% of whom are women.
These individuals are also our
most ethnically diverse class yet.
We are extremely focused on
increasing both the percentages
of female and ethnically diverse
senior leaders at the firm. To
foster an environment that
attracts and retains top talent,
providing employees with robust
development opportunities is of
the utmost importance, including
extensive opportunities for
financial and technology training
and exposure to new roles across
the firm.
In keeping with BlackRock’s role
in society, we’re dedicated to
helping our employees build
sound financial futures for
themselves and their families.
We provide our employees access
to a variety of resources, learning
opportunities and expert guidance
to help them prepare for and achieve
their financial goals at each stage
of their lives, including retirement.
We also support our employees
in giving back and volunteering
in their local communities and
globally for environmental and
social efforts that move them.
The focus of our philanthropic
initiatives — which we align with
BlackRock’s purpose as a
company — is to create financial
security and opportunity through
better jobs and building savings
for people most in need.
FOUNDATION
FOR THE NEXT
30 YEARS
Six years ago, just before my father
passed away at the age of 87, he
and I discussed for the first time
the outcome of all of those years
he spent putting away money and
investing for the future. The power
of time, conviction, confidence
and compounding had left him
with roughly 70 times what he and
my mother would have earned on
a gross basis in an average year.
70 times. I’m still shocked to this
day. I have always focused on the
long-term benefits of investing,
but this was the most real, close-
to-home example of what patient,
long-term investing could yield.
Just as I learned from my father
to invest each day towards a long-
term goal, that has been, and will
remain, our approach both within
BlackRock and in the way we strive
to serve our full set of stakeholders:
our clients, our shareholders,
our employees and savers and
investors around the world.
We achieve that by living our
principles every day. We achieve
it by embracing our social
purpose and contributing to the
world in which we operate: The
environment and communities that
we call our home. The people who
we serve and the people who work
to serve them.
When I walk through the halls
of BlackRock, when I meet with
employees, I see how deeply each
individual at the firm lives our culture.
That commitment is what gives me
the confidence in our future as a
firm and our ability to make
a positive impact on the world.
The strength of our culture is
what makes our platform more
capable and better positioned for
the future than it has been at any
time in our history. It’s what drives
performance. It’s what drives us
to relentlessly innovate and stay
ahead of our clients’ needs. As
I think about the next year, the
next five years and even the next
30 years, it is that unwavering focus
on our principles and embodiment
of our culture by our people that
will propel BlackRock and its clients
forward for years to come.
Sincerely,
Larry Fink
21
S
R
O
T
C
E
R
D
F
O
D
R
A
O
B
I
FROM LEFT
TO RIGHT
Cheryl Mills
CEO, BlackIvy Group
Marco Antonio Slim Domit
Chairman of the Board of Directors,
Grupo Financiero Inbursa
Pamela Daley
Former Senior Vice President of
Corporate Business Development,
General Electric Company
Mathis Cabiallavetta
Former Vice Chairman of the Board
of Directors, Swiss Re
Sir Deryck Maughan
Former Senior Advisor,
Kohlberg Kravis Roberts
Laurence D. Fink
Chairman and CEO,
BlackRock, Inc.
Fabrizio Freda
President and CEO,
The Estée Lauder Companies Inc.
Gordon M. Nixon
Former President and CEO,
Royal Bank of Canada
Charles H. Robbins
CEO, Cisco Systems, Inc.
Robert S. Kapito
President, BlackRock, Inc.
Ivan G. Seidenberg
Former Chairman and CEO,
Verizon Communications Inc.
Susan Lynne Wagner
Former Vice Chairman,
BlackRock, Inc.
Murry S. Gerber
Former Chairman and CEO,
EQT Corporation
Jessica Einhorn
Former Dean, Paul H. Nitze
School of Advanced
International Studies (SAIS) at
The Johns Hopkins University
James Grosfeld*
Former Chairman and CEO,
Pulte Homes, Inc.
Abdlatif Y. Al-Hamad*
Director General and Chairman
of the Board of Directors,
Arab Fund for Economic
and Social Development
(not pictured)
William S. Demchak
President and CEO,
The PNC Financial Services
Group, Inc.
(not pictured)
William E. Ford
CEO, General Atlantic
(not pictured)
Margaret L. Johnson
Executive Vice President
of Business Development,
Microsoft Corporation
(not pictured)
Mark Wilson
CEO, Aviva plc
(not pictured)
*Retiring in 2018
23
($mm, except per share data)
2017
2016
2015
Total AUM (end of period)
$ 6,288,195
$ 5,147,852
$ 4,645,412
Revenue
12,491
11,155
11,401
Net income attributable to BLK, GAAP
Net income attributable to BLK, as adjusted
Operating income, as adjusted
4,970
3,716
5,287
3,172
3,214
4,674
3,345
3,313
4,695
Operating margin, as adjusted
44.1%
43.7%
42.9%
I
S
T
H
G
I
L
H
G
H
L
A
C
N
A
N
I
F
I
PER SHARE
2017
2016
2015
Diluted earnings, GAAP
$ 30.23
$ 19.04
$ 19.79
Diluted earnings, as adjusted
Dividends declared
22.60
10.00
19.29
9.16
19.60
8.72
Diluted weighted-average common shares
164,415,035
166,579,752
169,038,571
Please review the Important Notes below for information on certain
non-GAAP figures shown above and through page 24, as well as
for source information on other data points on page 2 through 24.
Important Notes
OPINIONS
Opinions expressed through
page 25 are those of BlackRock,
Inc. as of March 2018 and are
subject to change.
BLACKROCK DATA POINTS
All data through page 25 reflects
as-adjusted full-year 2017 results
or as of December 31, 2017, unless
otherwise noted. 2017 organic
growth is defined as full-year
2017 net flows divided by assets
under management (AUM) for
the entire firm, a particular
segment or particular product
as of December 31, 2016.
Long-term product offerings
include active and passive
strategies across equity, fixed
income, multi-asset and
alternatives, and exclude AUM and
flows from the cash management
and advisory businesses.
GAAP AND AS-ADJUSTED
RESULTS
See pages 37–38 of the Financial
Section of the 10-K for explanation
of the use of Non-GAAP Financial
Measures.
PERFORMANCE NOTES
Past performance is not indicative
of future results. Except as
specified, the performance
information shown is as of
December 31, 2017 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, 2017.
The performance data does not
include accounts terminated
prior to December 31, 2017
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, 2017 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.
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.
25
BLACKROCK, INC.
FORM 10-K
TABLE OF CONTENTS
PART I
1
Item 1
Business
18
Item 1A Risk Factors
29
Item 1B Unresolved Staff Comments
29
Item 2
Properties
29
Item 3
Legal Proceedings
30
Item 4 Mine Safety Disclosures
PART II
31
Item 5
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
32
Item 6
Selected Financial Data
34
Item 7
Management’s Discussion and Analysis of Financial Condition
and Results of Operations
59
Item 7A Quantitative and Qualitative Disclosures About Market Risk
60
Item 8
Financial Statements and Supplemental Data
60
Item 9
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
60
Item 9A Controls and Procedures
63
Item 9B Other Information
PART III
63
Item 10 Directors, Executive Officers and Corporate Governance
63
Item 11 Executive Compensation
63
Item 12
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
63
Item 13
Certain Relationships and Related Transactions,
and Director Independence
63
Item 14 Principal Accountant Fees and Services
PART IV
63
Item 15 Exhibits and Financial Statement Schedules
67
Signatures
S
T
N
E
T
N
O
C
F
O
E
L
B
A
T
Management seeks to deliver value for stockholders over
time by, among other things, capitalizing on BlackRock’s
differentiated competitive position, including:
• the Company’s focus on strong performance providing
alpha for active products and limited or no tracking error
for index products;
• the Company’s global reach and commitment to best
practices around the world, with approximately 49% of
employees outside the United States serving clients
locally and supporting local investment capabilities.
Approximately 40% of total AUM is managed for clients
domiciled outside the United States;
• the Company’s breadth of investment strategies,
including market-cap weighted index, smart beta and
factor-based, high conviction alpha and liquid and illiquid
alternative product offerings, which enhance its ability to
tailor single- and multi-asset investment solutions to
address specific client needs;
• the Company’s differentiated client relationships and
fiduciary focus, which enable effective positioning toward
changing client needs and macro trends including the
secular shift to index investing and ETFs, a focus on
income and retirement, and barbelling of risk using index
and active products, including alternatives; and
• the Company’s longstanding commitment to innovation,
technology and risk management and the continued
development of, and increased interest in, BlackRock
technology products and solutions, including Aladdin,
Aladdin Risk for Wealth Management, Cachematrix, and
FutureAdvisor, as well as Scalable Capital and iCapital, in
which BlackRock has made minority investments.
BlackRock operates in a global marketplace impacted by
changing market dynamics and economic uncertainty,
factors that can significantly affect earnings and
stockholder returns in any given period.
The Company’s ability to increase revenue, earnings and
stockholder value over time is predicated on its ability to
generate new business, including business in Aladdin and
other technology products and services. New business
efforts depend on BlackRock’s ability to achieve clients’
investment objectives in a manner consistent with their risk
preferences and to deliver excellent client service. All of
these efforts require the commitment and contributions of
BlackRock employees. Accordingly, the ability to attract,
develop and retain talented professionals is critical to the
Company’s long-term success.
PART I
Item 1. Business
O V E R V I E W
BlackRock, Inc. (together, with its subsidiaries, unless the
context otherwise indicates, “BlackRock” or the “Company”)
is a leading publicly traded investment management firm
with $6.288 trillion of assets under management (“AUM”) at
December 31, 2017. With approximately 13,900 employees
in more than 30 countries who serve clients in over 100
countries across the globe, BlackRock provides a broad
range of investment, risk management and technology
services to institutional and retail clients worldwide.
Our diverse platform of alpha-seeking active, index and cash
management investment strategies across asset classes
enables the Company to tailor investment outcomes and
asset allocation solutions for clients. We offer single- and
multi-asset class portfolios investing in equities, fixed
income, alternatives and money market instruments.
Products are offered directly and through intermediaries in a
variety of vehicles, including open-end and closed-end
mutual funds, iShares® exchange-traded funds (“ETFs”),
separate accounts, collective investment trusts and other
pooled investment vehicles. BlackRock also offers the
investment and risk management technology platform,
Aladdin®, risk analytics, advisory and technology services
and solutions to a broad base of institutional and wealth
management clients. The Company is highly regulated and
manages its clients’ assets as a fiduciary. We do not engage
in proprietary trading activities that could conflict with the
interests of our clients.
BlackRock serves a diverse mix of institutional and retail
clients across the globe. Clients include tax-exempt
institutions, such as defined benefit and defined
contribution pension plans, charities, foundations and
endowments; official institutions, such as central banks,
sovereign wealth funds, supranationals and other
government entities; taxable institutions, including
insurance companies, financial institutions, corporations
and third-party fund sponsors, and retail investors.
BlackRock maintains a significant global sales and
marketing presence that is focused on establishing and
maintaining retail and institutional investment management
and technology service relationships by marketing its
services to investors directly and through third-party
distribution relationships, including financial professionals
and pension consultants.
BlackRock is an independent, publicly traded company, with
no single majority shareholder and over two-thirds of its
Board of Directors consisting of independent directors. At
December 31, 2017, The PNC Financial Services Group, Inc.
(“PNC”) held 21.2% of BlackRock’s voting common stock and
21.7% of BlackRock’s capital stock, which includes
outstanding common and nonvoting preferred stock.
1
FIN A N C IA L H IGH L IGH TS
(in millions, except per share data)
2017
2016
2015
2014
2013
GAAP:
Total revenue
Operating income
Operating margin
$12,491
$ 5,272
$11,155
$11,401
$11,081
$10,180
$ 4,570
$ 4,664
$ 4,474
$ 3,857
42.2%
41.0%
40.9%
40.4%
37.9%
5-Year
CAGR(4)
6%
8%
2%
Nonoperating income (expense)(1)
Net income attributable to BlackRock, Inc.
Diluted earnings per common share
$
(32)
$ (108)
$
(69)
$
(49)
$
97
N/A
$ 4,970
$ 30.23
$ 3,172
$ 3,345
$ 3,294
$ 2,932
$ 19.04
$ 19.79
$ 19.25
$ 16.87
15%
17%
(in millions, except per share data)
2017
2016
2015
2014
2013
5-Year
CAGR(4)
8%
2%
$ 5,287
$ 4,674
$ 4,695
$ 4,563
$ 4,024
44.1%
43.7%
42.9%
42.9%
41.4%
$
(32)
$ (108)
$
(70)
$
(56)
$
7
N/A
$ 3,716
$ 22.60
$ 3,214
$ 3,313
$ 3,310
$ 2,882
$ 19.29
$ 19.60
$ 19.34
$ 16.58
9%
11%
As adjusted(2):
Operating income
Operating margin
Nonoperating income (expense)(1)
Net income attributable to BlackRock, Inc.(3)
Diluted earnings per common share(3)
N/A — not applicable
(1) Net of net income (loss) attributable to noncontrolling interests (“NCI”) (redeemable and nonredeemable).
(2) BlackRock reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”); however,
management believes evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-GAAP financial
measures.
See “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures”, for
further information on non-GAAP financial measures and for as adjusted items for 2017, 2016, and 2015.
In 2014, general and administration expense relating to the reduction of an indemnification asset has been excluded since it is directly offset by a tax
benefit of the same amount and, consequently, did not impact BlackRock’s book value. In 2013, the Company made a charitable contribution of the
Company’s investment in PennyMac Financial Services, Inc. (“PennyMac”) to a donor advised fund. The expense related to the charitable contribution
was excluded from operating income, as adjusted, due to its nonrecurring nature and because the noncash, nonoperating pre-tax gain directly
related to the contributed PennyMac investment was reported in nonoperating income (expense). In 2014 and 2013, the portion of compensation
expense associated with certain long-term incentive plans (“LTIP”) funded, or to be funded, through share distributions to participants of BlackRock
stock held by PNC has been excluded because it ultimately did not impact BlackRock’s book value. Compensation expense associated with
appreciation (depreciation) on investments related to certain BlackRock deferred compensation plans has been excluded as returns on investments
set aside for these plans, which substantially offset this expense, are reported in nonoperating income (expense).
(3) Net income attributable to BlackRock, Inc., as adjusted, and diluted earnings per common share, as adjusted exclude the after-tax impact of the
items referred to above and also include the effect on deferred income tax expense resulting from certain income tax matters.
(4) Percentage represents compounded annual growth rate (“CAGR”) over a five-year period (2012-2017).
ASSETS UNDER MANAGEMENT
The Company’s AUM by product type for the years 2013 through 2017 is presented below.
(in millions)
Equity
Fixed income
Multi-asset
Alternatives
Long-term
Cash management
Advisory
Total
December 31,
2017
2016
2015
2014
2013
$ 3,371,641
$ 2,657,176
$ 2,423,772
$ 2,451,111
$ 2,317,695
1,855,465
1,572,365
1,422,368
1,393,653
1,242,186
480,278
129,347
395,007
116,938
376,336
112,839
377,837
111,240
341,214
111,114
5,836,731
4,741,486
4,335,315
4,333,841
4,012,209
449,949
1,515
403,584
2,782
299,884
10,213
296,353
21,701
275,554
36,325
$ 6,288,195
$ 5,147,852
$ 4,645,412
$ 4,651,895
$ 4,324,088
5-Year
CAGR(1)
13%
8%
12%
3%
11%
11%
(49%)
11%
(1) Percentage represents CAGR over a five-year period (2012-2017).
2
Component changes in AUM by product type for the five years ended December 31, 2017 are presented below.
(in millions)
Equity
Fixed income
Multi-asset
Alternatives
Long-term
Cash management
Advisory
Total
December 31,
2012
Net inflows
(outflows)
Adjustment/
acquisitions(1)
Market
change
FX impact
December 31,
2017
5-Year
CAGR(2)
$ 1,845,501
$
356,005
$
7,849
$ 1,254,390
$ (92,104)
$ 3,371,641
1,259,322
267,748
109,795
3,482,366
263,743
45,479
483,620
112,926
8,634
961,185
110,751
(39,090)
467
6,364
17,736
32,416
80,635
—
192,165
109,515
(1,718)
(80,109)
(16,275)
(5,100)
1,855,465
480,278
129,347
1,554,352
(193,588)
5,836,731
3,045
759
(8,225)
(5,633)
449,949
1,515
$ 3,791,588
$ 1,032,846
$ 113,051
$ 1,558,156
$ (207,446)
$ 6,288,195
13%
8%
12%
3%
11%
11%
(49%)
11%
(1) Amounts include AUM acquired from Credit Suisse’s ETF franchise (“Credit Suisse ETF Transaction”) in July 2013 and MGPA in October 2013.
Amounts also include AUM acquired in the acquisition of certain assets of BlackRock Kelso Capital Advisors LLC (“BKCA”) in March 2015, AUM
acquired from Infraestructura Institucional and FutureAdvisor in October 2015, AUM acquired in the BofA® Global Capital Management transaction in
April 2016, and AUM acquired in the acquisition of the equity infrastructure franchise of First Reserve (“First Reserve Transaction”) in June 2017. In
addition, amounts include other reclassifications to conform to current period combined AUM policy and presentation.
(2) Percentage represents CAGR over a five-year period (2012-2017).
AUM represents the broad range of financial assets we
manage for clients on a discretionary basis pursuant to
investment management agreements that are expected to
continue for at least 12 months. In general, reported AUM
reflects the valuation methodology that corresponds to the
basis used for determining revenue (for example, net asset
value). Reported AUM does not include assets for which we
provide risk management or other forms of nondiscretionary
advice, or assets that we are retained to manage on a short-
term, temporary basis.
Investment management fees are typically earned as a
percentage of AUM. We also earn performance fees on
certain portfolios relative to an agreed-upon benchmark or
return hurdle. On some products, we also may earn
securities lending revenue. In addition, BlackRock offers its
proprietary Aladdin investment system as well as risk
management, outsourcing, advisory and other technology
services, to institutional investors and wealth management
intermediaries. Revenue for these services may be based on
several criteria including value of positions, number of users
or accomplishment of specific deliverables.
At December 31, 2017, total AUM was $6.288 trillion,
representing a CAGR of 11% over the last five years. AUM
growth during the period was achieved through the
combination of net market valuation gains, net inflows and
acquisitions, including Credit Suisse and MGPA, which
collectively added $26.9 billion of AUM in 2013, BKCA,
Infraestructura Institucional and FutureAdvisor, which
collectively added $2.2 billion of AUM in 2015, BofA Global
Capital Management which added $80.6 billion of AUM in
2016 and First Reserve which added $3.3 billion of AUM in
2017. Our AUM mix encompasses a broadly diversified
product range, as described below.
The Company considers the categorization of its AUM by client type, product type, investment style, and client region useful to
understanding its business. The following discussion of the Company’s AUM will be organized as follows:
Client Type
‘ Retail
‘ iShares ETFs
‘ Institutional
Product Type
Investment Style
Client Region
‘ Equity
‘ Fixed Income
‘ Multi-asset
‘ Alternatives
‘ Cash Management
‘ Active
‘ Index and iShares ETFs ‘ Europe, the Middle East and Africa (“EMEA”)
‘ Americas
‘ Asia-Pacific
C L I E N T T Y P E
BlackRock serves a diverse mix of institutional and retail
clients across the globe, with a regionally focused business
model. BlackRock leverages the benefits of scale across
global investment, risk and technology platforms while at
the same time using local distribution presence to deliver
solutions for clients. Furthermore, our structure facilitates
strong teamwork globally across both functions and regions
in order to enhance our ability to leverage best practices to
serve our clients and continue to develop our talent.
Clients include tax-exempt institutions, such as defined
benefit and defined contribution pension plans, charities,
foundations and endowments; official institutions, such as
central banks, sovereign wealth funds, supranationals and
other government entities; taxable institutions, including
insurance companies, financial institutions, corporations
and third-party fund sponsors, and retail investors.
iShares ETFs are a growing component of both institutional
and retail client portfolios. However, as iShares ETFs are
traded on exchanges, complete transparency on the ultimate
end-client is unavailable. Therefore, iShares ETFs are
presented as a separate client type below, with investments
in iShares ETFs by institutions and retail clients excluded
from figures and discussions in their respective sections.
3
AUM by investment style and client type at December 31, 2017 is presented below.
(in millions)
Active
Non-ETF Index
iShares ETFs
Long-term
Cash management
Advisory
Total
Retail
BlackRock serves retail investors globally through a wide
array of vehicles across the investment spectrum, including
separate accounts, open-end and closed-end funds, unit
trusts and private investment funds. Retail investors are
served principally through intermediaries, including broker-
dealers, banks, trust companies, insurance companies and
independent financial advisors. Technology solutions and
digital distribution tools are increasing the number of
financial advisors and end-retail clients using BlackRock
products. Retail represented 11% of long-term AUM at
December 31, 2017 and 32% of long-term base fees for
2017.
Retail
iShares ETFs
Institutional
Total
$ 556,697
$
71,680
—
—
—
1,752,239
$ 1,139,308
$ 1,696,005
2,316,807
—
2,388,487
1,752,239
628,377
24,354
—
1,752,239
3,456,115
5,836,731
—
—
425,595
1,515
449,949
1,515
$ 652,731
$ 1,752,239
$ 3,883,225
$ 6,288,195
iShares ETFs have a significant retail component, but is
shown separately below. With the exclusion of iShares ETFs,
retail AUM is predominantly comprised of active mutual
funds. Mutual funds totaled $519.4 billion, or 83%, of retail
long-term AUM at year-end, with the remainder invested in
private investment funds and separately managed accounts
(“SMAs”). 89% of retail long-term AUM is invested in active
products.
Component changes in retail long-term AUM for 2017 are presented below.
(in millions)
Equity
Fixed income
Multi-asset
Alternatives
Total
December 31,
2016
Net inflows
(outflows)
Market
change
FX
impact
December 31,
2017
$ 196,221
$ 4,145
$ 26,598
$ 6,254
$ 233,218
222,256
107,997
15,478
24,503
1,143
101
6,655
10,687
708
4,157
1,028
446
257,571
120,855
16,733
$ 541,952
$ 29,892
$ 44,648
$ 11,885
$ 628,377
The retail client base is diversified geographically, with 68%
of long-term AUM managed for investors based in the
Americas, 26% in EMEA and 6% in Asia-Pacific at year-end
2017.
• U.S. retail long-term net inflows of $13.7 billion were led
by fixed income inflows of $13.1 billion. Fixed income
net inflows were diversified across exposures and
products, with strong flows into our municipal,
unconstrained and total return bond offerings. Equity
net inflows of $1.3 billion were driven by flows into our
index mutual funds, and we continued to make progress
on the repositioning of our active equity platform. Multi-
asset net outflows of $0.9 billion were primarily due to
outflows from world allocation strategies.
• International retail long-term net inflows of $16.2 billion
were positive across major regions and diversified
across asset classes. Fixed income products generated
net inflows of $11.4 billion, led by emerging markets
debt, unconstrained and short duration strategies.
Equity net inflows of $2.8 billion reflected strong flows
into international equities. Multi-asset net inflows of
$2.0 billion were driven by flows into the cross-border
version of our Multi-Asset Income fund.
4
iShares ETFs
iShares is the leading ETF provider in the world, with $1.8 trillion of AUM at December 31, 2017 and was the top asset gatherer
globally in 20171 with record net inflows of $245.3 billion resulting in an organic growth rate of 19%. Equity net inflows of
$174.4 billion were driven by flows into Core funds and into products with U.S. and broad developed market equity exposures.
Record fixed income net inflows of $67.5 billion were diversified across exposures and product lines, led by flows into Core,
corporate and treasury bond funds. iShares ETF multi-asset and alternative funds contributed a combined $3.5 billion of net
inflows, primarily into commodities funds. iShares ETFs represented 30% of long-term AUM at December 31, 2017 and 40% of
long-term base fees for 2017.
Component changes in iShares ETFs AUM for 2017 are presented below.
(in millions)
Equity
Fixed income
Multi-asset
Alternatives(1)
Total
December 31,
2016
Net
inflows
Market
change
FX
impact
December 31,
2017
$
951,252
$ 174,377
$ 189,472
$ 14,509
$ 1,329,610
314,707
3,149
18,771
67,451
322
3,192
4,497
280
1,478
8,597
10
175
395,252
3,761
23,616
$ 1,287,879
$ 245,342
$ 195,727
$ 23,291
$ 1,752,239
(1) Amounts include commodity iShares ETFs.
Our broad iShares ETF product range offers investors a
precise, transparent and efficient way to gain exposure to a
full range of asset classes and global markets that have
been difficult for many investors to access, as well as the
liquidity required to make adjustments to their exposures
quickly and cost-efficiently.
• U.S. iShares ETF AUM ended 2017 at $1.3 trillion with
$201.3 billion of net inflows driven by strong demand for
Core funds and U.S. and broad developed market
Institutional
equities as well as a diverse range of fixed income
products.2
• International iShares ETF AUM ended 2017 at
$424.7 billion with net inflows of $44.1 billion led by
equity net inflows of $29.0 billion, which reflected
strong flows into our international Core funds in Canada
and Europe.
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 2017 are presented below.
(in millions)
Active:
Equity
Fixed income
Multi-asset
Alternatives
Active subtotal
Index:
Equity
Fixed income
Multi-asset
Alternatives
Index subtotal
Total
December 31,
2016
Net inflows
(outflows)
Acquisition(1)
Market
change
FX
impact
December 31,
2017
$
120,699
$(13,594)
$ —
$ 25,681
$ 4,399
$ 137,185
536,727
276,933
75,615
1,009,974
1,389,004
498,675
6,928
7,074
1,901,681
(654)
19,604
566
5,922
(34,782)
87,487
(739)
(2,882)
49,084
—
—
3,264
3,264
—
—
—
—
—
22,537
37,166
2,771
11,440
14,122
2,032
570,050
347,825
84,248
88,155
31,993
1,139,308
283,684
13,932
1,427
294
33,722
32,498
221
264
1,671,628
632,592
7,837
4,750
299,337
66,705
2,316,807
$ 2,911,655
$ 55,006
$ 3,264
$ 387,492
$ 98,698
$ 3,456,115
(1) Amount represents AUM acquired in the First Reserve Transaction.
1
2
Source: BlackRock; Bloomberg
Regional iShares ETF amounts based on jurisdiction of product, not underlying client.
5
Institutional active AUM ended 2017 at $1.1 trillion,
reflecting $5.9 billion of net inflows. Institutional active
represented 19% of long-term AUM and 18% of long-term
base fees. Growth in AUM reflected continued strength in
multi-asset products with net inflows of $19.6 billion
reflecting ongoing demand for solutions offerings and the
LifePath® target-date suite. Alternatives net inflows of
$0.6 billion were led by inflows into infrastructure, hedge
fund solutions and alternatives solutions offerings.
Excluding return of capital and investment of $6.0 billion,
alternatives net inflows were $6.6 billion. In addition, 2017
was another strong fundraising year for illiquid alternatives,
and we raised approximately $11 billion in new
commitments, which will be a source of future net inflows.
Equity and fixed income net outflows were $13.6 billion and
$0.7 billion, respectively.
Institutional index AUM totaled $2.3 trillion at December 31,
2017, reflecting net inflows of $49.1 billion. Fixed income net
inflows of $87.5 billion were driven by demand for liability-
driven investment solutions, particularly in Europe. Equity
net outflows of $34.8 billion were primarily due to low-fee
regional index equity outflows as clients looked to
re-allocate, re-balance or meet their cash needs.
Alternatives net outflows of $2.9 billion reflected outflows
from passive currency overlays. Institutional index
represented 40% of long-term AUM at December 31, 2017
and accounted for 10% of long-term base fees for 2017.
The Company’s institutional clients consist of the following:
• Pensions, Foundations and Endowments. BlackRock is
among the world’s largest managers of pension plan
assets with $2.403 trillion, or 69%, of long-term
institutional AUM managed for defined benefit, defined
contribution and other pension plans for corporations,
governments and unions at December 31, 2017. The
market landscape continues to shift from defined
benefit to defined contribution, driving strong flows in
our defined contribution channel, which had
$46.5 billion of long-term net inflows for the year, driven
by continued demand for our LifePath target-date suite.
Defined contribution represented $887.1 billion of total
pension AUM, and we remain well positioned to
capitalize on the on-going evolution of the defined
contribution market and demand for outcome-oriented
investments. An additional $76.4 billion, or 2%, of long-
term institutional AUM was managed for other
tax-exempt investors, including charities, foundations
and endowments.
• Official Institutions. BlackRock managed $195.3 billion,
or 6%, of long-term institutional AUM for official
institutions, including central banks, sovereign wealth
funds, supranationals, multilateral entities and
government ministries and agencies at year-end 2017.
These clients often require specialized investment
advice, the use of customized benchmarks and training
support.
• Financial and Other Institutions. BlackRock is a top
independent manager of assets for insurance
companies, which accounted for $274.3 billion, or 8%,
of institutional long-term AUM at year-end 2017. Assets
managed for other taxable institutions, including
corporations, banks and third-party fund sponsors for
which we provide sub-advisory services, totaled
$506.9 billion, or 15%, of long-term institutional AUM
at year-end.
P R O D U C T TY P E A N D IN V E S T M E N T ST Y L E
Component changes in AUM by product type and investment style for 2017 are presented below.
(in millions)
Equity:
Active
iShares ETFs
Non-ETF index
Equity subtotal
Fixed income:
Active
iShares ETFs
Non-ETF index
Fixed income subtotal
Multi-asset
Alternatives:
Core
Currency and commodities
Alternatives subtotal
Long-term
Cash management
Advisory
Total
December 31,
2016
Net inflows
(outflows)
Acquisition(1)
Market
change
FX
impact
December 31,
2017
$
275,033
$ (18,506)
$ —
$ 46,134
$
8,548
$ 311,209
951,252
1,430,891
2,657,176
749,996
314,707
507,662
1,572,365
395,007
88,630
28,308
116,938
174,377
(25,725)
130,146
21,541
67,451
89,795
178,787
20,330
780
197
977
4,741,486
330,240
403,584
2,782
38,259
(1,245)
—
—
—
—
—
—
—
—
3,264
—
3,264
3,264
—
—
189,472
289,829
525,435
28,800
4,497
14,324
47,621
49,560
3,438
1,813
5,251
14,509
35,827
58,884
14,798
8,597
33,297
56,692
15,381
2,421
496
2,917
1,329,610
1,730,822
3,371,641
815,135
395,252
645,078
1,855,465
480,278
98,533
30,814
129,347
627,867
133,874
5,836,731
1,239
(205)
6,867
183
449,949
1,515
$ 5,147,852
$ 367,254
$ 3,264
$ 628,901
$ 140,924
$ 6,288,195
(1) Amount represents AUM acquired in the First Reserve Transaction.
6
Long-term product offerings include alpha-seeking active
and index strategies. Our alpha-seeking active strategies
seek to earn attractive returns in excess of a market
benchmark or performance hurdle while maintaining an
appropriate risk profile, and leverage fundamental research
and quantitative models to drive portfolio construction. In
contrast, index strategies seek to closely track the returns of
a corresponding index, generally by investing in substantially
the same underlying securities within the index or in a
subset of those securities selected to approximate a similar
risk and return profile of the index. Index strategies include
both our non-ETF index products and iShares ETFs.
Although many clients use both alpha-seeking active and
index strategies, the application of these strategies may
differ. For example, clients may use index products to gain
exposure to a market or asset class, or may use a
combination of index strategies to target active returns. In
addition, institutional non-ETF index assignments tend to be
very large (multi-billion dollars) and typically reflect low fee
rates. Net flows in institutional index products generally
have a small impact on BlackRock’s revenues and earnings.
Equity
Year-end 2017 equity AUM totaled $3.372 trillion, reflecting
net inflows of $130.1 billion. Net inflows included
$174.4 billion into iShares ETFs, driven by net inflows into
Core funds and broad developed and emerging market
equities, partially offset by non-ETF index and active net
outflows of $25.7 billion and $18.5 billion, respectively.
BlackRock’s effective fee rates fluctuate due to changes in
AUM mix. Approximately half of BlackRock’s equity AUM is
tied to international markets, including emerging markets,
which tend to have higher fee rates than U.S. equity
strategies. Accordingly, fluctuations in international equity
markets, which may not consistently move in tandem with
U.S. markets, have a greater impact on BlackRock’s equity
revenues and effective fee rate.
Fixed Income
Fixed income AUM ended 2017 at $1.855 trillion, reflecting
net inflows of $178.8 billion. In 2017, active net inflows of
$21.5 billion were diversified across fixed income offerings,
and included strong inflows into municipal, unconstrained
and total return bond funds. iShares ETFs net inflows of
$67.5 billion were led by flows into Core, corporate and
treasury bond funds. Non-ETF index net inflows of
$89.8 billion were driven by demand for liability-driven
investment solutions.
Multi-Asset
BlackRock’s multi-asset team manages a variety of
balanced funds and bespoke mandates for a diversified
client base that leverages our broad investment expertise in
global equities, bonds, currencies and commodities, and our
extensive risk management capabilities. Investment
solutions might include a combination of long-only portfolios
and alternative investments as well as tactical asset
allocation overlays.
Component changes in multi-asset AUM for 2017 are presented below.
(in millions)
December 31,
2016
Net inflows
(outflows)
Market
change
FX
impact
December 31,
2017
Asset allocation and balanced
$ 176,675
$ (2,502)
$ 17,387
$ 4,985
$ 196,545
Target date/risk
Fiduciary
FutureAdvisor(1)
Total
149,432
68,395
505
23,925
(1,047)
(46)
24,532
7,522
119
1,577
8,819
—
199,466
83,689
578
$ 395,007
$ 20,330
$ 49,560
$ 15,381
$ 480,278
(1) FutureAdvisor amounts do not include AUM held in iShares ETFs.
Multi-asset net inflows reflected ongoing institutional
demand for our solutions-based advice with $18.9 billion of
net inflows coming from institutional clients. Defined
contribution plans of institutional clients remained a
significant driver of flows, and contributed $20.8 billion to
institutional multi-asset net inflows in 2017, primarily into
target date and target risk product offerings. Retail net
inflows of $1.1 billion reflected demand for our Multi-Asset
Income fund family, which raised $5.8 billion in 2017.
The Company’s multi-asset strategies include the following:
• Asset allocation and balanced products represented
41% of multi-asset AUM at year-end. These strategies
combine equity, fixed income and alternative
components for investors seeking a tailored solution
relative to a specific benchmark and within a risk
budget. In certain cases, these strategies seek to
minimize downside risk through diversification,
derivatives strategies and tactical asset allocation
decisions. Flagship products in this category include our
Global Allocation and Multi-Asset Income fund families.
• Target date and target risk products grew 16%
organically in 2017, with net inflows of $23.9 billion.
Institutional investors represented 93% of target date
and target risk AUM, with defined contribution plans
accounting for 87% of AUM. Flows were driven by
defined contribution investments in our LifePath
offerings. LifePath products utilize a proprietary active
asset allocation overlay model that seeks to balance
risk and return over an investment horizon based on the
investor’s expected retirement timing. Underlying
investments are primarily index products.
• Fiduciary management services are complex mandates
in which pension plan sponsors or endowments and
foundations retain BlackRock to assume responsibility
for some or all aspects of investment management.
These customized services require strong partnership
with the clients’ investment staff and trustees in order
to tailor investment strategies to meet client-specific
risk budgets and return objectives.
7
• FutureAdvisor is a digital wealth management platform,
acquired by BlackRock in October 2015. FutureAdvisor
provides financial institutions with technology-enabled
investment advisory capabilities to manage their
clients’ investments. As consumers increasingly engage
with technology to invest, BlackRock and FutureAdvisor
are positioned to empower distribution partners to
better serve their clients by combining FutureAdvisor’s
technology-enabled advice with BlackRock’s multi-
asset investment capabilities, proprietary technology
and risk analytics. FutureAdvisor AUM does not include
underlying iShares ETF investments.
Alternatives
BlackRock alternatives focus on sourcing and managing
high-alpha investments with lower correlation to public
markets and developing a holistic approach to address client
needs in alternatives investing. Our alternatives products fall
into two main categories — 1) core alternatives, and 2)
currency and commodities. Core includes liquid alternatives
offerings in direct hedge funds and hedge fund solutions
(funds of funds), as well as illiquid offerings in alternative
solutions, private equity solutions (funds of funds),
opportunistic private equity and credit, real estate and
infrastructure. BlackRock alternatives products are
described below.
In 2017, alternatives generated $1.0 billion of net inflows, or
$7.8 billion excluding return of capital/investment of
$6.8 billion. The largest contributors to return of capital were
real estate and private equity solutions. Net inflows were
driven by infrastructure, alternative solutions and hedge
fund solutions. In addition, we raised approximately
$11 billion of new commitments in 2017 across a variety of
strategies, led by infrastructure and private equity solutions.
At year-end, we had approximately $17 billion of non-fee
paying, unfunded, uninvested commitments, which are
expected to be deployed in future years; these commitments
are not included in AUM or flows until they are fee-paying.
We believe that as alternatives become more conventional
and investors adapt their asset allocation strategies,
investors will further increase their use of alternative
investments to complement core holdings. As a top ten
alternatives provider3 our highly diversified $129.3 billion
alternatives franchise is well positioned to meet growing
demand from both institutional and retail investors.
Component changes in alternatives AUM for 2017 are presented in the table below.
December 31,
2016
Net inflows
(outflows)
Acquisition(1)
Market
change
FX
impact
December 31,
2017
Memo:
return of
capital(2)
(in millions)
Core alternatives:
Liquid alternatives:
Hedge funds:
Direct hedge fund strategies
$ 26,971
$ (1,019)
$ —
$ 1,754
$ 1,148
$ 28,854
$ —
Hedge fund solutions
Total Liquid alternatives
Illiquid alternatives:
Alternative solutions
Illiquid and opportunistic:
Private equity solutions
Opportunistic private equity and
credit strategies
Illiquid and opportunistic subtotal
Real assets:
Real estate
Infrastructure
Real assets subtotal
Total Illiquid alternatives
Core alternatives subtotal
Currency and commodities
Total
20,319
47,290
304
(715)
2,628
447
12,016
2,288
14,304
19,501
4,907
24,408
41,340
88,630
28,308
$ 116,938
$
(1) Amount represents AUM acquired in the First Reserve Transaction.
(2) Return of capital is included in outflows.
Core
The Company’s core alternatives strategies include the
following:
• Alternative Solutions represents highly customized
portfolios of alternative investments. In 2017,
alternative solutions portfolios had $0.5 billion of net
inflows.
3
Source: Towers Watson, July 2017
(93)
(195)
(288)
(1,683)
3,019
1,336
1,495
780
197
977
8
—
—
—
—
—
—
3,264
3,264
3,264
3,264
—
1,693
3,447
93
1,241
22,409
51,263
(475)
(475)
79
5
3,159
(222)
(221)
113
11,815
(1,873)
(72)
(293)
292
(87)
205
(9)
3,438
1,813
3
116
834
225
1,059
1,180
2,421
496
2,024
13,839
18,944
11,328
30,272
47,270
98,533
30,814
(783)
(2,656)
(3,092)
(329)
(3,421)
(6,299)
(6,774)
—
$ 3,264
$ 5,251
$ 2,917
$ 129,347
$ (6,774)
• Hedge Funds net outflows of $0.7 billion were due to net
outflows of $1.0 billion from direct hedge funds,
partially offset by $0.3 billion of net inflows in hedge
fund solutions. Direct hedge fund AUM includes a
variety of single- and multi-strategy offerings.
• Illiquid and Opportunistic AUM included $11.8 billion in
private equity solutions and $2.0 billion in opportunistic
private equity and credit offerings. Net outflows of
$0.3 billion were primarily from opportunistic credit.
• Real Assets AUM, which includes infrastructure and
real estate, totaled $30.3 billion, reflecting net inflows
of $1.3 billion and $3.3 billion of AUM acquired in the
First Reserve Transaction.
Currency and Commodities
The Company’s currency and commodities products include
a range of active and passive products.
Currency and commodities products had $0.2 billion of net
inflows, primarily driven by iShares ETFs. Our iShares ETFs
commodities products represented $23.6 billion of AUM and
are not eligible for performance fees.
Cash Management
Cash management AUM totaled $449.9 billion at
December 31, 2017. Cash management products include
taxable and tax-exempt money market funds and
customized separate accounts. Portfolios are denominated
in U.S. dollars, Canadian dollars, Australian dollars, Euros,
Swiss Francs, New Taiwan Dollars or British pounds.
BlackRock generated net inflows of $38.3 billion during
2017, reflecting continued market share gains and several
large client wins. Strong growth in cash management also
reflects successful integration of acquisitions to strengthen
our platform and leverage our scale, including the 2017
acquisition of Cachematrix, a distribution technology portal
enabling corporate treasurers to allocate among cash
management products, and the 2016 transaction with BoA
Global Capital Management.
C L I E N T R E G I O N
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, 2017 is presented below.
(in millions)
Equity
Fixed income
Multi-asset
Alternatives
Long-term
Cash management
Advisory
Total
Americas
EMEA
Asia-Pacific
Total
$2,318,852
$ 801,625
$251,164
$3,371,641
1,011,545
307,557
64,477
673,762
148,895
42,977
170,158
1,855,465
23,826
21,893
480,278
129,347
3,702,431
1,667,259
467,041
5,836,731
346,065
590
99,935
925
3,949
—
449,949
1,515
$4,049,086
$1,768,119
$470,990
$6,288,195
Component changes in AUM by client region for 2017 are presented below.
(in millions)
Americas
EMEA
Asia-Pacific
Total
December 31,
2016
Net inflows
(outflows)
Acquisition(1)
Market change
FX impact
December 31,
2017
$ 3,293,743
$299,901
$3,264
$441,124
$ 11,054
$4,049,086
1,478,233
375,876
36,659
30,694
—
—
133,762
54,015
119,465
10,405
1,768,119
470,990
$5,147,852
$367,254
$3,264
$628,901
$140,924
$6,288,195
(1) Amount represents AUM acquired in the First Reserve Transaction.
Americas.
Asia-Pacific.
Net inflows of $299.9 billion were driven by net inflows into
equity, fixed income and cash management of $139.6 billion,
$91.1 billion and $50.4 billion, respectively. During the year,
we served clients through offices in 31 states in the United
States as well as Canada, Mexico, Brazil, Chile, Colombia
and Spain.
Net inflows of $30.7 billion were positive across asset
classes, and were driven by fixed income net inflows of
$26.8 billion across a variety of exposures. Clients in the
Asia-Pacific region are served through offices in Japan,
Australia, Hong Kong, Malaysia, Singapore, Taiwan, Korea,
China, and India.
EMEA.
Net inflows of $36.7 billion included net inflows from
investors in 27 countries across the region. EMEA net inflows
were led by fixed income net inflows of $60.9 billion,
reflecting strong flows into iShares ETFs and liability-driven
investment solutions. Our 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.
9
I N V E S T M E N T P E R F O R M A N C E
Investment performance across active and passive products
as of December 31, 2017 was as follows:
One-year
period
Three-year
period
Five-year
period
Fixed Income:
Actively managed AUM above
benchmark or peer median
Taxable
Tax-exempt
Index AUM within or above
applicable tolerance
Equity:
Actively managed AUM above
benchmark or peer median
Fundamental
Systematic
Index AUM within or above
applicable tolerance
81%
52%
96%
70%
83%
96%
73%
68%
93%
72%
87%
99%
90%
72%
99%
73%
90%
98%
Performance Notes. Past performance is not indicative of
future results. Except as specified, the performance
information shown is as of December 31, 2017 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 U.S.
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, 2017. The
performance data does not include accounts terminated
prior to December 31, 2017 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, 2017 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.
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.
T E C H N O L O G Y A N D RI S K MA N A G E M E N T
them to the platform to add operational efficiency.
BlackRock also offers a number of wealth management
technology tools offering digital advice, portfolio
construction capabilities and risk analytics for retail
distributors. These tools include FutureAdvisor, a digital
wealth management platform that provides financial
institutions with technology-enabled investment advisory
capabilities to manage their clients’ investments, Aladdin
Portfolio Builder, which provides financial advisors with
portfolio construction tools, and Aladdin Risk for Wealth
Management, which provides wealth management
institutions and their advisors with institutional-quality
portfolio construction, modeling and risk analytics
capabilities. Additionally, in July 2017, BlackRock acquired
Cachematrix, a leading provider of financial technology
which simplifies the cash management process for banks
and their corporate clients in a streamlined, open-
architecture platform. In 2017, BlackRock also made
minority investments in the digital distribution companies
Scalable Capital and iCapital.
Technology and risk management revenue of $677 million
was up 14% year-over-year. Aladdin, which represented the
majority of technology and risk management 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 and risk management
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.
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 U.S. domiciled portfolios) and noncash
collateral under securities lending arrangements. The cash
management team invests the cash we receive as collateral
for securities on loan in other portfolios. Fees for securities
lending for U.S. 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
$262 billion, up from $222 billion at year-end 2016. On
average, relative to 2016, asset and liability spreads were
slightly lower. However, strong market performance and
asset gathering resulted in increased balances compared to
2016.
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 the
Aladdin Risk offering; middle and back office outsourcing
services; and investment accounting. Provider Aladdin is a
tool used by BlackRock’s custodial partners, connecting
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
10
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 & QUA N TITA TIVE A N A L YSIS
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.
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.
GEOGRA PH IC IN FORMA TION
At December 31, 2017, BlackRock served clients in more
than 100 countries across the globe, including the United
States, the United Kingdom and Japan. See Note 23,
Segment Information, contained in Part II, Item 8 of this filing
for more information.
E M P L O Y E E S
At December 31, 2017, BlackRock had a total of
approximately 13,900 employees, including approximately
6,800 located in offices outside the United States.
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, trust and other fiduciary clients of BlackRock
Institutional Trust Company, N.A. (“BTC”), PNC and its bank
subsidiaries and their customers and the financial system.
Under these laws and regulations, agencies that regulate
investment advisers, investment funds, trust banks and
bank holding companies 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.
G L O B A L R E G U L A T O R Y R E F O R M
BlackRock is subject to numerous regulatory reform
initiatives 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.
Dodd-Frank Wall Street Reform and Consumer Protection Act
In July 2010, the Dodd-Frank Wall Street Reform and
Consumer Protection Act (“Dodd-Frank”) was signed into law
in the United States. Dodd-Frank is expansive in scope and
requires the adoption of extensive regulations and numerous
regulatory decisions, many of which have been adopted.
BlackRock has implemented a conformance program to
address certain regulations adopted under Dodd-Frank, as
well as financial reforms that have been introduced as part
of the Securities and Exchange Commission’s (“SEC”)
investment company modernization initiatives. The cost of
these conformance activities has been substantially
absorbed by BlackRock; however, as certain limited aspects
of Dodd-Frank and other rules are still being adopted, it is
not yet possible to predict the ultimate effects that any
implementation of these rules and regulations will have
upon BlackRock’s business, financial condition, and
operating activities.
Systemically Important Financial Institution (“SIFI”) Review
The Financial Stability Board (“FSB”) working with the
International Organization of Securities Commissions
(“IOSCO”) is considering potential systemic risk related to
asset management; statements made by these
11
organizations have generally indicated that they are, at this
time, focused on a products and activities, rather than
designation, approach in their review of asset managers. The
FSB has indicated that it may develop criteria for
designation of nonbank non-insurers in the future to
address “residual risks”. Any measures applied in relation to
a global systemically important financial institution
(“G-SIFI”) designation from the FSB would need to be
implemented through existing regulatory processes and
procedures by relevant national authorities.
In the United States, the Financial Stability Oversight Council
(“FSOC”) has the authority to designate nonbank financial
institutions as SIFIs. The FSOC’s most recent statements
generally indicate that it is focused on products and
activities, rather than designation, in its review of asset
managers. The U.S. Department of the Treasury (“Treasury”)
report on asset management, issued in October 2017
pursuant to the Executive Order (as defined below), also
expressed this view. In addition, in November 2017, Treasury
made recommendations concerning the process by which
the FSOC designates nonbanks as SIFIs, further supporting a
products and activities approach to addressing risks in asset
management. In the event that BlackRock is designated as a
SIFI, under Dodd-Frank, the Board of Governors of the
Federal Reserve System (the “Federal Reserve”) is charged
with establishing enhanced regulatory requirements for
nonbank financial institutions and BlackRock could become
subject to direct supervision by the Federal Reserve.
Taxation
BlackRock’s businesses may be directly or indirectly
affected by tax legislation and regulation, or the modification
of existing tax laws, by U.S. or non-U.S. authorities. On
December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax
Act”) was enacted. Over the next few months, as the
Company finalizes the impact of tax reform and clarifies the
potential for future investment opportunities, BlackRock
intends to reassess its capital management plans for the
balance of 2018.
In addition, certain EU Member States, such as France and
Italy, have enacted financial transaction taxes (“FTTs”) which
impose taxation on a broad range of financial instruments
and derivatives transactions, and the European Commission
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. In general, any tax on
securities and derivatives transactions would impact
investors and would likely have a negative impact on the
liquidity of the securities and derivatives markets, could
diminish the attractiveness of certain types of products that
BlackRock manages in those countries and could cause
clients to shift assets away from such products. An FTT
could significantly increase the operational costs of
BlackRock entering into, on behalf of its clients, securities
and derivatives transactions that would be subjected to an
FTT, which could adversely impact BlackRock’s financial
results and clients’ performance results.
The application of tax regulations involves numerous
uncertainties and, in the normal course of business, U.S. and
non-U.S. 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.
Regulation of Swaps and Derivatives
The SEC, Federal Reserve, the Internal Revenue Service
(“IRS”) and the Commodity Futures Trading Commission
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, these
limitations could require BlackRock to change certain
business practices or implement new compliance processes,
which could result in additional costs and/or restrictions. In
December 2015, the SEC proposed a new rule governing the
use of derivatives and other financial commitment
transactions by investment companies that, if enacted,
would represent a fundamental change in the nature of the
SEC’s regulations governing the use of derivatives and other
financial commitment transactions by investment
companies. While not on the SEC’s current agenda for
finalization, this proposal has the potential to require
BlackRock to change or restrict certain investment
strategies or practices for some investment companies and
incur additional costs.
Jurisdictions outside the U.S. 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 introduce new 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 United States, certain interest rate swaps and certain
index credit default swaps are subject to Dodd-Frank central
clearing and electronic trading venue requirements, with
additional products and asset classes potentially becoming
subject to these requirements in the future. In the European
Union (“EU”), central clearing requirements for certain swap
transactions have become effective for certain types of
BlackRock funds and accounts and will continue to be
phased in for other types of BlackRock funds and accounts
over time. 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 United
States, EU and numerous other jurisdictions to post or
collect mark-to-market margin payments. These rules have
the potential to increase the complexity and cost of trading
non-cleared derivatives for BlackRock’s clients. The new
12
rules and regulations may produce regulatory
inconsistencies in global derivatives trading rules and
increase BlackRock’s operational and legal risks.
and may limit BlackRock’s ability to provide certain useful
services and education to its clients.
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 potential risks in
ETFs, including those related to transparency, liquidity and
structural resiliency. BlackRock and other large issuers 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 regulatory scrutiny or
restrictions, which may require BlackRock to incur additional
compliance and reporting expenses and adversely affect the
Company’s business.
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 with the SEC under the Investment Advisers
Act of 1940 (the “Advisers Act”), the requirement to establish
anti-money laundering programs and report suspicious
activity to the FinCEN under the Bank Secrecy Act of 1970
(the “Bank Secrecy Act”). The Proposed Rule would extend to
those BlackRock subsidiaries captured 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.
Volcker Rule
U.S. Executive Order
Provisions of Dodd-Frank referred to as the “Volcker Rule”
created a new section of the Bank Holding Company Act of
1956 (the “Bank Holding Company Act”) that places
limitations on the ability of banks and their subsidiaries to
engage in proprietary trading and to invest in and transact
with certain private investment funds, including hedge
funds, private equity funds and funds of funds (collectively
“covered funds”). The Bank Holding Company Act by its
terms does not currently apply to BlackRock. The Federal
Reserve currently takes the position that PNC’s ownership
interest in BlackRock, which is approximately 22%, causes
BlackRock to be treated as a nonbank subsidiary of PNC for
the purpose of the Bank Holding Company Act and that
BlackRock is subject to banking regulation. Based on this
interpretation of the Bank Holding Company Act, the Federal
Reserve could initiate a process to formally determine that
PNC controls BlackRock under the terms of the Bank
Holding Company Act. Any such determination, if successful,
would subject BlackRock to current and future regulatory
requirements under the Bank Holding Company Act,
including the Volcker Rule. Conformance with the Volcker
Rule may require BlackRock to remove its name from the
names of its covered funds, and to sell certain seed and
co-investments that it holds in those funds, which may occur
at a discount to existing carrying value depending on market
conditions.
Revised Department of Labor (“DoL”) Fiduciary Rule
In April 2016, the DoL proposed a new regulation defining the
term “fiduciary” for purposes of the fiduciary responsibility
provisions of Title I of the Employee Retirement Income
Security Act of 1974 (“ERISA”) and the prohibited transaction
excise tax provisions of the Internal Revenue Code. The
substantive provisions of the rule began to apply in June
2017. However, the applicability date of many conditions of
the prohibited transaction exemptions accompanying the
rule has been delayed until July 2019, while the DoL
continues its re-examination of the rule and the prohibited
transaction exemptions. If the DoL does not repeal or revise
the rule or revise the prohibited transaction exemptions, the
rule could require BlackRock to revise a number of its
distribution relationships, create compliance and
operational challenges for BlackRock’s distribution partners
On February 3, 2017, an executive order (the “Executive
Order”) was issued articulating certain core principles for
regulating the U.S. financial system and directing the
Secretary of the U.S. Treasury to report on the extent to
which existing laws, treaties, rules, regulations and policies
promote, support or inhibit the federal regulation of the U.S.
financial system in a manner consistent with the core
principles. The Treasury has issued three (of an expected
four) reports in response to the Executive Order (the
“Treasury Reports”), which include a number of
recommendations, the majority of which require further
legislative or regulatory action in order to be implemented,
that may affect BlackRock’s business or operations.
BlackRock will continue to monitor the potential impact of
the Executive Order, as well as the Treasury Reports and any
consequential legislative or regulatory action, on its
business.
Securities and Exchange Commission Rulemakings for U.S.
Registered Funds and Investment Advisers
BlackRock’s business may also be impacted by SEC
regulatory initiatives. The SEC and its staff are 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. In so doing, it has adopted rules
that include (i) new monthly and annual reporting
requirements for certain U.S. registered funds; (ii) enhanced
reporting regimes for investment advisers; and
(iii) implementing liquidity risk management programs for
ETFs and open-end funds, other than money market funds.
The rules, many of which are currently in an implementation
period, will increase BlackRock’s public reporting and
disclosure requirements, which could be costly and may
impede BlackRock’s growth.
Certain other rules impacting investment advisers and U.S.
registered funds were proposed (or were under discussion
for proposal) by the SEC’s prior leadership, however the
SEC’s current leadership has indicated that these efforts are
not expected to result in any short-term action. In the event
the SEC moves forward with any such proposals, any new
rules, guidance or regulatory initiatives could expose
13
BlackRock to additional compliance costs and may require
the Company to change how it operates its business and/or
manages its funds.
Money Market Fund Reform
In November 2016, the EU council announced political
agreement with the European Parliament on certain money
market funds reforms that are intended to reduce perceived
risks associated with these products. The final text was
published in the Official Journal of the EU in June 2017,
starting an 18-month transition period for existing funds to
comply. The reforms will limit the use of constant net asset
value money market funds to those holding only government
debt, and introduce a new category of “low volatility net
asset value” money market funds, with both categories of
money market funds being subject to reinforced liquidity
requirements as well as safeguards such as liquidity fees
and redemption gates. They may also reduce the
attractiveness of certain money market funds to investors.
BlackRock is evaluating the reforms and potential impact to
its existing constant net asset value money market funds.
In the United States, there is currently legislation pending in
Congress that would repeal the requirement that
institutional prime and institutional municipal money market
funds float their net asset values. In order to understand the
potential impact of this legislation, a review of the impact of
the 2014 money market fund reforms on financial stability,
short-term funding markets, issuers, and money market
fund investors should be undertaken. It is uncertain whether
the legislation will pass Congress and become law.
British Exit from the European Union
Following the June 2016 vote to exit the EU, the United
Kingdom served notice under Article 50 of the Treaty on
European Union on March 29, 2017 to initiate the process of
exiting from the EU, commonly referred to as “Brexit”. The
outcome of the negotiations between the United Kingdom
and the EU in connection with Brexit is highly uncertain and
information regarding the long-term consequences is
expected to become clearer over time as negotiations
progress. The Company continues to prepare for a range of
potential outcomes in connection with Brexit.
MiFID II Regime
BlackRock is also subject to numerous regulatory reform
initiatives in Europe. For example, in the EU rules and
regulations made under the previous Markets in Financial
Instruments Directive (“MiFID”) have been revised through
implementation of the “MiFID II” package of measures which
came into effect in January 2018 and is made up of a new
Markets in Financial Instruments Directive, a new Markets in
Financial Instruments Regulation and a number of
Implementing and Regulatory Technical Standards in the
form of Delegated Acts made by the European Commission
following advice from the European Securities and Markets
Authority (“ESMA”). MiFID II builds upon many of the
measures introduced by MiFID, and extends investor
protection, trading transparency, clearing and trading venue
access and reporting requirements. It is expected that the
reforms introduced by MiFID II will have significant and wide-
ranging impacts on EU securities and derivatives markets. In
particular, MIFID II introduces (i) enhanced governance and
investor protection standards, (ii) prescriptive rules on
portfolio management firms’ ability to receive and pay for
investment research relating to all asset classes, (iii) rules
on the identification and monitoring of target markets for
MiFID financial instruments by MiFID investment firms who
manufacture and/or distribute such instruments,
(iv) enhanced regulation of algorithmic trading, (v) the
movement of trading in certain shares and derivatives on to
regulated execution venues, (vi) the extension of pre- and
post-trade transparency requirements to wider categories of
financial instruments, (vii) restrictions on the use of
so-called dark pool trading, (viii) the creation of a new type of
trading venue called the Organized Trading Facility for
non-equity financial instruments, (ix) new commodity
derivative position limits and reporting requirements, (x) a
move away from vertical silos in execution, clearing and
settlement, (xi) an enhanced role for ESMA in supervising EU
securities and derivatives markets and (xii) new
requirements regarding non-EU investment firms’ access to
EU financial markets. Implementation of these measures
will have direct and indirect impacts on BlackRock and its
subsidiaries and may require significant changes to client
servicing models. A significant number of the impacts are yet
to be determined because MiFID II contains a wide ranging
and complex set of measures. The broad nature of the MiFID
II reforms may impact BlackRock’s product development,
client servicing and distribution models. In particular,
additional disclosures are required in respect of costs and
fees BlackRock charges to certain of its clients. MiFID II may
also impact the ability of certain of BlackRock’s distribution
partners to accept commissions. Further, market structure
reforms may impact the way that the Company executes
investment decisions for client portfolios and reports on
such transactions and could have an impact on general
market liquidity.
EU Market Access
The European Commission and certain EU Member States
have recently advanced a more restrictive approach to the
need for “equivalence”, which is the process by which the
legal, regulatory and/or supervisory system in non-EU
Member States is recognized by the European Commission
as comparably effective to that in the EU, thereby allowing
such non-EU Member States access to the EU single market
in financial services. Additionally, in September 2017, the
European Commission issued a proposal to enhance the
European Supervisory Authorities’ powers by requiring that
all third country outsourcing, delegation and risk transfer
arrangements be assessed by ESMA. If enacted, the
proposal would transfer to ESMA the ability of EU Member
States to authorize the outsourcing of asset management
activities beyond the EU’s borders. The proposal could have
a significant impact on asset management firms with
operations based outside of the EU, including BlackRock,
and it may affect the Company’s ability to delegate fund
management and/or costs associated with such delegation.
Undertakings for Collective Investment in Transferable
Securities
The EU has also adopted directives on the coordination of
laws, regulations and administrative provisions relating to
undertakings for collective investment in transferable
securities (“UCITS”). The latest initiative in this area, UCITS V,
seeks to align the UCITS depositary regime, UCITS
remuneration rules and regulators’ power to sanction for
breaches of the UCITS Directive with the requirements of the
Alternative Investment Fund Managers Directive. UCITS V
came into effect in March 2016 with further implementing
measures commencing in October 2016. Compliance with
14
the updated UCITS directive subjects BlackRock to
additional expenses associated with new depositary
oversight and other organizational requirements.
EU Benchmarks Regulation
Political agreement on the EU Benchmarks Regulation was
reached at the end of 2015. The Regulation provides the
legislative framework to implement the 2013 International
Organization of Securities Commissions Principles for
Financial Benchmarks. The scope of the Regulation is broad
as it includes submission-based benchmarks through to
transaction-based market indices. Proportionality is applied
to create a stricter framework for the systemically relevant
benchmarks such as the London Interbank Offered Rate
(LIBOR) and the Euro Interbank Offered Rate (EURIBOR).
Although the Regulation creates a number of obligations on
administrators of, and submitters to, benchmarks, it is less
extensive with respect to obligations on users of
benchmarks, such as asset managers. The Regulation
formalizes due diligence procedures for users and imposes
other additional administrative requirements of users of
third-party benchmarks. Managers using third-party and/or
bespoke benchmarks to assess fund performance are also
subject to the Regulation. The Regulation came into effect in
January 2018, imposing additional administrative and due
diligence requirements on the Company, the burden of which
is likely to increase as BlackRock makes additional
enhancements to its indexing business.
Revised EU Capital Requirements
EU regulators are considering how to design an appropriate
capital regime for non-systemically important investment
firms as the current regime is based upon banking
requirements and has not been materially modified for asset
managers. In December 2017, the European Commission
published a legislative proposal addressed to the European
Parliament and Council for a new Directive and new
Regulation on prudential requirements for MiFID investment
firms. The new legislative package is currently expected to
come into effect in 2020 following agreement between the
European Council and Parliament. Once implemented, any
new requirements could result in significant changes to the
methodology used to determine the amount of regulatory
capital that BlackRock is required to hold in the EU.
Reform of European Retail Distribution Rules
BlackRock must also comply with retail distribution rules
aimed at enhancing consumer protections, overhauling
mutual fund fee structures by banning the payment of
commissions to distributors and increasing professionalism
in the retail investment sector. The rules were originally
introduced in the United Kingdom in 2012 and similar rules
have since been introduced in other jurisdictions where
BlackRock operates such as the Netherlands, and are under
discussion elsewhere. Similarly, MiFID II contains a ban on
certain types of advisers recovering commissions and other
nonmonetary benefits from fund managers. These rules will
lead to greater fragmentation of distribution rules and may
lead to changes to BlackRock’s client servicing and
distribution models, in particular affecting the fees
BlackRock is able to charge to its clients and the
commissions it is able to pay to its distribution partners.
Revised Retail Consumer Disclosure Requirements
EU legislators have introduced a new “Key Information
Document” (“KID”), which is applicable where a retail
consumer is sold Packaged Retail and Insurance-based
Investment Products (“PRIIPs”) and which came into effect in
January 2018. The KID must include specific information on
costs, risks and performance. BlackRock is required to
produce a KID for each fund in scope, as well as to make
information available to distribution partners who sell these
funds in the EU.
Financial Conduct Authority (“FCA”) Asset Management
Market Survey
The FCA is continuing its assessment of the asset
management industry, which is focused on understanding
whether competition provides value to institutional and
retail investors when purchasing asset management
services. In June 2017, the FCA issued a final report to
address concerns it had raised in its November 2016 Report
about the effectiveness and sufficiency of price competition
in driving value for investors within the asset management
industry. The final report recommended (i) the adoption of an
“all-in” fee structure in the asset management industry in
line with MiFID II and PRIIPs requirements; (ii) increasing
independence in U.K. fund boards in line with existing Irish
and Luxembourg practice; and (iii) imposing a specific value
for money assessment on fund boards to challenge fund
charging structures with the aim of passing on economies of
scale to end investors. If implemented as written, these
recommendations could affect pricing and distribution
arrangements across the U.K. asset management industry
and potentially impact BlackRock’s profitability and
operating margins. Two further consultations on asset
management have been initiated by the FCA in order to set
out specific FCA rule changes.
EX ISTING U.S. REGUL A TION — OVERVIEW
BlackRock and certain of its U.S. subsidiaries are currently
subject to extensive regulation, primarily at the federal level,
by the SEC, the 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 Commodity Futures Trading
Commission and other federal government agencies and
regulatory bodies.
Certain of BlackRock’s U.S. subsidiaries are also subject to
various anti-terrorist financing, privacy, anti-money
laundering and economic sanctions laws and regulations
established by various agencies. The Investment Advisers
Act of 1940 (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 affiliated companies.
The SEC is authorized to institute proceedings and impose
15
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 Securities Exchange Act of
1934 (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, one of
BlackRock’s subsidiaries, BTC, was required to register as a
municipal advisor (as that term is defined in the statute) with
the SEC and Municipal Securities Rulemaking Board
(“MSRB”) as a result of SEC rules giving effect to a section of
Dodd-Frank requiring such registration. The rules subject
BTC to new and additional regulation by the SEC and
Municipal Securities Rulemaking Board.
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 (“CLOs”), real estate funds, collective investment
trusts, 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 ERISA, and to
regulations promulgated thereunder by the DoL, insofar as
they act as a “fiduciary” under Title I of ERISA with respect to
benefit plan clients. 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 non-benefit plan clients.
BlackRock has seven subsidiaries that are registered as
commodity pool operators (“CPOs”) and/or commodity
trading advisors (“CTAs”) with the Commodity Futures
Trading Commission and are members of the NFA. The
Commodity Futures Trading Commission 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. Two of BlackRock’s other subsidiaries,
BlackRock Investments, LLC (“BRIL”) and BlackRock
Execution Services, 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. BRIL is
also an approved person with the New York Stock Exchange
and a member of the Municipal Securities Rulemaking
Board, subject to Municipal Securities Rulemaking Board
rules.
U.S. 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 and its
other affiliates or BlackRock’s stockholders.
PNC is a bank holding company and regulated as a “financial
holding company” by the Federal Reserve under the Bank
Holding Company Act. The supervision and regulation of PNC
and its subsidiaries under applicable banking laws are
intended primarily for the protection of its banking
subsidiaries, its depositors, the Deposit Insurance Fund of
the Federal Deposit Insurance Corporation, and the financial
system as a whole, rather than for the protection of
stockholders, creditors or clients of BlackRock.
As described in “Item 1-Business”, as of December 31, 2017
PNC owned approximately 22% of BlackRock’s capital stock,
which may subject BlackRock to banking regulation as a
nonbank subsidiary of PNC. The Bank Holding Company Act
by its terms does not currently apply to BlackRock. The
Federal Reserve currently takes the position that this
ownership interest causes BlackRock to be treated as a
nonbank subsidiary of PNC for the purpose of the Bank
Holding Company Act and that BlackRock is subject to
banking regulation. Based on this interpretation of the Bank
Holding Company Act, the Federal Reserve could initiate a
process to formally determine that PNC controls BlackRock
under the terms of the Bank Holding Company Act. Any such
determination, if successful, would subject BlackRock to
current and future regulatory requirements under the Bank
Holding Company Act, including the Volcker Rule, that are
more restrictive than those the Company is subject to under
other applicable laws, as well as the enforcement authority
of the Federal Reserve, which includes the power to impose
substantial fines and other penalties for violations. Any
effort by BlackRock to contest a control determination by the
Federal Reserve may be costly and complex, and may not
result in a reversal of such determination.
Any failure of PNC to maintain its status as a financial
holding company could result in substantial limitations on
certain BlackRock activities and its growth. Such a change of
status could be caused by any failure of PNC or one of PNC’s
16
bank subsidiaries to remain “well capitalized” and “well
managed,” by any examination downgrade of one of PNC’s
bank subsidiaries, or by any failure of one of PNC’s bank
subsidiaries to maintain a satisfactory rating under the
Community Reinvestment Act.
Regulation of Securities Financing Transactions
In its 2014 Annual Report, the Financial Stability Oversight
Council 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. In addition, in November 2015, the
EU introduced a new regulation on the reporting and
transparency of securities financing transactions and total
return swaps (“SFTR”). 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 and total
return swaps to a trade repository and requiring disclosure
of the use of securities financing transactions and total
return swaps to investors. If the recent scrutiny of securities
financing transactions results in further regulatory
requirements or reporting obligations, BlackRock may be
required to introduce further compliance measures, which
will subject BlackRock to additional expenses and could lead
to modifications in BlackRock’s securities financing
transaction activities, including potential adjustments to its
activities as agent lender for its clients.
Regulation of Money Market Funds
In October 2016, new rules were implemented to reform the
regulatory structure governing U.S. money market funds to
address the perceived systemic risks of money market
funds. The new 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, however,
provide for new 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. The new rules led to an
approximately $1 trillion asset transition from the prime
money funds industry to the government money funds
industry and BlackRock saw a similar dynamic on its
platform.
EX ISTIN G IN TERN A TION A L REGUL A TION —
O V E R V I E W
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 U.S. 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 United Kingdom. It also prudentially regulates those
U.K. subsidiaries’ branches established in other EU
countries and is also responsible for the conduct of business
regulation of the U.K. branches of certain of BlackRock’s U.S.
subsidiaries. In addition, the Prudential Regulation Authority
(“PRA”) regulates one BlackRock U.K. insurance subsidiary.
Authorization by the FCA and (where relevant) the PRA is
required to conduct certain financial services related
business in the United Kingdom 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, interaction with clients, and systems
and controls, whereas the rules of the PRA focus solely on
the prudential requirements that apply to BlackRock’s U.K.-
regulated insurance subsidiary. The FCA supervises
BlackRock’s U.K.-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 U.K.-
regulated subsidiaries and/or its employees.
In addition, BlackRock’s U.K.-regulated subsidiaries and
other European subsidiaries and branches must comply with
the pan-European regulatory regime established by MiFID,
which regulates the provision of investment services and
activities throughout the EU. MiFID, the scope of which is
being enhanced through MiFID II (which came into effect in
January 2018 and is described more particularly under “—
Global Regulatory Reform” above), sets out detailed
requirements governing the organization and conduct of
business of investment firms and regulated markets. It also
includes pre- and post-trade transparency requirements for
equity and non-equity markets and extensive transaction
reporting requirements. Certain BlackRock European
subsidiaries must also comply with the Consolidated Life
Directive and Insurance Mediation Directive. In addition,
relevant entities must comply with revised obligations on
capital resources for banks and certain investment firms
(the Capital Requirements Directive and Capital
Requirements Regulation). These include requirements on
capital, as well as matters of governance and remuneration.
Relevant BlackRock entities must also comply with the
requirements of the Alternative Investment Fund Managers
Directive, which imposes obligations on the authorization
and capital, conduct of business, organization, transparency
and marketing of alternative investment funds that are sold
in, or marketed to, the EU. The obligations introduced
through these regulations and directives will have a direct
effect on some of BlackRock’s European operations.
BlackRock’s EU-regulated subsidiaries are also subject to an
EU regulation on over-the-counter (“OTC”) derivatives,
17
central counterparties and trade repositories, which
requires (i) the central clearing of standardized OTC
derivatives, (ii) the application of risk-mitigation techniques
to non-centrally cleared OTC derivatives (including since
March 2017 the exchange of collateral with certain
counterparties) and (iii) since 2014 the reporting of all
derivative contracts to an ESMA-registered or recognized
derivatives trade repository.
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, the issuance of 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 investment management and
brokerage activities which subjects it to the regulations set
forth in the Real Estate Brokerage Business 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 in Australia and is responsible for
promoting investor, creditor and consumer protection.
Failure to comply with applicable laws and regulations could
result in the cancellation, suspension or variation of the
regulated subsidiaries’ licenses in Australia.
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. Failure to comply
with the applicable laws, regulations, codes and guidelines
issued by the SFC could result in the suspension or
revocations of the licenses granted 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. Other
financial regulators oversee BlackRock subsidiaries,
branches, and representative offices across the Asia-Pacific
region, including in Singapore and South Korea. Regulators
in these jurisdictions have authority with respect to financial
services including, among other things, the authority to grant
or cancel required licenses or registrations. In addition,
these regulators may subject certain BlackRock subsidiaries
to net capital requirements.
A V A IL A B L E IN F O R M A T IO N
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. Investors may read and copy any document
BlackRock files at the SEC’s Public Reference Room at 100 F
Street N.E., Washington, D.C. 20549. Please
call 1-800-SEC-0330 for further information on the operation
of the Public Reference Room. 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.
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, 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 C OMPETITION RISKS
Changes in the value levels of equity, debt, real assets,
commodities, foreign exchange or other asset markets 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,
18
debt or currency markets, or in the price of real assets,
commodities or alternative investments in which BlackRock
invests, 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.
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 private 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 U.S. 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, remove BlackRock from 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.
Increased competition may cause BlackRock’s AUM,
revenue and earnings to decline.
The investment management industry is highly competitive
and has relatively low barriers to entry. BlackRock competes
based on a number of factors including: investment
performance, the level of fees charged, the quality and
diversity of services and products provided, name
recognition and reputation, and the ability to develop new
investment strategies and products to meet the changing
needs of investors. In addition, the introduction of new
technologies, as well as regulatory changes, have altered the
competitive landscape for investment managers, which may
lead to fee compression or require BlackRock to spend more
to modify or adapt its product offerings to attract and retain
customers and remain competitive with products and
services 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 for risk analytics could lead to a loss of
clients and could impede BlackRock’s productivity and
growth.
The sophisticated risk analytics that BlackRock provides via
its technology platform to support investment advisory and
Aladdin clients are an important element 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 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, there can be no assurance that the
Company will be able to effectively protect and enforce its
intellectual property rights in Aladdin.
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.
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, 2017, BlackRock’s net economic
investment exposure of approximately $2.1 billion in its
investments (see “Item 7 — Management’s Discussion and
Analysis of Financial Condition and Results of Operations-
Investments and Investments of Consolidated VIEs”)
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.
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
19
the risks of collateral investments), and BlackRock may be
held liable for any failure to manage any such risks.
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 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, 2017 and
subject to indemnification was $200 billion. BlackRock held,
as agent, cash and securities totaling $214 billion as
collateral for indemnified securities on loan at December 31,
2017. 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. Such support may utilize capital and liquidity that
would otherwise be available for other corporate purposes.
Losses on such support, as well as regulatory restrictions on
the Company’s ability to provide such support or the failure
to have available or devote sufficient capital or liquidity to
support products, may cause AUM, revenue and earnings to
decline.
Increased geopolitical unrest could adversely affect the
global economy or specific international, regional and
domestic markets, which may cause BlackRock’s AUM,
revenue and earnings to decline.
Terrorist activity and the continued threat of terrorism and
acts of civil or international hostility, both within the United
States and abroad, as well as heightened security measures
in response to these types of acts, may cause significant
volatility and declines in the global markets, loss of life,
property damage, disruptions to commerce and reduced
economic activity. Global unrest or conflict or acts of terror,
as well as any changes in the current geopolitical
environment, may adversely affect the global economy or
capital markets and cause BlackRock’s AUM, revenue and
earnings to decline.
RISKS RELATED TO INVESTMENT P ERFORMANCE
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 or to competitors may cause AUM,
revenue and earnings to decline as a result of:
• client withdrawals in favor of better performing
products;
• 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 investment returns on 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 $594 million, or 5%, of total
revenue for the year ended December 31, 2017. Generally,
the Company is entitled to a performance fee only if the
agreement pursuant to 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
impact product performance and client relationships.
BlackRock employs various quantitative models to support
its investment decisions and allocations, including those
related to risk assessment, portfolio management, trading
and hedging activities and product valuations. Any errors in
the underlying models or model assumptions could have
unanticipated and adverse consequences on BlackRock’s
business and reputation.
T E C H N O L O G Y A N D OP E R A T IO N A L R IS K S
A failure in BlackRock’s operational systems or
infrastructure, including business continuity plans, could
disrupt 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
20
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 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 or other catastrophic
event 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 cause financial
losses that 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, virus, or denial-of-service 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, BlackRock’s increased use of 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, 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 actions by terrorist
organizations and hostile foreign governments. BlackRock
has been the target of attempted cyber-attacks, as well as
the co-opting of its brand to create fraudulent websites, 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
takes protective measures and endeavors to strengthen its
computer systems, software, technology assets and
networks to prevent and address potential cyber-attacks,
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.
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 are 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 and could lead to a
loss of clients and could impede BlackRock’s productivity
and growth.
BlackRock relies on its ability to maintain a robust and
secure technological framework to maximize the benefit of
the Aladdin platform. 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 analytical
calculations. The failure of these third parties to provide
such data or information, or disruption of such information
flows, could result in operational difficulties 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 BlackRock’s Aladdin platform into new
markets and geographies, may expose BlackRock to
heightened cyber- and information-security, operational
and data management risks.
The operation of BlackRock’s Aladdin platform routinely
involves updating existing capabilities, developing new
functionalities and expanding coverage into new markets
and geographies, including to address client or regulatory
requirements. These activities may expose BlackRock to
additional cyber- and information-security risks, as well as
increased execution, operational and data management
risks, particularly in new geographies and markets. In
21
addition, the highly regulated business activities of many
Aladdin clients may indirectly 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 and information security risks, as well
as additional regulatory risks associated with the
compliance requirements of such jurisdictions. Any failure
by BlackRock to manage or mitigate risks related to
enhancing or expanding its Aladdin platform may lead to
client attrition, reduced business, reputational harm or
regulatory fines and/or sanctions, which may cause
BlackRock’s AUM, revenue and earnings to decline.
strategies have included hiring smaller-sized investment
teams, making minority investments in early- to mid-stage
technological and other ventures and acquiring investment
management businesses and other small and medium-sized
companies or divisions of companies. 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. Any failure to identify and mitigate these risks
through due diligence and indemnification provisions could
adversely impact BlackRock’s reputation, may cause its
AUM, revenue and earnings to decline, and may harm the
Company’s competitive position in the investment
management industry. Moreover, there can be no assurance
that BlackRock will be able to successfully integrate or
realize the intended benefits from inorganic transactions.
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.
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’s ability to meet anticipated cash needs depends
upon a number of factors, including its ability to maintain
and grow its AUM, creditworthiness and operating cash
flows. 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.
BlackRock may be unable to develop new products and
services and the development of new products and
services may expose BlackRock to additional costs or
operational risk.
BlackRock’s financial performance depends, in part, on its
ability to develop, market and manage new investment
products and services. The development and introduction of
new products and services require continued innovative
efforts 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. A failure to successfully manage
these risks may have an adverse impact on BlackRock’s
reputation or cause the Company’s costs to fluctuate, which
may cause its AUM, revenue and earnings to decline.
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, access new clients, leverage advances in
technology and expand into new geographies. Inorganic
Investments in real assets, including real estate,
infrastructure and energy assets, 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 labor disputes or work
stoppages, shortages of material or interruptions to the
availability of necessary equipment;
• accidents, adverse weather, force majeure or
catastrophic events, such as explosions, fires or
terrorist activity beyond BlackRock’s control;
• 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 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
22
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 may also expose
BlackRock to increased compliance risks, as well as higher
compliance costs to comply with U.S. and non-U.S. anti-
corruption, anti-money laundering and sanctions laws and
regulations. 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.
R IS K S RE L A T E D T O H U M A N C A P ITA L
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 policies and procedures
intended to prevent and detect such errors. These can
include calculation errors, errors in software implementation
or development, failure to follow protocols, 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.
Although 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, it cannot ensure that its workplace culture or such
controls, procedures, policies and systems will successfully
identify and manage internal and external risks. BlackRock
is subject to the risk that its employees, contractors or other
third parties may 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. 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, which could cause adverse publicity,
costly regulatory inquiries, fines and/or sanctions and 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 materially, 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 cause
BlackRock’s AUM, revenue and earnings to decline.
BlackRock’s investment management activities expose the
products and accounts it manages 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 the products and accounts BlackRock manages to
credit risk in the event the applicable counterparty defaults.
Although BlackRock 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 otherwise fail to
meet their obligations. Any such impairment or failure could
negatively impact the performance of products or accounts
managed by BlackRock, which could lead to the loss of
clients and may cause BlackRock’s AUM, revenue and
earnings to decline.
23
The failure of a key vendor to BlackRock to fulfill its
obligations could have a material adverse effect on
BlackRock’s 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 and transfer agent roles and other
distribution and operational needs. BlackRock performs
focused diligence on its vendors in an effort to ensure they
operate in accordance with expectations; however, to the
extent any significant deficiencies are uncovered, there may
be few, or no, feasible alternative vendors available to
BlackRock in certain areas.
In addition, BlackRock may from time to time transfer key
contracts from one vendor to another. For example,
BlackRock is currently in the process of moving custody
services on more than $1 trillion of client assets from State
Street Corp. to JPMorgan Chase & Co., the migration of
which is expected to be complete by the end of 2018. 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 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, if it experiences an
increase in distribution-related costs, 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 harm to BlackRock.
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. The net asset value 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. While an ETF’s
creation/redemption feature and the arbitrage mechanism
are designed to make it more likely that the ETF’s shares
normally will trade at prices close to the ETF’s net asset
value, exchange prices may deviate significantly from the
ETF’s net asset value. ETF market prices are subject to
numerous potential risks, including trading halts invoked by
a stock exchange, inability or unwillingness of market
markers, authorized participants, settlement systems or
other market participants to perform functions necessary for
an ETF’s arbitrage mechanism to function effectively, or
significant market volatility. Although BlackRock and other
large issuers of ETFs are working with market participants to
seek to enhance U.S. equity market resiliency, there can be
no assurance that structural 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 significantly from an ETF’s net asset value, 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.
L E G A L A N D R E G U L A T O R Y R I S K S
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 U.S. Foreign Corrupt
Practices Act, the USA PATRIOT Act, the Bank Secrecy Act
and the U.K. Bribery Act. BlackRock is also subject to certain
risk retention rules and regulation, as well as regulatory
capital requirements, in the United States and abroad, which
require the Company to maintain capital to support certain
of its businesses. To the extent that these rules 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 its failure to
comply with current laws and regulations or by changes in
the interpretation or enforcement of existing laws and
regulations. 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
bank charter or other sanctions, which could have a material
adverse effect on BlackRock’s reputation or business and
24
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,
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
introduced in the United States, including several that
remain proposals or that are at various phases of
implementation, and the level of regulatory scrutiny to which
BlackRock is subject has increased. In addition, there are
numerous potential changes to financial services regulation
under current consideration, including reform and repeal
initiatives arising out of or in connection with the executive
order issued in February 2017 directing the U.S. Department
of the Treasury (“Treasury”) to identify the extent to which
existing laws, treaties, rules, regulations and policies
promote, support or inhibit certain core principles for
financial regulation set forth in the order (the “Executive
Order”), that may directly or indirectly impact BlackRock’s
business or operating activities. 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. The FSOC’s most recent
statements generally indicate that it is focused on
products and activities, rather than designation, in its
review of asset managers. The Treasury report on asset
management, issued in October 2017 pursuant to the
Executive Order, also expressed this view. In addition, in
November 2017, Treasury made recommendations
concerning the process by which the FSOC designates
nonbanks as SIFIs, further supporting a products and
activities approach to addressing risks in asset
management. In the event that BlackRock is designated
as a SIFI, under Dodd-Frank, the Federal Reserve is
charged with establishing enhanced regulatory
requirements for nonbank financial institutions and
BlackRock could become subject to direct supervision
by the Federal Reserve.
• Securities and Exchange Commission (“SEC”)
Rulemakings for US Registered Funds and Investment
Advisers: The SEC is engaged in a period of rule-making
in an effort to improve and modernize the regulatory
structure governing the asset management industry,
and registered investment companies in particular. In
so doing, it has adopted rules that include (i) new
monthly and annual reporting requirements for certain
U.S. registered funds; (ii) enhanced reporting regimes
for investment advisers; and (iii) implementing liquidity
risk management programs for ETFs and open-end
funds, other than money market funds. These rules,
many of which are currently in an implementation
period, will increase BlackRock’s public reporting and
disclosure requirements, which could be costly and may
impede BlackRock’s growth. Certain other rules
impacting investment advisers and U.S. registered
funds were proposed (or were under discussion for
proposal) by the SEC’s prior leadership, however the
SEC’s current leadership has indicated that these
efforts are not expected to result in any short-term
action. In the event the SEC moves forward with any
such proposals, any new rules, guidance or regulatory
initiatives could expose BlackRock to additional
compliance costs and may require the Company to
change how it operates its business and/or manages its
funds.
• The Volcker Rule: Provisions of Dodd-Frank referred to
as the “Volcker Rule” created a new section of the Bank
Holding Company Act that places limitations on the
ability of banks and their subsidiaries to engage in
proprietary trading and to invest in and transact with
certain private investment funds, including hedge
funds, private equity funds and funds of funds
(collectively “covered funds”). The Bank Holding
Company Act by its terms does not currently apply to
BlackRock. The Federal Reserve currently takes the
position that PNC’s ownership interest in BlackRock,
which is approximately 22%, causes BlackRock to be
treated as a nonbank subsidiary of PNC for the purpose
of the Bank Holding Company Act and that BlackRock is
subject to banking regulation. Based on this
interpretation of the Bank Holding Company Act, the
Federal Reserve could initiate a process to formally
determine that PNC controls BlackRock under the
terms of the Bank Holding Company Act. Any such
determination, if successful, would subject BlackRock
to current and future regulatory requirements under the
Bank Holding Company Act, including the Volcker Rule.
Conformance with the Volcker Rule may require
BlackRock to remove its name from the names of its
covered funds, and to sell certain seed and
co-investments that it holds in those funds, which may
occur at a discount to existing carrying value depending
on market conditions.
• Revised Department of Labor (“DOL”) Fiduciary Rule: In
April 2016, the DoL published a new regulation defining
the term “fiduciary” for purposes of the fiduciary
responsibility provisions of Title I of the Employee
Retirement Income Security Act of 1974 and the
prohibited transaction excise tax provisions of the
Internal Revenue Code. The substantive provisions of
the rule began to apply in June 2017. However, the
applicability date of many conditions of the prohibited
transaction exemptions accompanying the rule has
been delayed until July 2019, while the DoL continues
its re-examination of the rule and the prohibited
transaction exemptions. If the DoL does not repeal or
revise the rule or revise the prohibited transaction
exemptions, the rule could require BlackRock to revise a
number of its distribution relationships, create
compliance and operational challenges for BlackRock’s
distribution partners and may limit BlackRock’s ability
to provide certain useful services and education to its
clients.
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.
25
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 pending
regulatory reform initiatives in EMEA and the Asia-Pacific
region, as well as volatility associated with international
regulatory uncertainty, including:
• British Exit from the European Union: Following the June
2016 vote to exit the European Union (“EU”), the United
Kingdom served notice under Article 50 of the Treaty on
European Union on March 29, 2017 to initiate the
process of exiting from the EU, commonly referred to as
“Brexit”. The outcome of the negotiations between the
United Kingdom and the EU in connection with Brexit is
highly uncertain and information regarding the long-
term consequences is expected to become clearer over
time as negotiations progress. The Company continues
to prepare for a range of potential outcomes in
connection with Brexit.
• Designation as a systemically important financial
institution: The Financial Stability Board (“FSB”) working
with the International Organization of Securities
Commissions (“IOSCO”) is considering potential
systemic risk related to asset management; statements
made by these organizations have generally indicated
that they are, at this time, focused on a products and
activities, rather than designation, approach in their
review of asset managers. The FSB has indicated that it
may develop criteria for designation of nonbank
non-insurers in the future to address “residual risks”.
Any measures applied in relation to a G-SIFI designation
from the FSB would need to be implemented through
existing regulatory processes and procedures by
relevant national authorities.
• Reform of EU investment markets: The European
Commission has revised the Directive governing the
provision of investment services in Europe (“MiFID”) and
introduced an associated Regulation (together with
certain secondary regulation, “MiFID II”). The
Regulation’s requirements apply consistently across the
EU, whereas there may be some variation in the
application of MiFID as between EU Member States. The
MiFID II reforms, which came into force in January 2018,
are substantive, materially changing market
transparency requirements and enhancing protections
afforded to investors. New disclosure and reporting
obligations have been introduced, together with
restrictions on how research may be funded and the
nature of payments that may be provided to
distributors. MiFID II, together with other market
structure reforms, will additionally force more
derivatives to be traded on-exchange and introduce new
commodity derivatives position limits. The broad nature
of the MiFID II reforms may impact BlackRock’s product
development, client servicing and distribution models.
In particular, additional disclosures are required in
respect of costs and fees BlackRock charges to certain
of its clients. MiFID II may also impact the ability of
certain of BlackRock’s distribution partners to accept
commissions. Market structure reforms may also
impact the way that the Company executes investment
decisions for client portfolios and reports on such
transactions and could have an impact on general
market liquidity.
26
• Revised EU capital requirements: EU regulators are
considering how to design an appropriate capital regime
for non-systemically important investment firms as the
current regime is based on banking requirements and
has not been modified for asset managers. In December
2017, the European Commission published a legislative
proposal addressed to the European Parliament and
Council for a new Directive and new Regulation on
prudential requirements for MiFID investment firms.
The new legislative package is currently expected to
come into effect in 2020 following agreement between
the European Council and Parliament. Once
implemented, any new requirements could result in
significant changes to the methodology used to
determine the amount of regulatory capital that
BlackRock is required to hold in the EU.
• EU market access: The European Commission and
certain EU Member States have recently advanced a
more restrictive approach to the need for “equivalence”,
which is the process by which the legal, regulatory and/
or supervisory system in non-EU Member States is
recognized by the European Commission as comparably
effective to that in the EU, thereby allowing such
non-EU Member States access to the EU single market
in financial services. Additionally, in September 2017,
the European Commission issued a proposal to enhance
the European Supervisory Authorities’ powers by
requiring that all third-country outsourcing, delegation
and risk transfer arrangements be assessed by the
European Securities and Markets Authority (“ESMA”). If
enacted, the proposal would transfer to ESMA the
ability of EU Member States to authorize the
outsourcing of asset management activities beyond the
EU’s borders. The proposal could have a significant
impact on asset management firms with operations
based outside of the EU, including BlackRock, and it
may affect the Company’s ability to delegate fund
management and/or costs associated with such
delegation.
• EU money market fund reform: In November 2016, the
EU council announced political agreement with the
European Parliament on certain money market funds
reforms that are intended to reduce perceived risks
associated with these products. The final text was
published in the Official Journal of the EU in June 2017,
starting an 18-month transition period for existing
funds to comply. The reforms will limit the use of
constant net asset value money market funds to those
holding only government debt, and introduce a new
category of “low volatility net asset value” money
market funds, with both categories of money market
funds being subject to reinforced liquidity requirements
as well as safeguards such as liquidity fees and
redemption gates. They may also reduce the
attractiveness of certain money market funds to
investors. BlackRock is evaluating the reforms and
potential impact to its existing constant net asset value
money market funds.
• New disclosures to retail consumers: EU legislators have
introduced a new “Key Information Document” (“KID”),
which is applicable where a retail consumer is sold
Packaged Retail and Insurance-based Investment
Products (“PRIIPs”) and which came into effect in
January 2018. The KID must include specific
information on costs, risks and performance. BlackRock
is required to produce a KID for each fund in scope, as
well as to make information available to distribution
partners who sell these funds in the EU.
• Increased international regulatory scrutiny: BlackRock
and its subsidiaries are subject to the authority of
numerous governmental and regulatory bodies outside
of the United States. These regulators have imposed
numerous regulations, guidelines and standards on the
activities of BlackRock and its subsidiaries covering a
variety of areas, including capital resources
requirements, marketing activities, client and investor
protections, senior management arrangements, and
system and control requirements. In the event that
BlackRock or any of its subsidiaries fail to comply with
these often complex guidelines, regulations and
standards, the regulators have broad powers to
suspend or revoke any licenses they may have granted
and/or to impose fines and/or sanctions.
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 Exchange Commission, Office of the
Comptroller of the Currency (“OCC”), DoL, Commodity
Futures Trading Commission, Financial Conduct Authority
and Federal Reserve. Similarly, from time to time, BlackRock
receives subpoenas or other requests for information from
various U.S. and non-U.S. governmental and regulatory
authorities in connection with certain industry-wide,
company-specific or other investigations or proceedings.
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 regulator to institute
proceedings and 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.
As BlackRock’s business continues to grow, the Company
must routinely address conflicts of interest, as well as the
perception of conflicts of interest, between itself and its
clients, employees or vendors. In addition, the SEC and other
regulators have increased their scrutiny of potential
conflicts. BlackRock has procedures and controls in place
that are designed to detect and address these issues.
However, appropriately dealing with conflicts of interest is
complex and if the Company fails, or appears to fail, to deal
appropriately with any conflict of interest, it may face
reputational damage, litigation, regulatory proceedings, or
penalties, fines and/or sanctions, any of which may cause
BlackRock’s AUM, revenue and earnings to decline.
BlackRock is subject to U.S. 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. In
addition, as described in “Item 1-Business-Regulation”, PNC
owns approximately 22% of BlackRock’s capital stock, which
may subject BlackRock to banking regulation as a nonbank
subsidiary of PNC. The Bank Holding Company Act by its
terms does not currently apply to BlackRock. The Federal
Reserve currently takes the position that this ownership
interest causes BlackRock to be treated as a nonbank
subsidiary of PNC for the purpose of the Bank Holding
Company Act and that BlackRock is subject to banking
regulation. Based on this interpretation of the Bank Holding
Company Act, the Federal Reserve could initiate a process to
formally determine that PNC controls BlackRock under the
terms of the Bank Holding Company Act. Any such
determination, if successful, would subject BlackRock to
current and future regulatory requirements under the Bank
Holding Company Act, including the Volcker Rule, that are
more restrictive than those the Company is subject to under
other applicable laws, as well as the enforcement authority
of the Federal Reserve, which includes the power to impose
substantial fines and other penalties for violations. Any
effort by BlackRock to contest a control determination by the
Federal Reserve may be costly and complex and may not
result in a reversal of such determination.
Failure to comply with ownership reporting requirements
could result in harm to BlackRock’s reputation 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, which could have
27
an adverse effect on BlackRock’s reputation and may cause
its AUM, revenue and earnings to decline.
RISKS RELATED TO BLACKROCK’ S SIGNIF ICANT
SH AREH OL DER
BlackRock has been the subject of third-party 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 third-party
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 managed by asset managers with
higher consumer prices and escalating executive
compensation, among other things. Although there is
substantial literature highlighting the benefits of index
investing, as well as casting doubt on the assumptions,
methodology and conclusions associated with common
ownership arguments, some commentators have proposed
policy measures in connection with the discourse in this
area, including limits on stakes managed by asset
managers. If the conclusions advanced by such
commentators were to gain traction or result in the
enactment of policy measures that place limits on asset
managers, BlackRock’s business operations, reputation or
financial condition may be adversely affected.
New tax legislation or changes to existing U.S. and non-U.S.
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 U.S. or non-U.S. authorities. On
December 22, 2017, the Tax Cuts and Jobs Act (the “2017 Tax
Act”) was enacted. Over the next few months, as the
Company finalizes the impact of tax reform and clarifies the
potential for future investment opportunities, BlackRock
intends to reassess its capital management plans for the
balance of 2018.
In addition, certain EU Member States have enacted
financial transaction taxes (“FTTs”), which impose taxation
on a broad range of financial instrument and derivatives
transactions, and the European Commission 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 introduced as proposed, FTTs
could have an adverse effect on BlackRock’s financial
results and on clients’ performance results.
The application of complex tax regulations involves
numerous uncertainties, and in the normal course of
business U.S. and non-U.S. 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.
PNC owns 22% of BlackRock’s capital stock. Future sales
or distributions of BlackRock’s common stock in the public
market by the Company or PNC could adversely affect the
trading price of BlackRock’s common stock.
As of December 31, 2017, PNC owned 22% of the Company’s
capital stock. Sales or distributions of a substantial number
of shares of BlackRock’s common stock in the public market,
or the perception that these sales or distributions might
occur, may cause the market price of BlackRock’s common
stock to decline.
PNC has agreed to vote as a stockholder in accordance
with the recommendation of BlackRock’s Board of
Directors, and certain actions will require special board
approval or the prior approval of PNC.
As discussed in BlackRock’s proxy statement, PNC has
agreed to vote all of its voting shares in accordance with the
recommendation of BlackRock’s Board of Directors in
accordance with the provisions of its stockholder agreement
with BlackRock. As a consequence, if the shares held by PNC
constitute a substantial portion of the outstanding voting
shares, matters submitted to a stockholder vote that require
a majority or a plurality of votes for approval, including
elections of directors, will have a substantial number of
shares voted in accordance with the determination of the
BlackRock Board of Directors. This arrangement has the
effect of concentrating a significant block of voting control
over BlackRock in its Board of Directors, whether or not
stockholders agree with any particular determination of the
Board.
As discussed in BlackRock’s proxy statement, pursuant to
BlackRock’s stockholder agreement with PNC, the following
may not be done without prior approval of all of the
independent directors, or at least two-thirds of the directors,
then in office:
• appointment of a new Chief Executive Officer of
BlackRock;
• any merger, issuance of shares or similar transaction in
which beneficial ownership of a majority of the total
voting power of BlackRock capital stock would be held
by persons different than the persons holding such
majority of the total voting power prior to the
occurrence of any such merger, issuance of shares or
similar transaction, or any sale of all or substantially all
assets of BlackRock;
• any acquisition of any person or business which has a
consolidated net income after taxes for its preceding
fiscal year that equals or exceeds 20% of BlackRock’s
consolidated net income after taxes for its preceding
fiscal year if such acquisition involves the current or
potential issuance of BlackRock capital stock
constituting more than 10% of the total voting power of
BlackRock capital stock issued and outstanding
immediately after completion of such acquisition;
• any acquisition of any person or business constituting a
line of business that is materially different from the
lines of business BlackRock and its controlled affiliates
are engaged in at that time if such acquisition involves
consideration in excess of 10% of the total assets of
BlackRock on a consolidated basis;
28
• except for repurchases otherwise permitted under the
stockholder agreement, any repurchase by BlackRock
or any subsidiary of shares of BlackRock capital stock
such that after giving effect to such repurchase
BlackRock and its subsidiaries shall have repurchased
more than 10% of the total voting power of BlackRock
capital stock within the 12-month period ending on the
date of such repurchase;
• any amendment to BlackRock’s certificate of
incorporation or bylaws; or
• any matter requiring stockholder approval pursuant to
the rules of the New York Stock Exchange.
Additionally, BlackRock may not enter into any of the
following transactions without the prior approval of PNC:
• any sale of any subsidiary of BlackRock, the annualized
revenue of which, together with the annualized revenue
of any other subsidiaries disposed of within the same
year, are more than 20% of the annualized revenue of
BlackRock for the preceding fiscal year on a
consolidated basis;
• for so long as BlackRock is deemed a subsidiary of PNC
for purposes of the Bank Holding Company Act, entering
into any business or activity that is prohibited for any
such subsidiary under the Bank Holding Company Act;
• any amendment of any provision of a stockholder
agreement between BlackRock and any stockholder
beneficially owning greater than 20% of BlackRock
capital stock that would be viewed by a reasonable
person as being adverse to PNC or materially more
favorable to the rights of any stockholder beneficially
owning greater than 20% of BlackRock capital stock
than to PNC;
• any amendment, modification, repeal or waiver of
BlackRock’s certificate of incorporation or bylaws that
would be viewed by a reasonable person as being
adverse to the rights of PNC or more favorable to the
rights of any stockholder beneficially owning greater
than 20% of BlackRock capital stock, or any settlement
or consent in a regulatory enforcement matter that
would be reasonably likely to cause PNC or any of its
affiliates to suffer regulatory disqualification,
suspension of registration or license or other material
adverse regulatory consequences; or
• a voluntary bankruptcy or similar filing by BlackRock.
Item 1B. Unresolved Staff
Comments
The Company has no unresolved comments from the 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 Boston, Chicago, Edinburgh, Gurgaon
(India), Hong Kong, London, Melbourne (Australia), Munich,
Princeton (New Jersey), San Francisco, Seattle, 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).
Item 3. Legal Proceedings
From time to time, BlackRock receives subpoenas or other
requests for information from various U.S. federal, state
governmental and regulatory authorities and international
regulatory authorities in connection with industry-wide or
other investigations or proceedings. It is BlackRock’s policy
to cooperate fully with such inquiries. The Company and
certain of its subsidiaries have been named as defendants in
various legal actions, including arbitrations and other
litigation arising in connection with BlackRock’s activities.
Additionally, BlackRock-advised investment portfolios may
be subject to lawsuits, any of which potentially could harm
the investment returns of the applicable portfolio or result in
the Company being liable to the portfolios for any resulting
damages.
On May 27, 2014, certain investors in the BlackRock Global
Allocation Fund, Inc. and the BlackRock Equity Dividend
Fund (collectively, the “Funds”) filed a consolidated
complaint (the “Consolidated Complaint”) in the U.S. District
Court for the District of New Jersey against BlackRock
Advisors, LLC, BlackRock Investment Management, LLC and
BlackRock International Limited under the caption In re
BlackRock Mutual Funds Advisory Fee Litigation. The
Consolidated Complaint, which purports to be brought
derivatively on behalf of the Funds, alleges that the
defendants violated Section 36(b) of the Investment
Company Act by receiving allegedly excessive investment
advisory fees from the Funds. On February 24, 2015, the
same plaintiffs filed another complaint in the same court
against BlackRock Investment Management, LLC and
BlackRock Advisors, LLC. Both complaints seek, among
other things, to recover on behalf of the Funds all allegedly
excessive advisory fees received by defendants in the twelve
month period preceding the start of each lawsuit, along with
purported lost investment returns on those amounts, plus
interest. The defendants believe the claims in both lawsuits
are without merit and are vigorously defending the actions.
On September 25, 2017, the defendants filed a motion for
summary judgment to dismiss the lawsuit, which is pending.
In November 2015, BlackRock, Inc., BlackRock Realty
Advisors, Inc. (“BRA”), BlackRock US Core Property Fund, Inc.
(formerly known as BlackRock Granite Property Fund, Inc.)
(“Granite Fund”), and certain other Granite Fund related
entities (collectively, the “BlackRock Parties”) were named
as defendants in thirteen lawsuits filed in the Superior Court
of the State of California for the County of Alameda arising
out of the June 16, 2015 collapse of a balcony at the Library
Gardens apartment complex in Berkeley, California (the
“Property”). The Property is indirectly owned by the Granite
Fund, which is managed by BRA. The plaintiffs also named
as defendants in the lawsuits Greystar, which manages the
Property, and certain other non-BlackRock related entities,
including the developer of the Property, building contractors
and building materials suppliers. The plaintiffs alleged,
among other things, that the BlackRock Parties were
negligent in their ownership, control and maintenance of the
Property’s balcony, and sought monetary, including punitive,
damages. Additionally, on March 16, 2016, three former
tenants of the Library Gardens apartment unit who were not
physically injured but experienced the balcony collapse sued
29
the BlackRock Parties for emotional damages. In November
2017, the BlackRock Parties settled all of the lawsuits
relating to Library Gardens.
On June 16, 2016, iShares Trust, BlackRock, Inc. and certain
of its advisory affiliates, and the directors and certain
officers of the iShares ETFs were named as defendants in a
purported class action lawsuit filed in California state court.
The lawsuit was filed by investors in certain iShares ETFs
(the “ETFs”), and alleges the defendants violated the federal
securities laws, purportedly by failing to adequately disclose
in prospectuses issued by the ETFs the risks to the ETFs’
shareholders in the event of a “flash crash.” Plaintiffs seek
unspecified monetary damages. The plaintiffs’ complaint
was dismissed in December 2016 and on January 6, 2017,
plaintiffs filed an amended complaint. The defendants filed a
motion for judgment on the pleadings dismissing that
complaint. On September 18, 2017, the court dismissed the
lawsuit. On December 1, 2017, the plaintiffs appealed the
dismissal of their lawsuit.
On April 5, 2017, BlackRock, Inc., BlackRock Institutional
Trust Company, N.A. (“BTC”), the BlackRock, Inc. Retirement
Committee and various sub-committees, and a BlackRock
employee were named as defendants in a purported class
action lawsuit brought in the U.S. District Court for the
Northern District of California by a former employee on
behalf of all BlackRock employee 401(k) Plan (the “Plan”)
participants and beneficiaries in the Plan from April 5, 2011,
to the present. The lawsuit generally alleges that the
defendants breached their duties towards Plan participants
in violation of the Employee Retirement Income Security Act
of 1974 by, among other things, offering investment options
that were overly expensive, underperformed peer funds,
focused disproportionately on active versus passive
strategies, and were unduly concentrated with investment
options managed by BlackRock. While the complaint does
not contain any specific amount in alleged damages, it
claims that the purported underperformance and hidden
fees cost Plan participants more than $60 million. On
October 10, 2017, the plaintiffs filed an Amended Complaint,
which, among other things, adds as defendants certain
current and former members of the BlackRock Retirement
and Investment Committees. The Amended Complaint also
includes a new purported class claim on behalf of investors
in certain Collective Trust Funds (“CTFs”) managed by BTC.
Specifically, the plaintiffs allege that BTC, as fiduciary to the
CTFs, engaged in self-dealing by, most significantly,
selecting itself as the lending agent on terms that plaintiffs
claim were excessive. The defendants believe the claims in
this lawsuit are without merit and is vigorously defending the
action. BlackRock moved to dismiss the Amended Complaint
on November 8, 2017.
Management, after consultation with legal counsel,
currently does not anticipate that the aggregate liability
arising out of regulatory matters or lawsuits will have a
material effect on BlackRock’s results of operations,
financial position, or cash flows. However, there is no
assurance as to whether any such pending or threatened
matters will have a material effect on BlackRock’s results of
operations, financial position or cash flows in any future
reporting period. Due to uncertainties surrounding the
outcome of these matters, management cannot reasonably
estimate the possible loss or range of loss that may arise
from these matters.
Item 4. Mine Safety Disclosures
Not applicable.
30
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, 2018, there were 247 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
high and low reported sale prices, period-end closing prices
for the common stock and dividends declared per share for
the common stock as reported on the NYSE:
Common Stock
Price Ranges
High
Low
Closing
Price
Cash
Dividend
Declared
2017
First Quarter
$ 397.81
$ 371.64
$ 383.51
Second Quarter
$ 428.38
$ 377.10
$ 422.41
Third Quarter
$ 447.09
$ 412.19
$ 447.09
Fourth Quarter
$ 518.86
$ 449.95
$ 513.71
2016
First Quarter
$ 342.56
$ 289.72
$ 340.57
Second Quarter
$ 367.47
$ 319.54
$ 342.53
Third Quarter
$ 376.00
$ 335.11
$ 362.46
Fourth Quarter
$ 398.45
$ 338.61
$ 380.54
$ 2.50
$ 2.50
$ 2.50
$ 2.50
$ 2.29
$ 2.29
$ 2.29
$ 2.29
BlackRock’s closing common stock price as of February 27,
2018 was $552.77.
DIVIDENDS
On January 11, 2018, the Board of Directors approved
BlackRock’s quarterly dividend of $2.88 to be paid on
March 22, 2018 to stockholders of record at the close of
business on March 7, 2018.
PNC receives dividends on shares of nonvoting participating
preferred stock, which are equivalent to the dividends
received by common stockholders.
ISSUER PURCHASES OF E QUITY SECURITIES
During the three months ended December 31, 2017, the Company made the following purchases of its common stock, which is
registered pursuant to Section 12(b) of the Exchange Act.
October 1, 2017 through October 31, 2017
November 1, 2017 through November 30, 2017
December 1, 2017 through December 31, 2017
Total
Total
Number of
Shares
Purchased(1)
228,894
327,922
44,772
601,588
Average
Price Paid
per Share
$ 474.49
$ 477.02
$ 508.97
$ 478.43
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
218,859
327,228
29,396
575,483
Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Plans or
Programs
6,723,797
6,396,569
6,367,173
(1)
Includes 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 and purchases made by the Company as part of the
publicly announced share repurchase program.
31
Item 6. Selected Financial Data
The selected financial data presented below have been derived in part from, and should be read in conjunction with, the
consolidated financial statements of BlackRock and Item 7, Management’s Discussion and Analysis of Financial Condition and
Results of Operations included in this Form 10-K.
(in millions, except per share data)
Income statement data:
Revenue
Related parties(1)
Other third parties
Total revenue
Expense
Restructuring charge
Other operating expenses
Total expense
Operating income
Total nonoperating income (expense)
Income before income taxes
Income tax expense(2)
Net income
Less: Net income (loss) attributable to noncontrolling interests
2017
2016
2015
2014
2013
$ 7,948
$ 7,058
$ 7,084
$ 6,994
$ 6,260
4,543
4,097
4,317
4,087
3,920
12,491
11,155
11,401
11,081
10,180
—
7,219
7,219
5,272
5
5,277
270
5,007
37
76
6,509
6,585
4,570
(110)
4,460
1,290
3,170
(2)
—
6,737
6,737
4,664
(62)
4,602
1,250
3,352
7
—
6,607
6,607
4,474
(79)
4,395
1,131
3,264
(30)
—
6,323
6,323
3,857
116
3,973
1,022
2,951
19
Net income attributable to BlackRock, Inc.
$ 4,970
$ 3,172
$ 3,345
$ 3,294
$ 2,932
Per share data:(3)
Basic earnings
Diluted earnings
Book value(4)
Cash dividends declared and paid per share
$ 30.65
$ 30.23
$ 197.61
$ 10.00
$ 19.29
$ 20.10
$ 19.58
$ 17.23
$ 19.04
$ 19.79
$ 19.25
$ 16.87
$ 178.38
$ 172.12
$ 164.06
$ 156.69
$
9.16
$
8.72
$
7.72
$
6.72
(1) BlackRock’s related party revenue includes fees for services provided to registered investment companies that it manages, which include mutual
funds and exchange-traded funds, as a result of the Company’s advisory relationship. In addition, equity method investments are considered related
parties due to the Company’s influence over the financial and operating policies of the investee. See Note 16, Related Party Transactions, to the
consolidated financial statements for more information.
(2)
Income tax expense for 2017 reflects $1.2 billion of net tax benefit related to the 2017 Tax Cuts and Jobs Act. See Note 21, Income Taxes, to the
consolidated financial statements for more information.
(3) Participating preferred stock is considered to be a common stock equivalent for purposes of earnings per share calculations.
(4) Book value amounts for 2017, 2016 and 2015 reflect Total BlackRock stockholders’ equity divided by total common and preferred shares outstanding
at December 31 of the respective year-end. Book value amounts for 2014 and 2013 reflect Total BlackRock stockholders’ equity, excluding
appropriated retained deficit of $19 million for 2014 and appropriated retained earnings of $22 million for 2013, divided by total common and
preferred shares outstanding at December 31 of the respective year-end.
32
(in millions)
2017
2016
2015
2014
2013
December 31,
Balance sheet data:
Cash and cash equivalents
Goodwill and intangible assets, net
Total assets(1)
Less:
$
6,894
$
6,091
$
6,083
$
5,723
$
4,390
30,609
220,217
30,481
220,177
30,495
225,261
30,305
239,792
30,481
219,859
Separate account assets(2)
149,937
149,089
150,851
161,287
155,113
Collateral held under securities lending
agreements(2)
Consolidated investment vehicles(3)
Adjusted total assets
Borrowings
Total BlackRock, Inc. stockholders’ equity
Assets under management:
Equity:
Active
iShares ETFs
Non-ETF index
Equity subtotal
Fixed income:
Active
iShares ETFs
Non-ETF index
Fixed income subtotal
Multi-asset
Alternatives:
Core
Currency and commodities(4)
Alternatives subtotal
Long-term
Cash management
Advisory(5)
Total
24,190
580
45,510
5,014
31,825
$
$
27,792
375
42,921
4,915
29,098
$
$
31,336
678
42,396
4,930
28,503
33,654
3,787
41,064
4,922
27,366
21,788
2,714
40,244
4,925
26,460
$
$
$
$
$
$
$ 311,209
$
275,033
$
281,319
$
292,802
$
317,262
1,329,610
1,730,822
951,252
823,156
790,067
718,135
1,430,891
1,319,297
1,368,242
1,282,298
3,371,641
2,657,176
2,423,772
2,451,111
2,317,695
815,135
395,252
645,078
1,855,465
480,278
749,996
314,707
507,662
719,653
254,190
448,525
701,324
217,671
474,658
652,209
178,835
411,142
1,572,365
1,422,368
1,393,653
1,242,186
395,007
376,336
377,837
341,214
98,533
30,814
88,630
28,308
92,085
20,754
88,006
23,234
85,026
26,088
129,347
116,938
112,839
111,240
111,114
5,836,731
4,741,486
4,335,315
4,333,841
4,012,209
449,949
1,515
403,584
2,782
299,884
10,213
296,353
21,701
275,554
36,325
$ 6,288,195
$ 5,147,852
$ 4,645,412
$ 4,651,895
$ 4,324,088
(1)
Includes separate account assets that are segregated funds held for purposes of funding individual and group pension contracts and collateral held
under securities lending agreements related to these assets that have equal and offsetting amounts recorded in liabilities and ultimately do not
impact BlackRock’s stockholders’ equity or cash flows.
(2) Equal and offsetting amounts, related to separate account assets and collateral held under securities lending agreements, are recorded in liabilities.
(3) Amounts include assets held by consolidated sponsored investment products. During 2015, the Company adopted new accounting guidance on
consolidations effective January 1, 2015 using the modified retrospective method. As a result of the adoption, the Company’s balance sheet at
December 31, 2015 reflects the deconsolidation of the Company’s previously consolidated collateralized loan obligations.
(4) Amounts include commodity iShares ETFs.
(5) Advisory AUM represents long-term portfolio liquidation assignments.
33
Item 7. Management’s Discussion
and Analysis of Financial Condition
and Results of Operations
FORWARD-L OOKING 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) the introduction, withdrawal, success and
timing of business initiatives and strategies; (2) 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”); (3) the relative and absolute
investment performance of BlackRock’s investment
products; (4) the impact of increased competition; (5) the
impact of future acquisitions or divestitures; (6) the
unfavorable resolution of legal proceedings; (7) the extent
and timing of any share repurchases; (8) the impact, extent
and timing of technological changes and the adequacy of
intellectual property, information and cyber security
protection; (9) the potential for human error in connection
with BlackRock’s operational systems; (10) the impact of
legislative and regulatory actions and reforms and
regulatory, supervisory or enforcement actions of
government agencies relating to BlackRock or The PNC
Financial Services Group, Inc. (“PNC”); (11) changes in law
and policy and uncertainty pending any such changes;
(12) terrorist activities, international hostilities and natural
disasters, which may adversely affect the general economy,
domestic and local financial and capital markets, specific
industries or BlackRock; (13) the ability to attract and retain
highly talented professionals; (14) fluctuations in the
carrying value of BlackRock’s economic investments;
(15) 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; (16) BlackRock’s success in negotiating
distribution arrangements and maintaining distribution
channels for its products; (17) the failure by a key vendor of
BlackRock to fulfill its obligations to the Company; (18) any
disruption to the operations of third parties whose functions
are integral to BlackRock’s exchange-traded funds (“ETF”)
platform; (19) 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 (20) the impact of problems
at other financial institutions or the failure or negative
performance of products at other financial institutions.
O V E R V I E W
BlackRock, Inc. (together, with its subsidiaries, unless the
context otherwise indicates, “BlackRock” or the “Company”)
is a leading publicly traded investment management firm
with $6.288 trillion of AUM at December 31, 2017. With
approximately 13,900 employees in more than 30 countries,
BlackRock provides a broad range of investment, risk
management and technology services to institutional and
retail clients worldwide.
For further information see Business, in Part I, Item 1 and
Note 1, Introduction and Basis of Presentation, in the notes
to the consolidated financial statements contained in Part II,
Item 8.
Acquisitions
In June 2017, the Company completed the acquisition of the
equity infrastructure franchise of First Reserve (“First
Reserve Transaction”), expanding the Company’s energy and
power infrastructure platform. In July 2017, the Company
completed the acquisition of Cachematrix (“Cachematrix
Transaction”), a leading provider of financial technology
which simplifies the cash management process for banks
and their corporate clients in a streamlined, open-
architecture platform. In November 2017, the Company
acquired a minority investment in Scalable Capital, a digital
investment manager in Europe.
In November 2017, the Company announced that it had
entered an agreement to acquire the asset management
business of Citibanamex, a subsidiary of Citigroup Inc. This
transaction involves approximately $31 billion in AUM across
local fixed income, equity and multi-asset products. The
transaction is expected to close in the second half of 2018,
subject to customary regulatory approvals and closing
conditions. Consideration for the transaction will include an
upfront cash payment and contingent consideration.
United Kingdom Exit from European Union
Following the June 2016 vote to exit the European Union
(“EU”), the United Kingdom served notice under Article 50 of
the Treaty on European Union on March 29, 2017 to initiate
the process of exiting from the EU, commonly referred to as
“Brexit”. The outcome of the negotiations between the
United Kingdom and the EU in connection with Brexit is
highly uncertain and information regarding the long-term
consequences is expected to become clearer over time as
negotiations progress. The Company continues to prepare
for a range of potential outcomes in connection with Brexit.
Business Outlook
BlackRock’s framework for long-term value creation is
predicated on generating differentiated organic growth,
34
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.
BlackRock’s highly diversified multi-product platform was
created to meet the needs of its clients in all market
environments. BlackRock is positioned to provide alpha-
seeking active and index investment solutions 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.
BlackRock’s retail strategy is focused on an outcome-
oriented approach to creating client solutions, including
alpha-seeking active, index and alternative products,
enhanced distribution and technology offerings. In the
United States, BlackRock is leveraging its integrated
wholesaler force to further penetrate distribution platforms
and gain share among registered investment advisors.
Internationally, BlackRock continues to diversify the range of
investment solutions available to clients, penetrate new
distribution channels and position effectively for regulatory
change.
iShares growth strategy is centered on increasing global
iShares market share and driving global market expansion.
BlackRock intends to achieve these goals by pursuing global
growth themes in client and product segments including
core investments, fixed income, smart beta, financial
instruments and precision exposures.
BlackRock believes Institutional results will be driven by
enhancing BlackRock’s solutions-oriented approach;
deepening client relationships through product
diversification and higher value-add capabilities; and
leveraging Aladdin’s analytical and risk management expertise.
BlackRock continues to invest in technology and risk
management offerings, which enhance the ability to
generate alpha, effectively serve clients and operate
efficiently. BlackRock’s technology portfolio includes Aladdin
and Aladdin Risk for Wealth Management, FutureAdvisor,
Cachematrix, as well as minority investments in Scalable
Capital and iCapital.
U.S. Tax Reform
On December 22, 2017, The Tax Cuts and Jobs Act (the “2017
Tax Act”) was enacted. The 2017 Tax Act significantly revises
the U.S. tax code, including, but not limited to, (1) reducing
the U.S. federal corporate tax rate from 35 percent to
21 percent, (2) requiring companies to pay a one-time tax on
certain unrepatriated earnings of foreign subsidiaries,
(3) generally eliminating U.S. federal income taxes on
dividends from foreign subsidiaries, (4) creating new taxes
on certain earnings of controlled foreign corporations, and
(5) creating a new limitation on deductible net interest
expense. BlackRock’s results in 2017 included a $1.2 billion
net tax benefit related to the 2017 Tax Act comprised of the
following amounts:
• $106 million tax expense related to the revaluation of
certain deferred income tax assets;
• $1,758 million noncash tax benefit related to the
revaluation of certain deferred income tax liabilities
(which was excluded from as adjusted results); and
• $477 million tax expense related to the mandatory
deemed repatriation of undistributed foreign earnings
and profits (which was excluded from as adjusted
results) and is payable over eight years.
These amounts may require further adjustments as
additional guidance from the U.S. Department of the
Treasury is provided, as changes in the Company’s
assumptions occur, and as further information and
interpretations become available.
For further information on the 2017 Tax Act, see Note 21,
Income Taxes, in the consolidated financial statements
included in Part II, Item 8 of this filing.
35
E X E C U T I V E S U M M A R Y
(in millions, except shares and per share data)
2017
2016
2015
GAAP basis:
Total revenue
Total expense
Operating income
Operating margin
Nonoperating income (expense), less net income (loss) attributable to noncontrolling
interests
Income tax expense
Net income attributable to BlackRock
Diluted earnings per common share
Effective tax rate
As adjusted(1):
Operating income
Operating margin
Nonoperating income (expense), less net income (loss) attributable to noncontrolling
interests
Net income attributable to BlackRock
Diluted earnings per common share
Effective tax rate
Other:
Assets under management (end of period)
Diluted weighted-average common shares outstanding(2)
Common and preferred shares outstanding (end of period)
Book value per share(3)
Cash dividends declared and paid per share
$
$
$
$
$
$
$
12,491
7,219
5,272
42.2%
(32)
(270)
4,970
30.23
$
$
$
$
11,155
6,585
4,570
41.0%
(108)
(1,290)
3,172
19.04
$
$
$
$
11,401
6,737
4,664
40.9%
(69)
(1,250)
3,345
19.79
5.2%
28.9%
27.2%
5,287
$
4,674
$
4,695
44.1%
43.7%
42.9%
(32)
3,716
22.60
29.3%
$
$
(108)
3,214
19.29
29.6%
$
$
(70)
3,313
19.60
28.4%
$
6,288,195
$
5,147,852
$
4,645,412
164,415,035
166,579,752
169,038,571
161,046,825
163,121,291
165,596,139
$
$
197.61
10.00
$
$
178.38
9.16
$
$
172.12
8.72
(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.
(3) Total BlackRock stockholders’ equity, divided by total common and preferred shares outstanding at December 31 of the respective year-end.
2017 COMPARED WITH 2016
GAAP. Operating income of $5,272 million increased
$702 million and operating margin of 42.2% increased 120
bps from 2016. Operating income and operating margin
growth primarily reflected higher base fees, performance
fees, and technology and risk management revenue, partially
offset by higher compensation and benefits, higher volume-
related expense, and higher general and administration
expense. Operating income for 2017 also included
approximately $22 million of expense associated with the
strategic repositioning of the active equity platform.
Operating income for 2016 included a restructuring charge
of $76 million in connection with a project to streamline and
simplify the organization. Nonoperating income (expense),
less net income (loss) attributable to noncontrolling
interests (“NCI”), increased $76 million from 2016 driven by
higher net gains on investments.
Income tax expense for 2017 included the previously
mentioned $1.2 billion net tax benefit related to the 2017 Tax
Act, $173 million of discrete tax benefits, primarily related to
stock-based compensation awards, including a $151 million
discrete tax benefit reflecting the adoption of new stock-
based compensation accounting guidance, and a $16 million
noncash tax expense associated with the revaluation of
certain deferred income tax liabilities. Income tax expense
for 2016 included a $30 million net noncash benefit
associated with the revaluation of certain deferred income
tax liabilities, including the effect of tax legislation enacted
in the United Kingdom, and state and local income tax
changes. Income tax expense for 2016 also included
nonrecurring tax benefits of $65 million. See Income Tax
Expense within Discussion of Financial Results for more
information.
Diluted earnings per common share increased $11.19, or
59%, compared with 2016, reflecting the net tax benefit from
the 2017 Tax Act and higher operating income, partially
offset by the benefit of share repurchases.
As Adjusted. Operating income of $5,287 million increased
$613 million and operating margin of 44.1% increased 40
bps from 2016. The pre-tax restructuring charge of
$76 million described above was excluded from as adjusted
results for 2016. Income tax expense for 2017 excluded the
previously described $1,758 million noncash tax benefit and
$477 million deemed repatriation tax expense related to the
2017 Tax Act, and the previously described noncash expense
of $16 million. Income tax expense for 2016 excluded the
previously mentioned net noncash benefit of $30 million.
Diluted earnings per common share increased $3.31, or
17%, from 2016.
2016 COMPARED WITH 2015
GAAP. Operating income of $4,570 million decreased
$94 million from 2015. Operating income was impacted by
lower performance fees, partially offset by expense
discipline and growth in technology and risk management
36
revenue. Operating income also reflected a restructuring
charge of $76 million recorded in the first quarter of 2016 in
connection with a project to streamline and simplify the
organization. Operating margin of 41% increased 10 bps
from 2015 driven by continued expense discipline.
Nonoperating income (expense), less NCI, decreased
$39 million from 2015 due to lower net gains on investments,
partially offset by higher interest and dividend income during
2016. Net gains on investments in 2015 included a
$40 million noncash gain related to the BlackRock Kelso
Capital Advisors LLC (“BKCA”) transaction and a $35 million
unrealized gain on a private equity investment.
Income tax expense for 2016 included a $30 million net
noncash tax benefit associated with the revaluation of
certain deferred income tax liabilities, including the effect of
tax legislation enacted in the United Kingdom, and state and
local income tax changes. Income tax expense for 2016 also
included nonrecurring tax benefits of $65 million. Income tax
expense for 2015 included a $54 million net noncash benefit
associated with the revaluation of certain deferred income
tax liabilities and nonrecurring tax benefits of $75 million.
Diluted earnings per common share decreased $0.75, or 4%,
compared with 2015, reflecting lower nonoperating income
and a higher tax rate in 2016, partially offset by the benefit of
share repurchases.
As Adjusted. Operating income of $4,674 million decreased
$21 million, and operating margin of 43.7% increased 80
bps, from 2015. The pre-tax restructuring charge of
$76 million described above was excluded from as adjusted
results. Income tax expense for 2016 and 2015 excluded the
previously described net noncash benefits of $30 million and
$54 million, respectively. Diluted earnings per common
share decreased $0.31, or 2%, from 2015.
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.
N O N - G A A P F IN A N C IA L ME A S U R E S
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:
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.
(in millions)
Operating income, GAAP basis
Non-GAAP expense adjustments:
Restructuring charge
PNC LTIP funding obligation
Compensation expense related to appreciation (depreciation) on deferred compensation plans
Operating income, as adjusted
Product launch costs and commissions
Operating income used for operating margin measurement
Revenue, GAAP basis
Non-GAAP adjustments:
Distribution and servicing costs
Amortization of deferred sales commissions
Revenue used for operating margin measurement
Operating margin, GAAP basis
Operating margin, as adjusted
2017
2016
2015
$ 5,272
$ 4,570
$ 4,664
—
15
—
5,287
—
76
28
—
4,674
—
—
30
1
4,695
5
$ 5,287
$ 4,674
$ 4,700
$ 12,491
$ 11,155
$ 11,401
(492)
(17)
(429)
(34)
(409)
(48)
$ 11,982
$ 10,692
$ 10,944
42.2%
44.1%
41.0%
43.7%
40.9%
42.9%
37
• Operating income, as adjusted, includes non-GAAP
expense adjustments. The portion of compensation
expense associated with certain long-term incentive
plans (“LTIP”) funded, or to be funded, through share
distributions to participants of BlackRock stock held by
PNC has been excluded because it ultimately does not
impact BlackRock’s book value. In 2016, a restructuring
charge primarily comprised of severance and
accelerated amortization expense of previously granted
deferred compensation awards has been excluded to
provide an analysis of BlackRock’s ongoing operations
and to ensure comparability among periods presented.
In 2015, compensation expense associated with
appreciation (depreciation) on investments related to
certain BlackRock deferred compensation plans has
been excluded, as returns on investments set aside for
these plans, which substantially offset this expense, are
reported in nonoperating income (expense).
• 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
(2) Net income attributable to BlackRock, Inc., as adjusted:
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 operating margin, as adjusted,
excludes distribution and servicing costs paid to related
parties and other third parties. Management believes
such costs represent a benchmark for the amount of
revenue passed through to external parties who
distribute the Company’s products. In addition,
management believes the exclusion of such costs is
useful because it creates consistency in the treatment
for certain contracts for similar services, which due to
the terms of the contracts, are accounted for under
GAAP on a net basis within investment advisory,
administration fees and securities lending revenue.
Amortization of deferred sales commissions is excluded
from revenue used for operating margin measurement,
as adjusted, because such costs, over time,
substantially offset distribution fee revenue the
Company earns. For each of these items, BlackRock
excludes from revenue used for operating margin, as
adjusted, the costs related to each of these items as a
proxy for such offsetting revenue.
(in millions, except per share data)
2017
2016
2015
Net income attributable to BlackRock, Inc., GAAP basis
$ 4,970
$ 3,172
$ 3,345
Non-GAAP adjustments:
Restructuring charge (including $23 tax benefit)
PNC LTIP funding obligation, net of tax
The 2017 Tax Act:
Deferred tax revaluation (noncash)
Deemed repatriation tax
Other income tax matters
Net income attributable to BlackRock, Inc., as adjusted
Diluted weighted-average common shares outstanding(3)
Diluted earnings per common share, GAAP basis(3)
Diluted earnings per common share, as adjusted(3)
—
11
(1,758)
477
16
$ 3,716
164.4
$ 30.23
$ 22.60
53
19
—
—
(30)
$ 3,214
166.6
$ 19.04
$ 19.29
—
22
—
—
(54)
$ 3,313
169.0
$ 19.79
$ 19.60
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, and operating margin, as adjusted, for
information on the PNC LTIP funding obligation and the
restructuring charge.
For each period presented, the non-GAAP adjustment
related to the restructuring charge and PNC LTIP funding
obligation was tax effected at the respective blended rates
applicable to the adjustments. The noncash deferred tax
revaluation benefit of $1,758 million and the other income
tax matters were primarily associated with the revaluation of
certain deferred tax liabilities related to intangible assets
and goodwill. 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. A deemed repatriation tax expense of
$477 million has been excluded from the 2017 as adjusted
results due to the one-time nature 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.
(3) Nonvoting participating preferred stock is considered to
be a common stock equivalent for purposes of determining
basic and diluted earnings per share calculations.
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
(in millions)
Retail
iShares ETFs
Institutional:
Active
Index
Total institutional
Long-term
Cash management
Advisory(1)
Total
2017
AUM
2016
Net inflows (outflows)
2015
2017
2016
2015
$ 628,377
$
541,952
$
541,125
$ 29,892
$ (11,324)
$ 38,512
1,752,239
1,287,879
1,092,561
245,342
140,479
129,852
1,139,308
2,316,807
3,456,115
5,836,731
449,949
1,515
1,009,974
1,901,681
962,852
1,738,777
2,911,655
2,701,629
4,741,486
403,584
4,335,315
299,884
5,922
49,084
55,006
330,240
38,259
2,782
10,213
(1,245)
17,918
33,491
51,409
180,564
29,228
(7,601)
26,746
(43,096)
(16,350)
152,014
7,510
(9,629)
$ 6,288,195
$ 5,147,852
$ 4,645,412
$ 367,254
$ 202,191
$ 149,895
AUM and Net Inflows (Outflows) by Product Type
(in millions)
Equity
Fixed income
Multi-asset
Alternatives:
Core
Currency and commodities(2)
Subtotal
Long-term
Cash management
Advisory(1)
Total
2017
AUM
2016
Net inflows (outflows)
2015
2017
2016
2015
$ 3,371,641
$ 2,657,176
$ 2,423,772
$ 130,146
$ 51,424
$ 52,778
1,855,465
1,572,365
1,422,368
480,278
395,007
376,336
178,787
20,330
119,955
4,227
76,944
17,167
98,533
30,814
129,347
5,836,731
449,949
1,515
88,630
28,308
92,085
20,754
116,938
112,839
780
197
977
(1,165)
6,123
4,958
4,080
1,045
5,125
4,741,486
403,584
4,335,315
299,884
330,240
38,259
180,564
29,228
152,014
7,510
2,782
10,213
(1,245)
(7,601)
(9,629)
$ 6,288,195
$ 5,147,852
$ 4,645,412
$ 367,254
$ 202,191
$ 149,895
AUM and Net Inflows (Outflows) by Investment Style
(in millions)
Active
Index and iShares ETFs
Long-term
Cash management
Advisory(1)
Total
2017
AUM
2016
Net inflows (outflows)
2015
2017
2016
2015
$ 1,696,005
$ 1,501,052
$ 1,462,672
$ 24,449
$
(774)
$ 60,510
4,140,726
5,836,731
449,949
1,515
3,240,434
2,872,643
4,741,486
403,584
4,335,315
299,884
305,791
330,240
38,259
181,338
180,564
29,228
91,504
152,014
7,510
2,782
10,213
(1,245)
(7,601)
(9,629)
$ 6,288,195
$ 5,147,852
$ 4,645,412
$ 367,254
$ 202,191
$ 149,895
(1) Advisory AUM represents long-term portfolio liquidation assignments.
(2) Amounts include commodity iShares ETFs.
39
The following table presents the component changes in BlackRock’s AUM for 2017, 2016 and 2015.
(in millions)
Beginning AUM
Net inflows (outflows)
Long-term
Cash management
Advisory(1)
Total net inflows (outflows)
Acquisitions(2)
Market change
FX impact(3)
Total change
Ending AUM
2017
2016
2015
$ 5,147,852
$ 4,645,412
$ 4,651,895
330,240
38,259
(1,245)
367,254
3,264
628,901
140,924
1,140,343
180,564
29,228
(7,601)
202,191
80,635
326,364
(106,750)
502,440
152,014
7,510
(9,629)
149,895
2,219
(57,495)
(101,102)
(6,483)
$ 6,288,195
$ 5,147,852
$ 4,645,412
(1) Advisory AUM represents long-term portfolio liquidation assignments.
(2) Amount for 2017 represents $3.3 billion of AUM acquired in the First Reserve Infrastructure business transaction in June 2017 (“First Reserve
Transaction”). Amount for 2016 represents $80.6 billion of AUM acquired in the BofA Global Capital Management transaction in April 2016. Amounts
for 2015 represent $1.3 billion of AUM acquired in the acquisition of certain assets of BKCA in March 2015, $560 million of AUM acquired in the
Infraestructura Institucional acquisition in October 2015 and $366 million of AUM acquired in the FutureAdvisor acquisition in October 2015. The
FutureAdvisor acquisition amount does not include AUM that was held in iShares holdings.
(3) Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. 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 2017
The following table presents the component changes in AUM by client type and product type for 2017.
(in millions)
Retail:
Equity
Fixed income
Multi-asset
Alternatives
Retail subtotal
iShares ETFs:
Equity
Fixed income
Multi-asset
Alternatives
iShares ETFs subtotal
Institutional:
Active:
Equity
Fixed income
Multi-asset
Alternatives
Active subtotal
Index:
Equity
Fixed income
Multi-asset
Alternatives
Index subtotal
Institutional subtotal
Long-term
Cash management
Advisory(4)
December 31,
2016
$
196,221
222,256
107,997
15,478
541,952
951,252
314,707
3,149
18,771
1,287,879
120,699
536,727
276,933
75,615
1,009,974
1,389,004
498,675
6,928
7,074
1,901,681
2,911,655
4,741,486
403,584
2,782
Net
inflows
(outflows)
$
4,145
24,503
1,143
101
29,892
174,377
67,451
322
3,192
245,342
(13,594)
(654)
19,604
566
5,922
(34,782)
87,487
(739)
(2,882)
49,084
55,006
330,240
38,259
(1,245)
$ —
—
—
—
—
—
—
—
—
—
—
—
—
3,264
3,264
—
—
—
—
—
3,264
3,264
—
—
Acquisition(1)
Market
change
FX
impact(2)
December 31,
2017
$ 26,598
6,655
10,687
708
$
6,254
4,157
1,028
446
$ 233,218
257,571
120,855
16,733
44,648
11,885
628,377
Full year
average
AUM(3)
$
216,545
240,251
114,485
16,541
587,822
1,143,351
361,171
3,262
21,071
1,528,855
128,133
554,549
310,561
80,821
1,329,610
395,252
3,761
23,616
1,752,239
137,185
570,050
347,825
84,248
1,139,308
1,074,064
1,671,628
632,592
7,837
4,750
2,316,807
3,456,115
5,836,731
449,949
1,515
1,537,730
557,465
7,595
6,911
2,109,701
3,183,765
5,300,442
414,835
2,508
189,472
4,497
280
1,478
195,727
25,681
22,537
37,166
2,771
88,155
283,684
13,932
1,427
294
299,337
387,492
627,867
1,239
(205)
14,509
8,597
10
175
23,291
4,399
11,440
14,122
2,032
31,993
33,722
32,498
221
264
66,705
98,698
133,874
6,867
183
Total
$ 5,147,852
$ 367,254
$ 3,264
$ 628,901
$ 140,924
$ 6,288,195
$ 5,717,785
(1) Amount represents AUM acquired in the First Reserve Transaction.
(2) Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
(3) Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.
(4) Advisory AUM represents long-term portfolio liquidation assignments.
40
The following table presents component changes in AUM by investment style and product type for 2017.
December 31,
2016
Net
inflows
(outflows)
Acquisition(1)
Market
change
FX
impact(2)
December 31,
2017
Full year
average
AUM(3)
$
275,033
$ (18,506)
$ —
$ 46,134
$
8,548
$ 311,209
$
293,278
(in millions)
Active:
Equity
Fixed income
Multi-asset
Alternatives
Active subtotal
Index and iShares ETFs:
iShares ETFs:
Equity
Fixed income
Multi-asset
Alternatives
749,996
384,930
91,093
1,501,052
951,252
314,707
3,149
18,771
21,541
20,747
667
24,449
174,377
67,451
322
3,192
iShares ETFs subtotal
1,287,879
245,342
Non-ETF Index
Equity
Fixed income
Multi-asset
Alternatives
1,430,891
507,662
6,928
7,074
Non-ETF Index subtotal
1,952,555
Index & iShares ETFs
subtotal
Long-term
Cash management
Advisory(4)
Total
3,240,434
4,741,486
403,584
2,782
(25,725)
89,795
(739)
(2,882)
60,449
305,791
330,240
38,259
(1,245)
—
—
3,264
3,264
—
—
—
—
—
—
—
—
—
—
—
3,264
—
—
28,800
47,853
3,479
126,266
189,472
4,497
280
1,478
14,798
15,149
2,479
40,974
14,509
8,597
10
175
815,135
468,679
100,982
783,345
425,045
97,361
1,696,005
1,599,029
1,329,610
395,252
3,761
23,616
1,143,351
361,171
3,262
21,071
195,727
23,291
1,752,239
1,528,855
289,829
14,324
1,427
294
35,827
33,297
222
263
1,730,822
645,078
7,838
4,749
1,589,130
568,920
7,596
6,912
305,874
69,609
2,388,487
2,172,558
501,601
627,867
1,239
(205)
92,900
133,874
6,867
183
4,140,726
5,836,731
449,949
1,515
3,701,413
5,300,442
414,835
2,508
$ 5,147,852
$ 367,254
$ 3,264
$ 628,901
$ 140,924
$ 6,288,195
$ 5,717,785
The following table presents component changes in AUM by product type for 2017.
(in millions)
Equity
Fixed income
Multi-asset
Alternatives:
Core
Currency and
commodities(5)
Alternatives subtotal
Long-term
Cash management
Advisory(4)
Total
December 31,
2016
Net
inflows
(outflows)
Acquisition(1)
Market
change
FX
impact(2)
December 31,
2017
Full year
average
AUM(3)
$ 2,657,176
$ 130,146
$ —
$ 525,435
$ 58,884
$ 3,371,641
$ 3,025,759
1,572,365
395,007
178,787
20,330
88,630
28,308
116,938
780
197
977
4,741,486
330,240
403,584
2,782
38,259
(1,245)
—
—
3,264
—
3,264
3,264
—
—
47,621
49,560
56,692
15,381
1,855,465
480,278
1,713,436
435,903
3,438
2,421
98,533
94,976
1,813
5,251
496
2,917
30,814
30,368
129,347
125,344
627,867
133,874
5,836,731
5,300,442
1,239
(205)
6,867
183
449,949
1,515
414,835
2,508
$ 5,147,852
$ 367,254
$ 3,264
$ 628,901
$ 140,924
$ 6,288,195
$ 5,717,785
(1) Amount represents AUM acquired in the First Reserve Transaction.
(2) Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
(3) Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.
(4) Advisory AUM represents long-term portfolio liquidation assignments.
(5) Amounts include commodity iShares ETFs.
AUM increased $1.1 trillion to $6.3 trillion at December 31,
2017 from $5.1 trillion at December 31, 2016 driven by net
market appreciation, positive net inflows, the impact of
foreign exchange movements and AUM acquired in the First
Reserve Transaction.
Net market appreciation of $628.9 billion was primarily
driven by higher U.S. and global equity markets.
41
AUM increased $140.9 billion due to the impact of foreign
exchange movements, primarily resulting from the
weakening of the U.S. dollar against the Euro and the British
pound.
For further discussion on AUM, see “Part I, Item 1 —
Business — Assets Under Management”.
Component Changes in AUM for 2016
The following table presents component changes in AUM by client type and product type for 2016.
December 31,
2015
Net
inflows
(outflows)
Acquisition(1)
Market
change
FX
impact(2)
December 31,
2016
Full year
average
AUM(3)
(in millions)
Retail:
Equity
Fixed income
Multi-asset
Alternatives
Retail subtotal
iShares ETFs:
Equity
Fixed income
Multi-asset
Alternatives
$
193,755
$
(7,429)
$
212,653
115,307
19,410
541,125
823,156
254,190
2,730
12,485
8,407
(9,367)
(2,935)
(11,324)
74,914
59,913
354
5,298
iShares ETFs subtotal
1,092,561
140,479
Institutional:
Active:
Equity
Fixed income
Multi-asset
Alternatives
Active subtotal
Index:
Equity
Fixed income
Multi-asset
Alternatives
121,442
514,428
252,041
74,941
962,852
1,285,419
441,097
6,258
6,003
(7,449)
10,234
13,322
1,811
17,918
(8,612)
41,401
(82)
784
Index subtotal
1,738,777
33,491
Institutional subtotal
Long-term
Cash management
Advisory(4)
Total
2,701,629
4,335,315
299,884
10,213
51,409
180,564
29,228
(7,601)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
80,635
—
$ 15,456
$
(5,561)
$
196,221
$
192,311
3,130
3,100
(835)
20,851
56,469
3,782
61
1,055
61,367
11,112
20,242
18,516
619
50,489
135,997
55,665
843
790
(1,934)
(1,043)
(162)
(8,700)
(3,287)
(3,178)
4
(67)
222,256
107,997
15,478
541,952
951,252
314,707
3,149
18,771
221,797
111,416
17,424
542,948
849,017
301,061
2,448
18,561
(6,528)
1,287,879
1,171,087
(4,406)
(8,177)
(6,946)
(1,756)
120,699
536,727
276,933
75,615
119,604
542,332
265,652
74,919
(21,285)
1,009,974
1,002,507
(23,800)
(39,488)
(91)
(503)
1,389,004
498,675
6,928
7,074
1,307,812
478,444
7,464
6,642
193,295
(63,882)
1,901,681
1,800,362
243,784
326,002
430
(85,167)
2,911,655
(100,395)
(6,593)
(68)
238
4,741,486
403,584
2,782
2,802,869
4,516,904
358,498
9,687
$ 4,645,412
$ 202,191
$ 80,635
$ 326,364
$ (106,750)
$ 5,147,852
$ 4,885,089
(1) Amount represents AUM acquired in the BofA Global Capital Management transaction in April 2016.
(2) Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
(3) Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.
(4) Advisory AUM represents long-term portfolio liquidation assignments.
42
The following table presents component changes in AUM by investment style and product type for 2016.
(in millions)
Active:
Equity
Fixed income
Multi-asset
Alternatives
Active subtotal
Index and iShares ETFs:
iShares ETFs:
Equity
Fixed income
Multi-asset
Alternatives
Non-ETF Index
Equity
Fixed income
Multi-asset
Alternatives
Non-ETF Index subtotal
Index & iShares ETFs subtotal
Long-term
Cash management
Advisory(4)
Total
December 31,
2015
Net
inflows
(outflows)
Acquisition(1)
Market
change
FX
impact(2)
December 31,
2016
Full year
average
AUM(3)
$
281,319
$ (20,230)
$
719,653
367,349
94,351
1,462,672
823,156
254,190
2,730
12,485
16,625
3,954
(1,123)
(774)
74,914
59,913
354
5,298
1,319,297
448,525
6,257
6,003
1,780,082
2,872,643
4,335,315
299,884
(3,260)
43,417
(81)
783
40,859
181,338
180,564
29,228
10,213
(7,601)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
80,635
—
$ 21,045
$
(7,101)
$
275,033
$
275,656
22,742
21,617
(217)
(9,024)
(7,990)
(1,918)
749,996
384,930
91,093
756,110
377,068
92,342
65,187
(26,033)
1,501,052
1,501,176
56,469
3,782
61
1,055
61,367
141,520
56,295
842
791
199,448
260,815
326,002
430
(3,287)
(3,178)
4
(67)
951,252
314,707
3,149
18,771
849,017
301,061
2,448
18,561
(6,528)
1,287,879
1,171,087
(26,666)
(40,575)
(90)
(503)
(67,834)
(74,362)
(100,395)
(6,593)
1,430,891
1,344,071
507,662
486,463
6,928
7,074
1,952,555
3,240,434
4,741,486
403,584
2,782
7,464
6,643
1,844,641
3,015,728
4,516,904
358,498
9,687
(68)
238
$ 4,645,412
$ 202,191
$ 80,635
$ 326,364
$ (106,750)
$ 5,147,852
$ 4,885,089
iShares ETFs subtotal
1,092,561
140,479
The following table presents component changes in AUM by product type for 2016.
(in millions)
Equity
Fixed income
Multi-asset
Alternatives:
Core
Currency and
commodities(5)
Alternatives subtotal
Long-term
Cash management
Advisory(4)
Total
December 31,
2015
Net
inflows
(outflows)
Acquisition(1)
Market
change
FX
impact(2)
December 31,
2016
Full year
average
AUM(3)
$ 2,423,772
$ 51,424
$
1,422,368
119,955
376,336
4,227
92,085
(1,165)
20,754
112,839
6,123
4,958
4,335,315
180,564
—
—
—
—
—
—
—
$ 219,034
$ (37,054)
$ 2,657,176
$ 2,468,744
82,819
22,520
(52,777)
1,572,365
1,543,634
(8,076)
395,007
386,980
(291)
(1,999)
88,630
90,028
1,920
1,629
(489)
(2,488)
28,308
116,938
27,518
117,546
326,002
(100,395)
4,741,486
4,516,904
299,884
10,213
29,228
(7,601)
80,635
—
430
(68)
(6,593)
238
403,584
2,782
358,498
9,687
$ 4,645,412
$ 202,191
$ 80,635
$ 326,364
$ (106,750)
$ 5,147,852
$ 4,885,089
(1) Amount represents AUM acquired in the BofA Global Capital Management transaction in April 2016.
(2) Foreign exchange reflects the impact of translating non-U.S. dollar denominated AUM into U.S. dollars for reporting purposes.
(3) Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.
(4) Advisory AUM represents long-term portfolio liquidation assignments.
(5) Amounts include commodity iShares ETFs.
AUM increased $502.4 billion to $5.1 trillion at December 31,
2016 from $4.6 trillion at December 31, 2015 driven by net
market appreciation, positive net inflows and AUM acquired
in the BofA Global Capital Management transaction, partially
offset by the impact of foreign exchange movements.
Net market appreciation of $326.4 billion was driven by
$219.0 billion from equity products, $82.8 billion from fixed
income products and $22.5 billion from multi-asset products
across the majority of strategies.
43
AUM decreased $106.8 billion due to the impact of foreign
exchange movements, primarily resulting from the
strengthening of the U.S. dollar, largely against the British
pound and the Euro.
DISCUSSION OF FINANCIAL RESUL TS
Introduction
BlackRock derives a substantial portion of its revenue from
investment advisory and administration fees, which are
recognized as the services are performed. Such fees are
primarily based on predetermined percentages of the
market value of AUM or percentages of committed capital
during investment periods of certain alternative products
and are affected by changes in AUM, including market
appreciation or depreciation, foreign exchange translation
and net inflows or outflows. Net inflows or outflows
represent the sum of new client assets, additional fundings
from existing clients (including dividend reinvestment),
withdrawals of assets from, and termination of, client
accounts and distributions to investors representing return
of capital and return on investments to investors. Market
appreciation or depreciation includes current income earned
on, and changes in the fair value of, securities held in client
accounts. Foreign exchange translation reflects the impact
of translating non-U.S. dollar denominated AUM into U.S.
dollars for reporting purposes.
BlackRock also earns revenue by lending securities on
behalf of clients to highly rated banks and broker-dealers.
The securities loaned are secured by collateral in the form of
cash or securities, with minimum collateral generally
ranging from approximately 102% to 112% of the value of
the loaned securities. Generally, the revenue earned is
shared between BlackRock and the funds or accounts
managed by the Company from which the securities are
borrowed. Historically, securities lending revenue in the
second quarter exceeds revenue in the other quarters during
the year driven by higher seasonal demand.
Investment advisory agreements for certain separate
accounts and investment funds provide for performance
fees based upon relative and/or absolute investment
performance, in addition to base fees based on AUM.
Investment advisory performance fees generally are earned
after a given period of time and when investment
performance exceeds a contractual threshold. As such, the
timing of recognition of performance fees may increase the
volatility of BlackRock’s revenue and earnings. The
magnitude of performance fees can fluctuate quarterly due
to the timing of carried interest recognition on alternative
products; however, the third and fourth quarters have a
greater number of nonalternative products with
performance measurement periods that end on either
September 30 or December 31.
BlackRock offers investment management technology
systems, risk management services, wealth management
and digital distribution tools on a fee basis. Clients include
banks, insurance companies, official institutions, pension
funds, asset managers, retail distributors and other
investors. Fees earned for technology and risk management
revenue are recorded as services are performed and are
generally determined using the value of positions on the
Aladdin platform or on a fixed-rate basis.
BlackRock advises global financial institutions, regulators,
and government entities across a range of risk, regulatory,
capital markets and strategic services. Fees earned for
advisory services, which are included in advisory and other
revenue, are determined using fixed-rate fees and recorded
upon delivery.
The Company earns fees for transition management services
primarily comprised of commissions recognized in
connection with buying and selling securities on behalf of its
customers. Commissions related to transition management
services are recorded on a trade-date basis as securities
transactions occur.
The Company also earns revenue related to certain strategic
investments accounted for as equity method investments.
Operating expense reflects employee compensation and
benefits, distribution and servicing costs, amortization of
deferred sales commissions, direct fund expense, general
and administration expense and amortization of finite-lived
intangible assets.
• Employee compensation and benefits expense includes
salaries, commissions, temporary help, deferred and
incentive compensation, employer payroll taxes,
severance and related benefit costs.
• Distribution and servicing costs, which are primarily
AUM driven, include payments made to third parties,
primarily associated with obtaining and retaining client
investments in certain BlackRock products.
• Direct fund expense primarily consists of third-party
nonadvisory expense incurred by BlackRock related to
certain funds for the use of index trademarks, reference
data for indices, custodial services, fund
administration, fund accounting, transfer agent
services, shareholder reporting services, legal expense,
and audit and tax services as well as other fund-related
expense directly attributable to the nonadvisory
operations of the fund. These expenses may vary over
time with fluctuations in AUM, number of shareholder
accounts, or other attributes directly related to volume
of business.
General and administration expense includes marketing and
promotional, occupancy and office-related costs, portfolio
services (including clearing expense related to transition
management services), technology, professional services,
communications, product launch costs and other general
and administration expense, including the impact of foreign
currency remeasurement. Foreign currency remeasurement
(gains) losses were $5 million, $(6) million and $(8) million for
2017, 2016 and 2015, respectively.
Approximately 75% of the Company’s revenue is generated
in U.S. dollars. The Company’s revenue and expense
generated in foreign currencies (primarily the Euro and
British pound) are impacted by foreign exchange rates. Any
effect of foreign exchange rate change on revenue is partially
offset by a change in expense driven by the Company’s
considerable non-dollar expense base related to its
operations outside the United States.
Nonoperating income (expense) includes the effect of
changes in the valuations on investments (excluding
available-for-sale investments) and earnings on equity
method investments as well as interest and dividend income
and interest expense. Other comprehensive income includes
changes in valuations related to available-for-sale
investments. BlackRock primarily holds seed and
co-investments in sponsored investment products that
invest in a variety of asset classes, including private equity,
hedge funds and real assets. Investments generally are
made for co-investment purposes, to establish a
performance track record or for regulatory purposes,
44
including Federal Reserve Bank stock. BlackRock does not
engage in proprietary trading activities that could conflict
with the interests of its clients.
sponsored investment funds. The portion of nonoperating
income (expense) not attributable to BlackRock is allocated
to NCI on the consolidated statements of income.
In addition, nonoperating income (expense) includes the
impact of changes in the valuations of consolidated
Revenue
The following table presents revenue for 2017, 2016 and 2015.
(in millions)
2017
2016
2015
Investment advisory, administration fees and securities lending revenue:
Equity:
Active
iShares ETFs
Non-ETF index
Equity subtotal
Fixed income:
Active
iShares ETFs
Non-ETF index
Fixed income subtotal
Multi-asset
Alternatives:
Core
Currency and commodities
Alternatives subtotal
Long-term
Cash management
Total base fees
Investment advisory performance fees:
Equity
Fixed income
Multi-asset
Alternatives
Total performance fees
Technology and risk management revenue(1)
Distribution fees
Advisory and other revenue:
Advisory(1)
Other
Advisory and other revenue
Total revenue
$ 1,662
$ 1,591
$ 1,709
3,221
687
5,570
2,651
674
4,916
2,751
680
5,140
1,735
1,658
1,566
808
344
2,887
1,148
639
91
730
10,335
558
10,893
152
34
33
375
594
677
24
128
175
303
696
297
2,651
1,138
634
83
717
9,422
458
9,880
102
13
19
161
295
595
41
119
225
344
554
282
2,402
1,253
653
73
726
9,521
319
9,840
205
26
34
356
621
528
55
118
239
357
$ 12,491
$ 11,155
$ 11,401
(1) Beginning with the first quarter of 2017, Aladdin revenue previously reported within “BlackRock Solutions® and advisory” has been presented within
“Technology and risk management revenue” on the consolidated statement of income. The remaining previously reported “BlackRock Solutions and
advisory” revenue is currently reported as part of “Advisory and other revenue.” Under the historical presentation, BlackRock Solutions and advisory
revenue would have totaled $805 million for 2017. The prior period amounts reported for BlackRock Solutions and advisory of $714 million and
$646 million for 2016 and 2015, respectively, have been reclassified to conform to the current presentation.
45
The table below lists the asset type mix of investment advisory, administration fees and securities lending revenue (collectively “base
fees”) and mix of average AUM by product type:
Mix of Base Fees
Mix of Average AUM by Asset Class(1)
2017
2016
2015
2017
2016
2015
Equity:
Active
iShares ETFs
Non-ETF index
Equity subtotal
Fixed income:
Active
iShares ETFs
Non-ETF index
Fixed income subtotal
Multi-asset
Alternatives:
Core
Currency and commodities
Alternatives subtotal
Long-term
Cash management
15%
30%
6%
51%
16%
27%
7%
50%
17%
28%
7%
52%
16%
17%
15%
7%
3%
26%
11%
6%
1%
7%
95%
5%
7%
3%
27%
11%
6%
1%
7%
95%
5%
6%
3%
24%
13%
7%
1%
8%
97%
3%
Total excluding Advisory AUM
100% 100% 100%
5%
20%
28%
53%
13%
6%
10%
29%
8%
2%
1%
3%
93%
7%
100%
6%
17%
27%
50%
16%
6%
10%
32%
8%
2%
1%
3%
93%
7%
100%
6%
17%
30%
53%
16%
5%
10%
31%
8%
2%
-%
2%
94%
6%
100%
(1) Average AUM is calculated as the average of the month-end spot AUM amounts for the trailing thirteen months.
2017 Compared with 2016
2016 Compared with 2015
Revenue increased $1,336 million, or 12%, from 2016, driven
by growth in base fees, performance fees, and technology
and risk management revenue.
Revenue decreased $246 million, or 2%, from 2015, driven by
lower performance fees, partially offset by higher technology
and risk management revenue.
Investment advisory, administration fees and securities
lending revenue of $10,893 million in 2017 increased
$1,013 million from $9,880 million in 2016 reflecting the
impact of higher markets and organic growth on average
AUM, and the effect of AUM acquired in the BofA Global
Capital Management transaction, partially offset by pricing
changes to select investment products. Securities lending
revenue of $597 million in 2017 compared with $579 million
in 2016.
Investment advisory performance fees were $594 million in
2017 compared with $295 million in 2016. The increase
primarily reflected improved performance in hedge fund and
long-only equity products.
Technology and risk management revenue of $677 million for
2017 increased $82 million from $595 million in 2016
reflecting ongoing demand for Aladdin.
Advisory and other revenue of $303 million decreased
$41 million from $344 million in 2016, reflecting lower
earnings from a strategic minority investment and lower fees
for distributing certain exchange-traded products.
Investment advisory, administration fees and securities
lending revenue of $9,880 million for 2016 increased
$40 million from $9,840 million in 2015 reflecting the impact
of organic growth and higher markets on average AUM, the
effect of AUM acquired in the BofA Global Capital
Management transaction and lower yield-related fee waivers
on certain money market funds, partially offset by the
impact of divergent beta and mix shift, and the impact of
foreign exchange movements. Securities lending revenue
increased $66 million from 2015 to $579 million in 2016,
primarily reflecting an increase in average balances of
securities on loan and higher spreads.
Investment advisory performance fees were $295 million in
2016 compared with $621 million in 2015. The decrease was
primarily driven by lower fees from equity and alternative
products, including the impact of the strong performance
from a single hedge fund with an annual performance
measurement period that ended in the third quarter of 2015.
Technology and risk management revenue of $595 million for
2016 increased $67 million from $528 million in 2015
reflecting ongoing demand for Aladdin.
46
Expense
The following table presents expense for 2017, 2016 and 2015.
(in millions)
Expense, GAAP:
Employee compensation and benefits
Distribution and servicing costs
Amortization of deferred sales commissions
Direct fund expense
General and administration:
Marketing and promotional
Occupancy and office related
Portfolio services
Technology
Professional services
Communications
Regulatory, filing and license fees
Other general and administration
Total general and administration expense
Restructuring charge
Amortization of intangible assets
Total expense, GAAP
Less non-GAAP expense adjustments(1):
Employee compensation and benefits:
PNC LTIP funding obligation
Compensation expense related to appreciation (depreciation) on deferred compensation plans
Subtotal
Restructuring charge
Total non-GAAP expense adjustments
Expense, as adjusted:
Employee compensation and benefits
Distribution and servicing costs
Amortization of deferred sales commissions
Direct fund expense
General and administration
Amortization of intangible assets
Total expense, as adjusted
2017
2016
2015
$ 4,255
$ 3,880
$ 4,005
492
17
904
333
275
268
203
142
34
30
177
429
34
766
325
272
234
175
114
38
21
122
409
48
767
365
280
221
170
120
37
24
163
1,462
1,301
1,380
—
89
76
99
—
128
$ 7,219
$ 6,585
$ 6,737
$
15
—
15
—
15
$
28
—
28
76
104
$
30
1
31
—
31
$ 4,240
$ 3,852
$ 3,974
492
17
904
1,462
89
429
34
766
1,301
99
409
48
767
1,380
128
$ 7,204
$ 6,481
$ 6,706
(1) See Non-GAAP Financial Measures for further information on non-GAAP expense adjustments.
2017 Compared with 2016
GAAP. Expense increased $634 million, or 10%, from 2016,
driven primarily by higher employee compensation and
benefits expense, higher volume-related expense, and
higher general and administration expense, partially offset
by a restructuring charge recorded in 2016.
Employee compensation and benefits expense increased
$375 million, or 10%, to $4,255 million in 2017 from
$3,880 million in 2016, reflecting higher incentive
compensation, higher headcount, and approximately
$20 million of severance and accelerated compensation
expense associated with the repositioning of the active
equity platform. Employees at December 31, 2017 totaled
approximately 13,900 compared with approximately 13,000
at December 31, 2016.
Distribution and servicing costs totaled $492 million in 2017
compared with $429 million in 2016 reflecting higher
average AUM and the effect of AUM acquired in the BofA
Global Capital Management transaction.
Direct fund expense increased $138 million from 2016,
reflecting higher iShares ETFs average AUM.
General and administration expense increased $161 million
from 2016, reflecting higher portfolio services, professional
services fees (associated with strategic transactions, MiFID
implementation, and tax reform), technology expense,
operating errors, contingent consideration fair value
adjustments and the impact of foreign exchange
remeasurement expense.
As Adjusted. Expense, as adjusted, increased $723 million, or
11%, to $7,204 million in 2017 from $6,481 million in 2016.
The increase in total expense, as adjusted, is driven primarily
by higher employee compensation and benefit expense,
higher volume-related expense and higher general and
administration expense. The restructuring charge recorded in
2016 has been excluded from the as adjusted results.
47
2016 Compared with 2015
GAAP. Expense decreased $152 million, or 2%, from 2015,
reflecting lower compensation and benefits expense,
expense discipline and lower amortization of intangible
assets, partially offset by a restructuring charge recorded in
2016.
Employee compensation and benefits expense decreased
$125 million, or 3%, to $3,880 million in 2016 from
$4,005 million in 2015, reflecting lower incentive
compensation, primarily driven by lower performance fees.
Distribution and servicing costs totaled $429 million in 2016
compared with $409 million in 2015.
General and administration expense decreased $79 million
from 2015, reflecting expense discipline and the impact of
higher transaction-related expense recorded in 2015.
Restructuring charge of $76 million, primarily comprised of
severance and accelerated amortization expense of
previously granted deferred compensation awards, was
recorded in 2016 in connection with a project to streamline
and simplify the organization.
Amortization of intangible assets expense decreased
$29 million, or 23%, to $99 million in 2016 from $128 million
in 2015, primarily reflecting certain finite-lived intangible
assets becoming fully amortized.
As Adjusted. Expense, as adjusted, decreased $225 million,
or 3%, to $6,481 million in 2016 from $6,706 million in 2015.
The decrease in total expense, as adjusted, is primarily
attributable to lower employee compensation and benefits
expense, expense discipline and lower amortization of
intangible assets. The restructuring charge has been
excluded from the as adjusted results.
N O N O P E R A T IN G R E S U L T S
The summary and reconciliation of U.S. GAAP nonoperating
income (expense) to nonoperating income (expense), as
adjusted for 2017, 2016 and 2015 was as follows:
(in millions)
2017
2016
2015
Nonoperating income (expense), GAAP
basis(1)
$
5
$ (110)
$ (62)
Less: Net income (loss) attributable to
NCI
Nonoperating income (expense)(2)
Compensation expense related to
(appreciation) depreciation on
deferred compensation plans
Nonoperating income (expense), as
37
(32)
(2)
(108)
7
(69)
—
—
(1)
adjusted(2)(3)
$ (32)
$ (108)
$ (70)
(1) Amounts included gains of $118 million, $16 million and $58 million
attributable to consolidated variable interest entities (“VIEs”) for
2017, 2016 and 2015, respectively.
(2) Net of net income (loss) attributable to NCI.
(3) Management believes nonoperating income (expense), as adjusted, is
an effective measure for reviewing BlackRock’s nonoperating
contribution to results. See Non-GAAP Financial Measures for further
information on non-GAAP financial measures for 2017, 2016 and
2015.
The components of nonoperating income (expense), less net income (loss) attributable to NCI for 2017, 2016 and 2015 were as
follows:
(in millions)
Net gain (loss) on investments(1)(2)
Private equity
Real assets
Other alternatives(3)
Other investments(4)
Subtotal
Other gains(5)
Total net gain (loss) on investments(1)(2)
Interest and dividend income
Interest expense
Net interest expense
Total nonoperating income (expense)(1)
Compensation expense related to (appreciation) depreciation on deferred compensation plans
2017
2016
2015
$
21
17
38
43
119
5
124
49
(205)
(156)
(32)
—
$
6
8
21
22
57
—
57
40
(205)
(165)
(108)
—
$ 71
12
(2)
(18)
63
46
109
26
(204)
(178)
(69)
(1)
Nonoperating income (expense), as adjusted(1)(2)
$ (32)
$ (108)
$ (70)
(1) Net of net income (loss) attributable to NCI. Amounts also include net gain (loss) on consolidated VIEs.
(2) Management believes nonoperating income (expense), as adjusted, is an effective measure for reviewing BlackRock’s nonoperating contribution to
results. See Non-GAAP Financial Measures for further information on non-GAAP financial measures for 2017, 2016 and 2015.
(3) Amounts primarily include net gains (losses) related to direct hedge fund strategies and hedge fund solutions. The prior year periods also included
net gains related to opportunistic credit strategies.
(4) Amounts primarily include net gains (losses) related to equity and fixed income investments.
(5) The amount for 2015 primarily includes a $40 million gain related to the acquisition of certain assets of BKCA.
48
Income Tax Expense
(in millions)
Operating income(1)
Total nonoperating income (expense)(1)(2)
Income before income taxes(2)
Income tax expense(3)
Effective tax rate(3)
GAAP
2016
2017
As adjusted
2015
2017
2016
2015
$ 5,272
$ 4,570
$ 4,664
$ 5,287
$ 4,674
$ 4,695
(32)
(108)
(69)
(32)
(108)
(70)
$ 5,240
$ 270
$ 4,462
$ 1,290
$ 4,595
$ 1,250
$ 5,255
$ 1,539
$ 4,566
$ 1,352
$ 4,625
$ 1,312
5.2%
28.9%
27.2%
29.3%
29.6%
28.4%
(1) See Non-GAAP Financial Measures for further information on and reconciliation of as adjusted items.
(2) Net of net income (loss) attributable to NCI.
(3) GAAP income tax expense and effective tax rate for 2017 reflects $1.2 billion of a net tax benefit related to the 2017 Tax Act.
The Company’s tax rate is affected by tax rates in foreign
jurisdictions and the relative amount of income earned in
those jurisdictions, which the Company expects to be fairly
consistent in the near term. The significant foreign
jurisdictions that have lower statutory tax rates than the U.S.
federal statutory rate of 35% include the United Kingdom,
Channel Islands, Ireland and Netherlands.
2017. Income tax expense (GAAP) reflected:
• the following amounts related to the 2017 Tax Act:
• $106 million tax expense related to the revaluation of
certain deferred income tax assets;
• $1,758 million noncash tax benefit related to the
revaluation of certain deferred income tax liabilities;
and
• $477 million tax expense related to the mandatory
deemed repatriation of undistributed foreign earnings
and profits.
• a noncash expense of $16 million, primarily associated
with the revaluation of certain deferred income tax
liabilities as a result of domestic state and local tax
changes; and
• $173 million discrete tax benefits, primarily related to
stock-based compensation awards, including
$151 million related to the adoption of new accounting
guidance related to stock-based compensation awards.
See Note 2, Significant Accounting Policies, for further
information.
The as adjusted effective tax rate of 29.3% for 2017
excluded the noncash deferred tax revaluation benefit of
$1,758 million and noncash expense of $16 million
mentioned above as it will not have a cash flow impact and
to ensure comparability among periods presented. In
addition, the deemed repatriation tax expense of
$477 million has been excluded from the as adjusted results
due to the one-time nature and to ensure comparability
among periods presented.
2016. Income tax expense (GAAP) reflected:
• a net noncash benefit of $30 million, primarily
associated with the revaluation of certain deferred
income tax liabilities; and
• a benefit from $65 million of nonrecurring items,
including the resolution of certain outstanding tax
matters.
The as adjusted effective tax rate of 29.6% for 2016
excluded the net noncash benefit of $30 million mentioned
above as it will not have a cash flow impact and to ensure
comparability among periods presented.
2015. Income tax expense (GAAP) reflected:
• a net noncash benefit of $54 million, primarily
associated with the revaluation of certain deferred
income tax liabilities; and
• a benefit from $75 million of nonrecurring items,
primarily due to the realization of losses from changes
in the Company’s organizational tax structure and the
resolution of certain outstanding tax matters.
The as adjusted effective tax rate of 28.4% for 2015
excluded the net noncash benefit of $54 million mentioned
above, as it will not have a cash flow impact and to ensure
comparability among periods presented.
B A L A N C E SH E E T O V E R V I E W
As Adjusted Balance Sheet
The following table presents a reconciliation of the
consolidated statement of financial condition presented on a
GAAP basis to the consolidated statement of financial
condition, excluding the impact of separate account assets
and separate account collateral held under securities
lending agreements (directly related to lending separate
account securities) and separate account liabilities and
separate account collateral liabilities under securities
lending agreements and consolidated sponsored investment
funds, including consolidated VIEs.
The Company presents the as adjusted balance sheet as
additional information to enable investors to exclude certain
assets that have equal and offsetting liabilities or
noncontrolling interests that ultimately do not have an
impact on stockholders’ equity or cash flows. Management
views the as adjusted balance sheet, which contains
non-GAAP financial measures, as an economic presentation
of the Company’s total assets and liabilities; however, it 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.
Separate Account Assets and Liabilities and Separate
Account Collateral Held under Securities Lending Agreements
Separate account assets are maintained by BlackRock Life
Limited, a wholly owned subsidiary of the Company that is a
registered life insurance company in the United Kingdom,
and represent segregated assets held for purposes of
funding individual and group pension contracts. The
49
Company records equal and offsetting separate account
liabilities. The separate account assets are not available to
creditors of the Company and the holders of the pension
contracts have no recourse to the Company’s assets. The net
investment income attributable to separate account assets
accrues directly to the contract owners and is not reported
on the consolidated statements of income. While BlackRock
has no economic interest in these assets or liabilities,
BlackRock earns an investment advisory fee for the service
of managing these assets on behalf of its clients.
In addition, the Company records on its consolidated
statements of financial condition the separate account
collateral received under BlackRock Life Limited securities
lending arrangements as its own asset in addition to an
equal and offsetting separate account collateral liability for
the obligation to return the collateral. The collateral is not
available to creditors of the Company, and the borrowers
under the securities lending arrangements have no recourse
to the Company’s assets.
Consolidated Sponsored Investment Funds
The Company consolidates certain sponsored investment
funds accounted for as voting rights entities (“VREs”) and
VIEs, (collectively, “Consolidated Sponsored Investment
Funds”). See Note 2, Significant Accounting Policies, in the
notes to the consolidated financial statements contained in
Part II, Item 8 of this filing for more information on the
Company’s consolidation policy.
The Company cannot readily access cash and cash
equivalents or other assets held by Consolidated Sponsored
Investment Funds to use in its operating activities. In
addition, the Company cannot readily sell investments held
by Consolidated Sponsored Investment Funds in order to
obtain cash for use in the Company’s operations.
(in millions)
Assets
Cash and cash equivalents
Accounts receivable
Investments
Assets of consolidated VIEs:
Cash and cash equivalents
Investments
Other assets
Separate account assets and collateral held under securities lending
agreements
Other assets(3)
Subtotal
Goodwill and intangible assets, net
Total assets
Liabilities
Accrued compensation and benefits
Accounts payable and accrued liabilities
Liabilities of consolidated VIEs
Borrowings
Separate account liabilities and collateral liabilities under securities lending
agreements
Deferred income tax liabilities(4)
Other liabilities
Total liabilities
Equity
Total stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
December 31, 2017
Separate
Account
Assets/
Collateral(1)
Consolidated
Sponsored
Investment
Funds(2)
GAAP
Basis
As
Adjusted
$
6,894
$
2,699
1,981
144
1,493
66
—
—
—
—
—
—
—
174,127
174,127
2,204
189,608
30,609
—
174,127
—
$ 49
$ 6,845
—
52
144
268
66
—
1
580
—
2,699
1,929
—
1,225
—
—
2,203
14,901
30,609
$ 220,217
$ 174,127
$ 580
$ 45,510
$ —
$ 2,153
$
2,153
$
1,161
369
5,014
—
—
—
—
174,127
174,127
3,538
1,564
—
—
187,926
174,127
31,825
466
32,291
—
—
—
—
369
—
—
—
(255)
114
—
466
466
1,161
—
5,014
—
3,538
1,819
13,685
31,825
—
31,825
$ 45,510
$ 220,217
$ 174,127
$ 580
(1) Amounts represent segregated client assets generating advisory fees in which BlackRock has no economic interest or liability.
(2) Amounts represent the portion of assets and liabilities of Consolidated Sponsored Investment Funds attributable to NCI.
(3) Amounts include property and equipment and other assets.
(4) Amount includes approximately $3.9 billion of deferred income tax liabilities related to goodwill and intangibles. See Note 21, Income Taxes, in the
notes to the consolidated financial statements contained in Part II, Item 8 of this filing for more information.
50
The following discussion summarizes the significant
changes in assets and liabilities on a GAAP basis. Please see
the consolidated statements of financial condition as of
December 31, 2017 and 2016 contained in Part II, Item 8 of
this filing. The discussion does not include changes related
to assets and liabilities that are equal and offsetting and
have no impact on BlackRock’s stockholders’ equity.
Assets. Cash and cash equivalents at December 31, 2017
and 2016 included $63 million and $53 million, respectively,
of cash held by consolidated VREs (see Liquidity and Capital
Resources for details on the change in cash and cash
equivalents during 2017).
Accounts receivable at December 31, 2017 increased
$584 million from December 31, 2016 primarily due to higher
BlackRock mutual funds, iShares ETFs and performance fee
receivables. Investments were $1,981 million at
December 31, 2017 (for more information see Investments
herein). Goodwill and intangible assets increased
$128 million from December 31, 2016, primarily due to the
First Reserve and Cachematrix Transactions, partially offset
by $89 million of amortization of intangible assets. Other
assets (including property and equipment) increased
$345 million from December 31, 2016, primarily related to an
increase in unit trust receivables (substantially offset by an
increase in unit trust payables recorded within other
liabilities), earnings from certain strategic investments, and
other assets, partially offset by a decrease in current taxes
receivable.
Liabilities. Accrued compensation and benefits at
December 31, 2017 increased $273 million from
December 31, 2016, primarily due to higher 2017 incentive
compensation accruals. Accounts payable and accrued
liabilities at December 31, 2017 increased $281 million from
December 31, 2016 due to higher current income taxes
payables and increased accruals.
Net deferred income tax liabilities at December 31, 2017
decreased $1.3 billion, primarily as a result of revaluation of
deferred income tax liabilities due to the 2017 Tax Act. Other
liabilities increased $343 million from December 31, 2016,
primarily related to an increase in unit trust payables
(substantially offset by an increase in unit trust receivables
recorded within other assets) and contingent liabilities
related to the First Reserve Transaction and uncertain tax
positions, partially offset by a decrease in other operating
liabilities.
Investments and Investments of Consolidated VIEs
The Company’s investments and investments of
consolidated VIEs (collectively, “Total Investments”) were
$1,981 million and $1,493 million, respectively, at
December 31, 2017. Total Investments include consolidated
investments held by sponsored investment funds accounted
for as VREs and VIEs. Management reviews BlackRock’s
Total Investments on an “economic” basis, which eliminates
the portion of Total Investments that does not impact
BlackRock’s book value or net income attributable to
BlackRock. 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.
The Company presents Total Investments, as adjusted, to
enable investors to understand the portion of Total
Investments that is owned by the Company, net of NCI, as a
gauge to measure the impact of changes in net nonoperating
income (expense) on investments to net income (loss)
attributable to BlackRock.
The Company further presents net “economic” investment
exposure, net of deferred compensation investments and
hedged investments, to reflect another helpful measure for
investors. The economic impact of Total Investments held
pursuant to deferred compensation arrangements is offset
by a change in compensation expense. The impact of certain
investments is substantially mitigated by swap hedges.
Carried interest capital allocations are excluded as there is
no impact to BlackRock’s stockholders’ equity until such
amounts are realized as performance fees. Finally, the
Company’s regulatory investment in Federal Reserve Bank
stock, which is not subject to market or interest rate risk, is
excluded from the Company’s net economic investment
exposure.
(in millions)
Investments, GAAP
Investments held by consolidated VIEs, GAAP
Total Investments
Investments held by consolidated VIEs
Investments held by consolidated VREs
Net interest in consolidated VREs
Net interest in consolidated VIEs(1)
Total Investments, as adjusted
Federal Reserve Bank stock
Deferred compensation investments
Hedged investments
Carried interest (VIEs/VREs)
Total “economic” investment exposure
December 31,
2017
December 31,
2016
$ 1,981
1,493
3,474
(1,493)
(512)
460
1,225
3,154
(91)
(56)
(587)
(298)
$ 1,595
1,008
2,603
(1,008)
(465)
444
840
2,414
(89)
(66)
(614)
(126)
$ 2,122
$ 1,519
(1) Amount includes $266 million and $108 million of carried interest (VIEs) as of December 31, 2017 and 2016, respectively, which has no impact on the
Company’s “economic” investment exposure.
51
The following table represents the carrying value of the Company’s economic investment exposure, by asset type, at
December 31, 2017 and 2016:
(in millions)
Private equity
Real assets
Other alternatives(1)
Other investments(2)
Total “economic” investment exposure
(1) Other alternatives primarily include hedge funds/funds of hedge funds.
December 31,
2017
December 31,
2016
$ 331
$ 334
313
236
1,242
$ 2,122
94
245
846
$ 1,519
(2) Other investments primarily include seed investments in fixed income, equity and multi-asset mutual funds/strategies as well as U.K. government
securities, primarily held for regulatory purposes.
As adjusted investment activity for 2017 and 2016 was as follows:
(in millions)
Total Investments, as adjusted, beginning balance
Purchases/capital contributions
Sales/maturities
Distributions(1)
Market appreciation(depreciation)/earnings from equity method investments
Carried interest capital allocations/(distributions)/acquired
Other
Total Investments, as adjusted, ending balance
(1) Amount includes distributions representing return of capital and return on investments.
2017
2016
$ 2,414
$ 2,227
1,082
1,234
(696)
(102)
240
172
44
(976)
(134)
82
26
(45)
$ 3,154
$ 2,414
LIQUIDITY A ND CAPITAL RESOURCES
BlackRock Cash Flows Excluding the Impact of
Consolidated Sponsored Investment Funds
The consolidated statements of cash flows include the cash
flows of the Consolidated Sponsored Investment Funds. The
Company uses an adjusted cash flow statement, which
excludes the impact of Consolidated Sponsored Investment
Funds, as a supplemental non-GAAP measure to assess
liquidity and capital requirements. The Company believes
that its cash flows, excluding the impact of the Consolidated
Sponsored Investment Funds, provide investors with useful
information on the cash flows of BlackRock relating to its
ability to fund additional operating, investing and financing
activities. BlackRock’s management does not advocate that
investors consider such non-GAAP measures in isolation
from, or as a substitute for, its cash flows presented in
accordance with GAAP.
The following table presents a reconciliation of the consolidated statements of cash flows presented on a GAAP basis to the
consolidated statements of cash flows, excluding the impact of the cash flows of Consolidated Sponsored Investment Funds:
(in millions)
Cash and cash equivalents, December 31, 2015
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, December 31, 2016
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, December 31, 2017
GAAP
Basis
$ 6,083
2,154
(188)
(1,685)
(273)
8
Impact on
Cash Flows
of Consolidated
Sponsored
Investment
Funds
$
100
(1,063)
(130)
1,146
—
(47)
53
(384)
(70)
464
—
10
63
Cash Flows
Excluding
Impact of
Consolidated
Sponsored
Investment
Funds
$ 5,983
3,217
(58)
(2,831)
(273)
55
$ 6,038
4,212
(517)
(3,094)
192
793
$ 6,831
$ 6,091
$
3,828
(587)
(2,630)
192
803
$ 6,894
$
52
Sources of BlackRock’s operating cash primarily include
investment advisory, administration fees and securities
lending revenue, performance fees, revenue from technology
and risk management services, advisory and other revenue
and distribution fees. BlackRock uses its cash to pay all
operating expense, interest and principal on borrowings,
income taxes, dividends on BlackRock’s capital stock,
repurchases of the Company’s stock, capital expenditures
and purchases of co-investments and seed investments.
Total liquidity resources increased $793 million during 2017,
primarily reflecting cash flows from operating activities,
partially offset by cash payments of 2016 year-end incentive
awards, share repurchases of $1.4 billion and cash dividend
payments of $1.7 billion.
A significant portion of the Company’s $3,154 million of Total
Investments, as adjusted, is illiquid in nature and, as such,
cannot be readily convertible to cash.
For details of the Company’s GAAP cash flows from
operating, investing and financing activities, see the
Consolidated Statements of Cash Flows contained in Part II,
Item 8 of this filing.
Cash flows from operating activities, excluding the impact of
Consolidated Sponsored Investment Funds, primarily
include the receipt of investment advisory and
administration fees, securities lending revenue and
performance fees offset by the payment of operating
expenses incurred in the normal course of business,
including year-end incentive compensation accrued for in
the prior year.
Cash outflows from investing activities, excluding the impact
of Consolidated Sponsored Investment Funds, for 2017 were
$517 million and primarily reflected $497 million of
investment purchases, $155 million of purchases of property
and equipment, $73 million related to the First Reserve
Transaction and $29 million related to the Cachematrix
Transaction, partially offset by $205 million of net proceeds
from sales and maturities of certain investments.
Cash outflows from financing activities, excluding the impact
of Consolidated Sponsored Investment Funds, for 2017 were
$3,094 million, primarily resulting from $1.4 billion of share
repurchases, including $1.1 billion in open market-
transactions and $321 million of employee tax withholdings
related to employee stock transactions, $1.7 billion of cash
dividend payments and $700 million of repayments of long-
term borrowings, partially offset by $697 million of proceeds
from issuance of long-term borrowings.
The Company manages its financial condition and funding to
maintain appropriate liquidity for the business. Liquidity
resources at December 31, 2017 and 2016 were as follows:
(in millions)
December 31,
2017
December 31,
2016
Cash and cash equivalents(1)
$ 6,894
$ 6,091
Cash and cash equivalents held
by consolidated VREs(2)
Subtotal
Credit facility — undrawn
(63)
6,831
4,000
(53)
6,038
4,000
Total liquidity resources(3)
$ 10,831
$ 10,038
(1) The percentage of cash and cash equivalents held by the Company’s
U.S. subsidiaries was approximately 40% and 50% at December 31,
2017 and 2016, respectively. See Net Capital Requirements herein for
more information on net capital requirements in certain regulated
subsidiaries.
(2) The Company cannot readily access such cash to use in its operating
activities.
(3) Amounts do not reflect a reduction for year-end incentive
compensation accruals of approximately $1.5 billion and $1.3 billion
for 2017 and 2016, respectively, which are paid in the first quarter of
the following year.
Share Repurchases. The Company repurchased 2.6 million
common shares in open market transactions under the
share repurchase program for approximately $1.1 billion
during 2017. At December 31, 2017, there were 6.4 million
shares still authorized to be repurchased.
Net Capital Requirements. The Company is required to
maintain net capital in certain regulated subsidiaries within
a number of jurisdictions, which is partially maintained by
retaining cash and cash equivalent investments in those
subsidiaries or jurisdictions. As a result, such subsidiaries of
the Company may be restricted in their ability to transfer
cash between different jurisdictions and to their parents.
Additionally, transfers of cash between international
jurisdictions may have adverse tax consequences that could
discourage such transfers.
BlackRock Institutional Trust Company, N.A. (“BTC”) is
chartered as a national bank that does not accept client
deposits and whose powers are limited to trust and other
fiduciary activities. BTC provides investment management
services, including investment advisory and securities
lending agency services, to institutional clients. BTC is
subject to regulatory capital and liquid asset requirements
administered by the Office of the Comptroller of the
Currency.
At December 31, 2017 and 2016, the Company was required
to maintain approximately $1.8 billion and $1.4 billion,
respectively, in net capital in certain regulated subsidiaries,
including BTC, entities regulated by the Financial Conduct
Authority and Prudential Regulation Authority in the United
Kingdom, and the Company’s broker-dealers. The Company
was in compliance with all applicable regulatory net capital
requirements.
Undistributed Earnings of Foreign Subsidiaries. As a result
of the 2017 Tax Act and the one-time mandatory deemed
repatriation tax on untaxed accumulated foreign earnings, a
provisional amount of U.S. income taxes was provided on the
undistributed foreign earnings. The financial statement
basis in excess of tax basis of its foreign subsidiaries
remains indefinitely reinvested in foreign operations. The
Company will continue to evaluate its capital management
plans throughout 2018.
Short-Term Borrowings
2017 Revolving Credit Facility. The Company’s credit facility
has an aggregate commitment amount of $4.0 billion and
was amended in April 2017 to extend the maturity date to
April 2022 (the “2017 credit facility”). The 2017 credit facility
permits the Company to request up to an additional
$1.0 billion of borrowing capacity, subject to lender credit
approval, increasing the overall size of the 2017 credit
facility to an aggregate principal amount not to exceed
$5.0 billion. Interest on borrowings outstanding accrues at a
rate based on the applicable London Interbank Offered Rate
plus a spread. The 2017 credit facility requires the Company
53
not to exceed a maximum leverage ratio (ratio of net debt to
earnings before interest, taxes, depreciation and
amortization, where net debt equals total debt less
unrestricted cash) of 3 to 1, which was satisfied with a ratio
of less than 1 to 1 at December 31, 2017. The 2017 credit
facility provides back-up liquidity to fund ongoing working
capital for general corporate purposes and various
investment opportunities. At December 31, 2017, the
Company had no amount outstanding under the 2017 credit
facility.
Commercial Paper Program. The Company can issue
unsecured commercial paper notes (the “CP Notes”) on a
private-placement basis up to a maximum aggregate
amount outstanding at any time of $4.0 billion. The
commercial paper program is currently supported by the
2017 credit facility. At December 31, 2017, BlackRock had no
CP Notes outstanding.
Long-Term Borrowings
The carrying value of long-term borrowings at December 31, 2017 included the following:
(in millions)
5.00% Notes
4.25% Notes
3.375% Notes
3.50% Notes
1.25% Notes(1)
3.20% Notes
Maturity Amount
Carrying
Value
Maturity
$ 1,000
$ 999
December 2019
750
750
1,000
841
700
747
746
994
835
693
May 2021
June 2022
March 2024
May 2025
March 2027
Total Long-term Borrowings
$ 5,041
$ 5,014
(1) The carrying value of the 1.25% Notes estimated using foreign exchange rate as of December 31, 2017.
For more information on Company’s borrowings, see Note 12, Borrowings, in the notes to the consolidated financial
statements contained in Part II, Item 8 of this filing.
Contractual Obligations, Commitments and Contingencies
The following table sets forth contractual obligations, commitments and contingencies by year of payment at December 31,
2017:
(in millions)
2018
2019
2020
2021
2022
Thereafter(1)
Total
Contractual obligations and commitments(1):
Long-term borrowings(2):
Principal
Interest
Operating leases
Purchase obligations
Investment commitments
Total contractual obligations and commitments
Contingent obligations:
$ — $ 1,000
$ — $
175
141
128
298
742
175
132
101
—
1,408
125
126
29
—
280
750
109
118
22
—
999
$ 750
$ 2,541
$ 5,041
81
109
19
—
959
185
1,580
28
—
4,334
850
2,206
327
298
8,722
Contingent payments related to business acquisitions(3)
33
179
39
34
—
—
285
Total contractual obligations, commitments and
contingent obligations(4)
$ 775
$ 1,587
$ 319
$ 1,033
$ 959
$ 4,334
$ 9,007
(1) Amounts do not include $350 million of cash payment consideration and contingent consideration related to the Company’s agreement to acquire the
asset management business of Citibanamex.
(2) The amount of principal and interest payments for the 2025 Notes (issued in Euros) represents the expected payment amounts using foreign
exchange rates as of December 31, 2017.
(3) The amount of contingent payments reflected for any year represents the expected payments using foreign currency exchange rates as of
December 31, 2017. The fair value of the remaining aggregate contingent payments at December 31, 2017 totaled $236 million and is included in
other liabilities on the consolidated statements of financial condition.
(4) At December 31, 2017, the Company had approximately $365 million of net unrecognized tax benefits. Due to the uncertainty of timing and amounts
that will ultimately be paid, this amount has been excluded from the table above.
Operating Leases. The Company leases its primary office
locations under agreements that expire on varying dates
through 2043. In connection with certain lease agreements,
the Company is responsible for escalation payments. The
contractual obligations table above includes only
guaranteed minimum lease payments for such leases and
does not project potential escalation or other lease-related
payments. These leases are classified as operating leases
and, as such, are not recorded as liabilities on the
consolidated statements of financial condition.
In May 2017, the Company entered into an agreement with
50 HYMC Owner LLC, for the lease of approximately 847,000
square feet of office space located at 50 Hudson Yards, New
York, New York. The term of the lease is twenty years from
the date that rental payments begin, expected to occur in
54
May 2023, with the option to renew for a specified term. The
lease requires annual base rental payments of
approximately $51 million per year during the first five years
of the lease term, increasing every five years to $58 million,
$66 million and $74 million per year (or approximately
$1.2 billion in base rent over its twenty-year term). This lease
is classified as an operating lease and, as such, is not
recorded as a liability on the consolidated statements of
financial condition.
Purchase Obligations. In the ordinary course of business,
BlackRock enters into contracts or purchase obligations with
third parties whereby the third parties provide services to or
on behalf of BlackRock. Purchase obligations included in the
contractual obligations table above represent executory
contracts, which are either noncancelable or cancelable with
a penalty. At December 31, 2017, the Company’s obligations
primarily reflected standard service contracts for portfolio
services, market data, office-related services and third-
party marketing and promotional services, and obligations
for equipment. Purchase obligations are recorded on the
consolidated financial statements when services are
provided and, as such, obligations for services and
equipment not received are not included in the consolidated
statement of financial condition at December 31, 2017.
Investment Commitments. At December 31, 2017, the
Company had $298 million of various capital commitments
to fund sponsored investment funds, including consolidated
VIEs. These funds include private equity funds, real assets
funds and opportunistic funds. This amount excludes
additional commitments made by consolidated funds of
funds to underlying third-party funds as third-party
noncontrolling interest holders have the legal obligation to
fund the respective commitments of such funds of funds.
Generally, the timing of the funding of these commitments is
unknown and the commitments are callable on demand at
any time prior to the expiration of the commitment. These
unfunded commitments are not recorded on the
consolidated statements of financial condition. These
commitments do not include potential future commitments
approved by the Company that are not yet legally binding.
The Company intends to make additional capital
commitments from time to time to fund additional
investment products for, and with, its clients.
Contingent Payments Related to Business Acquisitions. In
connection with certain acquisitions, BlackRock is required
to make contingent payments, subject to achieving specified
performance targets, which may include revenue related to
acquired contracts or new capital commitments for certain
products. The fair value of the remaining aggregate
contingent payments at December 31, 2017 totaled
$236 million, including $128 million related to the First
Reserve Transaction, and is included in other liabilities on
the consolidated statements of financial condition.
The following items have not been included in the
contractual obligations, commitments and contingencies
table:
Carried Interest Clawback. As a general partner in certain
investment funds, including private equity partnerships and
certain hedge funds, the Company may receive carried
interest cash distributions from the partnerships in
accordance with distribution provisions of the partnership
agreements. The Company may, from time to time, be
required to return all or a portion of such distributions to the
limited partners in the event the limited partners do not
55
achieve a return as specified in the various partnership
agreements. Therefore, BlackRock records carried interest
subject to such clawback provisions in Total Investments, or
cash/cash of consolidated VIEs to the extent that it is
distributed, and as a deferred carried interest liability/other
liabilities of consolidated VIEs on its consolidated
statements of financial condition. Carried interest is
recorded as performance fees on consolidated statements
of income upon the earlier of the termination of the
investment fund or when the likelihood of clawback is
considered mathematically improbable.
Indemnifications. In the ordinary course of business or in
connection with certain acquisition agreements, BlackRock
enters into contracts pursuant to which it may agree to
indemnify third parties in certain circumstances. The terms
of these indemnities vary from contract to contract and the
amount of indemnification liability, if any, cannot be
determined or the likelihood of any liability is considered
remote and, therefore, has not been included in the table
above or recorded in the consolidated statement of financial
condition at December 31, 2017. See further discussion in
Note 13, Commitments and Contingencies, in the notes to the
consolidated financial statements contained in Part II, Item
8 of this filing.
On behalf of certain clients, the Company lends securities to
highly rated banks and broker-dealers. 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 has issued certain indemnifications to certain
securities lending clients against potential loss resulting
from a borrower’s failure to fulfill its obligations under the
securities lending agreement should the value of the
collateral pledged by the borrower at the time of default be
insufficient to cover the borrower’s obligation under the
securities lending agreement. At December 31, 2017, the
Company indemnified certain of its clients for their
securities lending loan balances of approximately
$200 billion. The Company held, as agent, cash and
securities totaling $214 billion as collateral for indemnified
securities on loan at December 31, 2017. The fair value of
these indemnifications was not material at December 31,
2017.
While the collateral pledged by a borrower is intended to be
sufficient to offset the borrower’s obligations to return
securities borrowed and any other amounts owing to the
lender under the relevant securities lending agreement, in
the event of a borrower default, the Company can give no
assurance that the collateral pledged by the borrower will be
sufficient to fulfill such obligations. If the amount of such
pledged collateral is not sufficient to fulfill such obligations
to a client for whom the Company has provided
indemnification, BlackRock would be responsible for the
amount of the shortfall. These indemnifications cover only
the collateral shortfall described above, and do not in any
way guarantee, assume or otherwise insure the investment
performance or return of any cash collateral vehicle into
which securities lending cash collateral is invested.
Compensation and Benefit Obligations. The Company has
various compensation and benefit obligations, including
bonuses, commissions and incentive payments payable,
defined contribution plan matching contribution obligations,
and deferred compensation arrangements, that are
excluded from the contractual obligations and commitments
table above. Accrued compensation and benefits at
December 31, 2017 totaled $2,153 million and included
incentive compensation of $1,499 million, deferred
compensation of $350 million and other compensation and
benefits related obligations of $304 million. Substantially all
of the incentive compensation liability was paid in the first
quarter of 2018, while the deferred compensation
obligations are generally payable over periods of up to three
years.
C R I T I C A L A C C O U N T I N G P O L I C I E S
The preparation of consolidated financial statements in
conformity with GAAP requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts
of revenue and expense during the reporting periods. Actual
results could differ significantly from those estimates.
Management considers the following critical accounting
policies important to understanding the consolidated
financial statements. For a summary of these and additional
accounting policies see Note 2, Significant Accounting
Policies, in the consolidated financial statements included in
Part II, Item 8 of this filing.
Consolidation
In the normal course of business, the Company is the
manager of various types of sponsored investment vehicles.
The Company performs an analysis for investment products
to determine if the product is a VIE or a VRE. Assessing
whether an entity is a VIE or a VRE involves judgment and
analysis. Factors considered in this assessment include the
entity’s legal organization, the entity’s capital structure and
equity ownership, and any related party or de facto agent
implications of the Company’s involvement with the entity.
Investments that are determined to be VREs are
consolidated if the Company can exert control over the
financial and operating policies of the investee, which
generally exists if there is greater than 50% voting interest.
See Note 4, Consolidated Voting Rights Entities, in the notes
to the consolidated financial statements contained in Part II,
Item 8 of this filing for more information. Investments that
are determined to be VIEs are consolidated if the Company is
the primary beneficiary (“PB”) of the entity.
At December 31, 2017, BlackRock was determined to be the
PB for certain investment funds that were determined to be
VIEs, which required BlackRock to consolidate them.
BlackRock was deemed to be the PB because it has the
power to direct the activities that most significantly impact
the entities’ economic performance and has the obligation to
absorb losses or the right to receive benefits that potentially
could be significant to the VIE. The Company generally
consolidates VIEs in which it holds an equity ownership
interest of 10% or greater and deconsolidates such VIEs
once equity ownership falls below 10%. See Note 5, Variable
Interest Entities, in the notes to the consolidated financial
statements contained in Part II, Item 8 of this filing for more
information.
Investments
Equity Method Investments. For equity investments where
BlackRock does not control the investee, and where it is not
the PB of a VIE, but can exert significant influence over the
financial and operating policies of the investee, the Company
follows the equity method of accounting. The evaluation of
whether the Company exerts control or significant influence
over the financial and operational policies of its investees
requires significant judgment based on the facts and
circumstances surrounding each individual investment.
Factors considered in these evaluations may include the
type of investment, the legal structure of the investee, the
terms and structure of the investment agreement, including
investor voting or other rights, the terms of BlackRock’s
advisory agreement or other agreements with the investee,
any influence BlackRock may have on the governing board of
the investee, the legal rights of other investors in the entity
pursuant to the fund’s operating documents and the
relationship between BlackRock and other investors in the
entity.
BlackRock’s equity method investees that are investment
companies record their underlying investments at fair value.
Therefore, under the equity method of accounting,
BlackRock’s share of the investee’s underlying net income
predominantly represents fair value adjustments in the
investments held by the equity method investees.
BlackRock’s share of the investee’s underlying net income or
loss is based upon the most currently available information
and is recorded as nonoperating income (expense) for
investments in investment companies, or as advisory and
other revenue for certain strategic investments, which are
recorded in other assets, since such investees are
considered to be an extension of BlackRock’s core business.
At December 31, 2017, the Company had $816 million and
$468 million of equity method investments, included in
investments and other assets, respectively, and at
December 31, 2016, the Company had $730 million and
$348 million of equity method investments included in
investments and other assets, respectively.
Impairments of Investments. Management periodically
assesses equity method, available-for-sale,
held-to-maturity and cost investments for other-than-
temporary impairment (“OTTI”). If an OTTI exists, an
impairment charge is recorded in nonoperating income
(expense) on the consolidated statements of income.
For equity method, held-to-maturity and cost method
investments, if circumstances indicate that an OTTI may
exist, the investments are evaluated using market values,
where available, or the expected future cash flows of the
investment. If the Company determines an OTTI exists, an
impairment charge is recognized for the excess of the
carrying amount of the investment over its estimated fair
value.
For available-for-sale securities, when the fair value is lower
than cost, the Company considers, among other factors, the
length of time the security has been in a loss position, the
extent to which the security’s fair value is less than cost, the
financial condition and near-term prospects of the security’s
issuer and the Company’s ability and intent to hold the
security for a length of time sufficient to allow for recovery of
such unrealized losses. For equity securities, if the
impairment is considered other-than-temporary, an
impairment charge is recognized for the excess of the
carrying amount of the investment over its fair value. For
debt securities, the Company considers whether: (1) it has
the intent to sell the security; (2) it is more likely than not
that it will be required to sell the security before recovery; or
56
(3) it expects to recover the entire amortized cost basis of the
security. If the Company intends to sell the security or it is
more likely than not that it will be required to sell the
security, the entire difference between the amortized cost
and fair value must be recognized in earnings. If the
Company does not intend to sell a security and it is not more
likely than not that it will be required to sell the security but
the security has suffered an impairment related to credit,
the credit loss will be bifurcated from the total decline in
value and recorded in earnings with the remaining portion
recorded in accumulated other comprehensive income.
For the Company’s investments in CLOs, the Company
reviews cash flow estimates over the life of each CLO
investment. On a quarterly basis, if the present value of the
estimated future cash flows is lower than the carrying value
of the investment and there is an adverse change in
estimated cash flows, an impairment is considered to be
other-than-temporary. An impairment charge is recognized
for the excess of the carrying amount of the investment over
its estimated fair value.
Evaluation of impairments involves significant assumptions
and management judgments, which could differ from actual
results, and these differences could have a material impact
on the consolidated statements of income.
Fair Value Measurements
The Company’s assessment of the significance of a
particular input to the fair value measurement according to
the fair value hierarchy (i.e., Level 1, 2 and 3 inputs, as
defined) in its entirety requires judgment and considers
factors specific to the financial instrument. See Note 2,
Significant Accounting Policies, in the consolidated financial
statements contained in Part II, Item 8 of this filing for more
information on fair value measurements.
Changes in Valuation. Changes in value on $2,878 million of
Total Investments will impact the Company’s nonoperating
income (expense), $103 million will impact accumulated
other comprehensive income, $195 million are held at cost or
amortized cost and the remaining $298 million relates to
carried interest, which will not impact nonoperating income
(expense). At December 31, 2017, changes in fair value of
approximately $1,739 million of consolidated VIEs/VREs will
impact BlackRock’s net income (loss) attributable to
noncontrolling interests on the consolidated statements of
income. BlackRock’s net exposure to changes in fair value of
consolidated VIEs/VREs was $1,419 million.
Goodwill and Intangible Assets
The value of advisory contracts acquired in business
acquisitions to manage AUM in proprietary open-end
investment funds as well as collective trust funds without a
specified termination date are classified as indefinite-lived
intangible assets. The assignment of indefinite lives to such
investment fund contracts is based upon the assumption
there is no foreseeable limit on the contract period to
manage these funds due to the likelihood of continued
renewal at little or no cost. In addition, trade names/
trademarks are considered indefinite-lived intangibles as
they are expected to generate cash flows indefinitely.
Goodwill represents the cost of a business acquisition in
excess of the fair value of the net assets acquired.
Indefinite-lived intangible assets and goodwill are not
amortized. Finite-lived management contracts and investor/
customer relationships, which relate to acquired separate
accounts and funds with a specified termination date, are
amortized over their remaining expected useful lives, which,
at December 31, 2017, ranged from 1 to 11 years with a
weighted-average remaining estimated useful life of 6.5
years.
Goodwill. The Company assesses its goodwill for impairment
at least annually, considering such factors as the book value
and the market capitalization of the Company. The
impairment assessment performed as of July 31, 2017
indicated no impairment charge was required. The Company
continues to monitor its book value per share compared with
closing prices of its common stock for potential indicators of
impairment. At December 31, 2017, the Company’s common
stock closed at $513.71, which exceeded its book value of
approximately $197.61 per share.
Indefinite-lived and finite-lived intangibles. The Company
performs assessments to determine if any intangible assets
are impaired and whether the indefinite-life and finite-life
classifications are still appropriate.
In evaluating whether it is more likely than not that the fair
value of indefinite-lived intangibles is less than carrying
value, BlackRock performed certain quantitative
assessments and assessed various significant qualitative
factors including AUM, revenue basis points, projected AUM
growth rates, operating margins, tax rates and discount
rates. In addition, the Company considered other factors
including: (i) macroeconomic conditions such as a
deterioration in general economic conditions, limitations on
accessing capital, fluctuations in foreign exchange rates, or
other developments in equity and credit markets; (ii) industry
and market considerations such as a deterioration in the
environment in which an entity operates, an increased
competitive environment, a decline in market-dependent
multiples or metrics, a change in the market for an entity’s
services, or regulatory, legal or political developments; and
(iii) entity-specific events, such as a change in management
or key personnel, overall financial performance and litigation
that could affect significant inputs used to determine the
fair value of the indefinite-lived intangible asset. If an
indefinite-lived intangible is determined to be more likely
than not impaired, then the fair value of the asset is
compared with its carrying value and any excess of the
carrying value over the fair value would be recognized as an
expense in the period in which the impairment occurs.
For finite-lived intangible assets, if potential impairment
circumstances are considered to exist, the Company will
perform a recoverability test, using an undiscounted cash
flow analysis. Actual results could differ from these cash
flow estimates, which could materially impact the
impairment conclusion. If the carrying value of the asset is
determined not to be recoverable based on the undiscounted
cash flow test, the difference between the book value of the
asset and its current fair value would be recognized as an
expense in the period in which the impairment occurs.
In addition, management judgment is required to estimate
the period over which finite-lived intangible assets will
contribute to the Company’s cash flows and the pattern in
which these assets will be consumed. A change in the
remaining useful life of any of these assets, or the
reclassification of an indefinite-lived intangible asset to a
finite-lived intangible asset, could have a significant impact
on the Company’s amortization expense, which was
$89 million, $99 million and $128 million for 2017, 2016 and
2015, respectively.
57
In 2017, 2016 and 2015, the Company performed impairment
tests, including evaluating various qualitative factors and
performing certain quantitative assessments. The Company
determined that no impairment charges were required, the
classification of indefinite-lived versus finite-lived
intangibles was still appropriate and no changes to the
expected lives of the finite-lived intangibles were required.
The Company continuously monitors various factors,
including AUM, for potential indicators of impairment.
Income Taxes
Deferred income tax assets and liabilities are recognized for
future tax consequences attributable to temporary
differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases using currently enacted tax rates in
effect for the year in which the differences are expected to
reverse. The effect of a change in tax rates on deferred tax
assets and liabilities is recognized in income in the period
that includes the enactment date.
Significant management judgment is required in estimating
the ranges of possible outcomes and determining the
probability of favorable or unfavorable tax outcomes and
potential interest and penalties related to such unfavorable
outcomes. Actual future tax consequences relating to
uncertain tax positions may be materially different than the
Company’s current estimates. At December 31, 2017,
BlackRock had $629 million of gross unrecognized tax
benefits, of which $316 million, if recognized, would affect
the effective tax rate.
Management is required to estimate the timing of the
recognition of deferred tax assets and liabilities, make
assumptions about the future deductibility of deferred
income tax assets and assess deferred income tax liabilities
based on enacted tax rates for the appropriate tax
jurisdictions to determine the amount of such deferred
income tax assets and liabilities. At December 31, 2017, the
Company had deferred tax assets of $19 million and net
deferred tax liabilities of approximately $3,538 million on the
consolidated statement of financial condition. Changes in
deferred tax assets and liabilities may occur in certain
circumstances, including statutory income tax rate changes,
statutory tax law changes, changes in the anticipated timing
of recognition of deferred tax assets and liabilities or
changes in the structure or tax status of the Company.
The Company assesses whether a valuation allowance
should be established against its deferred income tax assets
based on consideration of all available evidence, both
positive and negative, using a more likely than not standard.
The assessment considers, among other matters, the
nature, frequency and severity of recent losses, forecast of
future profitability, the duration of statutory carry back and
carry forward periods, the Company’s experience with tax
attributes expiring unused, and tax planning alternatives.
The Company records income taxes based upon its
estimated income tax liability or benefit. The Company’s
actual tax liability or benefit may differ from the estimated
income tax liability or benefit. The Company had current
income taxes receivables of approximately $142 million and
current income taxes payables of $256 million at
December 31, 2017.
For further information on the 2017 Tax Act, see Note 21,
Income Taxes, in the consolidated financial statements
included in Part II, Item 8 of this filing.
Revenue Recognition
Investment advisory and administration fees are recognized
as the services are performed. Such fees are primarily based
on agreed-upon percentages of the net asset value of AUM
or committed capital. Investment advisory and
administration fees are affected by changes in AUM,
including market appreciation or depreciation, foreign
exchange translation and net inflows or outflows.
Investment advisory and administration fees for investment
funds are shown net of fees waived pursuant to contractual
expense limitations of the funds or voluntary waivers.
The Company contracts with third parties and related parties
for various fund distribution and shareholder servicing to be
performed on behalf of certain funds the Company manages.
Such arrangements generally are priced as a portion of the
fee paid by the fund. In certain cases, the fund (primarily
international funds) takes on the primary responsibility for
payment for services such that the Company bears no credit
risk to the third-party. The Company currently records its
management fees net of retrocessions. The Company has
additional contracts for similar services with third parties,
which due to the terms of the contracts, are recorded as
distribution and servicing costs and thus not netted on the
consolidated statements of income.
The Company earns revenue by lending securities as an
agent on behalf of clients, primarily to brokerage
institutions. Revenue is accounted for on an accrual basis.
The securities loaned are secured by collateral, generally
ranging from 102% to 112% of the value of the loaned
securities. Generally, the revenue earned is shared between
the Company and the funds or other third-party accounts
managed by the Company from which the securities are
borrowed. For 2017, 2016 and 2015, securities lending
revenue earned by the Company totaled $597 million,
$579 million and $513 million, respectively, and is recorded
in investment advisory, administration fees and securities
lending revenue on the consolidated statements of income.
Investment advisory, administration fees and securities
lending revenue are reported together as the fees for these
services often are agreed upon with clients as a bundled fee.
The Company receives investment advisory performance
fees or incentive allocations, from certain actively managed
investment funds and certain separately managed accounts.
These performance fees are dependent upon exceeding
specified relative or absolute investment return thresholds.
Such fees are recorded upon completion of the
measurement period, which varies by product or account,
and could be monthly, quarterly, annually or longer.
In addition, the Company is allocated carried interest from
certain alternative investment products upon exceeding
performance thresholds. BlackRock may be required to
reverse/return all, or part, of such carried interest
allocations depending upon future performance of these
funds. Therefore, BlackRock records carried interest subject
to such clawback provisions in Total Investments or cash/
cash of consolidated VIEs to the extent that it is distributed,
on its consolidated statements of financial condition.
Carried interest is recorded as performance fee revenue
upon the earlier of the termination of the investment fund or
58
when the likelihood of clawback is considered mathematically
improbable.
The Company records a deferred carried interest liability to
the extent it receives cash or capital allocations related to
carried interest prior to meeting the revenue recognition
criteria. At December 31, 2017 and 2016, the Company had
$219 million and $152 million, respectively, of deferred
carried interest recorded in other liabilities/other liabilities
of consolidated VIEs on the consolidated statements of
financial condition. A portion of the deferred carried interest
liability will be paid to certain employees. The ultimate
timing of the recognition of performance fee revenue, if any,
for these products is unknown.
The following table presents changes in the deferred carried
interest liability (including the portion related to
consolidated VIEs) for 2017 and 2016:
(in millions)
Beginning balance
Net increase (decrease) in unrealized
allocations
Performance fee revenue recognized
Acquisition
Ending balance
2017
2016
$ 152
$ 143
75
(21)
13
37
(28)
—
$ 219
$ 152
For 2017, 2016 and 2015, performance fee revenue (which
included recognized carried interest) totaled $594 million,
$295 million and $621 million, respectively.
Fees earned for technology and risk management revenue
are recorded as services are performed and are generally
determined using the value of positions on the Aladdin
platform or on a fixed-rate basis. For 2017, 2016 and 2016,
technology and risk management revenue totaled
$677 million, $595 million and $528 million, respectively.
Adjustments to revenue arising from initial estimates
recorded historically have been immaterial since the
majority of BlackRock’s investment advisory and
administration revenue is calculated based on AUM and
since the Company does not record performance fee revenue
until performance thresholds have been exceeded and the
likelihood of clawback is mathematically improbable.
Accounting Developments
Recent Accounting Pronouncements Not Yet Adopted.
Revenue from Contracts with Customers. In May 2014, the
Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Update (“ASU”) 2014-09, Revenue
from Contracts with Customers (“ASU 2014-09”). ASU
2014-09 outlines a single comprehensive model for entities
to use in accounting for revenue arising from contracts with
customers and supersedes most current revenue
recognition guidance, including industry-specific guidance.
The guidance also changes the accounting for certain
contract costs and revises the criteria for determining if an
entity is acting as a principal or agent in certain
arrangements.
The key changes in the standard that impact the Company’s
revenue recognition relate to the presentation of certain
revenue contracts and associated contract costs. The most
significant of these changes relates to the presentation of
certain distribution costs, which are currently presented net
against revenues (contra-revenue) and will be presented as
an expense on a gross basis. The Company adopted ASU
2014-09 effective January 1, 2018 on a full retrospective
basis, which will require 2016 and 2017 to be restated in
future filings. The cumulative effect adjustment to the 2016
opening retained earnings was not material. The Company
currently expects the net gross up to revenue to be
approximately $1 billion with a corresponding gross up to
expense for both 2016 and 2017. Consequently, the
Company expects its GAAP operating margin to decline upon
adoption due to the gross up of revenue. However, no
material impact is expected on the Company’s as adjusted
operating margin.
For accounting pronouncements that the Company adopted
during the year ended December 31, 2017 and for additional
recent accounting pronouncements not yet adopted, see
Note 2, Significant Accounting Policies, in the consolidated
financial statements contained in Part II, Item 8 of this filing.
Item 7a. Quantitative and
Qualitative Disclosures about
Market Risk
AUM Market Price Risk. BlackRock’s investment advisory
and administration fees are primarily comprised of fees
based on a percentage of the value of AUM and, in some
cases, performance fees expressed as a percentage of the
returns realized on AUM. At December 31, 2017, the majority
of the Company’s investment advisory and administration
fees were based on average or period end AUM of the
applicable investment funds or separate accounts.
Movements in equity market prices, interest rates/credit
spreads, foreign exchange rates or all three could cause the
value of AUM to decline, which would result in lower
investment advisory and administration fees.
Corporate Investments Portfolio Risks. As a leading
investment management firm, BlackRock devotes significant
resources across all of its operations to identifying,
measuring, monitoring, managing and analyzing market and
operating risks, including the management and oversight of
its own investment portfolio. The Board of Directors of the
Company has adopted guidelines for the review of
investments to be made by the Company, requiring, among
other things, that investments be reviewed by certain senior
officers of the Company, and that certain investments may
be referred to the Audit Committee or the Board of Directors,
depending on the circumstances, for approval.
In the normal course of its business, BlackRock is exposed to
equity market price risk, interest rate/credit spread risk and
foreign exchange rate risk associated with its corporate
investments.
BlackRock has investments primarily in sponsored
investment products that invest in a variety of asset classes,
including real assets, private equity and hedge funds.
Investments generally are made for co-investment purposes,
to establish a performance track record, to hedge exposure
to certain deferred compensation plans or for regulatory
purposes. Currently, the Company has a seed capital
hedging program in which it enters into swaps to hedge
market and interest rate exposure to certain investments. At
December 31, 2017, the Company had outstanding total
return swaps with an aggregate notional value of
approximately $587 million. At December 31, 2017, there
were no outstanding interest rate swaps.
59
At December 31, 2017, approximately $2.0 billion of
BlackRock’s Total Investments were maintained in
consolidated sponsored investment funds accounted for as
VREs and VIEs. Excluding the impact of the Federal Reserve
Bank stock, carried interest, investments made to hedge
exposure to certain deferred compensation plans and
certain investments that are hedged via the seed capital
hedging program, the Company’s economic exposure to its
investment portfolio is $2.1 billion. See Balance Sheet
Overview-Investments and Investments of Consolidated VIEs
in Management’s Discussion and Analysis of Financial
Condition and Results of Operations for further information
on the Company’s Total Investments.
Equity Market Price Risk. At December 31, 2017, the
Company’s net exposure to equity market price risk in its
investment portfolio was approximately $946 million of the
Company’s total economic investment exposure.
Investments subject to market price risk include private
equity and real assets investments, hedge funds and funds
of funds as well as mutual funds. The Company estimates
that a hypothetical 10% adverse change in market prices
would result in a decrease of approximately $94.6 million in
the carrying value of such investments.
Interest-Rate/Credit Spread Risk. At December 31, 2017,
the Company was exposed to interest rate risk and credit
spread risk as a result of approximately $1,176 million of
Total Investments in debt securities and sponsored
investment products that invest primarily in debt securities.
Management considered a hypothetical 100 basis point
fluctuation in interest rates or credit spreads and estimates
that the impact of such a fluctuation on these investments,
in the aggregate, would result in a decrease, or increase, of
approximately $19 million in the carrying value of such
investments.
Foreign Exchange Rate Risk. As discussed above, the
Company invests in sponsored investment products that
invest in a variety of asset classes. The carrying value of the
total economic investment exposure denominated in foreign
currencies, primarily the British pound and Euro, was
$483 million at December 31, 2017. A 10% adverse change in
the applicable foreign exchange rates would result in
approximately a $48.3 million decline in the carrying value of
such investments.
Other Market Risks. The Company executes forward foreign
currency exchange contracts to mitigate the risk of certain
foreign exchange risk movements. At December 31, 2017,
the Company had outstanding forward foreign currency
exchange contracts with an aggregate notional value of
approximately $1.5 billion.
Item 8. Financial Statements
and Supplemental Data
The report of the independent registered public accounting
firm and financial statements listed in the accompanying
index are included in Item 15 of this report. See Index to the
consolidated financial statements on page F-1 of this
Form 10-K.
Item 9. Changes in and
Disagreements with Accountants on
Accounting and Financial
Disclosure
There have been no disagreements on accounting and
financial disclosure matters. BlackRock has not changed
accountants in the two most recent fiscal years.
Item 9a. Controls and Procedures
Disclosure Controls and Procedures. Under the direction of
BlackRock’s Chief Executive Officer and Chief Financial
Officer, BlackRock evaluated the effectiveness of its
disclosure controls and procedures (as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as
of the end of the period covered by this annual report on
Form 10-K. Based on this evaluation, BlackRock’s Chief
Executive Officer and Chief Financial Officer have concluded
that BlackRock’s disclosure controls and procedures were
effective.
Internal Control over Financial Reporting. There were no
changes in our internal control over financial reporting that
occurred during the fourth quarter of the fiscal year ending
December 31, 2017 that have materially affected or are
reasonably likely to materially affect our internal control over
financial reporting.
60
Management’s Report on Internal Control Over Financial Reporting
Management of BlackRock, Inc. (the “Company”) is responsible for establishing and maintaining effective internal control over
financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities
Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principal executive
and principal financial officers, or persons performing similar functions, and effected by the Company’s board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the
United States of America and includes those policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with accounting principles generally accepted in the United States of America, and that receipts and
expenditures of the Company are being made only in accordance with the authorizations of management and directors of
the Company; and
• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the Company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper
management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely
basis. Also, projections of any evaluation of effectiveness of the internal control over financial reporting to future periods are
subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2017
based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31,
2017, the Company’s internal control over financial reporting is effective.
The Company’s independent registered public accounting firm has issued an attestation report on the effectiveness of the
Company’s internal control over financial reporting.
February 28, 2018
61
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of BlackRock, Inc.:
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of BlackRock, Inc. and subsidiaries (the “Company”) as of
December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal
Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated statement of financial condition as of December 31, 2017 and the related consolidated statements
of income, comprehensive income, changes in equity and cash flows for the year then ended of the Company and our report
dated February 28, 2018, expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
New York, New York
February 28, 2018
62
Item 13. Certain Relationships and
Related Transactions, and Director
Independence
The information contained in the sections captioned “Item 1:
Election of Directors — Certain Relationships and Related
Transactions” and “Item 1: Election of Directors — Corporate
Governance — Corporate Governance Practices and
Policies — Director Independence” of the Proxy Statement is
incorporated herein by reference.
Item 14. Principal Accountant Fees
and Services
The information regarding BlackRock’s independent auditor
fees and services in the section captioned “Item 4:
Ratification of Appointment of Independent Registered
Public Accounting Firm” of the Proxy Statement is
incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial
Statement Schedules
1. Financial Statements
The Company’s consolidated financial statements are
included beginning on page F-1.
2. Financial Statement Schedules
Ratio of Earnings to Fixed Charges has been included as
Exhibit 12.1. All other schedules have been omitted because
they are not applicable, not required or the information
required is included in the Company’s consolidated financial
statements or notes thereto.
Item 9b. Other Information
The Company is furnishing no other information in this
Form 10-K.
PART III
Item 10. Directors, Executive
Officers and Corporate Governance
The information regarding directors and executive officers
set forth under the captions “Item 1: Election of Directors —
Director Nominee Biographies” and “Item 1: Election of
Directors — Corporate Governance — Other Executive
Officers” of the Proxy Statement is incorporated herein by
reference.
The information regarding compliance with Section 16(a) of
the Exchange Act set forth under the caption “Item 1:
Election of Directors — Section 16(a) Beneficial Ownership
Reporting Compliance” of the Proxy Statement is
incorporated herein by reference.
The information regarding BlackRock’s Code of Ethics for
Chief Executive and Senior Financial Officers under the
caption “Item 1: Election of Directors — Corporate
Governance — Our Corporate Governance Framework” of the
Proxy Statement is incorporated herein by reference.
Item 11. Executive Compensation
The information contained in the sections captioned “Item 2:
Non-Binding Advisory Vote on Compensation for Named
Executive Officers — Executive Compensation —
Compensation Discussion and Analysis” and “Item 1:
Election of Directors — Corporate Governance — 2017
Director Compensation” of the Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of
Certain Beneficial Owners and
Management and Related
Stockholder Matters
The information contained in the sections captioned “Item 1:
Election of Directors — Ownership of BlackRock Common
and Preferred Stock” and “Item 2 — Non-Binding Advisory
Vote on Compensation for Named Executive Officers —
Executive Compensation — Compensation Discussion and
Analysis — Our Compensation Program — BlackRock
Performance Incentive Plan (“BPIP”)” of the Proxy Statement
is incorporated herein by reference.
63
3. Exhibit Index
As used in this exhibit list, “BlackRock” refers to BlackRock, Inc. (formerly named New BlackRock, Inc. and previously, New
Boise, Inc.) (Commission File No. 001-33099) and “Old BlackRock” refers to BlackRock Holdco 2, Inc. (formerly named
BlackRock, Inc.) (Commission File No. 001-15305), which is the predecessor of BlackRock. The following exhibits are filed as
part of this Annual Report on Form 10-K:
Please note that the agreements included as exhibits to this Form 10-K are included to provide information regarding their
terms and are not intended to provide any other factual or disclosure information about BlackRock or the other parties to the
agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement that
have been made solely for the benefit of the other parties to the applicable agreement and may not describe the actual state of
affairs as of the date they were made or at any other time.
Exhibit
No.
Description
3.1
3.2
3.3
3.4
3.5
3.6
3.7
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
(1)
(2)
(3)
(1)
(4)
(4)
(5)
(6)
(7)
(8)
(9)
Amended and Restated Certificate of Incorporation of BlackRock.
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of BlackRock, Inc.
Amended and Restated Bylaws of BlackRock.
Certificate of Designations of Series A Convertible Participating Preferred Stock of BlackRock.
Certificate of Designations of Series B Convertible Participating Preferred Stock of BlackRock.
Certificate of Designations of Series C Convertible Participating Preferred Stock of BlackRock.
Certificate of Designations of Series D Convertible Participating Preferred Stock of BlackRock.
Specimen of Common Stock Certificate.
Indenture, dated September 17, 2007, between BlackRock and The Bank of New York, as trustee, relating to
senior debt securities.
Form of 6.25% Notes due 2017.
Form of 5.00% Notes due 2019.
(10) Form of 4.25% Notes due 2021.
(11) Form of 3.375% Notes due 2022.
(12) Form of 3.500% Notes due 2024.
(13) Form of 1.250% Notes due 2025.
(14) Form of 3.200% Notes due 2027.
4.10 (13) Officers’ Certificate, dated May 6, 2015, for the 1.250% Notes due 2025 issued pursuant to the Indenture.
10.1 (15) BlackRock, Inc. Second Amended and Restated 1999 Stock Award and Incentive Plan.+
10.2 (16) Amended and Restated BlackRock, Inc. 1999 Annual Incentive Performance Plan.+
10.3 (17) Amendment No. 1 to the BlackRock, Inc. Amended and Restated 1999 Annual Incentive Performance Plan.+
10.4 (18) Form of Restricted Stock Unit Agreement under the BlackRock, Inc. Second Amended and Restated 1999 Stock
Award and Incentive Plan.+
10.5 (18) Form of Performance-Based Restricted Stock Unit Agreement (BPIP) under the BlackRock, Inc. Second
Amended and Restated 1999 Stock Award and Incentive Plan.+
10.6 (1)
10.7 (1)
10.8 (1)
Form of Stock Option Agreement expected to be used in connection with future grants of Stock Options under
the BlackRock, Inc. Second Amended and Restated 1999 Stock Award and Incentive Plan.+
Form of Restricted Stock Agreement expected to be used in connection with future grants of Restricted Stock
under the BlackRock, Inc. Second Amended and Restated 1999 Stock Award and Incentive Plan.+
Form of Directors’ Restricted Stock Unit Agreement expected to be used in connection with future grants of
Restricted Stock Units under the BlackRock, Inc. Second Amended and Restated 1999 Stock Award and
Incentive Plan.+
10.9 (15) BlackRock, Inc. Amended and Restated Voluntary Deferred Compensation Plan, as amended and restated as of
November 16, 2015.+
10.10 (19) Share Surrender Agreement, dated October 10, 2002 (the “Share Surrender Agreement”), among Old BlackRock,
PNC Asset Management, Inc. and The PNC Financial Services Group, Inc.+
10.11 (20) First Amendment, dated as of February 15, 2006, to the Share Surrender Agreement.+
10.12 (21) Second Amendment, dated as of June 11, 2007, to the Share Surrender Agreement.+
10.13 (4)
Third Amendment, dated as of February 27, 2009, to the Share Surrender Agreement.+
10.14 (22) Fourth Amendment, dated as of August 7, 2012, to the Share Surrender Agreement.+
64
Exhibit
No.
10.15 (23)
10.16 (24)
10.17 (25)
10.18 (26)
10.19 (27)
10.20 (28)
10.21 (29)
10.22 (4)
10.23 (30)
10.24 (31)
Description
Five-Year Revolving Credit Agreement, dated as of March 10, 2011, by and among BlackRock, Inc., certain of
its subsidiaries, Wells Fargo Bank, National Association, as administrative agent, swingline lender, issuing
lender and L/C agent, Sumitomo Mitsui Banking Corporation, as Japanese Yen lender, a group of lenders,
Wells Fargo Securities, LLC, Citigroup Global Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Barclays Capital, J.P. Morgan Securities LLC and Morgan Stanley Senior Funding, Inc., as joint lead arrangers
and joint bookrunners, Citibank, N.A., as syndication agent and Bank of America, N.A., Barclays Bank PLC,
JPMorgan Chase Bank, N.A. and Morgan Stanley Senior Funding, Inc., as documentation agents.
Amendment No. 1, dated as of March 30, 2012, by and among BlackRock, Inc., certain of its subsidiaries,
Wells Fargo Bank, National Association, as administrative agent, swingline lender, issuing lender, L/C agent
and a lender, and the banks and other financial institutions referred to therein.
Amendment No. 2, dated as of March 28, 2013, by and among BlackRock, Inc., certain of its subsidiaries,
Wells Fargo Bank, National Association, as administrative agent, swingline lender, issuing lender, L/C agent
and a lender, and the banks and other financial institutions referred to therein.
Amendment No. 3, dated as of March 28, 2014, by and among BlackRock, Inc., certain of its subsidiaries,
Wells Fargo Bank, National Association, as administrative agent, swingline lender, issuing lender, L/C agent
and a lender, and the banks and other financial institutions referred to therein.
Amendment No. 4, dated as of April 2, 2015, by and among BlackRock, Inc., certain of its subsidiaries, Wells
Fargo Bank, National Association, as administrative agent, swingline lender, issuing lender, L/C agent and a
lender, and the banks and other financial institutions referred to therein.
Amendment No. 5, dated as of April 8, 2016, by and among BlackRock, Inc., certain of its subsidiaries, Wells
Fargo Bank, National Association, as administrative agent, swingline lender, issuing lender, L/C agent and a
lender, and the banks and other financial institutions referred to therein.
Amendment No. 6, dated as of April 6, 2017, by and among BlackRock, Inc., certain of its subsidiaries, Wells
Fargo Bank, National Association, as administrative agent, swingline lender, issuing lender, L/C agent and a
lender, and the banks and other financial institutions referred to therein.
Amended and Restated Implementation and Stockholder Agreement, dated as of February 27, 2009, between
The PNC Financial Services Group, Inc. and BlackRock.
Amendment No. 1, dated as of June 11, 2009, to the Amended and Restated Implementation and Stockholder
Agreement between The PNC Financial Services Group, Inc. and BlackRock.
Lease Agreement, dated as of February 17, 2010, among BlackRock Investment Management (UK) Limited
and Mourant & Co Trustees Limited and Mourant Property Trustees Limited as Trustees of the Drapers
Gardens Unit Trust for the lease of Drapers Gardens, 12 Throgmorton Avenue, London, EC2, United Kingdom.
10.25 (32)
Lease, by and between BlackRock, Inc. and 50 HYMC Holdings LLC.*
10.26 (33)
Letter Agreement, dated February 12, 2013, between Gary S. Shedlin and BlackRock.+
10.27 (34)
10.28 (34)
10.29 (34)
10.30 (34)
12.1
21.1
23.1
31.1
31.2
32.1
Amended and Restated Commercial Paper Dealer Agreement between BlackRock and Barclays Capital Inc.,
dated as of December 23, 2014.
Amended and Restated Commercial Paper Dealer Agreement between BlackRock and Citigroup Global
Markets Inc., dated as of December 23, 2014.
Amended and Restated Commercial Paper Dealer Agreement between BlackRock and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, dated as of January 6, 2015.
Amended and Restated Commercial Paper Dealer Agreement between BlackRock and Credit Suisse Securities
(USA) LLC dated as of January 6, 2015.
Computation of Ratio of Earnings to Fixed Charges.
Subsidiaries of Registrant.
Deloitte & Touche LLP Consent.
Section 302 Certification of Chief Executive Officer.
Section 302 Certification of Chief Financial Officer.
Section 906 Certification of Chief Executive Officer and Chief Financial Officer.
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
(1)
Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on October 5, 2006.
(2)
Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on May 25, 2012.
(3)
Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on July 22, 2016.
65
(4)
Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on February 27, 2009.
(5)
Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on December 3, 2009.
(6)
Incorporated by reference to BlackRock’s Registration Statement on Form S-8 (Registration No. 333-137708) filed on September 29, 2006.
(7)
Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2007.
(8)
Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on September 17, 2007.
(9)
Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on December 10, 2009.
(10) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on May 25, 2011.
(11) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on May 31, 2012.
(12) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on March 18, 2014.
(13) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on May 6, 2015.
(14) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on March 28, 2017.
(15) Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2015.
(16) Incorporated by reference to Old BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2002.
(17) Incorporated by reference to Old BlackRock’s Current Report on Form 8-K filed on May 24, 2006.
(18) Incorporated by reference to BlackRock’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015
(19) Incorporated by reference to Old BlackRock’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.
(20) Incorporated by reference to Old BlackRock’s Current Report on Form 8-K filed on February 22, 2006.
(21) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on June 15, 2007.
(22) Incorporated by reference to BlackRock’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2012.
(23) Incorporated by reference to BlackRock’s Current Report on Form 8-K/A filed on August 24, 2012.
(24) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on April 4, 2012.
(25) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on April 3, 2013.
(26) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on March 28, 2014.
(27) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on April 3, 2015.
(28) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on April 14, 2016.
(29) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on April 11, 2017.
(30) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on June 17, 2009.
(31) Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2009.
(32) Incorporated by reference to BlackRock’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017.
(33) Incorporated by reference to BlackRock’s Current Report on Form 8-K filed on February 19, 2013.
(34) Incorporated by reference to BlackRock’s Annual Report on Form 10-K for the year ended December 31, 2014.
+ Denotes compensatory plans or arrangements.
*
Portions of this exhibit have been omitted pursuant to a confidential treatment order from the SEC.
66
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
BLACKROCK, INC.
By:
/s/ LAURENCE D. FINK
Laurence D. Fink
Chairman, Chief Executive Officer and Director
February 28, 2018
Each of the officers and directors of BlackRock, Inc. whose signature appears below, in so signing, also makes, constitutes and
appoints Laurence D. Fink, Gary S. Shedlin, Christopher J. Meade, Daniel R. Waltcher and R. Andrew Dickson III, his or her true
and lawful attorneys-in-fact, with full power and substitution, for him or her in any and all capacities, to execute and cause to
be filed with the Securities and Exchange Commission any and all amendments to the Annual Report on Form 10-K, with
exhibits thereto and other documents connected therewith and to perform any acts necessary to be done in order to file such
documents, and hereby ratifies and confirms all that said attorney-in-fact or his or her substitute or substitutes may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/S/ LAURENCE D. FINK
Laurence D. Fink
/S/ GARY S. SHEDLIN
Gary S. Shedlin
/S/ MARC D. COMERCHERO
Marc D. Comerchero
/S/ MATHIS CABIALLAVETTA
Mathis Cabiallavetta
/S/ PAMELA DALEY
Pamela Daley
/S/ WILLIAM S. DEMCHAK
William S. Demchak
/S/ JESSICA EINHORN
Jessica P. Einhorn
/S/ FABRIZIO FREDA
Fabrizio Freda
/S/ MURRY S. GERBER
Murry S. Gerber
/S/ JAMES GROSFELD
James Grosfeld
/S/ ROBERT S. KAPITO
Robert S. Kapito
/S/ SIR DERYCK MAUGHAN
Sir Deryck Maughan
/S/ CHERYL D. MILLS
Cheryl D. Mills
/S/ GORDON M. NIXON
Gordon M. Nixon
Title
Date
Chairman, Chief Executive Officer and
Director (Principal Executive Officer)
February 28, 2018
Senior Managing Director and Chief Financial
Officer (Principal Financial Officer)
February 28, 2018
Managing Director and Chief Accounting
Officer (Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
67
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
Signature
Title
Date
/S/ CHARLES H. ROBBINS
Charles H. Robbins
/S/ IVAN G. SEIDENBERG
Ivan G. Seidenberg
/S/ MARCO ANTONIO SLIM DOMIT
Marco Antonio Slim Domit
/S/ SUSAN L. WAGNER
Susan L. Wagner
Director
Director
Director
Director
February 28, 2018
February 28, 2018
February 28, 2018
February 28, 2018
68
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
F-2
F-3
F-4
F-5
F-6
F-8
F-9
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of BlackRock, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of BlackRock, Inc. and subsidiaries (the
“Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income,
changes in equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes
(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 28, 2018, expressed an unqualified opinion on the Company’s internal control over
financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether
due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Deloitte & Touche LLP
New York, New York
February 28, 2018
We have served as the Company’s auditor since 2002.
F-2
BlackRock, Inc.
Consolidated Statements of Financial Condition
(in millions, except shares and per share data)
Assets
Cash and cash equivalents
Accounts receivable
Investments
Assets of consolidated variable interest entities:
Cash and cash equivalents
Investments
Other assets
Separate account assets
Separate account collateral held under securities lending agreements
Property and equipment (net of accumulated depreciation of $658 and $601 at December 31, 2017
and December 31, 2016, respectively)
Intangible assets (net of accumulated amortization of $219 and $832 at December 31, 2017 and
December 31, 2016, respectively)
Goodwill
Other assets
Total assets
Liabilities
Accrued compensation and benefits
Accounts payable and accrued liabilities
Liabilities of consolidated variable interest entities
Borrowings
Separate account liabilities
Separate account collateral liabilities under securities lending agreements
Deferred income tax liabilities
Other liabilities
Total liabilities
Commitments and contingencies (Note 13)
Temporary equity
Redeemable noncontrolling interests
Permanent Equity
BlackRock, Inc. stockholders’ equity
Common stock, $ 0.01 par value;
Shares authorized: 500,000,000 at December 31, 2017 and December 31, 2016; Shares issued:
171,252,185 at December 31, 2017 and December 31, 2016; Shares outstanding: 159,977,115
and 161,534,443 at December 31, 2017 and December 31, 2016, respectively
Series B nonvoting participating preferred stock, $0.01 par value;
Shares authorized: 150,000,000 at December 31, 2017 and 2016; Shares issued and outstanding:
823,188 at December 31, 2017 and 2016;
Series C nonvoting participating preferred stock, $0.01 par value;
Shares authorized: 6,000,000 at December 31, 2017 and 2016; Shares issued and outstanding:
246,522 at December 31, 2017 and 763,660 at December 31, 2016
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, common, at cost (11,275,070 and 9,717,742 shares held at December 31, 2017 and
December 31, 2016, respectively)
Total BlackRock, Inc. stockholders’ equity
Nonredeemable noncontrolling interests
Total permanent equity
December 31,
2017
December 31,
2016
$
6,894
$
6,091
2,699
1,981
144
1,493
66
149,937
24,190
2,115
1,595
84
1,008
63
149,089
27,792
592
559
17,389
13,220
1,612
17,363
13,118
1,300
$ 220,217
$ 220,177
$
2,153
$
1,880
1,161
369
5,014
149,937
24,190
3,538
1,564
880
216
4,915
149,089
27,792
4,840
1,221
187,926
190,833
416
194
2
—
—
19,256
16,966
(432)
(3,967)
31,825
50
31,875
2
—
—
19,337
13,660
(716)
(3,185)
29,098
52
29,150
Total liabilities, temporary equity and permanent equity
$ 220,217
$ 220,177
See accompanying notes to consolidated financial statements.
F-3
BlackRock, Inc.
Consolidated Statements of Income
(in millions, except shares and per share data)
2017
2016
2015
$
$
7,740
3,153
10,893
594
677
24
303
$
6,836
3,044
9,880
295
595
41
344
6,875
2,965
9,840
621
528
55
357
12,491
11,155
11,401
4,255
492
17
904
1,462
—
89
7,219
5,272
161
49
(205)
5
5,277
270
5,007
37
4,970
30.65
30.23
10.00
$
$
$
$
3,880
429
34
766
1,301
76
99
6,585
4,570
55
40
(205)
(110)
4,460
1,290
3,170
(2)
3,172
19.29
19.04
9.16
$
$
$
$
4,005
409
48
767
1,380
—
128
6,737
4,664
116
26
(204)
(62)
4,602
1,250
3,352
7
3,345
20.10
19.79
8.72
162,160,601
164,425,858
166,390,009
164,415,035
166,579,752
169,038,571
Revenue
Investment advisory, administration fees and securities lending revenue:
Related parties
Other third parties
Total investment advisory, administration fees and securities lending revenue
Investment advisory performance fees
Technology and risk management revenue
Distribution fees
Advisory and other revenue
Total revenue
Expense
Employee compensation and benefits
Distribution and servicing costs
Amortization of deferred sales commissions
Direct fund expense
General and administration
Restructuring charge
Amortization of intangible assets
Total expense
Operating income
Nonoperating income (expense)
Net gain (loss) on investments
Interest and dividend income
Interest expense
Total nonoperating income (expense)
Income before income taxes
Income tax expense
Net income
Less:
Net income (loss) attributable to noncontrolling interests
Net income attributable to BlackRock, Inc.
Earnings per share attributable to BlackRock, Inc. common stockholders:
Basic
Diluted
Cash dividends declared and paid per share
Weighted-average common shares outstanding:
Basic
Diluted
See accompanying notes to consolidated financial statements.
$
$
$
$
F-4
BlackRock, Inc.
Consolidated Statements of Comprehensive Income
(in millions)
Net income
Other comprehensive income:
Foreign currency translation adjustments(1)
Other
Other comprehensive income (loss)
Comprehensive income
Less: Comprehensive income (loss) attributable to noncontrolling interests
Comprehensive income attributable to BlackRock, Inc.
2017
2016
2015
$ 5,007
$ 3,170
$ 3,352
285
(1)
284
5,291
37
(269)
1
(268)
(173)
(2)
(175)
2,902
3,177
(2)
7
$ 5,254
$ 2,904
$ 3,170
(1) Amount for 2017 includes a loss from a net investment hedge of $64 million (net of a tax benefit of $38 million). Amount for 2016 and 2015 include a
gain from a net investment hedge of $14 million (net of tax of $8 million) and $19 million (net of tax of $11 million), respectively.
See accompanying notes to consolidated financial statements.
F-5
5
3
1
4
9
1
—
—
—
—
—
—
8
1
5
—
)
4
8
2
(
1
5
3
3
,
1
1
)
6
7
4
1
(
,
4
1
5
6
3
1
)
1
3
2
(
)
0
0
1
1
(
,
5
0
1
)
4
3
(
)
6
(
)
5
7
1
(
6
)
8
(
—
—
—
—
—
—
)
4
3
(
)
6
(
—
5
4
3
3
,
9
1
)
6
7
4
1
(
,
4
1
5
6
3
1
)
1
3
2
(
)
0
0
1
1
(
,
5
0
1
—
—
)
5
7
1
(
—
—
—
—
6
3
7
—
—
—
—
)
1
3
2
(
)
0
0
1
1
(
,
4
6
4
$
,
0
8
5
8
2
$
7
7
$
,
3
0
5
8
2
$
)
9
8
4
2
(
$
,
—
—
—
—
—
—
—
—
—
9
6
1
1
,
—
)
9
3
4
1
(
,
0
7
1
3
,
)
5
4
5
1
(
,
1
2
5
2
7
1
)
2
7
1
(
6
3
)
4
7
2
(
)
5
2
1
1
(
,
8
7
)
3
2
(
—
)
8
6
2
(
)
2
(
—
—
—
—
—
—
—
—
)
3
2
(
—
—
2
7
1
3
,
)
5
4
5
1
(
,
1
2
5
2
7
1
)
2
7
1
(
6
3
)
4
7
2
(
)
5
2
1
1
(
,
8
7
—
—
)
8
6
2
(
—
—
—
—
—
3
0
7
)
4
7
2
(
)
5
2
1
1
(
,
—
—
—
—
4
9
1
$
,
0
5
1
9
2
$
2
5
$
,
8
9
0
9
2
$
)
5
8
1
3
(
$
,
—
—
—
—
—
—
—
—
—
—
)
5
7
1
(
)
8
4
4
(
$
—
—
—
—
—
—
—
—
—
—
—
)
8
6
2
(
)
6
1
7
(
$
e
l
b
a
m
e
e
d
e
R
g
n
i
l
l
o
r
t
n
o
c
n
o
N
l
a
t
o
T
d
e
t
a
l
u
m
u
c
c
A
/
s
t
s
e
r
e
t
n
I
y
r
a
r
o
p
m
e
T
y
t
i
u
q
E
l
a
t
o
T
t
n
e
n
a
m
r
e
P
y
t
i
u
q
E
e
l
b
a
m
e
e
d
e
r
n
o
N
g
n
i
l
l
o
r
t
n
o
c
n
o
N
k
c
o
R
k
c
a
l
B
’
s
r
e
d
l
o
h
k
c
o
t
S
s
t
s
e
r
e
t
n
I
y
t
i
u
q
E
y
r
u
s
a
e
r
T
k
c
o
t
S
n
o
m
m
o
C
r
e
h
t
O
d
e
t
a
i
r
p
o
r
p
p
A
e
v
i
s
n
e
h
e
r
p
m
o
C
)
s
s
o
L
(
e
m
o
c
n
I
d
e
n
i
a
t
e
R
i
s
g
n
n
r
a
E
d
e
n
i
a
t
e
R
i
s
g
n
n
r
a
E
l
a
n
o
i
t
i
d
d
A
n
i
-
d
i
a
P
)
1
(
l
a
t
i
p
a
C
$
,
5
8
4
7
2
$
9
1
1
$
,
6
6
3
7
2
$
)
4
9
8
1
(
$
,
)
3
7
2
(
$
)
9
1
(
$
,
4
6
1
0
1
$
,
8
8
3
9
1
$
y
t
i
u
q
E
n
i
s
e
g
n
a
h
C
f
o
s
t
n
e
m
e
t
a
t
S
d
e
t
a
d
i
l
o
s
n
o
C
.
c
n
I
,
k
c
o
R
k
c
a
l
B
—
9
1
—
—
—
—
—
—
—
—
—
5
4
3
3
,
—
)
6
7
4
1
(
,
—
—
—
—
—
—
—
—
—
—
—
4
1
5
)
0
0
6
(
—
—
5
0
1
—
—
—
—
$
,
3
3
0
2
1
$
,
7
0
4
9
1
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2
7
1
3
,
)
5
4
5
1
(
,
—
—
1
2
5
2
7
1
)
2
7
1
(
)
7
6
6
(
—
—
8
7
—
—
—
n
o
i
t
p
o
d
a
o
t
e
u
d
s
E
V
f
o
)
I
n
o
i
t
a
d
i
l
o
s
n
o
c
e
d
(
n
o
i
t
a
d
i
l
o
s
n
o
c
t
e
N
t
n
e
m
e
c
n
u
o
n
o
r
p
g
n
i
t
n
u
o
c
c
a
w
e
n
f
o
k
c
o
t
s
e
e
y
o
l
p
m
e
o
t
d
e
t
a
l
e
r
s
e
r
a
h
s
n
o
m
m
o
c
f
o
e
c
n
a
u
s
s
I
s
n
o
i
t
c
a
s
n
a
r
t
k
c
o
t
s
e
e
y
o
l
p
m
e
o
t
d
e
t
a
l
e
r
s
g
n
d
l
o
h
h
t
i
i
w
x
a
t
e
e
y
o
l
p
m
E
d
e
s
a
h
c
r
u
p
e
r
s
e
r
a
h
S
s
n
o
i
t
c
a
s
n
a
r
t
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
s
m
o
r
f
)
l
l
a
f
t
r
o
h
s
(
t
i
f
e
n
e
b
x
a
t
t
e
N
d
e
r
o
s
n
o
p
s
f
o
)
s
n
o
i
t
a
d
i
l
o
s
n
o
c
e
d
(
s
n
o
i
t
a
d
i
l
o
s
n
o
c
t
e
N
—
)
s
n
o
i
t
u
b
i
r
t
s
i
d
/
s
n
o
i
t
p
m
e
d
e
r
(
s
n
o
i
t
p
i
r
c
s
b
u
S
s
r
e
d
l
o
h
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
n
o
n
)
s
s
o
l
(
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
s
d
n
u
f
t
n
e
m
t
s
e
v
n
i
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
S
i
d
a
p
s
d
n
e
d
i
v
i
D
k
c
o
t
s
e
e
y
o
l
p
m
e
o
t
d
e
t
a
l
e
r
s
e
r
a
h
s
n
o
m
m
o
c
f
o
e
c
n
a
u
s
s
I
s
n
o
i
t
c
a
s
n
a
r
t
k
c
o
t
s
e
e
y
o
l
p
m
e
o
t
d
e
t
a
l
e
r
s
g
n
d
l
o
h
h
t
i
i
w
x
a
t
e
e
y
o
l
p
m
E
n
o
i
t
u
b
i
r
t
n
o
c
l
a
t
i
p
a
c
k
c
o
t
s
d
e
r
r
e
f
e
r
p
C
N
P
k
c
o
t
s
d
e
r
r
e
f
e
r
p
f
o
t
n
e
m
e
r
i
t
e
R
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
S
d
e
s
a
h
c
r
u
p
e
r
s
e
r
a
h
S
s
n
o
i
t
c
a
s
n
a
r
t
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
s
m
o
r
f
)
l
l
a
f
t
r
o
h
s
(
t
i
f
e
n
e
b
x
a
t
t
e
N
d
e
r
o
s
n
o
p
s
f
o
)
s
n
o
i
t
a
d
i
l
o
s
n
o
c
e
d
(
s
n
o
i
t
a
d
i
l
o
s
n
o
c
t
e
N
—
)
s
n
o
i
t
u
b
i
r
t
s
i
d
/
s
n
o
i
t
p
m
e
d
e
r
(
s
n
o
i
t
p
i
r
c
s
b
u
S
s
r
e
d
l
o
h
t
s
e
r
e
t
n
i
g
n
i
l
l
o
r
t
n
o
c
n
o
n
)
s
s
o
l
(
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
s
d
n
u
f
t
n
e
m
t
s
e
v
n
i
i
d
a
p
s
d
n
e
d
i
v
i
D
e
m
o
c
n
i
t
e
N
5
1
0
2
,
1
3
r
e
b
m
e
c
e
D
4
1
0
2
,
1
3
r
e
b
m
e
c
e
D
e
m
o
c
n
i
t
e
N
)
s
n
o
i
l
l
i
m
n
i
(
F-6
—
$
,
0
6
6
3
1
$
,
9
3
3
9
1
$
6
1
0
2
,
1
3
r
e
b
m
e
c
e
D
.
4
1
0
2
d
n
a
5
1
0
2
,
6
1
0
2
,
1
3
r
e
b
m
e
c
e
D
t
a
k
c
o
t
s
n
o
m
m
o
c
f
o
n
o
i
l
l
i
m
2
$
e
d
u
l
c
n
i
s
t
n
u
o
m
A
)
1
(
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
o
t
s
e
t
o
n
g
n
i
y
n
a
p
m
o
c
c
a
e
e
S
e
l
b
a
m
e
e
d
e
R
g
n
i
l
l
o
r
t
n
o
c
n
o
N
/
s
t
s
e
r
e
t
n
I
y
r
a
r
o
p
m
e
T
y
t
i
u
q
E
l
a
t
o
T
t
n
e
n
a
m
r
e
P
y
t
i
u
q
E
e
l
b
a
m
e
e
d
e
r
n
o
N
g
n
i
l
l
o
r
t
n
o
c
n
o
N
k
c
o
R
k
c
a
l
B
’
s
r
e
d
l
o
h
k
c
o
t
S
s
t
s
e
r
e
t
n
I
y
t
i
u
q
E
y
r
u
s
a
e
r
T
k
c
o
t
S
n
o
m
m
o
C
l
a
t
o
T
d
e
t
a
l
u
m
u
c
c
A
r
e
h
t
O
e
v
i
s
n
e
h
e
r
p
m
o
C
)
s
s
o
L
(
e
m
o
c
n
I
d
e
n
i
a
t
e
R
i
s
g
n
n
r
a
E
l
a
n
o
i
t
i
d
d
A
n
i
-
d
i
a
P
)
1
(
l
a
t
i
p
a
C
4
9
1
$
0
5
1
9
2
,
$
2
5
$
8
9
0
9
2
,
$
)
5
8
1
3
(
,
$
)
6
1
7
(
$
0
6
6
3
1
,
$
,
9
3
3
9
1
$
5
3
—
—
—
—
—
—
—
2
7
9
4
,
)
2
6
6
1
(
,
2
4
5
3
9
1
)
3
9
1
(
3
1
)
1
2
3
(
)
0
0
1
1
(
,
2
8
4
)
8
1
(
—
—
)
5
9
2
(
1
4
1
4
8
2
2
—
—
—
—
—
—
—
)
8
1
(
4
1
—
—
0
7
9
4
,
)
2
6
6
1
(
,
2
4
5
3
9
1
)
3
9
1
(
—
—
—
—
—
3
1
9
3
6
)
1
2
3
(
)
0
0
1
1
(
,
)
1
2
3
(
)
0
0
1
1
(
,
—
1
—
4
8
2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
4
8
2
—
—
—
—
—
—
—
—
—
—
)
2
(
0
7
9
4
,
)
2
6
6
1
(
,
—
—
2
4
5
3
9
1
)
3
9
1
(
)
6
2
6
(
—
—
—
—
—
3
t
n
e
m
t
s
e
v
n
i
d
e
r
o
s
n
o
p
s
f
o
)
s
n
o
i
t
a
d
i
l
o
s
n
o
c
e
d
(
s
n
o
i
t
a
d
i
l
o
s
n
o
c
t
e
N
g
n
i
l
l
o
r
t
n
o
c
n
o
n
—
)
s
n
o
i
t
u
b
i
r
t
s
i
d
/
s
n
o
i
t
p
m
e
d
e
r
(
s
n
o
i
t
p
i
r
c
s
b
u
S
s
r
e
d
l
o
h
t
s
e
r
e
t
n
i
t
n
e
m
e
c
n
u
o
n
o
r
p
g
n
i
t
n
u
o
c
c
a
w
e
n
f
o
n
o
i
t
p
o
d
A
)
s
s
o
l
(
e
m
o
c
n
i
e
v
i
s
n
e
h
e
r
p
m
o
c
r
e
h
t
O
s
d
n
u
f
k
c
o
t
s
e
e
y
o
l
p
m
e
o
t
d
e
t
a
l
e
r
s
e
r
a
h
s
n
o
m
m
o
c
f
o
e
c
n
a
u
s
s
I
s
n
o
i
t
c
a
s
n
a
r
t
k
c
o
t
s
e
e
y
o
l
p
m
e
o
t
d
e
t
a
l
e
r
s
g
n
d
l
o
h
h
t
i
i
w
x
a
t
e
e
y
o
l
p
m
E
n
o
i
t
u
b
i
r
t
n
o
c
l
a
t
i
p
a
c
k
c
o
t
s
d
e
r
r
e
f
e
r
p
C
N
P
k
c
o
t
s
d
e
r
r
e
f
e
r
p
f
o
t
n
e
m
e
r
i
t
e
R
n
o
i
t
a
s
n
e
p
m
o
c
d
e
s
a
b
-
k
c
o
t
S
d
e
s
a
h
c
r
u
p
e
r
s
e
r
a
h
S
s
n
o
i
t
c
a
s
n
a
r
t
i
d
a
p
s
d
n
e
d
i
v
i
D
e
m
o
c
n
i
t
e
N
6
1
0
2
,
1
3
r
e
b
m
e
c
e
D
)
s
n
o
i
l
l
i
m
n
i
(
6
1
4
$
5
7
8
,
1
3
$
0
5
$
5
2
8
,
1
3
$
)
7
6
9
,
3
(
$
)
2
3
4
(
$
6
6
9
,
6
1
$
8
5
2
,
9
1
$
7
1
0
2
,
1
3
r
e
b
m
e
c
e
D
.
6
1
0
2
d
n
a
7
1
0
2
,
1
3
r
e
b
m
e
c
e
D
h
t
o
b
t
a
k
c
o
t
s
n
o
m
m
o
c
f
o
n
o
i
l
l
i
m
2
$
e
d
u
l
c
n
i
s
t
n
u
o
m
A
)
1
(
y
t
i
u
q
E
n
i
s
e
g
n
a
h
C
f
o
s
t
n
e
m
e
t
a
t
S
d
e
t
a
d
i
l
o
s
n
o
C
.
c
n
I
,
k
c
o
R
k
c
a
l
B
F-7
.
s
t
n
e
m
e
t
a
t
s
l
a
i
c
n
a
n
i
f
d
e
t
a
d
i
l
o
s
n
o
c
o
t
s
e
t
o
n
g
n
i
y
n
a
p
m
o
c
c
a
e
e
S
BlackRock, Inc.
Consolidated Statements of Cash Flows
(in millions)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization
Stock-based compensation
Deferred income tax expense (benefit)
Other gains
Assets and liabilities of consolidated VIEs:
Change in cash and cash equivalents
Net (gains) losses within consolidated VIEs
Net (purchases) proceeds within consolidated VIEs
(Earnings) losses from equity method investees
Distributions of earnings from equity method investees
Other adjustments
Changes in operating assets and liabilities:
Accounts receivable
Investments, trading
Other assets
Accrued compensation and benefits
Accounts payable and accrued liabilities
Other liabilities
Cash flows from operating activities
Cash flows from investing activities
Purchases of investments
Proceeds from sales and maturities of investments
Distributions of capital from equity method investees
Net consolidations (deconsolidations) of sponsored investment funds
Acquisitions, net of cash acquired
Purchases of property and equipment
Cash flows from investing activities
Cash flows from financing activities
Proceeds from long-term borrowings
Repayments of long-term borrowings
Cash dividends paid
Proceeds from stock options exercised
Repurchases of common stock
Net (redemptions/distributions paid)/subscriptions received from noncontrolling interest holders
Excess tax benefit from stock-based compensation
Other financing activities
Cash flows from financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental disclosure of cash flow information:
Cash paid for:
Interest
Income taxes (net of refunds)
Supplemental schedule of noncash investing and financing transactions:
Issuance of common stock
PNC preferred stock capital contribution
Increase (decrease) in noncontrolling interests due to net consolidation (deconsolidation) of sponsored
investment funds
Increase (decrease) in borrowings due to consolidation/deconsolidation of VIEs
See accompanying notes to consolidated financial statements.
F-8
2017
2016
2015
$ 5,007
$ 3,170
$ 3,352
240
542
(1,221)
—
(81)
(118)
(302)
(122)
35
—
(521)
(222)
(212)
276
308
219
263
521
(14)
—
(119)
(16)
(816)
(113)
31
—
(65)
(449)
(151)
(86)
26
(28)
295
514
(156)
(40)
(98)
(58)
(227)
(91)
41
14
(82)
(584)
(195)
98
(41)
262
3,828
2,154
3,004
(489)
166
32
(39)
(102)
(155)
(587)
697
(700)
(1,662)
—
(1,421)
464
—
(8)
(2,630)
192
803
(377)
378
34
(74)
(30)
(119)
(188)
—
—
(1,545)
26
(1,399)
1,146
82
5
(1,685)
(273)
8
(330)
456
66
(163)
(273)
(221)
(465)
787
(750)
(1,476)
126
(1,331)
484
105
(9)
(2,064)
(115)
360
6,091
6,083
5,723
$ 6,894
$ 6,091
$ 6,083
$
205
$ 1,124
$
198
$ 1,365
$
194
$ 1,276
$
$
$
$
626
193
$
$
667
172
600
$
$ —
(281)
$ (1,439)
— $
$ (104)
— $ (3,389)
BlackRock, Inc.
Notes to the Consolidated Financial
Statements
1. Introduction and Basis of Presentation
Business. BlackRock, Inc. (together, with its subsidiaries,
unless the context otherwise indicates, “BlackRock” or the
“Company”) is a leading publicly traded investment
management firm providing a broad range of investment and
risk management services to institutional and retail clients
worldwide.
BlackRock’s diverse platform of active (alpha) and index
(beta) investment strategies across asset classes enables
the Company to tailor investment outcomes and asset
allocation solutions for clients. Product offerings include
single- and multi-asset portfolios investing in equities, fixed
income, alternatives and money market instruments.
Products are offered directly and through intermediaries in a
variety of vehicles, including open-end and closed-end
mutual funds, iShares® exchange-traded funds (“ETFs”),
separate accounts, collective investment trusts and other
pooled investment vehicles. BlackRock also offers an
investment and risk management platform, Aladdin®, risk
analytics, advisory and technology services and solutions to
a broad base of institutional and wealth management
investors.
At December 31, 2017, The PNC Financial Services Group,
Inc. (“PNC”) held 21.2% of the Company’s voting common
stock and 21.7% of the Company’s capital stock, which
includes outstanding common and nonvoting preferred
stock.
Basis of Presentation. These consolidated financial
statements have been prepared in accordance with
accounting principles generally accepted in the United
States (“GAAP”) and include the accounts of the Company
and its controlled subsidiaries. Noncontrolling interests on
the consolidated statements of financial condition
represents the portion of consolidated sponsored
investment funds in which the Company does not have direct
equity ownership. Accounts and transactions between
consolidated entities have been eliminated.
The preparation of financial statements in conformity with
GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported
amounts of revenue and expense during the reporting
periods. Actual results could differ from those estimates.
Certain items previously reported have been reclassified to
conform to the current year presentation. Beginning with the
first quarter of 2017, Aladdin revenue previously reported
within “BlackRock Solutions® and advisory” has been
presented within “Technology and risk management
revenue” on the consolidated statements of income. The
remaining previously reported “BlackRock Solutions and
advisory” revenue is currently reported as part of “Advisory
and other revenue.” The prior period amounts reported for
BlackRock Solutions and advisory for the year ended
December 31, 2016 and 2015 have been reclassified to
conform to the current presentation.
2. Significant Accounting Policies
Cash and Cash Equivalents. Cash and cash equivalents
primarily consists of cash, money market funds and short-
term, highly liquid investments with original maturities of
three months or less in which the Company is exposed to
market and credit risk. Cash and cash equivalent balances
that are legally restricted from use by the Company are
recorded in other assets on the consolidated statements of
financial condition. Cash balances maintained by
consolidated voting rights entities (“VREs”) are not
considered legally restricted and are included in cash and
cash equivalents on the consolidated statements of financial
condition. Cash balances maintained by consolidated
variable interest entities (“VIEs”) are included in assets of
consolidated variable interest entities on the consolidated
statements of financial condition.
Investments. Investments in Debt and Marketable Equity
Securities. BlackRock classifies debt and marketable equity
investments as trading, available-for-sale, or
held-to-maturity based on the Company’s intent to sell the
security or, for a debt security, the Company’s intent and
ability to hold the debt security to maturity.
Trading securities are those investments that are purchased
principally for the purpose of selling them in the near term.
Trading securities are carried at fair value on the consolidated
statements of financial condition with changes in fair value
recorded in nonoperating income (expense) on the
consolidated statements of income in the period of the change.
Held-to-maturity debt securities are purchased with the
positive intent and ability to be held to maturity and are
recorded at amortized cost on the consolidated statements
of financial condition.
Available-for-sale securities are those securities that are not
classified as trading or held-to-maturity. Available-for-sale
securities are carried at fair value on the consolidated
statements of financial condition with changes in fair value
recorded in the accumulated other comprehensive income
(loss) component of stockholders’ equity in the period of the
change. Upon the disposition of an available-for-sale
security, the Company reclassifies the gain or loss on the
security from accumulated other comprehensive income
(loss) to nonoperating income (expense) on the consolidated
statements of income.
Equity Method. For equity investments where BlackRock
does not control the investee, and where it is not the primary
beneficiary (“PB”) of a VIE, but can exert significant influence
over the financial and operating policies of the investee, the
Company follows the equity method of accounting.
BlackRock’s share of the investee’s underlying net income or
loss is recorded as net gain (loss) on investments within
nonoperating income (expense) and as other revenue for
certain strategic investments since such companies are
considered to be an extension of BlackRock’s core business.
BlackRock’s share of net income of the investee is recorded
based upon the most current information available at the
time, which may precede the date of the consolidated
statement of financial condition. Distributions received from
the investment reduce the Company’s carrying value of the
investee and the cost basis if deemed to be a return of
capital.
Cost Method. For nonmarketable equity investments where
BlackRock neither controls nor has significant influence over
F-9
the investee, the investments are accounted for using the
cost method of accounting. Dividends received from the
investment are recorded as dividend income within
nonoperating income (expense).
Impairments of Investments. Management periodically
assesses equity method, available-for-sale, held-to-
maturity and cost investments for other-than-temporary
impairment (“OTTI”). If an OTTI exists, an impairment charge
is recorded in nonoperating income (expense) on the
consolidated statements of the income.
For equity method, held-to-maturity and cost method
investments, if circumstances indicate that an OTTI may
exist, the investments are evaluated using market values,
where available, or the expected future cash flows of the
investment. If the Company determines an OTTI exists, an
impairment charge is recognized for the excess of the
carrying amount of the investment over its estimated fair
value.
For available-for-sale securities, when the fair value is lower
than cost, the Company considers, among other factors, the
length of time the security has been in a loss position, the
extent to which the security’s fair value is less than cost, the
financial condition and near-term prospects of the security’s
issuer and the Company’s ability and intent to hold the
security for a length of time sufficient to allow for recovery of
such unrealized losses. For equity securities, if the
impairment is considered other-than-temporary, an
impairment charge is recognized for the excess of the
carrying amount of the investment over its fair value. For
debt securities, the Company considers whether: (1) it has
the intent to sell the security; (2) it is more likely than not
that it will be required to sell the security before recovery; or
(3) it expects to recover the entire amortized cost basis of the
security. If the Company intends to sell the security or it is
more likely than not that it will be required to sell the
security, the entire difference between the amortized cost
and fair value must be recognized in earnings. If the
Company does not intend to sell a security and it is not more
likely than not that it will be required to sell the security but
the security has suffered an impairment related to credit,
the credit loss will be bifurcated from the total decline in
value and recorded in earnings with the remaining portion
recorded in accumulated other comprehensive income.
For the Company’s investments in collateralized loan
obligations (“CLOs”), the Company reviews cash flow
estimates over the life of each CLO investment. If the present
value of the estimated future cash flows is lower than the
carrying value of the investment and there is an adverse
change in estimated cash flows, an impairment is
considered to be other-than-temporary. An impairment
charge is recognized for the excess of the carrying amount of
the investment over its estimated fair value.
Consolidation. The Company performs an analysis for
investment products to determine if the product is a VIE or a
VRE. Assessing whether an entity is a VIE or a VRE involves
judgment and analysis. Factors considered in this
assessment include the entity’s legal organization, the
entity’s capital structure and equity ownership, and any
related party or de facto agent implications of the Company’s
involvement with the entity. Investments that are
determined to be VIEs are consolidated if the Company is the
PB of the entity. VREs are typically consolidated if the
Company holds the majority voting interest. Upon the
occurrence of certain events (such as contributions and
redemptions, either by the Company, or third parties, or
amendments to the governing documents of the Company’s
investment products), management reviews and reconsiders
its previous conclusion regarding the status of an entity as a
VIE or a VRE. Additionally, management continually
reconsiders whether the Company is deemed to be a VIE’s PB
that consolidates such entity.
Consolidation of Variable Interest Entities. Certain
investment products for which a controlling financial
interest is achieved through arrangements that do not
involve or are not directly linked to voting interests are
deemed VIEs. BlackRock reviews factors, including whether
or not i) the entity has equity that is sufficient to permit the
entity to finance its activities without additional
subordinated support from other parties and ii) the equity
holders at risk have the obligation to absorb losses, the right
to receive residual returns, and the right to direct the
activities of the entity that most significantly impact the
entity’s economic performance, to determine if the
investment product is a VIE. BlackRock re-evaluates such
factors as facts and circumstances change.
The PB of a VIE is defined as the variable interest holder that
has a controlling financial interest in the VIE. A controlling
financial interest is defined as (i) the power to direct the
activities of the VIE that most significantly impact its
economic performance and (ii) the obligation to absorb
losses of the entity or the right to receive benefits from the
entity that potentially could be significant to the VIE. The
Company generally consolidates VIEs in which it holds an
equity ownership interest of 10% or greater and
deconsolidates such VIEs once equity ownership falls below
10%.
Consolidation of Voting Rights Entities. BlackRock is required
to consolidate an investee to the extent that BlackRock can
exert control over the financial and operating policies of the
investee, which generally exists if there is a greater than
50% voting equity interest.
Retention of Specialized Investment Company Accounting
Principles. Upon consolidation of sponsored investment
funds, the Company retains the specialized investment
company accounting principles of the underlying funds. All
of the underlying investments held by such consolidated
sponsored investment funds are carried at fair value with
corresponding changes in the investments’ fair values
reflected in nonoperating income (expense) on the
consolidated statements of income. When the Company no
longer controls these funds due to reduced ownership
percentage or other reasons, the funds are deconsolidated
and accounted for as an equity method investment,
available-for-sale security or trading investment if the
Company still maintains an investment.
Money Market Fee Waivers. The Company is currently
voluntarily waiving a portion of its management fees on
certain money market funds to ensure that they maintain a
targeted level of daily net investment income (the “Yield
Support waivers”). During 2017, 2016 and 2015, these
waivers resulted in a reduction of management fees of
approximately $6 million, $56 million and $137 million,
respectively. Approximately 0%, 35% and 50% of Yield
Support waivers for 2017, 2016 and 2015, respectively, were
offset by a reduction of BlackRock’s distribution and
servicing costs paid to a financial intermediary. BlackRock
may increase or decrease the level of fee waivers in future
periods.
F-10
Separate Account Assets and Liabilities. Separate account
assets are maintained by BlackRock Life Limited, a wholly
owned subsidiary of the Company, which is a registered life
insurance company in the United Kingdom, and represent
segregated assets held for purposes of funding individual
and group pension contracts. The life insurance company
does not underwrite any insurance contracts that involve any
insurance risk transfer from the insured to the life insurance
company. The separate account assets primarily include
equity securities, debt securities, money market funds and
derivatives. The separate account assets are not subject to
general claims of the creditors of BlackRock. These separate
account assets and the related equal and offsetting
liabilities are recorded as separate account assets and
separate account liabilities on the consolidated statements
of financial condition.
The net investment income attributable to separate account
assets supporting individual and group pension contracts
accrues directly to the contract owner and is not reported on
the consolidated statements of income. While BlackRock
has no economic interest in these separate account assets
and liabilities, BlackRock earns policy administration and
management fees associated with these products, which are
included in investment advisory, administration fees and
securities lending revenue on the consolidated statements
of income.
Separate Account Collateral Assets Held and Liabilities
Under Securities Lending Agreements. The Company
facilitates securities lending arrangements whereby
securities held by separate accounts maintained by
BlackRock Life Limited are lent to third parties under global
master securities lending agreements. In exchange, the
Company receives legal title to the collateral with minimum
values generally ranging from approximately 102% to 112%
of the value of the securities lent in order to reduce
counterparty risk. The required collateral value is calculated
on a daily basis. The global master securities lending
agreements provide the Company the right to request
additional collateral or, in the event of borrower default, the
right to liquidate collateral. The securities lending
transactions entered into by the Company are accompanied
by an agreement that entitles the Company to request the
borrower to return the securities at any time; therefore,
these transactions are not reported as sales.
The Company records on the consolidated statements of
financial condition the cash and noncash collateral received
under these BlackRock Life Limited securities lending
arrangements as its own asset in addition to an equal and
offsetting collateral liability for the obligation to return the
collateral. The securities lending revenue earned from
lending securities held by the separate accounts is included
in investment advisory, administration fees and securities
lending revenue on the consolidated statements of income.
During 2017 and 2016, the Company had not resold or
repledged any of the collateral received under these
arrangements. At December 31, 2017 and 2016, the fair
value of loaned securities held by separate accounts was
approximately $22.3 billion and $25.7 billion, respectively,
and the fair value of the collateral held under these
securities lending agreements was approximately
$24.2 billion and $27.8 billion, respectively.
Property and Equipment. Property and equipment are
recorded at cost less accumulated depreciation.
Depreciation is generally determined by cost less any
estimated residual value using the straight-line method over
the estimated useful lives of the various classes of property
and equipment. Leasehold improvements are amortized
using the straight-line method over the shorter of the
estimated useful life or the remaining lease term.
BlackRock develops a variety of risk management,
investment analytic and investment system services for
internal use, utilizing proprietary software that is hosted and
maintained by BlackRock. The Company capitalizes certain
costs incurred in connection with developing or obtaining
software for internal use. Capitalized software costs are
included within property and equipment on the consolidated
statements of financial condition and are amortized,
beginning when the software project is ready for its intended
use, over the estimated useful life of the software of
approximately three years.
Goodwill and Intangible Assets. Goodwill represents the
cost of a business acquisition in excess of the fair value of
the net assets acquired. The Company has determined that
it has one reporting unit for goodwill impairment testing
purposes, the consolidated BlackRock single operating
segment, which is consistent with internal management
reporting and management’s oversight of operations. In its
assessment of goodwill for impairment, the Company
considers such factors as the book value and market
capitalization of the Company.
On a quarterly basis, the Company considers if triggering
events have occurred that may indicate a potential goodwill
impairment. If a triggering event has occurred, the Company
performs assessments, which may include reviews of
significant valuation assumptions, to determine if goodwill
may be impaired. The Company performs an impairment
assessment of its goodwill at least annually as of July 31st.
Intangible assets are comprised of indefinite-lived intangible
assets and finite-lived intangible assets acquired in a
business acquisition. The value of contracts to manage
assets in proprietary open-end funds and collective trust
funds and certain other commingled products without a
specified termination date is generally classified as
indefinite-lived intangible assets. The assignment of
indefinite lives to such contracts primarily is based upon the
following: (i) the assumption that there is no foreseeable
limit on the contract period to manage these products;
(ii) the Company expects to, and has the ability to, continue
to operate these products indefinitely; (iii) the products have
multiple investors and are not reliant on a single investor or
small group of investors for their continued operation;
(iv) current competitive factors and economic conditions do
not indicate a finite life; and (v) there is a high likelihood of
continued renewal based on historical experience. In
addition, trade names/trademarks are considered
indefinite-lived intangible assets when they are expected to
generate cash flows indefinitely.
Indefinite-lived intangible assets and goodwill are not
amortized. Finite-lived management contracts, which relate
to acquired separate accounts and funds and investor/
customer relationships with a specified termination date,
are amortized over their remaining useful lives.
The Company performs assessments to determine if any
intangible assets are potentially impaired and whether the
indefinite-lived and finite-lived classifications are still
appropriate. The carrying value of finite-lived assets and
their remaining useful lives are reviewed at least annually to
F-11
determine if circumstances exist which may indicate a
potential impairment or revisions to the amortization period.
The Company performs impairment assessments of all of its
intangible assets at least annually, as of July 31st.
In evaluating whether it is more likely than not that the fair
value of indefinite-lived intangibles is less than its carrying
value, BlackRock assesses various significant qualitative
factors, including assets under management (“AUM”),
revenue basis points, projected AUM growth rates, operating
margins, tax rates and discount rates. In addition, the
Company considers other factors, including
(i) macroeconomic conditions such as a deterioration in
general economic conditions, limitations on accessing
capital, fluctuations in foreign exchange rates, or other
developments in equity and credit markets; (ii) industry and
market considerations such as a deterioration in the
environment in which the entity operates, an increased
competitive environment, a decline in market-dependent
multiples or metrics, a change in the market for an entity’s
services, or regulatory, legal or political developments; and
(iii) entity-specific events, such as a change in management
or key personnel, overall financial performance and litigation
that could affect significant inputs used to determine the
fair value of the indefinite-lived intangible asset. If an
indefinite-lived intangible is determined to be more likely
than not impaired, then the fair value of the asset is
compared with its carrying value and any excess of the
carrying value over the fair value would be recognized as an
expense in the period in which the impairment occurs.
For finite-lived intangible assets, if potential impairment
circumstances are considered to exist, the Company will
perform a recoverability test using an undiscounted cash
flow analysis. Actual results could differ from these cash
flow estimates, which could materially impact the
impairment conclusion. If the carrying value of the asset is
determined not to be recoverable based on the undiscounted
cash flow test, the difference between the carrying value of
the asset and its current fair value would be recognized as
an expense in the period in which the impairment occurs.
Noncontrolling Interests. The Company reports
noncontrolling interests as equity, separate from the
parent’s equity, on the consolidated statements of financial
condition. In addition, the Company’s consolidated net
income on the consolidated statements of income includes
the income (loss) attributable to noncontrolling interest
holders of the Company’s consolidated investment products.
Income (loss) attributable to noncontrolling interests is not
adjusted for income taxes for consolidated investment
products that are treated as pass-through entities for tax
purposes.
Classification and Measurement of Redeemable Securities.
The Company includes redeemable noncontrolling interests
related to certain consolidated investment products in
temporary equity on the consolidated statements of
financial condition.
Treasury Stock. The Company records common stock
purchased for treasury at cost. At the date of subsequent
reissuance, the treasury stock account is reduced by the
cost of such stock using the average cost method.
Revenue Recognition
Investment Advisory, Administration Fees and Securities
Lending Revenue. Investment advisory and administration
fees are recognized as the services are performed. Such fees
are primarily based on agreed-upon percentages of the net
asset value of AUM or committed capital. Investment
advisory and administration fees are affected by changes in
AUM, including market appreciation or depreciation, foreign
exchange translation and net inflows or outflows.
Investment advisory and administration fees for investment
funds are shown net of fees waived pursuant to contractual
expense limitations of the funds or voluntary waivers.
The Company contracts with third parties and related parties
for various mutual fund distribution and shareholder
servicing to be performed on behalf of certain funds the
Company manages. Such arrangements generally are priced
as a portion of the fee paid by the fund. In certain cases, the
fund (primarily international funds) takes on the primary
responsibility for payment for services such that the
Company bears no credit risk to the third-party. The
Company currently records its management fees net of
retrocessions.
The Company also earns revenue by lending securities as an
agent on behalf of clients, primarily to brokerage
institutions. Revenue is accounted for on an accrual basis.
Generally, the fees generated from securities lending
activities are shared between the Company and the funds or
other third-party accounts managed by the Company from
which the securities are borrowed.
Investment Advisory Performance Fees / Carried Interest. The
Company receives investment advisory performance fees or
incentive allocations from certain actively managed
investment funds and certain separately managed accounts.
These performance fees are dependent upon exceeding
specified relative or absolute investment return thresholds.
Such fees are recorded upon completion of the
measurement period, which varies by product or account,
and could be monthly, quarterly, annually or longer.
In addition, the Company is allocated carried interest from
certain alternative investment products upon exceeding
performance thresholds. BlackRock may be required to
reverse/return all, or part, of such carried interest
allocations depending upon future performance of these
funds. Therefore, BlackRock records carried interest subject
to such clawback provisions in investments/investments of
consolidated VIEs or cash/cash of consolidated VIEs to the
extent that it is distributed, on its consolidated statements
of financial condition. Carried interest is recorded as
performance fee revenue upon the earlier of the termination
of the investment fund or when the likelihood of clawback is
considered mathematically improbable.
The Company records a deferred carried interest liability to
the extent it receives cash or capital allocations related to
carried interest prior to meeting the revenue recognition
criteria. At December 31, 2017 and 2016, the Company had
$219 million and $152 million, respectively, of deferred
carried interest recorded in other liabilities/other liabilities
of consolidated VIEs on the consolidated statements of
financial condition. A portion of the deferred carried interest
liability will be paid to certain employees. The ultimate
timing of the recognition of performance fee revenue, if any,
for these products is unknown.
Technology and risk management revenue. BlackRock offers
investment management technology systems, risk
management services, wealth management and digital
distribution tools on a fee basis. Clients include banks,
F-12
insurance companies, official institutions, pension funds,
asset managers, retail distributors and other investors. Fees
earned for technology and risk management revenue are
recorded as services are performed and are generally
determined using the value of positions on the Aladdin
platform or on a fixed-rate basis.
Advisory and other revenue. Advisory and other revenue
primarily includes fees earned for advisory services, fees
earned for transition management services primarily
comprised of commissions recognized in connection with
buying and selling securities on behalf of customers, and
equity method investment earnings related to certain
strategic investments.
Fees earned for advisory services are determined using
fixed-rate fees, and recorded upon delivery.
Commissions related to transition management services are
recorded on a trade-date basis as securities transactions
occur.
Stock-based Compensation. In March 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) 2016-09, Improvements to
Employee Share-Based Payment Accounting (“ASU
2016-09”). ASU 2016-09 simplifies accounting for employee
share-based payment transactions, including the
accounting for income taxes, forfeitures, and statutory tax
withholding requirements, as well as classification in the
consolidated statements of cash flows. The Company
adopted ASU 2016-09 as of January 1, 2017. ASU 2016-09
requires all excess tax benefits and deficiencies to be
recognized in income tax expense on the consolidated
statements of income. Accordingly, the Company recorded a
discrete income tax benefit of $151 million during 2017 for
vested restricted stock units where the grant date stock
price was lower than the vesting date stock price. The new
guidance will increase the volatility of income tax expense as
a result of fluctuations in the Company’s stock price. Upon
adoption, the Company elected to account for forfeitures as
they occur, which did not have a material impact on the
consolidated financial statements. In addition, the Company
elected to present excess tax benefits and deficiencies
prospectively in operating activities on the consolidated
statements of cash flows.
Entities are required to measure the cost of employee
services received in exchange for an award of equity
instruments based on the grant-date fair value of the award.
The compensation cost is recognized over the period during
which an employee is required to provide service (usually the
vesting period) in exchange for the stock-based award.
The Company measures the grant-date fair value of
restricted stock units (“RSUs”) using the Company’s share
price on the date of grant. For employee share options and
instruments with market conditions, the Company uses
pricing models. Stock option awards may have performance,
market and/or service conditions. If an equity award is
modified after the grant-date, incremental compensation
cost is recognized for an amount equal to the excess of the
fair value of the modified award over the fair value of the
original award immediately before the modification. Awards
under the Company’s stock-based compensation plans vest
over various periods. Compensation cost is recorded by the
Company on a straight-line basis over the requisite service
period for each separate vesting portion of the award as if
the award is, in-substance, multiple awards. Compensation
cost was reduced by the number of awards forfeited prior to
vesting.
The Company amortizes the grant-date fair value of stock-
based compensation awards made to retirement-eligible
employees over the requisite service period. Upon
notification of retirement, the Company accelerates the
unamortized portion of the award over the contractually
required retirement notification period.
Distribution and Servicing Costs. Distribution and servicing
costs include payments to third parties, primarily associated
with distribution and servicing of client investments in
certain BlackRock products. Distribution and servicing costs
are expensed when incurred.
Direct Fund Expense. Direct fund expense, which is
expensed as incurred, primarily consists of third-party
nonadvisory expense incurred by BlackRock related to
certain funds for the use of certain index trademarks,
reference data for certain indices, custodial services, fund
administration, fund accounting, transfer agent services,
shareholder reporting services, audit and tax services as well
as other fund-related expense directly attributable to the
nonadvisory operations of the fund.
Leases. The Company accounts for its office facilities leases
as operating leases, which may include escalation clauses.
The Company expenses the lease payments associated with
operating leases evenly during the lease term (including
rent-free periods) commencing when the Company obtains
the right to control the use of the leased property.
Foreign Exchange. Foreign currency transactions are
recorded at the exchange rates prevailing on the dates of the
transactions. Monetary assets and liabilities that are
denominated in foreign currencies are subsequently
remeasured into the functional currencies of the Company’s
subsidiaries at the rates prevailing at each balance sheet
date. Gains and losses arising on remeasurement are
included in general and administration expense on the
consolidated statements of income. Revenue and expenses
are translated at average exchange rates during the period.
Gains or losses resulting from translating foreign currency
financial statements into U.S. dollars are included in
accumulated other comprehensive income, a separate
component of stockholders’ equity, on the consolidated
statements of financial condition.
Income Taxes. Deferred income tax assets and liabilities are
recognized for the future tax consequences attributable to
temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases using currently enacted tax rates in
effect for the year in which the differences are expected to
reverse. The effect of a change in tax rates on deferred
income tax assets and liabilities is recognized on the
consolidated statements of income in the period that
includes the enactment date.
Management periodically assesses the recoverability of its
deferred income tax assets based upon expected future
earnings, taxable income in prior carryback years, future
deductibility of the asset, changes in applicable tax laws and
other factors. If management determines that it is not more
likely than not that the deferred tax asset will be fully
recoverable in the future, a valuation allowance will be
established for the difference between the asset balance
F-13
and the amount expected to be recoverable in the future.
This allowance will result in additional income tax expense.
Further, the Company records its income taxes receivable
and payable based upon its estimated income tax position.
In 2017, excess tax benefits related to stock-based
compensation were recognized as an income tax benefit on
the consolidated statements of income and are reflected as
operating cash flows on the consolidated statements of cash
flows. For prior year periods, excess tax benefits were
recognized as additional paid-in capital and financing cash
flows.
Earnings per Share (“EPS”). Basic EPS is calculated by
dividing net income applicable to common shareholders by
the weighted-average number of shares outstanding during
the period. Diluted EPS includes the determinants of basic
EPS and common stock equivalents outstanding during the
period. Diluted EPS is computed using the treasury stock
method.
Due to the similarities in terms between BlackRock’s
nonvoting participating preferred stock and the Company’s
common stock, the Company considers its nonvoting
participating preferred stock to be a common stock
equivalent for purposes of EPS calculations. As such, the
Company has included the outstanding nonvoting
participating preferred stock in the calculation of average
basic and diluted shares outstanding.
Business Segments. The Company’s management directs
BlackRock’s operations as one business, the asset
management business. The Company utilizes a consolidated
approach to assess performance and allocate resources. As
such, the Company operates in one business segment as
defined in ASC 280-10, Segment Reporting (“ASC 280-10”).
Fair Value Measurements
Hierarchy of Fair Value Inputs. The Company uses a fair value
hierarchy that prioritizes inputs to valuation approaches
used to measure fair value. The fair value hierarchy gives the
highest priority to quoted prices (unadjusted) in active
markets for identical assets or liabilities and the lowest
priority to unobservable inputs. Assets and liabilities
measured and reported at fair value are classified and
disclosed in one of the following categories:
Level 1 Inputs:
Quoted prices (unadjusted) in active markets for identical
assets or liabilities at the reporting date.
• Level 1 assets may include listed mutual funds, ETFs,
listed equities and certain exchange-traded derivatives.
Level 2 Inputs:
Quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar assets or
liabilities that are not active; quotes from pricing services
or brokers for which the Company can determine that
orderly transactions took place at the quoted price or that
the inputs used to arrive at the price are observable; and
inputs other than quoted prices that are observable, such
as models or other valuation methodologies.
• Level 2 assets may include debt securities, investments
in CLOs, short-term floating-rate notes, asset-backed
securities, securities held within consolidated hedge
funds, restricted public securities valued at a discount,
as well as over-the-counter derivatives, including
interest and inflation rate swaps and foreign currency
exchange contracts that have inputs to the valuations
that generally can be corroborated by observable
market data.
Level 3 Inputs:
Unobservable inputs for the valuation of the asset or
liability, which may include nonbinding broker quotes.
Level 3 assets include investments for which there is
little, if any, market activity. These inputs require
significant management judgment or estimation.
• Level 3 assets may include direct private equity
investments held within consolidated funds and
investments in CLOs.
• Level 3 liabilities include contingent liabilities related to
acquisitions valued based upon discounted cash flow
analyses using unobservable market data.
Significance of Inputs. The Company’s assessment of the
significance of a particular input to the fair value
measurement in its entirety requires judgment and
considers factors specific to the financial instrument.
Valuation Approaches. The fair values of certain Level 3
assets and liabilities were determined using various
valuation approaches as appropriate, including third-party
pricing vendors, broker quotes and market and income
approaches. Such quotes and modeled prices are evaluated
for reasonableness through various procedures, including
due diligence reviews of third-party pricing vendors, variance
analyses, consideration of the current market environment
and other analytical procedures.
A significant number of inputs used to value equity, debt
securities and investments in CLOs is sourced from third-
party pricing vendors. Generally, prices obtained from
pricing vendors are categorized as Level 1 inputs for
identical securities traded in active markets and as Level 2
for other similar securities if the vendor uses observable
inputs in determining the price. Annually, BlackRock’s
internal valuation committee or other designated groups
review both the valuation approaches, including the general
assumptions and methods used to value various asset
classes, and operational processes with these vendors. On a
quarterly basis, meetings are held with key vendors to
identify any significant changes to the vendors’ processes.
In addition, quotes obtained from brokers generally are
nonbinding and categorized as Level 3 inputs. However, if
the Company is able to determine that market participants
have transacted for the asset in an orderly manner near the
quoted price or if the Company can determine that the
inputs used by the broker are observable, the quote is
classified as a Level 2 input.
Investments Measured at Net Asset Values. As a practical
expedient, the Company uses net asset value (“NAV”) as the
fair value for certain investments. The inputs to value these
investments may include BlackRock capital accounts for its
partnership interests in various alternative investments,
including hedge funds, real assets and private equity funds,
which may be adjusted by using the returns of certain
market indices. The various partnerships generally are
investment companies, which record their underlying
investments at fair value based on fair value policies
established by management of the underlying fund. Fair
F-14
value policies at the underlying fund generally require the
fund to utilize pricing/valuation information from third-party
sources, including independent appraisals. However, in
some instances, current valuation information for illiquid
securities or securities in markets that are not active may
not be available from any third-party source or fund
management may conclude that the valuations that are
available from third-party sources are not reliable. In these
instances, fund management may perform model-based
analytical valuations that could be used as an input to value
these investments.
Derivative Instruments and Hedging Activities. The
Company does not use derivative financial instruments for
trading or speculative purposes. The Company uses
derivative financial instruments primarily for purposes of
hedging exposures to fluctuations in foreign currency
exchange rates of certain assets and liabilities, and market
exposures for certain seed investments. However, certain
consolidated sponsored investment funds may also utilize
derivatives as a part of their investment strategy.
Changes in the fair value of the Company’s derivative
financial instruments are recognized in earnings and, where
applicable, are offset by the corresponding gain or loss on
the related foreign-denominated assets or liabilities or
hedged investments, on the consolidated statements of
income.
The Company may also use financial instruments designated
as net investment hedges for accounting purposes to hedge
net investments in international subsidiaries whose
functional currency is not U.S. dollars. The gain or loss from
revaluing accounting hedges of net investments in foreign
operations at the spot rate is deferred and reported within
accumulated other comprehensive income on the
consolidated statements of financial condition. The
Company reassesses the effectiveness of its net investment
hedge on a quarterly basis.
Recent Accounting Pronouncements Not Yet Adopted in
2017
Revenue from Contracts with Customers. In May 2014, the
FASB issued ASU 2014-09, Revenue from Contracts with
Customers (“ASU 2014-09”). ASU 2014-09 outlines a single
comprehensive model for entities to use in accounting for
revenue arising from contracts with customers and
supersedes most current revenue recognition guidance,
including industry-specific guidance. The guidance also
changes the accounting for certain contract costs and
revises the criteria for determining if an entity is acting as a
principal or agent in certain arrangements.
The key changes in the standard that impact the Company’s
revenue recognition relate to the presentation of certain
revenue contracts and associated contract costs. The most
significant of these changes relates to the presentation of
certain distribution costs, which are currently presented net
against revenues (contra-revenue) and will be presented as
an expense on a gross basis. The Company adopted ASU
2014-09 effective January 1, 2018 on a full retrospective
basis, which will require 2016 and 2017 to be restated in
future filings. The cumulative effect adjustment to the 2016
opening retained earnings was not material. The Company
currently expects the net gross up to revenue to be
approximately $1 billion with a corresponding gross up to
expense for both 2016 and 2017.
Recognition and Measurement of Financial Instruments. In
January 2016, the FASB issued ASU 2016-01, Recognition
and Measurement of Financial Assets and Financial
Liabilities (“ASU 2016-01”). ASU 2016-01 amends guidance
on the classification and measurement of financial
instruments, including significant revisions in accounting
related to the classification and measurement of
investments in certain equity securities. ASU 2016-01 also
amends certain disclosure requirements associated with the
fair value of financial instruments. The reclassification of
unrealized gains (losses) on equity securities within
accumulated other comprehensive income to retained
earnings was not material upon adoption effective
January 1, 2018.
Leases. In February 2016, the FASB issued ASU 2016-02,
Leases (“ASU 2016-02”), which requires lessees to recognize
assets and liabilities arising from most operating leases on
the consolidated statements of financial condition. The
Company expects to record assets and liabilities for its
current operating leases upon adoption of ASU 2016-02 and
does not expect the adoption to have a material impact on its
results of operations or cash flows. ASU 2016-02 is effective
for the Company on January 1, 2019, and the Company
intends to apply the practical expedients allowed by the
standard upon transition.
Cash Flow Classification. In August 2016, the FASB issued
ASU 2016-15, Classification of Certain Cash Receipts and
Cash Payments (“ASU 2016-15”), which amends and clarifies
the current guidance to reduce diversity in practice of the
classification of certain cash receipts and payments in the
consolidated statements of cash flows. The Company does
not expect the adoption of ASU 2016-15 to have a material
impact on its consolidated statement of cash flows. ASU
2016-15 is effective for the Company on January 1, 2018.
The Company must apply the guidance retrospectively to all
periods presented.
3. Investments
A summary of the carrying value of total investments is as
follows:
(in millions)
December 31,
2017
December 31,
2016
Available-for-sale investments
Held-to-maturity investments
$ 103
102
$
80
51
Trading investments:
Consolidated sponsored
investment funds:
Debt securities
Equity securities
Other equity and debt
securities
Deferred compensation plan
mutual funds
Total trading investments
Other investments:
Equity method investments(1)
Cost method investments(2)
Carried interest(3)
Total other investments
267
245
267
56
835
816
93
32
941
246
219
101
59
625
730
91
18
839
Total investments
$ 1,981
$ 1,595
(1) Equity method investments primarily include BlackRock’s direct
investments in certain BlackRock sponsored investment funds.
F-15
(2) Amounts include nonmarketable securities, primarily Federal
Reserve Bank stock, which is held for regulatory purposes and is
restricted from sale. At December 31, 2017 and 2016, there were no
indicators of impairment on these investments.
(3) Carried interest of consolidated sponsor investment funds accounted
for as voting rights entities (“VREs”) represents allocations to
BlackRock’s general partner capital accounts from certain funds.
These balances are subject to change upon cash distributions,
additional allocations or reallocations back to limited partners within
the respective funds.
4. Consolidated Voting Rights Entities
The Company consolidates certain sponsored investment
funds accounted for as VREs because it is deemed to control
such funds. The investments owned by these consolidated
VREs are classified as trading investments. The following
table presents the balances related to these consolidated
VREs that were recorded on the consolidated statements of
financial condition, including BlackRock’s net interest in
these funds:
(in millions)
December 31,
2017
December 31,
2016
Cash and cash equivalents
$ 63
$ 53
Investments
Other assets
Other liabilities
Noncontrolling interests
BlackRock’s net interests in
consolidated VREs
512
13
(37)
(91)
465
15
(50)
(39)
$ 460
$ 444
BlackRock’s total exposure to consolidated VREs represents
the value of its economic ownership interest in these
sponsored investment funds. Valuation changes associated
with investments held at fair value by these consolidated
VREs are reflected in nonoperating income (expense) and
partially offset in net income (loss) attributable to
noncontrolling interests for the portion not attributable to
BlackRock.
The Company cannot readily access cash and cash
equivalents held by consolidated VREs to use in its operating
activities.
5. Variable Interest Entities
In the normal course of business, the Company is the
manager of various types of sponsored investment vehicles,
which may be considered VIEs. The Company may from time
to time own equity or debt securities or enter into derivatives
with the vehicles, each of which are considered variable
interests. The Company’s involvement in financing the
operations of the VIEs is generally limited to its investments
in the entity. The Company consolidates entities when it is
determined to be the PB. See Note 2, Significant Accounting
Policies, for further information on the Company’s
accounting policy on consolidation.
Consolidated VIEs. The Company’s consolidated VIEs include
certain sponsored investment funds in which BlackRock has an
investment and as the investment manager, is deemed to have
both the power to direct the most significant activities of the
funds and the right to receive benefits (or the obligation to
absorb losses) that could potentially be significant to these
sponsored investment funds. The assets of these VIEs are not
available to creditors of the Company. In addition, the investors
in these VIEs have no recourse to the credit of the Company.
Available-for-Sale Investments
At both December 31, 2017 and 2016, available-for-sale
investments primarily included certain investments in
BlackRock sponsored CLOs and seed investments in
BlackRock sponsored mutual funds. The cost of these
investments approximated carrying value.
A summary of sale activity of available-for-sale securities
during 2017, 2016 and 2015 is shown below.
(in millions)
Sales proceeds
Net realized gain (loss):
Gross realized gains
Gross realized losses
Net realized gain (loss)
Year ended December 31,
2017
2016
2015
$ —
$ 40
$ 36
$ —
—
$ —
$ 2
(1)
$ 1
$ 3
(1)
$ 2
Held-to-Maturity Investments
The carrying value of held-to-maturity investments was
$102 million and $51 million at December 31, 2017 and
2016, respectively. Held-to-maturity investments included
foreign government debt held primarily for regulatory
purposes and certain investments in BlackRock sponsored
CLOs. The amortized cost (carrying value) of these
investments approximated fair value. At December 31, 2017,
$11 million of these investments mature between five years
to ten years and $91 million mature after ten years.
Trading Investments
A summary of the cost and carrying value of trading
investments is as follows:
December 31, 2017 December 31, 2016
Cost
Carrying
Value
Cost
Carrying
Value
$ 34
$ 56
$ 41
$ 59
446
493
290
308
(in millions)
Trading investments:
Deferred
compensation plan
mutual funds
Equity securities/
multi-asset mutual
funds
Debt securities/fixed
income mutual
funds:
Corporate debt
Government debt
Asset/mortgage
backed debt
152
72
56
157
73
56
128
60
70
128
60
70
Total trading
investments
$ 760
$ 835
$ 589
$ 625
F-16
Consolidated VIE assets and liabilities are presented after
intercompany eliminations at December 31, 2017 and 2016
in the following table:
Net gain (loss) related to consolidated VIEs is presented in
the following table:
(in millions)
Assets of consolidated VIEs:
December 31,
2017
December 31,
2016
(in millions)
2017
2016
2015
Nonoperating net gain (loss) on
consolidated VIEs
Net gain (loss) attributable to NCI on
$ 118
$ 16
$ 58
Cash and cash equivalents
$ 144
$
84
consolidated VIEs
$ 33
$ (2)
$ 6
Investments:
Trading investments
Other investments
Other assets
Total investments and other
assets
Liabilities of consolidated VIEs
Noncontrolling interests
BlackRock’s net interests in
915
578
66
1,559
(369)
(375)
552
456
63
1,071
(216)
(207)
consolidated VIEs
$ 959
$ 732
Non-Consolidated VIEs. At December 31, 2017 and 2016, the Company’s carrying value of assets and liabilities included on
the consolidated statements of financial condition pertaining to nonconsolidated VIEs and its maximum risk of loss related to
VIEs for which it held a variable interest, but for which it was not the PB, was as follows:
(in millions)
At December 31, 2017
Sponsored investment products
At December 31, 2016
Sponsored investment products
Investments
Advisory
Fee
Receivables
Other Net
Assets
(Liabilities)
Maximum
Risk of Loss(1)
$ 263
$ 171
$ 15
$ 9
$ (7)
$ 295
$ (8)
$ 197
(1) At December 31, 2017 and 2016, BlackRock’s maximum risk of loss associated with these VIEs primarily related to BlackRock’s investments and
collecting advisory fee receivables.
The net assets of sponsored investment products that are nonconsolidated VIEs approximated $5 billion and $4 billion at
December 31, 2017 and 2016, respectively.
F-17
6. Fair Value Disclosures
Fair Value Hierarchy
Assets and liabilities measured at fair value on a recurring basis and other assets not held at fair value
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Investments
Measured at
NAV(1)
Other
Assets
Not Held
at Fair
Value(2)
December 31,
2017
$ —
—
$ —
—
$ —
102
$
December 31, 2017
(in millions)
Assets:
Investments
Available-for-sale
Held-to-maturity debt securities
Trading:
Deferred compensation plan
mutual funds
Equity securities / Multi-asset
mutual funds
Debt securities / fixed income
mutual funds
Total trading
Other investments:
Equity method:
Equity and fixed income
mutual funds
Other
Total equity method
Cost method investments
Carried interest
Total investments
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
$
7
—
56
493
2
551
183
—
183
—
—
741
$
96
—
—
—
284
284
—
—
—
—
—
380
Separate account assets
114,422
34,582
Separate account collateral held under
securities lending agreements:
Equity securities
Debt securities
Total separate account collateral held
under securities lending agreements
Investments of consolidated VIEs:
Trading:
Equity securities
Debt securities
Other investments:
Private / public equity(3)
Other
Carried interest
18,778
—
—
5,412
18,778
5,412
440
—
6
—
—
—
475
2
—
—
477
Total investments of consolidated VIEs
446
Total
Liabilities:
$134,387
$40,851
$116
Separate account collateral liabilities
under securities lending agreements
Other liabilities(4)
Total
$ 18,778
$ 5,412
—
7
$ 18,778
$ 5,419
$ —
236
$236
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
116
—
—
116
103
102
56
493
286
835
195
621
816
93
32
1,981
149,937
18,778
5,412
24,190
440
475
259
53
266
1,493
—
—
—
—
—
12
12
93
32
239
933
—
—
—
—
—
76
—
266
342
$1,514
$177,601
$ —
$ 24,190
—
243
$ —
$ 24,433
—
—
—
—
12
609
621
—
—
621
—
—
—
—
—
—
59
53
—
112
$733
$ —
—
$ —
(1) Amounts are comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient.
(2) Amounts are comprised of investments held at cost or amortized cost, carried interest and certain equity method investments, which include
sponsored investment funds and other assets, which are not accounted for under a fair value measure. In accordance with GAAP, certain equity
method investees do not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in
such equity method investees may not represent fair value.
(3) Level 3 amounts primarily include direct investments in private equity companies held by private equity funds.
(4) Amounts primarily include contingent liabilities related to certain acquisitions (see Note 13, Commitments and Contingencies, for more information).
F-18
Assets and liabilities measured at fair value on a recurring basis and other assets not held at fair value
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Investments
Measured at
NAV(1)
Other
Assets
Not Held
at Fair
Value(2)
December 31,
2016
$ 24
—
$ —
—
$ —
$
December 31, 2016
(in millions)
Assets:
Investments
Available-for-sale
Held-to-maturity debt securities
Trading:
Deferred compensation plan
mutual funds
Equity securities / Multi-asset
mutual funds
Debt securities / fixed income
mutual funds
Total trading
Other investments:
Equity method:
Equity and fixed income
mutual funds
Other
Total equity method
Cost method investments
Carried interest
Total investments
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
$
7
—
59
308
1
368
323
—
323
—
—
698
$
49
—
—
—
250
250
—
—
—
—
—
299
Separate account assets
109,663
38,542
Separate account collateral held under
securities lending agreements:
Equity securities
Debt securities
Total separate account collateral held
under securities lending agreements
Investments of consolidated VIEs:
Trading:
Equity securities
Debt securities
Other investments:
Private / public equity(3)
Other
Carried interest
22,173
—
—
5,619
22,173
5,619
278
—
3
—
—
—
274
2
—
—
276
Total investments of consolidated VIEs
281
Total
Liabilities:
$132,815
$44,736
$143
Separate account collateral liabilities
under securities lending agreements
Other liabilities(4)
Total
$ 22,173
$ 5,619
—
7
$ 22,173
$ 5,626
$ —
115
$115
—
—
7
7
—
—
—
—
—
31
—
—
—
—
—
—
112
—
—
112
51
—
—
—
—
—
8
8
91
18
168
884
—
—
—
—
—
79
—
108
187
80
51
59
308
258
625
328
402
730
91
18
1,595
149,089
22,173
5,619
27,792
278
274
285
63
108
1,008
$1,239
$179,484
$ —
$ 27,792
—
122
$ —
$ 27,914
—
—
—
—
5
394
399
—
—
399
—
—
—
—
—
—
89
63
—
152
$551
$ —
—
$ —
(1) Amounts are comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient.
(2) Amounts are comprised of investments held at cost or amortized cost, carried interest and certain equity method investments, which include
sponsored investment funds and other assets, which are not accounted for under a fair value measure. In accordance with GAAP, certain equity
method investees do not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in
such equity method investees may not represent fair value.
(3) Level 3 amounts include direct investments in private equity companies held by private equity funds.
(4) Amounts primarily include contingent liabilities related to certain acquisitions (see Note 13, Commitments and Contingencies, for more information).
F-19
Level 3 Assets. Level 3 investments of consolidated VIEs of
$116 million and $112 million at December 31, 2017 and
2016, respectively, related to direct investments in private
equity companies held by consolidated private equity funds.
Direct investments in private equity companies may be
valued using the market approach or the income approach,
or a combination thereof, and were valued based on an
assessment of each underlying investment, incorporating
evaluation of additional significant third-party financing,
changes in valuations of comparable peer companies, the
business environment of the companies, market indices,
assumptions relating to appropriate risk adjustments for
nonperformance and legal restrictions on disposition, among
other factors. The fair value derived from the methods used
is evaluated and weighted, as appropriate, considering the
reasonableness of the range of values indicated. Under the
market approach, fair value may be determined by reference
to multiples of market-comparable companies or
transactions, including earnings before interest, taxes,
depreciation and amortization (“EBITDA”) multiples. Under
the income approach, fair value may be determined by
discounting the expected cash flows to a single present
value amount using current expectations about those future
amounts. Unobservable inputs used in a discounted cash
flow model may include projections of operating
performance generally covering a five-year period and a
terminal value of the private equity direct investment. For
investments utilizing the discounted cash flow valuation
technique, a significant increase (decrease) in the discount
rate, risk premium or discount for lack of marketability in
isolation could result in a significantly lower (higher) fair
value measurement. For investments utilizing the market
comparable companies valuation technique, a significant
increase (decrease) in the EBITDA multiple in isolation could
result in a significantly higher (lower) fair value
measurement.
Level 3 assets may include investments in CLOs valued
based on single-broker nonbinding quotes, and direct
private equity investments valued using the market
approach or the income approach as described above.
Level 3 Liabilities. Level 3 other liabilities primarily include
recorded contingent liabilities related to certain
acquisitions, which were valued based upon discounted
cash flow analyses using unobservable market data inputs.
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for 2017
Realized
and
Unrealized
Gains
(Losses) in
Earnings
and OCI Purchases
December 31,
2016
Issuances
and
Other
Settlements(1)
Sales and
Maturities
Transfers
into
Level 3
Transfers
out of
Level 3(2)
December 31,
2017
Total Net
Unrealized
Gains (Losses)
Included in
Earnings(3)
$ 24
$ —
$ 23
$ —
$ —
$ —
$ (47)
$ —
7
31
112
$ 143
—
—
4
7
30
—
—
—
—
—
—
—
—
—
—
(14)
(61)
—
$ 4
$ 30
$ —
$ —
$ —
$ (61)
—
—
116
$ 116
$ 4
(in millions)
Assets:
Investments:
Available-for-sale
securities(4)
Trading
Total investments
Assets of consolidated
VIEs - Private equity
Total Level 3 assets
Liabilities:
Other liabilities(5)
$ 115
$ (10)
$ —
$ —
$ 111
$ —
$ —
236
$ (10)
(1)
Issuance and other settlements amount includes $120 million and $9 million of contingent liabilities in connection with the acquisition of the equity
infrastructure franchise of First Reserve in June 2017 (“First Reserve Transaction”) and the acquisition of Cachematrix in July 2017 (“Cachematrix
Transaction”), respectively, offset by contingent liability payments in connection with certain prior acquisitions.
(2) Amounts include transfers out of Level 3 due to availability of observable market inputs from pricing vendors.
(3) Earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at the reporting date.
(4) Amounts include investments in CLOs.
(5) Other liabilities amount includes contingent liabilities in connection with certain acquisitions.
F-20
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for 2016
Realized
and
Unrealized
Gains
(Losses) in
Earnings
and OCI Purchases
December 31,
2015
Issuances
and
Other
Settlements(1)
Sales and
Maturities
Transfers
into
Level 3
Transfers
out of
Level 3(2)
December 31,
2016
Total Net
Unrealized
Gains (Losses)
Included in
Earnings(3)
$ 23
$ —
$ 47
$ —
$ —
$ —
$ (46)
$ 24
2
25
196
$ 221
—
—
3
8
55
6
—
—
(15)
—
—
—
—
—
—
(3)
(49)
(78)
7
31
112
$ 3
$ 3
$ 61
$ (15)
$ —
$ —
$ (127)
$ 143
(in millions)
Assets:
Investments:
Available-for-sale
securities(4)
Trading
Total investments
Assets of consolidated
VIEs - Private equity
Total Level 3 assets
Liabilities:
Other liabilities(5)
$ 48
$ 3
$ —
$ —
$ 70
$ —
$ —
115
$ 3
(1)
Issuances and other settlements amount includes a contingent liability related to the BofA® Global Capital Management transaction in April 2016.
(2) Amounts include transfers out of Level 3 due to availability of observable market inputs from pricing vendors.
(3) Earnings attributable to the change in unrealized gains (losses) relating to assets and liabilities still held at the reporting date.
(4) Amounts include investments in CLOs.
(5) Other liabilities amount includes contingent liabilities and payments of contingent liabilities in connection with certain acquisitions.
Realized and Unrealized Gains (Losses) for Level 3 Assets and
Liabilities. Realized and unrealized gains (losses) recorded
for Level 3 assets and liabilities are reported in nonoperating
income (expense) on the consolidated statements of income.
A portion of net income (loss) for consolidated sponsored
investment funds are allocated to noncontrolling interests to
reflect net income (loss) not attributable to the Company.
Transfers in and/or out of Levels. Transfers in and/or out of
levels are reflected when significant inputs, including
market inputs or performance attributes, used for the fair
value measurement become observable/unobservable, or
when the carrying value of certain equity method
investments no longer represents fair value as determined
under valuation methodologies.
Disclosures of Fair Value for Financial Instruments Not Held at Fair Value. At December 31, 2017 and 2016, the fair value of the
Company’s financial instruments not held at fair value are categorized in the table below.
(in millions)
Financial Assets:
Cash and cash equivalents
Accounts receivable
Cash and cash equivalents of consolidated VIEs
Other assets
Financial Liabilities:
Accounts payable and accrued liabilities
Long-term borrowings
December 31, 2017
December 31, 2016
Carrying
Amount
Estimated
Fair Value
Carrying
Amount
Estimated
Fair Value
Fair Value
Hierarchy
$6,894
2,699
144
70
1,161
5,014
$6,894
2,699
144
70
1,161
5,225
$6,091
2,115
84
25
880
4,915
$6,091
2,115
84
25
Level 1(1)(2)
Level 1(3)
Level 1(1)(2)
Level 1(1)(4)
880
5,165
Level 1(3)
Level 2(5)
(1) Cash and cash equivalents are carried at either cost or amortized cost, which approximates fair value due to their short-term maturities.
(2) At December 31, 2017 and 2016, approximately $163 million and $132 million of money market funds were recorded within cash and cash
equivalents on the consolidated statements of financial condition. In addition, at December 31, 2017 and 2016, approximately $14 million and
$13 million, respectively, of money market funds were recorded within cash and cash equivalents of consolidated VIEs. Money market funds are
valued based on quoted market prices, or $1.00 per share, which generally is the NAV of the fund.
(3) The carrying amounts of accounts receivable, accounts payable and accrued liabilities approximate fair value due to their short-term nature.
(4) Other assets primarily include restricted cash.
(5) Long-term borrowings are recorded at amortized cost, net of debt issuance costs. The fair value of the long-term borrowings, including the current
portion of long-term borrowings, is estimated using market prices at the end of December 2017 and 2016, respectively. See Note 12, Borrowings, for
the fair value of each of the Company’s long-term borrowings.
F-21
Investments in Certain Entities that Calculate Net Asset Value Per Share
As a practical expedient to value certain investments that do not have a readily determinable fair value and have attributes of
an investment company, the Company uses NAV as the fair value. The following tables list information regarding all
investments that use a fair value measurement to account for both their financial assets and financial liabilities in their
calculation of a NAV per share (or equivalent).
December 31, 2017
(in millions)
Equity method:(1)
Ref
Fair Value
Total Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
Hedge funds/funds of hedge funds
(a)
$ 230
$ 48
Private equity funds
Real assets funds
Other
Consolidated VIEs:
Private equity funds of funds
Hedge fund
Real assets funds
Total
December 31, 2016
(in millions)
Equity method:(1)
(b)
(c)
(d)
(a)
(c)
94
282
15
59
19
34
86
69
14
20
—
49
$ 733
$286
Daily/Monthly (21%)
Quarterly (49%)
N/R (30%)
N/R
Quarterly (83%)
N/R (17%)
Daily (80%)
N/R (20%)
N/R
Quarterly
NR
1 – 90 days
N/R
60 days
5 days
N/R
90 days
NR
Ref
Fair Value
Total Unfunded
Commitments
Redemption
Frequency
Redemption
Notice Period
Hedge funds/funds of hedge funds
(a)
$ 237
$ 14
Private equity funds
Real assets funds
Other
Consolidated VIEs:
Private equity funds of funds
Hedge fund
Real assets funds
Total
N/R – not redeemable
(b)
(c)
(d)
(a)
(c)
90
60
12
89
36
27
62
35
9
16
—
21
$ 551
$157
Daily/Monthly (21%)
Quarterly (51%)
N/R (28%)
1 – 90 days
N/R
N/R
Quarterly (41%)
N/R (59%)
Daily/Monthly (42%)
N/R (58%)
N/R
Quarterly
NR
60 days
3-5 days
N/R
90 days
NR
(1) Comprised of equity method investments, which include investment companies, which account for their financial assets and most financial liabilities
under fair value measures; therefore, the Company’s investment in such equity method investees approximates fair value.
(a) This category includes hedge funds and funds of hedge funds that invest primarily in equities, fixed income securities, distressed credit,
opportunistic and mortgage instruments and other third-party hedge funds. The fair values of the investments have been estimated using the NAV of
the Company’s ownership interest in partners’ capital. It was estimated that the investments in the funds that are not subject to redemption will be
liquidated over a weighted-average period of seven years at December 31, 2017 and approximately one year at December 31, 2016.
(b) This category includes several private equity funds that initially invest in nonmarketable securities of private companies, which ultimately may
become public in the future. The fair values of these investments have been estimated using capital accounts representing the Company’s ownership
interest in the funds as well as other performance inputs. The Company’s investment in each fund is not subject to redemption and is normally
returned through distributions as a result of the liquidation of the underlying assets of the private equity funds. It was estimated that the investments
in these funds will be liquidated over a weighted-average period of approximately six years and five years at December 31, 2017 and 2016,
respectively.
(c) This category includes several real assets funds that invest directly in real estate, real estate related assets and infrastructure. The fair values of the
investments have been estimated using capital accounts representing the Company’s ownership interest in the funds. The Company’s investments
that are not subject to redemption or are not currently redeemable are normally returned through distributions as a result of the liquidation of the
underlying assets of the funds. It is estimated that the investments in these funds not subject to redemptions will be liquidated over a weighted-
average period of approximately eight years and six years at December 31, 2017 and 2016, respectively. The total remaining unfunded commitments
to other third-party funds were $117 million and $56 million at December 31, 2017 and December 31, 2016, respectively. The Company had
contractual obligations to the consolidated funds of $98 million at December 31, 2017 and $56 million at December 31, 2016.
(d) This category includes the underlying third-party private equity funds within consolidated BlackRock sponsored private equity funds of funds. The
fair values of the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in
each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds, the
F-22
Company may sell or transfer its interest, which may need approval by the general partner of the underlying funds. Due to the nature of the
investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets
of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately five years at
both December 31, 2017 and 2016. The total remaining unfunded commitments to other third-party funds were $20 million and $16 million at
December 31, 2017 and 2016, respectively. The Company had contractual obligations to the consolidated funds of $23 million and $24 million at
December 31, 2017 and 2016, respectively.
7. Derivatives and Hedging
8. Property and Equipment
The Company maintains a program to enter into swaps to
hedge against market price and interest rate exposures with
respect to certain seed investments in sponsored
investment products. At December 31, 2017, the Company
had outstanding total return swaps with an aggregate
notional value of approximately $587 million. At
December 31, 2016, the Company had outstanding total
return swaps and interest rate swaps with aggregate
notional values of approximately $572 million and
$42 million, respectively.
Gains (losses) on total return swaps are recorded in
nonoperating income (expense) and were $(118) million,
$(31) million and $11 million for 2017, 2016 and 2015,
respectively.
Gains (losses) on the interest rate swaps are recorded in
nonoperating income (expense) and were not material for
2017, 2016 and 2015.
The Company has entered into a derivative, providing credit
protection to a counterparty of approximately $17 million,
representing the Company’s maximum risk of loss with
respect to the provision of credit protection. The Company
carries the derivative at fair value based on the expected
discounted future cash outflows under the arrangement.
The Company executes forward foreign currency exchange
contracts to mitigate the risk of certain foreign exchange
movements. At December 31, 2017 and 2016, the Company
had outstanding forward foreign currency exchange
contracts with aggregate notional values of approximately
$1.5 billion and $107 million, respectively. Gains (losses) on
the forward foreign currency exchange contracts are
recorded in other general and administration expense and
were $63 million for 2017. Gains (losses) on the forward
foreign currency exchange contracts were not material to the
consolidated statements of income for 2016 and 2015.
The Company consolidates certain sponsored investment
funds, which may utilize derivative instruments as a part of
the funds’ investment strategies. The change in fair value of
such derivatives, which is recorded in nonoperating income
(expense), was not material for 2017, 2016 and 2015.
The fair value of the outstanding derivatives mentioned
above were not material to the consolidated statements of
financial condition at December 31, 2017 and 2016.
Property and equipment consists of the following:
Estimated useful
life-in years
December 31,
2017
2016
N/A
39
15
1-15
3
10
7
N/A
$
6
33
29
$
6
33
29
504
476
444
411
134
135
67
33
65
5
1,250
1,160
658
601
$ 592
$ 559
(in millions)
Property and
equipment:
Land
Building
Building
improvements
Leasehold
improvements
Equipment and
computer
software
Other
transportation
equipment
Furniture and
fixtures
Construction in
progress
Total
Less: accumulated
depreciation and
amortization
Property and
equipment, net
N/A – Not Applicable
Qualifying software costs of approximately $60 million,
$50 million and $48 million have been capitalized within
equipment and computer software during 2017, 2016 and
2015, respectively, and are being amortized over an
estimated useful life of three years.
Depreciation and amortization expense was $132 million,
$124 million and $115 million for 2017, 2016 and 2015,
respectively.
9. Goodwill
Goodwill activity during 2017 and 2016 was as follows:
(in millions)
2017
2016
Beginning of year balance
$13,118
$13,123
See Note 12, Borrowings, for more information on the
Company’s net investment hedge.
Acquisitions(1)
Goodwill adjustments related to
Quellos(2)
End of year balance
121
(19)
14
(19)
$13,220
$13,118
(1)
In 2017, the $121 million increase includes $91 million of goodwill
related to the First Reserve Transaction, which expanded the
Company’s energy and power infrastructure platform and $30 million
of goodwill related to the Cachematrix Transaction, which enhanced
the Company’s technology and cash management capabilities. The
total consideration paid for the First Reserve Transaction was
approximately $193 million, including $120 million of contingent
consideration at fair value at time of close. The total consideration
paid for the Cachematrix Transaction was approximately $38 million,
including $9 million of contingent consideration at fair value at time
F-23
of close. In 2016, the $14 million increase represents goodwill from
the BofA Global Capital Management transaction in April 2016 that
transferred investment management responsibilities of
approximately $80.6 billion of cash assets under management to the
Company. Total consideration included $75 million of contingent
consideration at fair value at time of close. BlackRock’s platform
provides clients with broad access to high quality, global liquidity
investment solutions.
(2) The decrease in goodwill during both 2017 and 2016 resulted from a
decline related to tax benefits realized from tax-deductible goodwill
in excess of book goodwill from the acquisition of the fund-of-funds
business of Quellos Group, LLC in October 2007 (the “Quellos
Transaction”). Goodwill related to the Quellos Transaction will
continue to be reduced in future periods by the amount of tax
benefits realized from tax-deductible goodwill in excess of book
goodwill from the Quellos Transaction. The balance of the Quellos
tax-deductible goodwill in excess of book goodwill was approximately
$168 million and $200 million at December 31, 2017 and 2016,
respectively.
BlackRock assessed its goodwill for impairment as of
July 31, 2017, 2016 and 2015 and considered such factors as
the book value and the market capitalization of the
Company. The impairment assessment indicated no
impairment charges were required. The Company continues
to monitor its book value per share compared with closing
prices of its common stock for potential indicators of
impairment. At December 31, 2017, the Company’s common
stock closed at a market price of $513.71, which exceeded
its book value of approximately $197.61 per share.
10. Intangible Assets
Intangible assets at December 31, 2017 and 2016 consisted of the following:
(in millions)
At December 31, 2017
Indefinite-lived intangible assets:
Management contracts
Trade names / trademarks
License
Total indefinite-lived intangible assets
Finite-lived intangible assets:
Management contracts
Investor/customer relationships
Intellectual property
Total finite-lived intangible assets
Total intangible assets
At December 31, 2016
Indefinite-lived intangible assets:
Management contracts
Trade names / trademarks
License
Total indefinite-lived intangible assets
Finite-lived intangible assets:
Management contracts
Intellectual property
Total finite-lived intangible assets
Total intangible assets
N/A – Not Applicable
The impairment tests performed for intangible assets as of
July 31, 2017, 2016 and 2015 indicated no impairment
charges were required.
Estimated amortization expense for finite-lived intangible
assets for each of the five succeeding years is as follows:
(in millions)
Year
2018
2019
2020
2021
2022
Amount
$ 45
44
29
27
18
F-24
Remaining
Weighted-
Average
Estimated
Useful Life
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
N/A
N/A
N/A
5.3
11.2
0.6
6.5
N/A
N/A
N/A
3.9
1.6
3.8
$ 15,769
$ —
$ 15,769
1,403
6
17,178
379
45
6
430
$ 17,608
—
—
—
212
2
5
219
$ 219
1,403
6
17,178
167
43
1
211
$ 17,389
$ 15,769
$ —
$ 15,769
1,403
6
17,178
1,011
6
1,017
—
—
—
827
5
832
1,403
6
17,178
184
1
185
$ 18,195
$ 832
$ 17,363
In 2017, in connection with the First Reserve Transaction,
the Company acquired $70 million of finite-lived
management contracts with a weighted-average estimated
life of approximately 7.6 years. In addition, in 2017 in
connection with the First Reserve and Cachematrix
Transactions, the Company acquired $40 million and
$5 million, respectively, of investor/customer relationships
with a weighted-average estimated life of approximately
12 and 10 years, respectively.
In 2016, in connection with the BofA Global Capital
Management transaction, the Company acquired $70 million
of indefinite-lived management contracts and $20 million of
finite-lived management contracts with a weighted-average
estimated life of approximately 10 years.
11. Other Assets
The Company accounts for its interest in PennyMac as an
equity method investment, which is included in other assets
on the consolidated statements of financial condition. The
carrying value and fair value of the Company’s interest
(approximately 20% or 16 million shares and non-public
units) was approximately $342 million and $348 million,
respectively, at December 31, 2017 and approximately
$301 million and $259 million, respectively, at December 31,
2016. The fair value of the Company’s interest reflected the
PennyMac stock price at December 31, 2017 and 2016,
respectively (a Level 1 input). The fair value of the Company’s
interest in the non-public units held of PennyMac is based
on the stock price of the PennyMac public securities at
December 31, 2017 and 2016.
12. Borrowings
Short-Term Borrowings
2017 Revolving Credit Facility. The Company’s credit facility
has an aggregate commitment amount of $4.0 billion and
was amended in April 2017 to extend the maturity date to
April 2022 (the “2017 credit facility”). The 2017 credit facility
permits the Company to request up to an additional
Long-Term Borrowings
$1.0 billion of borrowing capacity, subject to lender credit
approval, increasing the overall size of the 2017 credit
facility to an aggregate principal amount not to exceed
$5.0 billion. Interest on borrowings outstanding accrues at a
rate based on the applicable London Interbank Offered Rate
plus a spread. The 2017 credit facility requires the Company
not to exceed a maximum leverage ratio (ratio of net debt to
earnings before interest, taxes, depreciation and
amortization, where net debt equals total debt less
unrestricted cash) of 3 to 1, which was satisfied with a ratio
of less than 1 to 1 at December 31, 2017. The 2017 credit
facility provides back-up liquidity to fund ongoing working
capital for general corporate purposes and various
investment opportunities. At December 31, 2017, the
Company had no amount outstanding under the 2017 credit
facility.
Commercial Paper Program. The Company can issue
unsecured commercial paper notes (the “CP Notes”) on a
private-placement basis up to a maximum aggregate
amount outstanding at any time of $4.0 billion. The
commercial paper program is currently supported by the
2017 credit facility. At December 31, 2017, BlackRock had no
CP Notes outstanding.
The carrying value and fair value of long-term borrowings estimated using market prices and foreign exchange rates at
December 31, 2017 included the following:
(in millions)
5.00% Notes due 2019
4.25% Notes due 2021
3.375% Notes due 2022
3.50% Notes due 2024
1.25% Notes due 2025
3.20% Notes due 2027
Unamortized
Discount and
Debt Issuance
Costs
Maturity Amount
Carrying Value
Fair Value
$ 1,000
$ (1)
$ 999
$ 1,051
750
750
1,000
841
700
(3)
(4)
(6)
(6)
(7)
747
746
994
835
693
792
774
1,038
864
706
Total Long-term Borrowings
$ 5,041
$ (27)
$ 5,014
$ 5,225
Long-term borrowings at December 31, 2016 had a carrying
value of $4.9 billion and a fair value of $5.2 billion
determined using market prices at the end of December
2016.
2027 Notes. In March 2017, the Company issued
$700 million in aggregate principal amount of 3.20% senior
unsecured and unsubordinated notes maturing on March 15,
2027 (the “2027 Notes”). Interest is payable semi-annually
on March 15 and September 15 of each year, commencing
September 15, 2017, and is approximately $22 million per
year. The 2027 Notes may be redeemed prior to maturity at
any time in whole or in part at the option of the Company at a
“make-whole” redemption price. The unamortized discount
and debt issuance costs are being amortized over the
remaining term of the 2027 Notes.
In April 2017, the net proceeds of the 2027 Notes were used
to fully repay $700 million in aggregate principal amount
outstanding of 6.25% notes prior to their maturity in
September 2017.
2025 Notes. In May 2015, the Company issued €700 million
of 1.25% senior unsecured notes maturing on May 6, 2025
(the “2025 Notes”). The notes are listed on the New York
Stock Exchange. The net proceeds of the 2025 Notes were
used for general corporate purposes, including refinancing
of outstanding indebtedness. Interest of approximately
$9 million per year based on current exchange rates is
payable annually on May 6 of each year. The 2025 Notes may
be redeemed in whole or in part prior to maturity at any time
at the option of the Company at a “make-whole” redemption
price. The unamortized discount and debt issuance costs are
being amortized over the remaining term of the 2025 Notes.
Upon conversion to U.S. dollars the Company designated the
€700 million debt offering as a net investment hedge to
offset its currency exposure relating to its net investment in
certain euro functional currency operations. A loss of
$64 million (net of a tax benefit of $38 million), a gain of
$14 million (net of tax of $8 million), and a gain of $19 million
(net of tax of $11 million) were recognized in other
comprehensive income for 2017, 2016 and 2015,
respectively. No hedge ineffectiveness was recognized
during 2017, 2016, and 2015.
2024 Notes. In March 2014, the Company issued $1.0 billion
in aggregate principal amount of 3.50% senior unsecured
and unsubordinated notes maturing on March 18, 2024 (the
“2024 Notes”). The net proceeds of the 2024 Notes were
F-25
used to refinance certain indebtedness which matured in the
fourth quarter of 2014. Interest is payable semi-annually in
arrears on March 18 and September 18 of each year, or
approximately $35 million per year. The 2024 Notes may be
redeemed prior to maturity at any time in whole or in part at
the option of the Company at a “make-whole” redemption
price. The unamortized discount and debt issuance costs are
being amortized over the remaining term of the 2024 Notes.
2022 Notes. In May 2012, the Company issued $1.5 billion in
aggregate principal amount of unsecured unsubordinated
obligations. These notes were issued as two separate series
of senior debt securities, including $750 million of 1.375%
notes, which were repaid in June 2015 at maturity, and
$750 million of 3.375% notes maturing in June 2022 (the
“2022 Notes”). Net proceeds were used to fund the
repurchase of BlackRock’s common stock and Series B
Preferred from Barclays and affiliates and for general
corporate purposes. Interest on the 2022 Notes of
approximately $25 million per year is payable semi-annually
on June 1 and December 1 of each year. The 2022 Notes may
be redeemed prior to maturity at any time in whole or in part
at the option of the Company at a “make-whole” redemption
price. The “make-whole” redemption price represents a
price, subject to the specific terms of the 2022 Notes and
related indenture, that is the greater of (a) par value and
(b) the present value of future payments that will not be paid
because of an early redemption, which is discounted at a
fixed spread over a comparable Treasury security. The
unamortized discount and debt issuance costs are being
amortized over the remaining term of the 2022 Notes.
2021 Notes. In May 2011, the Company issued $1.5 billion in
aggregate principal amount of unsecured unsubordinated
obligations. These notes were issued as two separate series
of senior debt securities, including $750 million of 4.25%
notes maturing in May 2021 and $750 million of floating rate
notes, which were repaid in May 2013 at maturity. Net
proceeds of this offering were used to fund the repurchase
of BlackRock’s Series B Preferred from affiliates of Merrill
Lynch & Co., Inc. Interest on the 4.25% notes due in 2021
(“2021 Notes”) is payable semi-annually on May 24 and
November 24 of each year, and is approximately $32 million
per year. The 2021 Notes may be redeemed prior to maturity
at any time in whole or in part at the option of the Company
at a “make-whole” redemption price. The unamortized
discount and debt issuance costs are being amortized over
the remaining term of the 2021 Notes.
2019 Notes. In December 2009, the Company issued
$2.5 billion in aggregate principal amount of unsecured and
unsubordinated obligations. These notes were issued as
three separate series of senior debt securities including
$0.5 billion of 2.25% notes, which were repaid in December
2012, $1.0 billion of 3.50% notes, which were repaid in
December 2014 at maturity, and $1.0 billion of 5.0% notes
maturing in December 2019 (the “2019 Notes”). Net
proceeds of this offering were used to repay borrowings
under the CP Program, which was used to finance a portion
of the acquisition of Barclays Global Investors from Barclays
on December 1, 2009, and for general corporate purposes.
Interest on the 2019 Notes of approximately $50 million per
year is payable semi-annually in arrears on June 10 and
December 10 of each year. These notes may be redeemed
prior to maturity at any time in whole or in part at the option
of the Company at a “make-whole” redemption price. The
unamortized discount and debt issuance costs are being
amortized over the remaining term of the 2019 Notes.
13. Commitments and Contingencies
Operating Lease Commitments
The Company leases its primary office spaces under
agreements that expire through 2043. Future minimum
commitments under these operating leases are as follows:
(in millions)
Year
2018
2019
2020
2021
2022
Thereafter
Total
Amount
141
132
126
118
109
1,580
$ 2,206
In May 2017, the Company entered into an agreement with
50 HYMC Owner LLC, for the lease of approximately 847,000
square feet of office space located at 50 Hudson Yards, New
York, New York. The term of the lease is twenty years from
the date that rental payments begin, expected to occur in
May 2023, with the option to renew for a specified term. The
lease requires annual base rental payments of
approximately $51 million per year during the first five years
of the lease term, increasing every five years to $58 million,
$66 million and $74 million per year (or approximately
$1.2 billion in base rent over its twenty-year term). This lease
is classified as an operating lease and, as such, is not
recorded as a liability on the consolidated statements of
financial condition.
Rent expense and certain office equipment expense under
lease agreements amounted to $132 million, $134 million
and $136 million in 2017, 2016 and 2015, respectively.
Investment Commitments. At December 31, 2017, the
Company had $298 million of various capital commitments
to fund sponsored investment funds, including consolidated
VIEs. These funds include private equity funds, real assets
funds, and opportunistic funds. This amount excludes
additional commitments made by consolidated funds of
funds to underlying third-party funds as third-party
noncontrolling interest holders have the legal obligation to
fund the respective commitments of such funds of funds.
Generally, the timing of the funding of these commitments is
unknown and the commitments are callable on demand at
any time prior to the expiration of the commitment. These
unfunded commitments are not recorded on the
consolidated statements of financial condition. These
commitments do not include potential future commitments
approved by the Company that are not yet legally binding.
The Company intends to make additional capital
commitments from time to time to fund additional
investment products for, and with, its clients.
Contingencies
Contingent Payments Related to Business Acquisitions. In
connection with certain acquisitions, BlackRock is required
to make contingent payments, subject to achieving specified
performance targets, which may include revenue related to
acquired contracts or new capital commitments for certain
products. The fair value of the remaining aggregate
contingent payments at December 31, 2017 totaled
$236 million, including $128 million related to the First
Reserve Transaction, and is included in other liabilities on
the consolidated statements of financial condition.
F-26
Other Contingent Payments. The Company acts as the
portfolio manager in a series of derivative transactions and
has a maximum potential exposure of $17 million between
the Company and counterparty. See Note 7, Derivatives and
Hedging, for further discussion.
Legal Proceedings. From time to time, BlackRock receives
subpoenas or other requests for information from various
U.S. federal, state governmental and regulatory authorities
and international regulatory authorities in connection with
industry-wide or other investigations or proceedings. It is
BlackRock’s policy to cooperate fully with such inquiries. The
Company and certain of its subsidiaries have been named as
defendants in various legal actions, including arbitrations
and other litigation arising in connection with BlackRock’s
activities. Additionally, BlackRock-advised investment
portfolios may be subject to lawsuits, any of which
potentially could harm the investment returns of the
applicable portfolio or result in the Company being liable to
the portfolios for any resulting damages.
On May 27, 2014, certain investors in the BlackRock Global
Allocation Fund, Inc. and the BlackRock Equity Dividend
Fund (collectively, the “Funds”) filed a consolidated
complaint (the “Consolidated Complaint”) in the U.S. District
Court for the District of New Jersey against BlackRock
Advisors, LLC, BlackRock Investment Management, LLC and
BlackRock International Limited under the caption In re
BlackRock Mutual Funds Advisory Fee Litigation. The
Consolidated Complaint, which purports to be brought
derivatively on behalf of the Funds, alleges that the
defendants violated Section 36(b) of the Investment
Company Act by receiving allegedly excessive investment
advisory fees from the Funds. On February 24, 2015, the
same plaintiffs filed another complaint in the same court
against BlackRock Investment Management, LLC and
BlackRock Advisors, LLC. Both complaints seek, among
other things, to recover on behalf of the Funds all allegedly
excessive advisory fees received by defendants in the twelve
month period preceding the start of each lawsuit, along with
purported lost investment returns on those amounts, plus
interest. The defendants believe the claims in both lawsuits
are without merit and are vigorously defending the actions.
On September 25, 2017, the defendants filed a motion for
summary judgment to dismiss the lawsuit, which is pending.
In November 2015, BlackRock, Inc., BlackRock Realty
Advisors, Inc. (“BRA”), BlackRock US Core Property Fund, Inc.
(formerly known as BlackRock Granite Property Fund, Inc.)
(“Granite Fund”), and certain other Granite Fund related
entities (collectively, the “BlackRock Parties”) were named
as defendants in thirteen lawsuits filed in the Superior Court
of the State of California for the County of Alameda arising
out of the June 16, 2015 collapse of a balcony at the Library
Gardens apartment complex in Berkeley, California (the
“Property”). The Property is indirectly owned by the Granite
Fund, which is managed by BRA. The plaintiffs also named
as defendants in the lawsuits Greystar, which manages the
Property, and certain other non-BlackRock related entities,
including the developer of the Property, building contractors
and building materials suppliers. The plaintiffs alleged,
among other things, that the BlackRock Parties were
negligent in their ownership, control and maintenance of the
Property’s balcony, and sought monetary, including punitive,
damages. Additionally, on March 16, 2016, three former
tenants of the Library Gardens apartment unit who were not
physically injured but experienced the balcony collapse sued
the BlackRock Parties for emotional damages. In November
2017, the BlackRock Parties settled all of the lawsuits
relating to Library Gardens.
On June 16, 2016, iShares Trust, BlackRock, Inc. and certain
of its advisory affiliates, and the directors and certain
officers of the iShares ETFs were named as defendants in a
purported class action lawsuit filed in California state court.
The lawsuit was filed by investors in certain iShares ETFs
(the “ETFs”), and alleges the defendants violated the federal
securities laws, purportedly by failing to adequately disclose
in prospectuses issued by the ETFs the risks to the ETFs’
shareholders in the event of a “flash crash.” Plaintiffs seek
unspecified monetary damages. The plaintiffs’ complaint
was dismissed in December 2016 and on January 6, 2017,
plaintiffs filed an amended complaint. The defendants filed a
motion for judgment on the pleadings dismissing that
complaint. On September 18, 2017, the court dismissed the
lawsuit. On December 1, 2017, the plaintiffs appealed the
dismissal of their lawsuit.
On April 5, 2017, BlackRock, Inc., BlackRock Institutional
Trust Company, N.A. (“BTC”), the BlackRock, Inc. Retirement
Committee and various sub-committees, and a BlackRock
employee were named as defendants in a purported class
action lawsuit brought in the U.S. District Court for the
Northern District of California by a former employee on
behalf of all BlackRock employee 401(k) Plan (the “Plan”)
participants and beneficiaries in the Plan from April 5, 2011,
to the present. The lawsuit generally alleges that the
defendants breached their duties towards Plan participants
in violation of the Employee Retirement Income Security Act
of 1974 by, among other things, offering investment options
that were overly expensive, underperformed peer funds,
focused disproportionately on active versus passive
strategies, and were unduly concentrated with investment
options managed by BlackRock. While the complaint does
not contain any specific amount in alleged damages, it
claims that the purported underperformance and hidden
fees cost Plan participants more than $60 million. On
October 10, 2017, the plaintiffs filed an Amended Complaint,
which, among other things, adds as defendants certain
current and former members of the BlackRock Retirement
and Investment Committees. The Amended Complaint also
includes a new purported class claim on behalf of investors
in certain Collective Trust Funds (“CTFs”) managed by BTC.
Specifically, the plaintiffs allege that BTC, as fiduciary to the
CTFs, engaged in self-dealing by, most significantly,
selecting itself as the lending agent on terms that plaintiffs
claim were excessive. The defendants believe the claims in
this lawsuit are without merit and is vigorously defending the
action. BlackRock moved to dismiss the Amended Complaint
on November 8, 2017.
Management, after consultation with legal counsel,
currently does not anticipate that the aggregate liability
arising out of regulatory matters or lawsuits will have a
material effect on BlackRock’s results of operations,
financial position, or cash flows. However, there is no
assurance as to whether any such pending or threatened
matters will have a material effect on BlackRock’s results of
operations, financial position or cash flows in any future
reporting period. Due to uncertainties surrounding the
outcome of these matters, management cannot reasonably
estimate the possible loss or range of loss that may arise
from these matters.
Indemnifications. In the ordinary course of business or in
connection with certain acquisition agreements, BlackRock
F-27
enters into contracts pursuant to which it may agree to
indemnify third parties in certain circumstances. The terms
of these indemnities vary from contract to contract and the
amount of indemnification liability, if any, cannot be
determined or the likelihood of any liability is considered
remote. Consequently, no liability has been recorded on the
consolidated statements of financial condition.
In connection with securities lending transactions,
BlackRock has issued certain indemnifications to certain
securities lending clients against potential loss resulting
from a borrower’s failure to fulfill its obligations under the
securities lending agreement should the value of the
collateral pledged by the borrower at the time of default be
insufficient to cover the borrower’s obligation under the
securities lending agreement. At December 31, 2017, the
Company indemnified certain clients for their securities
lending loan balances of approximately $200 billion. The
Company held as agent, cash and securities totaling
$214 billion as collateral for indemnified securities on loan
at December 31, 2017. The fair value of these
indemnifications was not material at December 31, 2017.
14. Stock-Based Compensation
The components of stock-based compensation expense are
as follows:
(in millions)
2017
2016
2015
Stock-based compensation:
Restricted stock and RSUs
$ 524
$ 493
$ 484
Long-term incentive plans to be
funded by PNC
Stock options
15
3
28
—
30
—
Total stock-based compensation
$ 542
$ 521
$ 514
Stock Award and Incentive Plan. Pursuant to the BlackRock,
Inc. Second Amended and Restated 1999 Stock Award and
Incentive Plan (the “Award Plan”), options to purchase
shares of the Company’s common stock at an exercise price
not less than the market value of BlackRock’s common stock
on the date of grant in the form of stock options, restricted
stock or RSUs may be granted to employees and
nonemployee directors. A maximum of 34,500,000 shares of
common stock were authorized for issuance under the
Award Plan. Of this amount, 2,438,646 shares remain
available for future awards at December 31, 2017. Upon
exercise of employee stock options, the issuance of
restricted stock or the vesting of RSUs, the Company issues
shares out of treasury to the extent available.
Restricted Stock and RSUs. Pursuant to the Award Plan,
restricted stock grants and RSUs may be granted to certain
employees. Substantially all restricted stock and RSUs vest
over periods ranging from one to three years and are
expensed using the straight-line method over the requisite
service period for each separately vesting portion of the
award as if the award was, in-substance, multiple awards.
Restricted stock and RSUs are not considered participating
securities for purposes of calculating EPS as the dividend
equivalents are subject to forfeiture prior to vesting of the
award.
Restricted stock and RSU activity for 2017 is summarized
below.
Outstanding at
December 31, 2016
Granted
Converted
Forfeited
December 31, 2017(1)
Restricted
Stock and
RSUs
2,987,588
1,104,210
Weighted-
Average
Grant Date
Fair Value
$ 318.04
$ 381.62
(1,424,649)
$ 321.12
(58,481)
$ 339.17
2,608,668
$ 342.79
(1) At December 31, 2017, approximately 2.3 million awards are
expected to vest and 0.3 million awards have vested but have not
been converted.
The Company values restricted stock and RSUs at their
grant-date fair value as measured by BlackRock’s common
stock price. The total grant-date fair market value of RSUs/
restricted stock granted to employees during 2017, 2016 and
2015 was $421 million, $446 million and $473 million,
respectively. The total grant-date fair market value of RSUs/
restricted stock converted to common stock during 2017,
2016 and 2015 was $457 million, $413 million and
$379 million, respectively.
RSUs/restricted stock granted in connection with annual
incentive compensation under the Award Plan primarily
related to the following:
2017
2016
2015
699,991
1,030,964
952,329
Awards granted that vest
ratably over three years
from the date of grant
Awards granted that cliff
vest 100% on:
January 31, 2018
January 31, 2019
January 31, 2020
277,313
—
—
—
303,999
303,587
—
—
—
977,304
1,334,551
1,256,328
In addition the Company also granted RSUs of 126,906,
146,574 and 120,935 during 2017, 2016 and 2015,
respectively, with varying vesting periods up to three years.
At December 31, 2017, the intrinsic value of outstanding
RSUs was $1.3 billion, reflecting a closing stock price of
$513.71 at December 31, 2017.
At December 31, 2017, there was $272 million in total
unrecognized stock-based compensation expense related to
unvested RSUs. The unrecognized compensation cost is
expected to be recognized over the remaining weighted-
average period of less than one year.
In January 2018, the Company granted under the Award Plan
• 527,337 RSUs or shares of restricted stock to employees
as part of annual incentive compensation that vest
ratably over three years from the date of grant; and
• 209,201 RSUs or shares of restricted stock to
employees that cliff vest 100% on January 31, 2021.
Performance-Based RSUs. Pursuant to the Award Plan,
performance-based RSUs may be granted to certain
employees. Each performance-based award consists of a
“base” number of RSUs granted to the employee. The
F-28
number of shares that an employee ultimately receives at
vesting will be equal to the base number of performance-
based RSUs granted, multiplied by a predetermined
percentage determined in accordance with the level of
attainment of Company performance measures during the
performance period and could be higher or lower than the
original RSU grant. The awards are generally forfeited if the
employee leaves the Company before the vesting date.
Performance-based RSUs are not considered participating
securities as the dividend equivalents are subject to
forfeiture prior to vesting of the award.
In the first quarter of 2017, 2016 and 2015, the Company
granted 294,584, 375,242, and 262,847, respectively,
performance-based RSUs to certain employees that cliff
vest 100% on January 31, 2020, 2019, and 2018 respectively.
These awards are amortized over a service period of three
years. The number of shares distributed at vesting could be
higher or lower than the original grant based on the level of
attainment of predetermined Company performance
measures.
or sixth anniversaries of the grant-date occurs. Certain
awards are forfeited if the employee leaves BlackRock
before the vesting date. These awards are amortized over a
service period of four years, which is the longer of the explicit
service period or the period in which the market target is
expected to be met. Market performance-based RSUs are
not considered participating securities as the dividend
equivalents are subject to forfeiture prior to vesting of the
award. During 2017 and 2016 there were no market
performance-based awards granted.
Market performance-based RSU activity for 2017 is
summarized below.
Outstanding at
December 31, 2016
Converted
December 31, 2017(1)
Market
Performance-
Based RSUs
803,474
(517,138)
286,336
Weighted-
Average
Grant Date
Fair Value
$ 151.20
$ 126.76
$ 195.33
Performance-based RSU activity for 2017 is summarized
below.
(1) At December 31, 2017, approximately 0.3 million awards are
expected to vest on January 31, 2018.
Outstanding at
December 31, 2016
Granted
Forfeited
December 31, 2017
Performance-
Based RSUs
610,371
294,584
(1,430)
903,525
Weighted-
Average
Grant Date
Fair Value
$ 315.65
$ 375.27
$ 296.12
$ 335.12
The Company initially values performance-based RSUs at
their grant-date fair value as measured by BlackRock’s
common stock price. The total grant-date fair market value
of performance-based RSUs granted to employees during
2017 was $111 million.
At December 31, 2017, the intrinsic value of outstanding
performance-based RSUs was $464 million reflecting a
closing stock price of $513.71.
At December 31, 2017, total unrecognized stock-based
compensation expense related to unvested performance-
based awards was $117 million. The unrecognized
compensation cost is expected to be recognized over the
remaining weighted-average period of 1.2 years.
In January 2018, the Company granted 199,068
performance-based RSUs to certain employees that cliff
vest 100% on January 31, 2021. These awards are amortized
over a service period of three years. The number of shares
distributed at vesting could be higher or lower than the
original grant based on the level of attainment of
predetermined Company performance measures.
Market Performance-based RSUs. Pursuant to the Award
Plan, market performance-based RSUs may be granted to
certain employees. The market performance-based RSUs
require that separate 15%, 25% and 35% share price
appreciation targets be achieved during the six-year term of
the awards. The awards are split into three tranches and
each tranche may vest if the specified target increase in
share price is met. Eligible vesting dates for each tranche are
January 31 (or, if such date is not a business day, the next
following business day) of the year in which the fourth, fifth
At December 31, 2017, the intrinsic value of outstanding
market performance-based awards was $147 million
reflecting a closing stock price of $513.71.
At December 31, 2017, total unrecognized stock-based
compensation expense related to unvested market
performance-based awards was $1 million. The
unrecognized compensation cost will be recognized in 2018.
Long-Term Incentive Plans Funded by PNC. Under a share
surrender agreement, PNC committed to provide up to
4 million shares of BlackRock stock, held by PNC, to fund
certain BlackRock long-term incentive plans (“LTIP”),
including performance-based and market performance-
based RSUs. The current share surrender agreement
commits PNC to provide BlackRock Series C nonvoting
participating preferred stock to fund the remaining
committed shares. As of December 31, 2017, 3.8 million
shares had been surrendered by PNC, including 517,138
shares which were surrendered by PNC in the first quarter of
2017.
At December 31, 2017, the remaining shares committed by
PNC of 0.2 million were available to fund certain future long-
term incentive awards.
103,064 shares were surrendered by PNC in the first quarter
of 2018.
Performance-based Stock Options. Pursuant to the Award
Plan, performance-based stock options may be granted to
certain employees. Vesting of the performance-based stock
options is contingent upon the achievement of obtaining
125% of BlackRock’s grant-date stock price within five years
from the grant date and the attainment of Company
performance measures during the four-year performance
period. If both hurdles are achieved, the award will vest in
three equal installments at the end of years five, six and
seven. Vested options can then be exercised up to nine years
following the grant date. The awards are generally forfeited if
the employee leaves the Company before the respective
vesting date. The expense for each tranche is amortized over
the respective requisite service period. The Company
assumes the performance condition will be achieved. If such
F-29
condition is not met, no compensation cost is recognized
and any recognized compensation cost is reversed. Stock
option activity for 2017 is summarized below.
Outstanding at
December 31, 2016
Granted
December 31, 2017
Shares
Under
Option
Weighted
Average
Exercise
Price
—
$
—
2,147,562
$ 513.50
2,147,562
$ 513.50
The options have a strike price of $513.50, which was the
closing price of the shares on the grant date. The grant-date
fair value of the awards issued in 2017 was $208 million and
was estimated using a Monte Carlo simulation with an
embedded lattice model using the assumptions included in
the following table:
Grant
Year
Expected
Term
(Years)
Expected
Stock
Volatility
Expected
Dividend
Yield
Risk-Free
Interest
Rate
2017
6.56
22.23%
2.16%
2.33%
The expected term was derived using a Monte Carlo
simulation with the embedded lattice model and represents
the period of time that options granted are expected to be
outstanding. The expected stock volatility was based upon
an average of historical stock price fluctuations of
BlackRock’s common stock and an implied volatility at the
grant date. The dividend yield was calculated as the most
recent quarterly dividend divided by the average three-
month stock price as of the grant date. The risk free interest
rate is based on the U.S. Treasury Constant Maturities yield
curve at date of grant.
At December 31, 2017, total unrecognized stock-based
compensation expense related to unvested performance-
based stock options was $205 million. The unrecognized
compensation cost is expected to be recognized over the
remaining weighted-average period of 5.9 years.
respectively, is reflected in investments on the consolidated
statements of financial condition. Such investments are
classified as trading investments. The liability balance of
$85 million and $83 million at December 31, 2017 and 2016,
respectively, is reflected on the consolidated statements of
financial condition as accrued compensation and benefits.
Earnings in the rabbi trust, including unrealized appreciation
or depreciation, are reflected as nonoperating income
(expense) and changes in the liability are reflected as
employee compensation and benefits expense on the
consolidated statements of income.
Other Deferred Compensation Plans. The Company has
additional compensation plans for the purpose of providing
deferred compensation and retention incentives to certain
employees. For these plans, the final value of the deferred
amount to be distributed in cash upon vesting is associated
with investment returns of certain investment funds. The
liabilities for these plans were $262 million and $223 million
at December 31, 2017 and 2016, respectively, and are
reflected in the consolidated statements of financial
condition as accrued compensation and benefits. In January
2018, the Company granted approximately $143 million of
additional deferred compensation that will fluctuate with
investment returns and will vest ratably over three years
from the date of grant.
Defined Contribution Plans
The Company has several defined contribution plans
primarily in the United States and United Kingdom.
Certain of the Company’s U.S. employees participate in a
defined contribution plan (“U.S. Plan”). Employee
contributions of up to 8% of eligible compensation, as
defined by the plan and subject to Internal Revenue Code
limitations, are matched by the Company at 50% up to a
maximum of $5,000 annually. In addition, the Company
makes an annual retirement contribution to eligible
participants equal to 3-5% of eligible compensation. In
2017, 2016 and 2015, the Company’s contribution expense
related to the U.S. Plan was $78 million, $75 million and
$72 million, respectively.
Employee Stock Purchase Plan (“ESPP”). The ESPP allows
eligible employees to purchase the Company’s common
stock at 95% of the fair market value on the last day of each
three-month offering period. The Company does not record
compensation expense related to employees purchasing
shares under the ESPP.
Certain U.K. wholly owned subsidiaries of the Company
contribute to a defined contribution plan for their
employees. The contributions range between 6% and 15% of
each employee’s eligible compensation. The Company’s
contribution expense related to this plan was $29 million in
2017, $30 million in 2016, and $33 million in 2015.
15. Employee Benefit Plans
Deferred Compensation Plans
Voluntary Deferred Compensation Plan. The Company
adopted a Voluntary Deferred Compensation Plan (“VDCP”)
that allows eligible employees in the United States to elect
to defer between 1% and 100% of their annual cash
incentive compensation. The participants must specify a
deferral period of up to 10 years from the year of deferral
and additionally, elect to receive distributions in the form of
a lump sum or in up to 10 annual installments. The Company
may fund the obligation through the rabbi trust on behalf of
the plan’s participants.
The rabbi trust established for the VDCP, with assets totaling
$56 million and $59 million at December 31, 2017 and 2016,
In addition, the contribution expense related to defined
contribution plans in other regions was $21 million in 2017,
$20 million in 2016 and $18 million in 2015.
Defined Benefit Plans. The Company has several defined
benefit pension plans primarily in Japan and Germany. All
accrued benefits under the Germany defined benefit plan
are currently frozen and the plan is closed to new
participants. The participant benefits under the Germany
plan will not change with salary increases or additional years
of service. At December 31, 2017 and 2016, the plan assets
for both these plans were approximately $26 million and
$23 million, respectively. The underfunded obligations at
December 31, 2017 and 2016 were not material. Benefit
payments for the next five years and in aggregate for the five
years thereafter are not expected to be material.
F-30
16. Related Party Transactions
Determination of Related Parties
PNC. The Company considers PNC, along with its affiliates,
to be related parties based on the level of its ownership of
BlackRock capital stock. At December 31, 2017, PNC owned
approximately 21.2% of the Company’s voting common stock
and held approximately 21.7% of the total capital stock.
Revenue for services provided by the Company to PNC was
not material for 2017, 2016 and 2015.
Registered Investment Companies and Equity Method
Investments. The Company considers the registered
investment companies that it manages, which include
mutual funds and exchange-traded funds, to be related
parties as a result of the Company’s advisory relationship. In
addition, equity method investments are considered related
parties, due to the Company’s influence over the financial
and operating policies of the investee.
Revenue from Related Parties
Revenue for services provided by the Company to these and
other related parties are as follows:
(in millions)
2017
2016
2015
Investment advisory,
administration fees and
securities lending revenue(1)
Investment advisory
performance fees
Technology and risk
management revenue(2)
Advisory and other revenue(3)
Total revenue from related
parties
$ 7,740
$ 6,836
$ 6,875
143
125
129
7
58
7
90
7
73
$ 7,948
$ 7,058
$ 7,084
(1) Amount primarily includes revenue from registered investment
companies/and equity method investees.
(2) Amount primarily includes revenue from PNC and affiliates.
(3) Amount primarily includes revenue from equity method investees.
The Company provides investment advisory and
administration services to its open- and closed-end funds
and other commingled or pooled funds and separate
accounts in which related parties invest. In addition,
the Company provides investment advisory and
administration services to PNC and its affiliates for fees
based on AUM. Further, the Company provides risk
management services to PNC.
Expenses for Transactions with Related Parties
Expenses for transactions with related parties are as
follows:
(in millions)
2017
2016
2015
General and administration expense:
Registered investment companies
$ 60
$ 61
Other
9
4
$ 60
18
Total general and administration
expense
$ 69
$ 65
$ 78
Certain Agreements and Arrangements with PNC
PNC. On February 27, 2009, BlackRock entered into an
amended and restated implementation and stockholder
agreement with PNC, and a fourth amendment to the share
surrender agreement with PNC.
Receivables and Payables with Related Parties. Due from
related parties, which is included within other assets on the
consolidated statements of financial condition was
$91 million and $100 million at December 31, 2017 and
2016, respectively, and primarily represented receivables
from certain investment products managed by BlackRock.
Accounts receivable at December 31, 2017 and 2016
included $850 million and $688 million, respectively, related
to receivables from BlackRock mutual funds, including
iShares ETFs, for investment advisory and administration
services.
Due to related parties, which is included within other
liabilities on the consolidated statements of financial
condition, was $28 million and $19 million at
December 31, 2017 and 2016, respectively, and primarily
represented payables to certain investment products
managed by BlackRock.
17. Net Capital Requirements
The Company is required to maintain net capital in certain
regulated subsidiaries within a number of jurisdictions,
which is partially maintained by retaining cash and cash
equivalent investments in those subsidiaries or jurisdictions.
As a result, such subsidiaries of the Company may be
restricted in their ability to transfer cash between different
jurisdictions and to their parents. Additionally, transfers of
cash between international jurisdictions may have adverse
tax consequences that could discourage such transfers.
Banking Regulatory Requirements. BlackRock Institutional
Trust Company, N.A. (“BTC”), a wholly owned subsidiary of
the Company is chartered as a national bank whose powers
are limited to trust and other fiduciary activities and which is
subject to regulatory capital requirements administered by
the Office of the Comptroller of the Currency. Failure to meet
minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material
effect on the consolidated financial statements. Under the
capital adequacy guidelines and the regulatory framework
for prompt corrective action, BTC must meet specific capital
guidelines that invoke quantitative measures of BTC’s
assets, liabilities, and certain off-balance sheet items as
calculated under the regulatory accounting practices. BTC’s
capital amounts and classification are also subject to
qualitative judgments by the regulators about components,
risk weightings and other factors.
Quantitative measures established by regulators to ensure
capital adequacy require BTC to maintain a minimum
Common Equity Tier 1 capital and Tier 1 leverage ratio, as
well as Tier 1 and total risk-based capital ratios. Based on
BTC’s calculations as of December 31, 2017 and 2016, it
exceeded the applicable capital adequacy requirements.
F-31
(in millions)
December 31, 2017
Total capital (to risk weighted assets)
Common Equity Tier 1 capital (to risk weighted assets)
Tier 1 capital (to risk weighted assets)
Tier 1 capital (to average assets)
December 31, 2016
Total capital (to risk weighted assets)
Common Equity Tier 1 capital (to risk weighted assets)
Tier 1 capital (to risk weighted assets)
Tier 1 capital (to average assets)
Broker-dealers. BlackRock Investments, LLC and BlackRock
Execution Services are registered broker-dealers and wholly
owned subsidiaries of BlackRock that are subject to the
Uniform Net Capital requirements under the Securities
Exchange Act of 1934, which requires maintenance of
certain minimum net capital levels.
Actual
For Capital
Adequacy
Purposes
To Be Well
Capitalized
Under Prompt
Corrective Action
Provisions
Amount
Ratio
Amount
Ratio
Amount
Ratio
$ 1,124
$ 1,124
$ 1,124
$ 1,124
$ 1,211
$ 1,211
$ 1,211
$ 1,211
111.7%
111.7%
111.7%
70.5%
$ 81
$ 45
$ 60
$ 64
92.5% $105
92.5% $ 59
92.5% $ 79
65.3% $ 74
8.0%
4.5%
6.0%
4.0%
8.0%
4.5%
6.0%
4.0%
$ 101
$ 65
$ 81
$ 80
$ 131
$ 85
$ 105
$ 93
10.0%
6.5%
8.0%
5.0%
10.0%
6.5%
8.0%
5.0%
Capital Requirements. At December 31, 2017 and 2016, the
Company was required to maintain approximately
$1.8 billion and $1.4 billion, respectively, in net capital in
certain regulated subsidiaries, including BTC, entities
regulated by the Financial Conduct Authority and Prudential
Regulation Authority in the United Kingdom, and the
Company’s broker-dealers. The Company was in compliance
with all applicable regulatory net capital requirements.
18. Accumulated Other Comprehensive Income (Loss)
The following table presents changes in accumulated other comprehensive income (loss) (“AOCI”) by component for 2017,
2016 and 2015:
(in millions)
December 31, 2014
Net other comprehensive income (loss) for 2015
December 31, 2015
Net other comprehensive income (loss) for 2016
December 31, 2016
Net other comprehensive income (loss) for 2017
December 31, 2017
Foreign
currency
translation
adjustments(1)
$ (279)
(173)
$ (452)
(269)
$ (721)
285
$ (436)
Other(2)
Total
$ 6
(2)
$ 4
1
$ 5
(1)
$ 4
$ (273)
(175)
$ (448)
(268)
$ (716)
284
$ (432)
(1) Amount for 2017 includes a loss from a net investment hedge of $64 million (net of a tax benefit of $38 million). Amount for 2016 and 2015 include a
gain from a net investment hedge of $14 million (net of tax of $8 million) and $19 million (net of tax of $11 million), respectively.
(2) Other includes amounts related to benefit plans and available-for-sale investments and are presented net of tax. Amounts reclassified to AOCI were
not material for 2017, 2016, and 2015.
19. Capital Stock
The Company’s authorized common stock and nonvoting
participating preferred stock, $0.01 par value, (“Preferred”)
consisted of the following:
December 31,
2017
December 31,
2016
Common Stock
500,000,000
500,000,000
PNC Capital Contribution. During 2017 and 2016, PNC
surrendered to BlackRock 517,138 and 548,227 shares,
respectively, of BlackRock Series C Preferred to fund certain
LTIP awards.
Cash Dividends for Common and Preferred Shares / RSUs.
During 2017, 2016 and 2015, the Company paid cash
dividends of $10.00 per share (or $1,662 million), $9.16 per
share (or $1,545 million) and $8.72 per share (or $1,476
million), respectively.
Nonvoting Participating
Preferred Stock
Series A Preferred
Series B Preferred
Series C Preferred
Series D Preferred
20,000,000
20,000,000
150,000,000
150,000,000
6,000,000
20,000,000
6,000,000
20,000,000
Share Repurchases. The Company repurchased 2.6 million
common shares in open market-transactions under its share
repurchase program for $1.1 billion during 2017. At
December 31, 2017, there were 6.4 million shares still
authorized to be repurchased.
F-32
i
g
n
d
n
a
t
s
t
u
O
s
e
r
a
h
S
d
e
u
s
s
I
s
e
r
a
h
S
C
s
e
i
r
e
S
d
e
r
r
e
f
e
r
P
B
s
e
i
r
e
S
d
e
r
r
e
f
e
r
P
n
o
m
m
o
C
s
e
r
a
h
S
C
s
e
i
r
e
S
d
e
r
r
e
f
e
r
P
B
s
e
i
r
e
S
d
e
r
r
e
f
e
r
P
y
r
u
s
a
e
r
T
n
o
m
m
o
C
s
e
r
a
h
S
n
o
m
m
o
C
s
e
r
a
h
S
i
:
g
n
w
o
l
l
o
f
e
h
t
i
f
o
t
s
i
s
n
o
c
y
t
i
v
i
t
c
a
d
e
t
a
l
e
r
d
n
a
g
n
d
n
a
t
s
t
u
o
d
n
a
d
e
u
s
s
i
s
e
r
a
h
s
d
e
r
r
e
f
e
r
p
d
n
a
n
o
m
m
o
c
s
y
n
a
p
m
o
C
e
h
T
’
—
—
,
)
7
2
2
8
4
5
(
—
—
—
0
6
6
3
6
7
,
8
8
1
3
2
8
,
—
—
,
)
8
3
1
7
1
5
(
—
—
—
—
—
,
7
8
8
1
1
3
1
,
,
7
8
8
1
1
3
1
,
—
—
8
8
1
3
2
8
,
8
8
1
3
2
8
,
,
)
9
8
6
0
8
0
3
(
,
,
8
8
7
6
8
7
4
6
1
,
,
5
6
9
4
5
7
1
,
,
4
6
0
1
6
4
3
6
1
,
,
)
5
3
9
4
6
2
3
(
,
,
4
1
3
8
3
3
1
,
—
)
7
2
2
8
4
5
(
,
,
)
0
7
6
7
4
6
2
(
,
,
2
4
3
0
9
0
1
,
—
—
—
)
8
3
1
7
1
5
(
,
—
—
—
,
3
4
4
4
3
5
1
6
1
,
0
6
6
3
6
7
,
8
8
1
3
2
8
,
—
—
—
—
,
7
8
8
1
1
3
1
,
,
7
8
8
1
1
3
1
,
—
—
8
8
1
3
2
8
,
8
8
1
3
2
8
,
—
—
—
,
)
7
9
3
5
6
4
6
(
,
,
)
9
8
6
0
8
0
3
(
,
,
5
6
9
4
5
7
1
,
—
—
,
5
8
1
2
5
2
1
7
1
,
,
)
1
2
1
1
9
7
7
(
,
,
5
8
1
2
5
2
1
7
1
,
,
)
5
3
9
4
6
2
3
(
,
,
4
1
3
8
3
3
1
,
—
,
)
2
4
7
7
1
7
9
(
,
,
)
0
7
6
7
4
6
2
(
,
—
,
2
4
3
0
9
0
1
,
—
—
—
—
—
—
,
5
8
1
2
5
2
1
7
1
,
2
2
5
,
6
4
2
8
8
1
,
3
2
8
5
1
1
,
7
7
9
,
9
5
1
2
2
5
,
6
4
2
8
8
1
,
3
2
8
)
0
7
0
,
5
7
2
,
1
1
(
5
8
1
,
2
5
2
,
1
7
1
k
c
o
t
s
e
e
y
o
l
p
m
e
o
t
d
e
t
a
l
e
r
s
e
r
a
h
s
n
o
m
m
o
c
f
o
e
c
n
a
u
s
s
i
t
e
N
4
1
0
2
,
1
3
r
e
b
m
e
c
e
D
d
e
s
a
h
c
r
u
p
e
r
s
e
r
a
h
S
5
1
0
2
,
1
3
r
e
b
m
e
c
e
D
d
e
s
a
h
c
r
u
p
e
r
s
e
r
a
h
S
s
n
o
i
t
c
a
s
n
a
r
t
k
c
o
t
s
e
e
y
o
l
p
m
e
o
t
d
e
t
a
l
e
r
s
e
r
a
h
s
n
o
m
m
o
c
f
o
e
c
n
a
u
s
s
i
t
e
N
k
c
o
t
s
e
e
y
o
l
p
m
e
o
t
d
e
t
a
l
e
r
s
e
r
a
h
s
n
o
m
m
o
c
f
o
e
c
n
a
u
s
s
i
t
e
N
n
o
i
t
u
b
i
r
t
n
o
c
l
a
t
i
p
a
c
P
I
T
L
C
N
P
s
n
o
i
t
c
a
s
n
a
r
t
7
1
0
2
,
1
3
r
e
b
m
e
c
e
D
n
o
i
t
u
b
i
r
t
n
o
c
l
a
t
i
p
a
c
P
I
T
L
C
N
P
s
n
o
i
t
c
a
s
n
a
r
t
6
1
0
2
,
1
3
r
e
b
m
e
c
e
D
d
e
s
a
h
c
r
u
p
e
r
s
e
r
a
h
S
F-33
20. Restructuring Charge
A restructuring charge of $76 million ($53 million after-tax),
comprised of $44 million of severance and $32 million of
expense related to the accelerated amortization of
previously granted deferred cash and equity compensation
awards, was recorded in the first quarter of 2016 in
connection with a project to streamline and simplify the
organization.
The following table presents a rollforward of the Company’s
restructuring liability for 2016 and 2017:
(in millions)
Liability as of December 31, 2015
Additions
Cash payments
Accelerated amortization expense of equity-based
awards
Liability as of December 31, 2016
Cash payments
Liability as of December 31, 2017
21. Income Taxes
U.S. Tax Reform
$ —
76
(44)
(28)
$
4
(4)
$ —
On December 22, 2017, the U.S. government enacted
comprehensive tax legislation commonly referred to as the
Tax Cuts and Jobs Act (the “2017 Tax Act”). The 2017 Tax Act
makes broad and complex changes to the U.S. tax code,
including, but not limited to, (1) reducing the U.S. federal
corporate tax rate from 35 percent to 21 percent,
(2) requiring companies to pay a one-time tax on certain
unrepatriated earnings of foreign subsidiaries, (3) generally
eliminating U.S. federal income taxes on dividends from
foreign subsidiaries, (4) creating new taxes on certain
earnings of controlled foreign corporations, and (5) creating
a new limitation on deductible net interest expense.
For 2017, the Company recorded a net tax benefit of
$1,175 million, based on a reasonable estimate, related to
the impact of the 2017 Tax Act. The tax benefit primarily
consists of a $1,652 million tax benefit related to the
revaluation of deferred tax assets and liabilities and
$477 million tax expense related to the mandatory deemed
repatriation tax. As of December 31, 2017, the Company has
not completed the accounting for the income tax effects of
certain elements of the 2017 Tax Act; however, as described
below, reasonable estimates of the effects were determined,
and therefore, have been recorded as provisional
adjustments as follows:
Reduction of U.S. federal corporate tax rate: The 2017 Tax Act
reduces the U.S. corporate tax rate to 21 percent. As a result
of revaluing deferred tax assets and liabilities based on the
rates at which they are expected to reverse in the future, the
Company recorded a $1,652 million tax benefit for the
reduction in the net deferred tax liabilities for 2017.
Mandatory deemed repatriation tax: The mandatory deemed
repatriation tax is a tax on previously untaxed accumulated
and current earnings and profits of foreign subsidiaries.
Based on a reasonable estimate, the Company recorded a
tax expense of $477 million related to the mandatory
deemed repatriation tax, which is payable over eight years.
Global intangible low taxed income (“GILTI”): The 2017 Tax Act
creates a new requirement that the income (i.e., GILTI)
earned by foreign subsidiaries must be included in the
taxable income of the entity’s U.S. shareholder. The
Company has not yet adopted an accounting policy for GILTI,
as it is still not clear whether to 1) treat the taxes (if any)
resulting from the GILTI inclusion as a current-period
expense when incurred or 2) factoring such amounts into the
Company’s measurement of its deferred taxes is the
appropriate accounting.
While the Company was able to make a reasonable estimate
of the impact related the 2017 Tax Act, the provisional
amounts may require further adjustments as additional
guidance from the U.S. Department of the Treasury is
provided, as changes in the Company’s assumptions occur,
and as further information and interpretations become
available.
The components of income tax expense for 2017, 2016 and
2015, are as follows:
(in millions)
2017
2016
2015
Current income tax expense:
Federal
State and local
Foreign
$ 1,166
$ 858
$ 937
36
289
61
385
74
395
Total net current income tax
expense
Deferred income tax expense
(benefit):
Federal
State and local
Foreign
1,491
1,304
1,406
(1,382)
81
80
31
14
(59)
(13)
(19)
(124)
Total net deferred income tax
expense (benefit)
(1,221)
(14)
(156)
Total income tax expense
$
270
$ 1,290
$ 1,250
Income tax expense has been based on the following
components of income before taxes, less net income (loss)
attributable to noncontrolling interests:
(in millions)
Domestic
Foreign
Total
2017
2016
2015
$ 3,298
$ 2,837
$ 2,840
1,942
1,625
1,755
$ 5,240
$ 4,462
$ 4,595
The foreign income before taxes includes countries that have
statutory tax rates that are lower than the U.S. federal
statutory tax rate of 35%, such as the United Kingdom,
Channel Islands, Ireland and Netherlands.
F-34
A reconciliation of income tax expense with expected federal income tax expense computed at the applicable federal income
tax rate of 35% is as follows:
(in millions)
Statutory income tax expense
Increase (decrease) in income taxes resulting from:
State and local taxes (net of federal benefit)
Impact of federal, foreign, state, and local tax rate changes on deferred taxes
Mandatory deemed repatriation tax
Stock-based compensation awards
Effect of foreign tax rates
Other
Income tax expense
2017
%
2016
%
2015
%
$ 1,834
35% $ 1,562
35% $ 1,608
35%
60
1
(1,637)
(31)
69
(33)
2
(1)
42
(45)
1
(1)
477
(159)
(337)
32
9
(3)
(6)
—
(329)
(7)
(385)
(8)
21 —
30 —
$
270
5% $ 1,290
29% $ 1,250
27%
Deferred income taxes are provided for the effects of
temporary differences between the tax basis of an asset or
liability and its reported amount in the consolidated financial
statements. These temporary differences result in taxable or
deductible amounts in future years.
Income tax expense for 2017 included a $16 million noncash
tax expense related to the revaluation of certain deferred
income tax liabilities as a result of domestic state and local
tax changes and a $173 million discrete tax benefit, primarily
related to stock-based compensation awards.
The components of deferred income tax assets and liabilities
are shown below:
(in millions)
Deferred income tax assets:
December 31,
2017
2016
Compensation and benefits
$
187
$ 399
Unrealized investment losses
Loss carryforwards
Foreign tax credit carryforwards
Other
Gross deferred tax assets
Less: deferred tax valuation allowances
Deferred tax assets net of valuation
allowances
Deferred income tax liabilities:
Goodwill and acquired indefinite-lived
intangibles
Acquired finite-lived intangibles
Other
Gross deferred tax liabilities
Net deferred tax (liabilities)
28
84
—
116
415
(22)
42
85
118
216
860
(22)
393
838
3,810
5,568
40
62
36
54
3,912
5,658
$(3,519)
$(4,820)
Deferred income tax assets and liabilities are recorded net
when related to the same tax jurisdiction. At December 31,
2017, the Company recorded on the consolidated statement
of financial condition deferred income tax assets, within
other assets, and deferred income tax liabilities of
$19 million and $3,538 million, respectively. At
December 31, 2016, the Company recorded on the
consolidated statement of financial condition deferred
income tax assets, within other assets, and deferred income
tax liabilities of $20 million and $4,840 million, respectively.
The 2017 Tax Act resulted in a $106 million tax expense
related to the revaluation of certain deferred income tax
assets and $1,758 million noncash tax benefit related to the
revaluation of certain deferred income tax liabilities. In
addition, mandatory deemed repatriation of undistributed
foreign earnings and profits with respect to the 2017 Tax Act
resulted in a $477 million tax expense.
During 2016, tax legislation enacted in the United Kingdom
and domestic state and local tax changes resulted in a
$30 million net noncash benefit related to the revaluation of
certain deferred income tax liabilities.
At December 31, 2017 and 2016, the Company had available
state net operating loss carryforwards of $1.7 billion and
$1.6 billion, respectively, which will begin to expire in 2019.
At both December 31, 2017 and 2016, the Company had
foreign net operating loss carryforwards of $90 million of
which $3 million will begin to expire in 2021.
At both December 31, 2017 and 2016, the Company had
$22 million of valuation allowances for deferred income tax
assets, respectively, recorded on the consolidated
statements of financial condition.
Goodwill recorded in connection with the Quellos
Transaction has been reduced during the period by the
amount of tax benefit realized from tax-deductible goodwill.
See Note 9, Goodwill, for further discussion.
Current income taxes are recorded net on the consolidated
statements of financial condition when related to the same
tax jurisdiction. At December 31, 2017, the Company had
current income taxes receivable and payable of $142 million
and $256 million, respectively, recorded in other assets and
accounts payable and accrued liabilities, respectively. At
December 31, 2016, the Company had current income taxes
receivable and payable of $247 million and $75 million,
respectively, recorded in other assets and accounts payable
and accrued liabilities, respectively.
As a result of the 2017 Tax Act and the one-time mandatory
deemed repatriation tax, previously undistributed foreign
earnings for which no U.S. deferred tax liability had been
recognized have now been subject to U.S. income tax. No
additional income or withholding taxes were provided for
with respect to the financial statement basis in excess of tax
basis of its foreign subsidiaries as these amounts remain
indefinitely reinvested in foreign operations. The Company
will continue to evaluate its indefinite reinvestment
assertion based on additional guidance from the U.S.
Department of the Treasury and as further information and
interpretations become available.
F-35
The following tabular reconciliation presents the total
amounts of gross unrecognized tax benefits:
(in millions)
2017
2016
2015
Balance at January 1
$ 410
$ 466
$ 379
161
3
39
At December 31, 2017, it is reasonably possible the total
amounts of unrecognized tax benefits will change within the
next twelve months due to completion of tax authorities’
exams or the expiration of statues of limitations.
Management estimates that the existing liability for
uncertain tax positions could decrease by approximately
$10 million to $40 million within the next twelve months.
Additions for tax positions of prior
years
Reductions for tax positions of prior
years
Additions based on tax positions
related to current year
Lapse of statute of limitations
Settlements
(3)
67
(6)
—
(78)
(25)
22. Earnings Per Share
37
—
(18)
75
(2)
—
The following table sets forth the computation of basic and
diluted EPS for 2017, 2016 and 2015 under the treasury
stock method:
Balance at December 31
$ 629
$ 410
$ 466
(in millions, except shares and
Included in the balance of unrecognized tax benefits at
December 31, 2017, 2016 and 2015, respectively, are
$316 million, $284 million and $320 million of tax benefits
that, if recognized, would affect the effective tax rate.
The Company recognizes interest and penalties related to
income tax matters as a component of income tax expense.
Related to the unrecognized tax benefits noted above, the
Company accrued interest and penalties of $17 million
during 2017 and in total, as of December 31, 2017, had
recognized a liability for interest and penalties of
$76 million. The Company accrued interest and penalties of
$3 million during 2016 and in total, as of December 31, 2016,
had recognized a liability for interest and penalties of
$59 million. The Company accrued interest and penalties of
$12 million during 2015 and in total, as of December 31,
2015, had recognized a liability for interest and penalties of
$56 million.
BlackRock is subject to U.S. federal income tax, state and
local income tax, and foreign income tax in multiple
jurisdictions. Tax years after 2009 remain open to U.S.
federal income tax examination.
In June 2014, the IRS commenced its examination of
BlackRock’s 2010 through 2012 tax years, and while the
impact on the consolidated financial statements is
undetermined, it is not expected to be material.
The Company is currently under audit in several state and
local jurisdictions. The significant state and local income tax
examinations are in New York State and New York City for tax
years 2009 through 2011, and California for tax years 2013
through 2014. No state and local income tax audits cover
years earlier than 2008. No state and local income tax audits
are expected to result in an assessment material to
BlackRock’s consolidated financial statements.
Upon conclusion of its examination, Her Majesty’s Revenue
and Customs’ (‘HMRC’) issued a closure notice during 2017
for various U.K. BlackRock subsidiaries for tax years 2009
and years after. The Company made a decision to pursue
litigation for the tax matters included on such notice.
BlackRock does not expect the ultimate resolution to result
in a material impact to the consolidated financial
statements.
From time to time, BlackRock may receive or be subject to
tax authorities’ assessments and challenges related to
income taxes. BlackRock does not currently expect the
ultimate resolution of any existing matters to be material to
the consolidated financial statements.
F-36
per share data)
2017
2016
2015
Net income attributable
to BlackRock
$
4,970 $
3,172 $
3,345
Basic weighted-average
shares outstanding
Dilutive effect of
nonparticipating RSUs
and stock options
Total diluted weighted-
average shares
outstanding
162,160,601 164,425,858 166,390,009
2,254,434
2,153,894
2,648,562
164,415,035 166,579,752 169,038,571
Basic earnings per share $
30.65 $
19.29 $
20.10
Diluted earnings per
share
$
30.23 $
19.04 $
19.79
Anti-dilutive RSUs and stock options for 2017 and 2016 were
immaterial. There were no anti-dilutive RSUs and stock
options for 2015.
23. Segment Information
The Company’s management directs BlackRock’s operations
as one business, the asset management business. The
Company utilizes a consolidated approach to assess
performance and allocate resources. As such, the Company
operates in one business segment as defined in ASC 280-10.
The following table illustrates investment advisory,
administration fees, securities lending revenue and
performance fees by product type, technology and risk
management revenue, distribution fees, and advisory and
other revenue for 2017, 2016 and 2015.
(in millions)
Equity
Fixed income
Multi-asset
Alternatives
Cash management
Total investment
advisory, administration
fees, securities lending
revenue and
performance fees
Technology and risk
management revenue
Distribution fees
Advisory and other revenue
2017
2016
2015
$ 5,722
$ 5,018
$ 5,345
2,921
1,181
1,105
558
2,664
1,157
878
458
2,428
1,287
1,082
319
11,487
10,175
10,461
677
24
303
595
41
344
528
55
357
Total revenue
$ 12,491
$ 11,155
$ 11,401
The following table illustrates total revenue for 2017, 2016
and 2015 by geographic region. These amounts are
aggregated on a legal entity basis and do not necessarily
reflect where the customer resides or affiliated services are
provided.
The following table illustrates long-lived assets that consist
of goodwill and property and equipment at December 31,
2017 and 2016 by geographic region. These amounts are
aggregated on a legal entity basis and do not necessarily
reflect where the asset is physically located.
(in millions)
Revenue
Americas
Europe
Asia-Pacific
2017
2016
2015
(in millions)
Long-lived Assets
$ 8,406
$ 7,530
$ 7,502
3,432
653
3,083
542
3,356
543
Americas
Europe
Asia-Pacific
2017
2016
$ 13,560
$ 13,424
168
84
163
90
Total revenue
$ 12,491
$ 11,155
$ 11,401
Total long-lived assets
$ 13,812
$ 13,677
24. Selected Quarterly Financial Data (unaudited)
(in millions, except shares and per share data)
2017
Revenue
Operating income
Net income
Net income attributable to BlackRock, Inc.
Earnings per share attributable to BlackRock, Inc. common
stockholders:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
Dividend declared per share
Common stock price per share:
High
Low
Close
2016
Revenue
Operating income
Net income
Net income attributable to BlackRock, Inc.
Earnings per share attributable to BlackRock, Inc. common
stockholders:
Basic
Diluted
Weighted-average common shares outstanding:
Basic
Diluted
Dividend declared per share
Common stock price per share:
High
Low
Close
Americas primarily is comprised of the United States and
Canada, while Europe primarily is comprised of the United
Kingdom and Luxembourg. Asia-Pacific primarily is
comprised of Hong Kong, Australia, Japan and Singapore.
1st Quarter(1)(2)
2nd Quarter
3rd Quarter(3)
4th Quarter(4)
$
$
$
$
$
$
$
$
$
$
2,824
1,147
871
862
5.29
5.23
$
$
$
$
$
$
2,965
1,242
867
857
5.27
5.22
$
$
$
$
$
$
3,233
1,394
959
947
5.85
5.78
$
$
$
$
$
$
3,469
1,489
2,310
2,304
14.29
14.07
163,016,599
162,502,465
161,872,716
161,272,950
164,856,183
164,149,861
163,773,546
163,777,534
2.50
397.81
371.64
383.51
2,624
963
647
657
3.97
3.92
$
$
$
$
$
$
$
$
$
$
2.50
428.38
377.10
422.41
2,804
1,173
795
789
4.79
4.73
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2.50
447.09
412.19
447.09
2,837
1,209
877
875
5.33
5.26
$
$
$
$
$
$
$
$
$
$
2.50
518.86
449.95
513.71
2,890
1,225
851
851
5.21
5.13
165,388,130
164,758,612
164,129,214
163,441,552
167,398,938
166,639,290
166,256,598
165,854,167
$
$
$
$
2.29
342.56
289.72
340.57
$
$
$
$
2.29
367.47
319.54
342.53
$
$
$
$
2.29
376.00
335.11
362.46
$
$
$
$
2.29
398.45
338.61
380.54
(1) The first quarter of 2016 included a pre-tax restructuring charge of $76 million.
(2) The first quarter of 2017 included an $81 million discrete tax benefit reflecting the adoption of new accounting guidance related to stock-based
compensation awards that vested in the first quarter of 2017.
(3) The third quarter of 2016 included a $26 million net noncash tax benefit, primarily related to the revaluation of certain deferred income tax liabilities
as a result of legislation enacted in the United Kingdom, and domestic state and local changes.
(4) The fourth quarter of 2017 included a $1.2 billion net tax benefit related to the 2017 Tax Act.
F-37
25. Subsequent Events
In November 2017, the Company announced that it had
entered an agreement to acquire the asset management
business of Citibanamex, a subsidiary of Citigroup Inc. This
transaction involves approximately $31 billion in assets
under management across local fixed income, equity and
multi-asset products. The transaction is expected to close in
the second half of 2018, subject to customary regulatory
approvals and closing conditions. Consideration for the
transaction will include an upfront cash payment and
contingent consideration.
On January 11, 2018, the Board of Directors approved
BlackRock’s quarterly dividend of $2.88 to be paid on
March 22, 2018 to stockholders of record at the close of
business on March 7, 2018.
The Company conducted a review for additional subsequent
events and determined that no subsequent events had
occurred that would require accrual or additional
disclosures.
F-38
[THIS PAGE INTENTIONALLY LEFT BLANK]
COMMON STOCK INFORMATION
COM M ON STOCK PER F OR MAN CE GRA PH
The following graph compares the cumulative total stockholder return on BlackRock’s common stock from December 31, 2012
through December 31, 2017, as compared with the cumulative total return of the S&P 500 Index and the SNL US Asset
Manager Index*. The graph assumes the investment of $100 in BlackRock’s common stock and in each of the two indices on
December 31, 2012 and the reinvestment of all dividends, if any. The following information has been obtained from sources
believed to be reliable, but neither its accuracy nor its completeness is guaranteed. The performance graph is not necessarily
indicative of future investment performance.
Total Return Performance
$300
$250
$200
$150
$100
$50
BlackRock, Inc.
S&P 500 Index
SNL US Asset Manager Index
$0
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
BlackRock, Inc.
S&P 500 Index
SNL US Asset Manager Index
Period Ending
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
$100.00
$100.00
$100.00
$156.98
$132.39
$153.67
$181.62
$150.51
$162.12
$177.38
$152.59
$138.26
$203.32
$170.84
$146.27
$280.94
$208.14
$194.23
*
As of December 31, 2017, the SNL US Asset Manager Index included: Affiliated Managers Group Inc.; AllianceBernstein Holding L.P.; Apollo Global
Mgmt LLC; Ares Mgmt LP; Artisan Partners Asset Mgmt.; Ashford Inc.; Associated Capital Group; BlackRock Inc.; Blackstone Group L.P.; Carlyle Group
L.P.; Cohen & Steers Inc.; Diamond Hill Investment Group; Eaton Vance Corp.; Federated Investors Inc.; Fifth Street Asset Management; Financial
Engines Inc.; Franklin Resources Inc.; GAMCO Investors Inc.; Great Elm Capital Group Inc.; Hamilton Lane Inc.; Hennessy Advisors Inc.; Invesco Ltd.;
Janus Henderson Group Plc.; KKR & Co. L.P.; Legg Mason Inc.; Manning & Napier Inc.; Medley Management Inc.; Oaktree Capital Group LLC; Och-Ziff
Capital Mgmt Group LLC; OM Asset Management Plc; Pzena Investment Mgmt Inc.; Safeguard Scientifics Inc.; SEI Investments Co.; Silvercrest Asset
Mgmt Group; T. Rowe Price Group Inc.; U.S. Global Investors Inc.; Virtus Investment Partners Inc.; Waddell & Reed Financial Inc.; Westwood Holdings
Group Inc.; WisdomTree Investments Inc.; ZAIS Group Holdings Inc.
CORPORATE HEADQUARTERS
BlackRock, Inc.
55 East 52nd Street
New York, NY 10055
(212) 810-5300
STOCK LISTING
BlackRock, Inc.’s common stock
is traded on the New York Stock
Exchange under the symbol
BLK. At the close of business on
March 21, 2018, there were 244
common stockholders of record.
INTERNET INFORMATION
Information on BlackRock’s
financial results and its products
and services is available on the
Internet at www.blackrock.com.
FINANCIAL INFORMATION
BlackRock makes available, free
of charge, through its website at
www.blackrock.com, under the
heading “Investor Relations,” its
Annual Report to Stockholders,
Annual Report on Form 10-K,
Quarterly Reports on Form
10-Q, Current Reports on Form
8-K, its Proxy Statement, and all
amendments to those reports as
soon as reasonably practicable
after such material is electronically
filed with or furnished to the
Securities and Exchange
Commission. The Company
has included as Exhibit 31 to its
Annual Report on Form 10-K for
fiscal year ended December 31,
2017, with the Securities and
Exchange Commission, certificates
of the Chief Executive Officer
and Chief Financial Officer of
the Company certifying the
quality of the Company’s public
disclosure, and the Company has
submitted to the New York Stock
Exchange a certificate of the Chief
Executive Officer of the Company
certifying that he is not aware of
any violation by the Company
of New York Stock Exchange
corporate governance listing
standards. Deloitte & Touche
LLP has provided its consent to
the inclusion of its reports dated
February 28, 2018, relating to the
consolidated financial statements
of BlackRock, Inc., and the
effectiveness of BlackRock, Inc.’s
internal control over financial
reporting, in the Company’s
Annual Report on Form 10-K for
the fiscal year ended December
31, 2017, which has been filed as
Exhibit 23.1 to such report.
INQUIRIES
BlackRock will provide, free of
charge to each stockholder
upon written request, a copy of
BlackRock’s Annual Report to
Stockholders, Annual Report on
Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports
on Form 8-K, Proxy Statement,
and all amendments to those
reports. Requests for copies
should be addressed to Investor
Relations, BlackRock, Inc.,
55 East 52nd Street, New York
NY 10055. Requests may also be
directed to (212) 810-5300 or via
e-mail to invrel@blackrock.com.
Copies may also be accessed
electronically by means of the
SEC’s home page on the Internet
at www.sec.gov. Stockholders and
analysts should contact Investor
Relations at (212) 810-5300 or via
e-mail at invrel@blackrock.com.
DIVIDEND POLICY
The declaration of and payment
of dividends by BlackRock are
subject to the discretion of our
Board of Directors. On January
12, 2018, the Board of Directors
approved BlackRock’s quarterly
dividend of $2.88, which was
paid on March 22, 2018, to
stockholders of record at the
close of business on March 7, 2018.
REGISTRAR AND
TRANSFER AGENT
Computershare
480 Washington Boulevard
Jersey City, NJ 07310-1900
(800) 903-8567
N
O
I
T
A
M
R
O
F
N
I
E
T
A
R
O
P
R
O
C
27
1988
INVESTING VS. SAVING
BLACKROCK OFFICES WORLDWIDE
BlackRock has offices in more than 30 countries and a major presence in key global
markets, including North and South America, Europe, Asia, Australia and the Middle
East and Africa.
AMERICAS
Atlanta
Baltimore
Bloomfield Hills
Boca Raton
Bogotá
Boston
Charlotte
Chicago
Dallas
Denver
Greenwich
Houston
Lima
Los Angeles
Mexico City
Miami
Montreal
New York
Newport Beach
Palo Alto
Philadelphia
Pittsburgh
Ponte Vedra Beach
Princeton
San Francisco
Santiago
São Paolo
Seattle
Toronto
Washington, DC
Wilmington
EMEA
Amsterdam
Athens
Brussels
Budapest
Cape Town
Copenhagen
Dubai
Dublin
Edinburgh
Frankfurt
Geneva
London
Luxembourg
Madrid
Milan
Munich
Paris
Stockholm
Tel-Aviv
Vienna
Zürich
ASIA-PACIFIC
Beijing
Bengaluru
Brisbane
Gurgaon
Hong Kong
Melbourne
Mumbai
Seoul
Shanghai
Singapore
Sydney
Taipei
Tokyo
©2018 BlackRock, Inc. All Rights Reserved. BlackRock, iShares, BlackRock Solutions, Aladdin and LifePath
are registered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere.
m
o
c
.
i
n
o
s
d
d
a
.
w
w
w
i
n
o
s
d
d
A
y
b
i
n
g
s
e
D
E
R
U
T
U
F
R
U
O
Y
FIDUCIARY
noun | fi·du·cia·ry
FOR
YOU
2
0
1
7
A
N
N
U
A
L
R
E
P
O
R
T
WWW.BLACKROCK.COM
2017 ANNUAL REPORT
K
C
O
R
K
C
A
L
B
S
T
S
E
V
N
U
O
Y
R
O
F
I
YOU